AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 939
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....was processed U/s 143(1) on 30.03.2006 at the returned income figure. Thereafter, the case was selected for scrutiny U/s 143(3) of the I.T. Act, and the Assessing Officer completed the assessment by making various addition on dated 29.12.2006. 3. The appeal filed by the Revenue and the Cross appeal filed by the assessee relate to the same assessee, same assessment year and common issues involve, therefore these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 4.First we deal with the appeal filed by the Revenue in ITA No. 838/Kol/2009. The Revenue took the following grounds of appeal: "Whether on the facts and in the circumstances of the case, the ld.CIT(A) was correct in deleting the foreign exchange gain amounting to Rs. 13,90,00,000/- wherein the same should be chargeable to tax". 4.1 The issue contested in this ground of appeal by Revenue is that foreign exchange gain should be chargeable to tax, whereas the assessee treated it contingent in nature. In the Profit and Loss account, the assessee has credited an amount of Rs. 13,90,00,000/- on account of foreign exchange gain. In the computation of income, t....
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....unt of notional foreign exchange gain due to restatement of liability at the year end is not correct and to be deleted for the following reasons: * Appellant`s action of crediting the "gain" to P & L A/c is not the decisive test to decide the true nature of the transaction. This has to be decided as per principles of law. * Even borrowed funds to be treated as business liabilities as observed by A.O; there is no real accretion to the capital/loan and the liability is outstanding and not settled. * Reference to Rule 115 of I.T. Rules read with section 145 (2) of I.T. Act and drawing inferences with reference to accrual of income is not in agreement with the legislative intent. What is to be taxed is 'real income' and not the 'notional income' as held by judicial forums. * With regard to case laws (viz. Indian overseas Bank Ltd. 246 ITR 206 and CIT Vs. IOB 151 ITR 446) relied upon by the appellant, the AO wrongly distinguished the cases with the present case on the subject of estimated profit/anticipated loss on unsettled contracts. In fact the referred cases are in favour of the appellant. On the other hand, the case law relied by the A.O. (viz.Coca cola Exp. Corp. 158 ITR 446) ....
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.... followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; iii. Whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it. iv. Whether the assessee has been consistent and define in making entries in the account books in respect of losses and gains. v. Whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards. vi. Whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. b.Ld DR further argued that it can be seen from the assessee`s record that the assessee is following mercantile system of accounting, there is no chane in the method of accounting, assessee is giving same treatment for losses and gains accrued on account of foreign exchange depreciation or appreciation,theassessee has credited the gain in profit and loss account and such recognition of income is as per AS-11. c.Ld. DR also relied on the following judgments where similar issues have been decided in ....
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....ficer be directed to delete the disallowance of Rs. 254,473,131/- in respect of interest expenditure incurred by the appellant. Ground No.2 Non-taxability of income from service fees of Rs. 168,500,000/- Without prejudice to the above ground of appeal in relation to allowability of interest expenditure as being revenue in nature, the ld CIT (A) has erred in not accepting the alternative contention of the appellant that in case interest on borrowing from investment is held as capital in nature ,income from service fees in respect of put option ( also being in relation to acquisition of shares) should be held as capital receipt and accordingly not liable to tax. Your appellant respectfully prays, in case interest on borrowings from investment is held as capital in nature, income from service fees in respect of put options( also being in relation to acquisition of shares) should be held as capital receipt and accordingly not liable to tax. Both the above grounds are independent and without prejudice to each other. The appellant craves leave to add to alter, to ament or to delete any or all of the above grounds of appeal,at or prior to hearing of the appeal, so as to enable the ho....
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.... The expenditure in question incurred is for the purpose of business and should be allowable U/s 36(1) (iii) of the I.T. Act. ii. The interest expenditure incurred on borrowed funds for the purpose of commercial expediency. iii. Section 36(1) (iii) of the I.T. Act requires nexus of interest expenditure with the business of the assessee and with the particular stream of income or activity. iv. It is not necessary that expenditure incurred by the assessee must yield income in the current year only. v. The stand adopted by the appellant in the preceding year is not binding on it for the current year as the principle of Res judicata is not applicable to the income tax matters; vi. The expenditure incurred for the purpose of obtaining loan was considered to be a revenue expenditure in view of the following judicial decisions: a.Ambika Prasad Sonar V. CIT 168 ITR 444 b.CIT Vs. RajeevaLochan (1994) 208 ITR 616 ( Kolkata H.C) c.CITVs.Jardine Henderson Ltd. (1994) 210 ITR 981 (Cal) d.SA Builders Ltd. Vs. CIT 289 ITR 261 e. CIT Vs. Dalmic Cement Bharati Ltd (2002) 254 ITR 377 However, the ld CIT (A) rejected the stand taken by the assessee and held that interest expenditure i....
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....amount borrowed for the purpose of business should be allowed as revenue expenditure under section 36(1) (iii)/ 37(1) of the Act. He also pointed out that the stand adopted by the appellant in the preceding year to capitalize the interest in the cost of investment, is not binding on it for the current year as the principle of Res judicata is not applicable to the income tax matters.Besides, we have already allowed the appeal filed by the Revenue in ITA No.838/Kol/2009 holding that foreign exchange gain on restatement of foreign loan liability should be chargeable to tax. Therefore, considering the facts and case law cited above and in the interest of justice it would be fair and proper to allow the interest expenses on loan as revenue expenditure. Accordingly, we allow the appeal filed by the assessee. 5.6 In the result, the appeal filed by the assessee is allowed. 6.Ground No.2 Non-taxability of income from service fees of Rs. 168,500,000/- The facts of this issue are stated in brief. The said issue has not been raised by the assessee before the Assessing Officer. The assessee has raised this issue first time before the ld CIT (A) and it was a purely a legal ground raised by the....
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....r granting put option in respect of shares will aslo be in relation to acquisition of those shares only and accordingly the consideration received on that logic to be treated as on capital account, is not tenable and does not stand to logic. The treatment of interest on borrowed capital on capital account is on the ground that the borrowed capital is invested in acquiring a capital asset ( equity) with a clear intention of appreciation in capital asset. On the other hand the consideration thereof received is for rendering services to its sister concern and not with an intention to acquire a capital asset and that the entire theory receiving the shares on capital account is just contingent nature. Hence it is not correct to equate with transactions as the nature and intention is different. vii. The appellant also referred to section 51 of the I. T. Act and treated the transaction on par with cost of acquisition of a capital asset. At the outset it is to be mentioned here that there were no negotiations had on previous occasion for transfer of any capital asset as per provisions of section 51. The appellant only granted the option and and received consideration in lieu of services ....