2024 (6) TMI 987 - HC - Income Tax

Revenue appeals dismissed; foreign exchange loss on loan assignment not taxable; s.14A amendment not retrospective; s.115JB adjustments factual

HC dismissed revenue's appeals. It upheld the Tribunal/CIT(A) finding that foreign exchange loss on assignment of a loan by a foreign parent to the ... Treatment of Exchange Rate Losses - distinction between exchange rate losses on capital account and revenue account - Tribunal justification in law by not considering the exchange rate losses as incidental to the nature of business of the assessee - whether loss arising on the assignment of a loan granted by a foreign parent company to its Indian subsidiary is a capital loss within the meaning of section 2 [14] or incidental to the nature of business of the assessee? - HELD THAT:- We find that the learned Tribunal rightly affirmed the order passed by the Commissioner of Income Tax (Appeals) which followed the decision in the case of V.S. Dempo & Co. (P.) Ltd. [1993 (7) TMI 63 - BOMBAY HIGH COURT] As not in dispute that the assessee is an NBFC and suffered loss on account of foreign exchange fluctuation on receipt of repayment of loan to a foreign company. The revenue sought to place the decision in the case of Bestobell [India] [1978 (9) TMI 42 - CALCUTTA HIGH COURT] as rightly pointed out by assessee that in the said case it was not contended that it had incurred extra expenditure in order to secure the loan and it is at the point of repayment that the assessee had to provide extra amount of rupees by reason of devaluation on the relevant date. Furthermore, it was not the case of a financial company. The revenue also placed reliance on the decision in the case of M/s. Siemens Nixdorf Information Systemse GmbH [2023 (5) TMI 501 - SC ORDER] In the said decision the Hon’ble Supreme Court affirmed the interpretation given by the learned Tribunal as well as the High Court as it related to one particular transaction. Therefore, the Court did not go into the other aspects of the mater.Therefore, both the decisions relied on by the revenue will not be of any assistance to their case. Issue decided against revenue. Allowing the insurance and audit fees expenses on the ground that the agreement between assessee and Ballarpur Industries did not cover the said expenses - HELD THAT:- We have gone through the factual findings recorded both by the CIT (A) as well as by the Tribunal and we find that the factual position has not been shown to be wrong. Therefore, we find that no substantial question of law arises as suggested by the revenue. Disallowance u/s 14A - HELD THAT:- Tribunal took note of the decision of the High Court of Delhi in PCIT Vs. Era Infrastructure Ltd. [2022 (7) TMI 1093 - DELHI HIGH COURT] which had taken note of the decision in the case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] wherein it was held that amendment by the Finance Act, 2022 of Section 14A of the Act by inserting a non-obstante clause and explanation we take effect from 01.04.22 and cannot be presumed to have retrospective effect and, therefore, on facts the amendment cannot be applied to the assessment year under consideration. We find no error in such conclusion arrived at by the learned Tribunal. No upward adjustment u/s 115JB [2] [c] for liabilities shown in ‘Provision for doubtful loans & advances’- HELD THAT:- The submissions by the revenue before the learned Tribunal was that the order passed by the first Appellate Authority should be set aside. Tribunal in the above paragraph has noted that the department could not show any factual matrix which may lead the Tribunal to take a view that impugned amount was not certain and was merely a provision. Thus, we find the matter being factual and substantial questions of law arise for consideration as suggested by the revenue in question. Issues Involved:The appeal by the revenue filed u/s 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal, Delhi Bench for the assessment year 2004-2005 raises the following substantial questions of law for consideration:a. Treatment of Exchange Rate Losses:The revenue questions the justification of the Income Tax Appellate Tribunal in not considering exchange rate losses as incidental to the nature of business, citing a similar case precedent. The Court affirmed the Tribunal's decision based on previous rulings.b. Distinction Between Exchange Rate Losses:The revenue challenges the Tribunal's decision by not considering the distinction between exchange rate losses on capital and revenue accounts as per a previous Supreme Court case. The Court found no merit in the revenue's argument.c. Insurance and Audit Fees Expense:The revenue disputes the allowance of insurance and audit fees expenses, claiming the agreement did not cover these expenses. The Court upheld the factual findings of the Tribunal and found no substantial question of law.d. Disallowance under Section 14A:The revenue contested the deletion of disallowance under Section 14A, citing a High Court judgment. The Court agreed with the Tribunal's conclusion that the amendment to Section 14A could not be applied retrospectively.e. Interpretation of CBDT Circular:The revenue argued against ignoring a CBDT circular, stating that disallowance may not be limited to exempt income. The Court upheld the Tribunal's decision against the revenue.f. Treatment of Provision for Doubtful Loans:The revenue challenged the deletion of an addition by the Tribunal regarding the provision for doubtful loans, claiming an upward adjustment should have been made. The Court found the matter to be factual, and no substantial question of law arose.In conclusion, the appeal was dismissed along with the application.