TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 37
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....assessee had computed the total income total income u/s 115JB of the IT Act, 1961. The total income computed by the AO also turned out to be negative and hence the AO accepted the book profit of Rs. 9,89,054/- reported by the assessee in the return of income as total income of the assessee. 3. The ld.Pr.CIT, upon examination of record, noticed that the assessment order passed by the AO is erroneous in sofar as it is prejudicial to the interests of revenue on the following two points: a) Addition to be made as per Explanation-1(f) to sec.115JB of the IT Act, while computing the book profit, has not been made. b) The assessee had re-stated outstanding foreign currency loan as at the year end to make it marked to market. The same has resulted into loss of Rs. 22.93 crores and the assessee had claimed the same as deduction. The AO has also allowed the same. The Ld Pr. CIT was of the view that both the above said issues has rendered the assessment order erroneous and prejudicial to the interests of revenue. Accordingly, he initiated revision proceedings u/s 263 of the IT Act, 1961. 4. The ld. Pr.CIT noticed that the AO had computed disallowance u/s 14A read with Rule 8D of IT Rul....
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.... a loss of Rs. 28.86 crores on the first loan and again Rs. 5.92 crores on the second loan. Therefore, the net loss worked out to be Rs. 22.93 crores. The assessee submitted since the loans were taken for acquisition of assets and for expansion of the project expenditure, the above said loss was capitalized in the books of accounts. It was submitted that under sec. 43A of the Act, the foreign currency fluctuations should be adjusted to the value of capital assets, provided the capital assets were purchased from a foreign Country. It was submitted that the assessee has purchased assets within India and hence the provisions of sec.43A are not applicable to the assessee. Hence the net loss arising on restatement of foreign currency loan has been claimed as revenue expenditure. It was also submitted that the assessee did not claim depreciation on the amount so capitalized.In this regard, the assessee placed reliance on the decision rendered by the Pune Bench of ITAT in the case of Copper Corporation Ltd. (69 Taxman.com244) and submitted that the foreign exchange fluctuation loss was allowable as expenditure. The assessee also placed reliance on the decision rendered in the case of Tata....
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.... by the assessee on revenue account or as a trading asset. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature". The ld. Pr.CIT held that the above said decision rendered by the Hon'ble Supreme Court is squarely applicable to the facts and circumstances of the case. The ld. Pr.CIT also referred to the decision rendered by the Hon'ble Supreme Court in the case of Punjab Industrial Development Corporation 225 ITR 792 and Brook Bond India Ltd., 225 ITR 798 (SC) and held that certain expenses are not allowable either as revenue expenditure nor capital expenditure. 10. The Pr.CIT also expressed the view that foreign fluctuation loss is a notional expenditure and hence it could not be capitalized. Accordingly, he observed that when notional expenditure is not allowed to be capitalized, then it does not automatically lead to the conclusion that the same is allowable as revenue expenditure. 11. Accordingly, ld. Pr.CIT setaside the assessment order passed by the AO with the following directions; " ..11.6.. In view of the discussion, it is clear that the AO has not applied correct position of law ....
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....udgment of the Supreme Court (head note) : "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." 15. A perusal of the assessment order would show that the assessing officer has accepted the book profit declared by the assessee u/s 115JB of the Act. It is pertinent to note that clause (f) of Explanation 1 to sec.115JB of the Act provides that the expenditure relatable to any income to which sec. 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, should be added to Net profit while computing the book pr....