AI Drafter 
TaxTMI 
TaxTMI 
2018 (11) TMI 1790
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....x Act, 1961 (hereinafter the 'Act'), dt.15/01/2015, for the Assessment Year 2010-11. 2. There is a delay of 5 days in filing of the appeal by the revenue in I.T.A. No. 2086/Kol/2014 for the Assessment Year 2009-10. After perusing the petition filed for condonation of delay, we are convinced that the revenue was prevented by sufficient cause from filing the appeal in time. Hence the delay is condoned and appeal admitted. 3. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and disposed off by way of this commons order. 4. The assessee is a company engaged in the business of manufacturing of chemicals and generation of power. 5. Grounds of appeal of the Assessment Year 2009-10 are as follows:- I.T.A. No. 1880/Kol/2014; assessee's appeal "1. For that in view of the facts and in the circumstances the AO is wholly unjustified in disallowing Foreign Exchange Fluctuation Loss of Rs. 64,99,577/- by wrongly and illegally treating such Foreign Exchange Fluctuation Loss of Rs. 64,99,577/- as notional loss and being contingent in nature and the Ld. CIT(A)-XII, Kolkata is wholly unjustified in confirming the said a....
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....ustified being contrary to the provisions of Section 14A read with Rule 8D. 6. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or all the time of hearing." Grounds of appeal of the Assessment Year 2010-11 are as follows:- I.T.A. No. 238/Kol/2015; assessee's appeal "1) For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in not allowing the appellant's claim of deduction of the notional gain of Rs. 14,31,45,318/- arising due to the fluctuation in the foreign currency exchange rate. The erroneous decision of the Ld. CIT(A) was wholly unreasonable, uncalled for and bad in law. 2) For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in not allowing the aforesaid claim of deduction of the notional gain of Rs. 14,31,45,318/- and it may kindly be held accordingly. 3) For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in not allowing the aforesaid claim of deduction of the notional gain of Rs. 14,31,45,318/- on the ground that....
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....valent to Rs. 92.38 Crores. These FCCBs were listed on the Luxemborg Stock Exchange and were redeemable on 7th June, 2011 at 144.715% of the principle amount of the FCCBs, which is based on an yield of 7.5% compounded semi-annually. The FCCB holders had the option, at any point of time on or after 5th June, 2006, but before 28th May, 2011, to convert the bonds into equity shares at Rs. 5/- each, at a conversion price of Rs. 44.67/- per share. The assessee admits that the proceeds from these FCCBs were utilized for acquiring capital assets before 31st March, 2008. An amount of Rs. 8,89,22,446/- was brought into India and utilized towards acquisition of fixed assets. The remaining sum of Rs. 7,39,39,384/-, was utilized for acquisition of fixed assets outside India. 6.1. Due to adverse fluctuations of foreign exchange rates on 31st March, 2009, the assessee's liability towards redemption of the said bonds went up substantially. The net loss on account of effective change in foreign exchange rates on re-valuation of currency as on 31st March, 2009, was Rs. 24,34,29,255/-. For the year ending 31st March, 2010, the assessee earned net gain on account of foreign exchange fluct....
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.... Act, are applicable. 6.3. On appeal the ld. CIT(A) followed his view for the Assessment Year 2009-10 and dismissed the assessee's appeal. 7. Aggrieved the revenue is in appeal for the Assessment Year 2009-10 and the assessee is in appeal for the Assessment Year 2010-11. 8. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- We find that the assessee has an obligation to redeem the FCCBs on 7th June, 2011 at 144.715% of the principal amount of the bonds. This liability, in our view cannot be considered a contingent one, merely because the FCCB holders have an option to convert the bonds into equity shares. It should be realized that the option is not with the assessee and the assessee has the liability to redeem the bonds. Only when an application is made, the bonds are converted into equity shares by the bond holders, the instrument remains to be "bonds" which have to redeemed at 144.75% of the principal amount. This view of ours is supported by the decision of the Bangalore Bench of the ....
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....n exchange fluctuations is in nature of revenue or capital, of which at para 5 of said principles which says as follow: "Loss resulting from depreciation of the foreign currency which is utilised or intended to be utilised in business and is part of the circulating capital, would be a trading loss, but depreciation of fixed capital on account of alteration in exchange rate would be capital loss" 9.3. Applying the principles of law laid down in the above case-law to the facts of this case, we hold that such exchange gain or loss is on capital account and hence it is neither taxable nor a deduction from profits can be allowed on the same. The Ld. Senior Counsel, Mr. J.P. Khaitan was fair enough to submit that the revenue's ground for the Assessment Year 2009-10 has to be allowed in view of this legal position. 10. In view of the above discussion, we reverse the order of the ld. First Appellate Authority and uphold the finding of the Assessing Officer for the Assessment Year 200910 that the assessee is not eligible for claim of deduction on account of exchange fluctuation loss. Similarly, the exchange fluctuation gain for the Assessment Year 201011, cannot be brought to....
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....vertible and hence no deduction is allowed. During the course of remand proceedings, the Assessing Officer raised another point regarding tax deduction at source. On appeal the ld. First Appellate Authority held that the liability to pay premium on FCCBs is not a contingent one. He further held that, the actual payment need to be done on the redemption of these FCCBs and entries need not be made every year. He applied the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. Commissioner of Income-tax 225 ITR 802 SC and upheld the claim of the assessee. He pointed out that tax has been deducted at source in the year of redemption of bonds and hence was of the view that no tax need be deducted every year. He held that the assessee was entitled to deduction of the premium on yearly basis by relying on the order of the Bangalore Bench of the Tribunal in the case of Crane Softwares Internation Ltd. vs. DCIT (supra) and the decision in the case of Mahindra & Mahindra Ltd. vs. DCIT (supra). He held that the assessee was entitled to deduction of the premium, subject to disallowance made u/s 43A of the Act. The issues are the same for both the ....