TaxTMI 
TaxTMI 
2020 (12) TMI 1190
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.Y. 2009-2010. 4. In this case the AO has completed the assessment at Loss of Rs. 35,17,01,680/- as against the returned Loss of Rs. 63,91,64,737/-, after making certain additions/disallowances. The Assessee-Company is engaged in the business of manufacture of cables, wires and stainless steel wires. The Ld. CIT(A) allowed the appeal of the assessee partly, therefore, Revenue is in Departmental Appeal and Assessee is in the Cross Objection. 5. Ground No.1 of the appeal of the Revenue reads as under : "Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 26,35,58,122/- on account of by back/prepayment of foreign currency convertible bonds (FCCBs)?" 5.1. The assessee has disputed the addition of Rs. 26,35,58,122/- before the Ld. CIT(A) on account of buy back of foreign currency convertible bonds (FCCBs) at discount. The assessee had availed Foreign Currency Convertible Bonds (FCCBs) from Europeon Union aggregating US $36 millions. This was available to Assessee-Company; it used the loan to purchase Capital Assets for the Company. The assessee, therefore, argued that as the loan receipt in A.Y. 2007-2008 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of fresh ECB raised in conformity with the current ECB norms; and (iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB, as laid down in A.P. (DIR Series) No. 26 dated October 22, 2008 shall apply. 8. The Appellant in terms of automatic route, complying the regulatory procedures repurchased 2110 FCCBs of the value of US $ 10.55 millions (Rs. 54,06,87,500/- at exchange rate of Rs. 51.25). Repurchase was made at discount of US $ 5.40 million (Rs. 27,71,29,378/-). As such, the Appellant reduced its obligation to repay FCCBs by Rs. 26,35,58,122/-(54,06,87,500 minus Rs. 27,71,29,378). Amount of Rs. 26,35,58,122/- was shown under the head "other income-Schedule-P " to the balance sheet as at 31.3.2009. In the computation, the amount of Rs. 26,35,58,122/- was claimed as capital receipt. Computation of income for the assessment year 2009-10 is at pages 34 to 36 of the paper book. 9. Here it is important to note the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Logitronics P. Ltd. v. CIT (2011) 333 ITR 386 (Del) (iv) There is no provision to charge to tax the amount of Rs. 26,35,58,122/-. Proposition (i) - Section 41(1) did not apply to buyback of FCCBs. 13. Undisputedly, FCCBs being spices of debentures were nothing but a debt/loan. General law is that a remission of debt is not income. The principle of general law was superseded by sections 41(1) and 59(l) of the Act, which provides that remission of a debt / liability, shall be treated as income of the year of remission. The fact that Legislature had to insert sections 41(1) and 59(1), to bring to tax remission of a debt / liability as income of the year of remission show that the same is not income in the general sense. It was for this reason that by the clause (v) Section 2(24) of the Act, any sum chargeable under sections 41 and 59 has been specifically included in the definition of "income". 14. Waiver of loan is not covered by Section 41(1) - The requisite condition to attract section 41(1) is that the assessee should have been allowed deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred and subsequ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived either by way of benefit or perquisite was money, there could be no question of considering the value of such monetary benefit or perquisite under clause (iv) of section 28. Reference in this regard may be made to Ravinder Singh and another v. CIT (1994) 205 ITR 353 (Del) @ 359-360. Therefore, waiver of part of principal amount of FCCBs is not covered by section 28(iv) of the Act. Similar view has been taken in following judgments: (i) CIT v. Chetan Chemicals Pvt. Ltd. (2004) 267 ITR 770 (Guj); (ii) Iskraemeo Regent Ltd v. CIT (2011) 331 ITR 317 (Mad) (iii) Rollatainers Ltd. v. CIT (2011) 339 ITR 54 (Del) Proposition (iii) - Applicability of Logitronics P. Ltd. (supra) 19. It is submitted that in Logitronics P. Ltd. (supra), assessee had taken loan from State Bank of India, which could not be paid and the loan was categorized as non performing asset (NPA). By way of one time settlement, the assessee paid Rs. 1.85 Cr. against the principle amount of Rs. 4.76 Cr. and the difference of Rs. 2.91 Cr. was waived by the bank. The issue was whether the amount was waived was income chargeable to tax under the head 'profit & gains of busine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....page 389 r/w 402-403); • the Tribunal found that loans borrowed to augment the funds to be advanced on interest were not used in financing business, whereas, loan from State Bank of India was for carrying on business of manufacturing of electronic products. 24. Since the Assessing Officer mixed up the facts of Jubilant Securities P. Ltd., with that of Logitronics P. Ltd, therefore, the ratio of the judgment was wrongly not applied. The Appellant submits that the ground is squarely covered by the Logitronics P. Ltd, (supra). Proposition (iv) - No provision to levy tax on the amount of Rs. 6,35,58,122/- 25. Both the charging provisions and the computational provisions together constitute complete code to bring a particular receipt to income tax. Department is seeking to lax partial waiver of FCCBs under the head "profit & gains of business or profession". Section 28 is a charging section for profits and gains of business or profession. It takes into account the receipts of specified categories as income. All the receipts mentioned in section 28 are inherently of income nature. Waiver of loan is not envisaged as income. Since neither section 28 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....action. Moreover, section 28(iv) applies to benefit or perquisite other than cash. It being the settled position, I need not discuss the case laws referred on this aspect. 10. The stand of the Appellant is that the ground is covered by the judgment of jurisdictional High Court in Logitronics P. Ltd. v. CIT (2011) 333 ITR 386 (Del.) My attention was specifically drawn to the following passage, wherein, the Hon'ble Court made a distinction between waiver of loan taken for acquiring capital asset and waiver of loan for trading purposes : "In the context of waiver of loan amount, what follows from the reading of the aforesaid judgment is that the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if the loan was for trading purpose and was treated as such from the very beginning in the books of account the waiver thereof may result in income more so when it was transferred to the profit and loss account " Since the FCCBs were raised to use the proceeds for setting up of new project and the AO in paragrap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....depreciable asset of the assessee company. The Ld. CIT(A) has verified this fact from the balance-sheet of the assessee company and found the utilization of FCCBs proceeds towards capital account were found to be correct. This fact is also not disputed by the A.O. The assessee has also satisfied the conditions of RBI to buy-back FCCBs. The assessee also proved on record that all the conditions of RBI in this regard have been made by assessee company. Section 41(1) of the I.T. Act would not apply because the amount of FCCBs was not allowed as expenditure or trading liability in earlier year. Further, no addition could be made under section 28(iv) of the I.T. Act. The assessee is in manufacturing business and has admittedly utilised the FCCBs by increasing the asset of the assessee company and most of them being depreciable asset which fact is also mentioned by the A.O. in the assessment order. Since the FCCBs were raised to use the proceeds for setting-up of new project and this fact is admitted by the A.O. in the assessment order, therefore, assessee used the loan to purchase the capital asset for the company. The ITAT, Delhi E-Bench, Delhi in the case of M/s. OK Play India Ltd., R....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... utilized the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it has been waived by the bank shall be deemed to be the assessee's income chargeable to tax as per the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. (supra), where the principle laid down by the Hon'ble Supreme Court in the case of TV. Sundaramlyengar & Sons Ltd. (supra) has been applied and followed. Under section 4, the charging section, the charge of income-tax is upon the 'total income of the previous year'. The term 'income' is defined under section 2(24). In general, all receipts of revenue nature, unless specifically exempted, are chargeable to tax. Loan taken is not normally a kind of receipt which will be treated as income. However, when a part of that loan is waived off by the creditor, some benefit accrues to the assessee. Question is what would be the character of waiver of part of the loan at the hands of the assessee ? Waiver definitely gives some benefit to the assessee. Whether it is to be treated as capital receipt ? If it is so, then only capital gains tax would be chargeable under section 45 or else, whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his successor may exercise their "Right of Waiver" unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e , waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence waiver of loan by the creditor results in the debtor having ext a cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the creditor is taxable as a perquisite under Section 28 (iv) of the IT Act or taxable as a remission of liability under Section 41 (I) of the IT Act. 12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- '28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head "Profits and gains of business profession",- (iv) the value of any benefit or pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eing the enhanced cost on account of exchange fluctuation in respect of assets acquired in India. The assessee in the written submissions, facts leading to disallowance of depreciation were explained which reads as under : "26. During the previous year relevant to the assessment year in question, the Appellant had capitalized a sum of Rs. 27,37,25,941/- on account of exchange rate fluctuation in respect of the machineries brought in India from the Foreign Funds raised through FCCBs. No repayment of loan by way of FCCBs was made during the year, however, increase in liability on account of prevailing exchange rate was shown in the balance sheet under the head "unsecured loans", Fluctuations the extent of acquisition of fixed assets in India by utilizing FCCBs was added to the actual cost and depreciation charged thereon. 27. The stand of the Appellant was that enhance liability on account of foreign exchange fluctuation was accounted for in accordance with Accounting Standard-11 and that section 43A was not applicable." 9.2. It is noted in the impugned order that A.O. was of the view that though Section 43A applies to the assets acquired from Abroad, however, an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....subsequently goes up because of devaluation, whatever might have been the position in the earlier year, it is always open to the assessee to insist, and for the ITO to agree, that the written down value in the year in which the increased liability has arisen should be taken on the basis of the increased cost minus depreciation earlier allowed on the basis of the old cost. ... ... ... ..... In other words, though the depreciation granted earlier will not be disturbed, the assessee will be able to get a higher amount of depreciation in subsequent years on the basis of the revised cost and there will be no problem." 32. Before moving further, it will be appropriate to refer to judgment of Hon'ble Supreme Court in CIT v. Woodward Governor India P. Ltd. (2009) 312 ITR 254, wherein, the issue of impact of exchange differences arising in foreign currency transactions was considered threadbare. From the judgment, following principles emerge: (i) loss suffered by an assessee on account of fluctuation in the rate of foreign exchange as on the date of balance sheet is an item of expenditure under section 37 of the Act. (ii) profits & gains of the previous year are r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uracy the amount in reporting currency that is likely to he realised from, or required to disburse, the relevant monetary item should be reported in the reporting currency at the amount which is likely to be realised from., or required to disburse, such item at the balance sheet date; Recognition of Exchange Differences 39. Exchange differences arising on the settlement of monetary items on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognised as income or as expenses in the period in which they arise. 40. An exchange difference results when there is a change in the exchange rate between the transaction dale and the date of settlement of any monetary items arising from a foreign currency transaction. When the transaction is settled within the same accounting period as that in which it occurred, all the exchange difference is recognized in that period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognized in each intervening period up to the period of settle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mendment Rules 2009, during current year the Company has exercised option of deferring the said charge to the profit and loss account, in respect of accounting periods commencing on or after December 7, 2006. As a result, such foreign exchange difference relating to the acquisition of depreciable capital assets have been adjusted with cost of such assets and would be depreciated over the balance life of the assets and in other cases has been accumulated in 'FCMITDA'. Had the company continued to use the earlier basis of accounting for foreign exchange difference arising on FCCBs / Foreign Currency Term Loan, the net profit after tax for the current year would have been lower by Rs. 35,37,36,522/- and would change to a loss of Rs. 34,12,68,063/-, the net block of fixed assets would have been lower by Rs. 25,12,68,265/- and capital work in progress would have been lower by Rs. 1,11,36,933. Further, such foreign exchange difference amounting to Rs. 9,24,73,143/- (net of depreciation of Rs. 7,67,166/- and net of tax of Rs. 2,53,54, 691/-) which was recognized as gain in the Profit & loss account for the financial year 2007-08 is adjusted from the General Reserve in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that the Assessing Officer was not justified in disallowing depreciation of Rs. 18,626/- on capitalization of exchange control fluctuation arising on foreign currency borrowing from its head office relatable to fixed assets acquired in India without appreciating that section 43A is not applicable in the present case. " 16. ITAT following the judgments in Woodward Governor India (P.) Ltd. and CIT vs. Maruti Udyog Ltd. upheld the order of CIT(A). Therefore, the AO was not justified in disallowing depreciation on enhanced cost in respect of indigenously acquired assets. It is not in dispute that section 43A is not applicable in the facts of the case. In the absence of specific provisions on the lines of section 43A, it was improper for AO to do what the Legislature did not do. For the reasons stated above, the AO is directed to allow depreciation of Rs, 1,82,76,330/- on enhanced cost of Rs. 27,37,25,941/-. Hence the ground is allowed." 9.5. The Ld. D.R. relied upon the Order of the A.O. and submitted that assessee wrongly claimed the depreciation on enhanced cost. The Ld. D.R. submitted that decision of ITAT, Mumbai Bench in the case of DDIT vs., Staubil A.G. India Branc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applied to the facts of the case. Section 43A would not apply to the facts of the case because it applies to the fact when the assets are acquired from a Country outside India and that it does not apply to acquisition of indigenous assets. Learned Counsel for the Assessee relied upon the following decisions : 9.6.1. Cooper Corporation (P) Ltd., vs., DCIT [2016] 159 ITD 165 (Pune) in which it was held as under : "A bare reading of the aforesaid provision of Section 43A, which opens with a non obstante and overriding clause, would show that it comes into play only when the assets are acquired from a country outside India and does not apply to acquisition of indigenous assets. Another notable feature is that S.43A provides for making corresponding adjustments to the costs of assets only in relation to exchange gains/losses arising at the time of making payment. It therefore deals with realised exchange gain/loss. The treatment of unrealised exchange gain/loss is not covered under the scope of S. 43A of the Act. It is thus apparent that special provision of S. 43A has no application to the facts of the case. Therefore, the issue whether, the loss is on revenue account or a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncy, one has to understand whether the said asset has been acquired within India or outside India and the assessee has borrowed any money from any person for the purpose of acquisition of any asset from a country outside India." 9.6.4. The Learned Counsel for the Assessee, therefore, submitted that the Ld. CIT(A) has correctly allowed depreciation in favour of the assessee. 10. We have considered the rival submissions. The assessee explained before the authorities below that in assessment year under appeal, the assessee had capitalized a sum of Rs. 27,37,25,941/- on account of exchange rate fluctuation in respect of machineries bought in India from the foreign funds raised through FCCBs. No repayment of loan by way of FCCBs was made during the year under appeal. However, increase in any liability on account of prevailing exchange rate was shown in the balance-sheet under the Head "Unsecured Loans" the fluctuations to the extent of acquisition of fixed assets in India by utilising FCCBs was added to the actual cost and depreciation charged thereon. Thus, the assessee purchased the machinery in India from the foreign funds through FCCBs which fact is not disputed by the authori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No.2 of the appeal of the Revenue is dismissed. 12. Ground No.3 of the appeal of the Revenue reads as under : "3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 56,28,605/-in returned loss of the exempted unit u/s 10B ?" 12.1. The assessee is aggrieved before the Ld. CIT(A) for denial of carry forward loss in its 100% Export Oriented Unit [EOU] at Chopanki, Bhiwandi (Rajasthan). The A.O. relying upon the Order for the preceding assessment year i.e., 2008-2009 did not allow carry forward of business losses. The assessee in the written submissions has submitted that the assessee is a 100% EOU at Chopanki, Bhiwandi (Rajasthan) which is registered as EOU [Noida Special Economic Zone] and is eligible for deduction under section 10B of the I.T. Act, 1961. The unit become operational in A.Y. 2008-2009. For the previous year relevant to A.Y. 2009-2010, the unit suffered loss of Rs. 2,45,32,014/- which was carried forward as "business loss". It was also submitted that in A.Y. 2008-2009 the Tribunal vide Order Dated 18.05.2012 has allowed similar claim of assessee following the decision of Hon'ble Bombay High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of CIT vs., Yokogawa India Ltd., [2017] 391 ITR 274 [SC] in Reference to Assessee's SLP(C) No.18157/2015 as referred in para-14 of the Order which is reproduced as under : "14. The difference between the two expressions 'exemption' and 'deduction', though broadly may appear to be the same i.e., immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos.8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No. 18157/2015, which have been filed by loss making eligible units and/or by non-eligible assessees seeking the benefit of adjustment of losses against profits made by eligible units." 12.3.1. Learned Counsel for the Assessee submitted that in the aforesaid decision of the Hon'ble Supreme Court it is made clear that findings under section 10A would be applicable to the cases governed by provisions of Section 10B of the I.T. Act and it was a group appeals which have been decided by the Hon'ble Supreme Court by holding that deduction under section 10A/10B is to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal Appeal is decided against the assessee. He has submitted that in case findings of Ld. CIT(A) are maintained, the cross objection of the assessee would stand infructuous and may be disposed of accordingly. Learned Counsel for the Assessee, therefore, submitted that since alternative claim was raised in the cross objection because of the different views taken and issue was not examined deeply, therefore, assessee preferred to file cross objection for final settlement of the issue and as such delay in filing the cross objection may be condoned. 14.2. Considering the facts of the case as explained above and the legal issue raised in the cross objection which is connected with Ground No.2 of the Departmental Appeal, we condone the delay in filing the cross objection which is an alternative claim made by assessee. 14.3. Since we have dismissed Ground No.2 of the Departmental Appeal, therefore, the cross objection becomes infructuous and is accordingly dismissed. 15. In the result, C.O.No. 200/Del./2017 of the Assessee dismissed. C.O.No.34/Del./2019 in ITA.No.3564/Del./2015 A.Y. 2011-2012 [M/s. K.E.I. Industries Ltd., New Delhi]. 16. In this cross objection the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the provisions of section 43A were not applicable to the indigenous assets acquired out of FCCB's brought in to India. 2.4. Without prejudice, on the facts and circumstances of the case and in law, in case exchange fluctuations on FCCB's brought in to India is held to be covered by section 43(1) read with Explanation 8 thereto, the Appellant be allowed deduction under section 36(l)(iii) of the Act. 2.5. That on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that amended AS-11 was not applicable for the same has not been recognized by the Act." 21. Learned Counsel for the Assessee submitted that this issue is same as have been decided in A.Y. 2009-2010 in Departmental Appeal on Ground No.2, which fact is not disputed by the Ld. D.R. Since in A.Y. 2009-2010 we have dismissed Departmental Appeal on Ground No.2, therefore, there were no reason for the Ld. CIT(A) to take a contrary view in A.Y. 2012-2013 on identical facts. In view of the above, following the reasoning given in A.Y. 2009-2010 (supra), we set aside the Orders of the authorities below and allow the claim of assessee for depreciation. 21.1. In the result, Groun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by holding that the computation under clause( f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated u/s 14A read with Rule SD of the Income-tax Rules, 1962." 22.3. Learned Counsel for the Assessee, therefore, submitted that the issue is covered in favour of the assessee by the above decision of the Tribunal. 22.4. The Ld. D.R. has not disputed the above contention of the assessee. 23. Considering the above, it is clear that an identical issue have been decided by the Tribunal Delhi Special Bench in favour of the assessee that no addition could be made of such nature while computing the book profit under section 115JB of the I.T. Act. Therefore, the issue is covered in favour of the assessee by the above decision of the Special Bench. Following the same, we set aside the Orders of the authorities below and delete the addition of Rs. 24,48,822/- under section under section 124A of the I.T. Act. 23.1. In the result, Ground No.3 of the appeal of the Assessee allowed. 24. Ground No.3.1 reads as under : 3.1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating t....