2016 (10) TMI 624 - AT - Income Tax

Tax Appeals Decisions: Mumbai ITAT 2004-06, 2009-10, Legal Adherence, Provident Fund, Foreign Exchange, Expense Dismissal

M/s. Advani Hotels and Resorts (India) Ltd. Versus Dy. Commissioner of Income Tax, Circle -3 (1), Mumbai and Vica-Versa

The ITAT Mumbai partially allowed the appeals for assessment years 2004-05 and 2005-06, while dismissing the appeal and cross-appeal for 2009-10. The ... Treatment to notional loss on account of foreign exchange fluctuation as revenue loss - section 43A applicability - Held that:- The assessee during the year had claimed the loss on account of foreign exchange fluctuation in respect of loan which was used for the purpose of capital asset as revenue loss which claim was consistent with the department’s stand in earlier years. However, surprisingly for the year under consideration, the AO treated the said loss as capital loss in complete contradiction to his earlier stand. However, as observed above while adjudicating the issue for the earlier years, we have already allowed the claim of the assessee to claim adjustments of notional loss/gain as per the provisions of section 43A of the Act. We, therefore, dismiss this appeal of the assessee with the direction that the assessee will be eligible to claim the adjustments under section 43A of the Act in the light of the observations made above while deciding the assessee’s appeal for A.Y. 2004-05. Issues involved:1. Disallowance of Employees contributions to Provident Fund and ESIC2. Taxation of notional gain due to fluctuation in foreign exchange rates3. Disallowance of expenses incurred and accounted in a subsequent yearIssue 1: Disallowance of Employees contributions to Provident Fund and ESICThe Assessing Officer (AO) disallowed the contribution made by the assessee to Employees' Provident Fund and ESIC after the due date, under section 36(1)(va) of the Act. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld this disallowance. However, the assessee cited a Supreme Court case to argue that if the contributions were made on or before the due date of filing the return, the disallowance should not apply. The ITAT Mumbai restored this issue to the AO to verify the timing of the contributions based on the Supreme Court ruling.Issue 2: Taxation of notional gain due to fluctuation in foreign exchange ratesThe AO taxed the notional gain from fluctuation in foreign exchange rates on foreign currency loans used for capital purposes as a revenue receipt. The CIT(A) also upheld this decision. The assessee demonstrated that the new loan was used to repay existing loans taken for capital assets, not for any other purpose. The ITAT Mumbai found that it was a case of shifting the loan liability and allowed the adjustment of gains under section 43A of the Act. The issue of allowing depreciation on fixed assets became moot after this decision.Issue 3: Disallowance of expenses incurred and accounted in a subsequent yearThe AO disallowed expenses incurred and accounted for in a subsequent year. The assessee did not press this ground during the appeal, leading to its dismissal.The ITAT Mumbai addressed the issues raised in the appeals for assessment years 2004-05, 2005-06, and 2009-10. The decisions varied based on the specific circumstances of each issue. The appeals for 2004-05 and 2005-06 were partly allowed, while the appeal and cross-appeal for 2009-10 were dismissed. The ITAT Mumbai emphasized the importance of following legal provisions and relevant case law in determining tax liabilities and allowable deductions.