TaxTMI 
TaxTMI 
2021 (1) TMI 89
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....nd facts of the case. 1. Whether the facts and circumstances of the case the CIT(A) erred in deleting the addition of Rs. 2,19,97,490/- made by the Assessing Officer on account of disallowance of foreign exchange fluctuation under the head finance cost. 1.1 Whether the facts and circumstances of the case, the ClT(A) failed to appreciate the fact that since the ECB loan was taken by the assessee for acquisition of indigenous assets, foreign exchange fluctuations loss on the same is not allowable as it is not revenue in nature. 1.2 Whether the facts and circumstances of the case, the CIT(A) failed to appreciate the fact that there is no provision to adjust against the cost of asset and to claim the fluctuation loss on purchase of indigenous assets u/s 37 of the Act. 2. Whether the facts and circumstances of the case, the CIT(A) erred in directing the AO to verify the claim and allow the interest expenses of Rs. 1,61,42,938/- which was voluntarily offered by the assessee in its original return income. 2.1 Whether the facts and circumstances of the case, the CIT(A) erred in ignoring the decision of Supreme Court in the case of Goetze (lndia)....
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....ssessing Officer has relied upon the decision of the Hon'ble Supreme Court in the case of Goetz (India) Ltd., reported in 157 taxman.com 1 (SC). 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A) . Before the learned CIT(A), the assessee has filed detailed written submissions which has been reproduced at para 8 on page 8 to 11 of learned CIT(A) order. The sum and substance of arguments of the assessee before the learned CIT(A) was that forex loss on ECB loan taken for purchase of asset in India is not covered by the provisions of section 43A of the Act and consequently, the same cannot be treated as capital in nature and added back to the cost of the asset. The assessee has relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Tata Iron & Steel Co.Ltd., (1998) 231 ITR 285 (SC) and the decision of ITAT., Chennai in the case of M/s.Hyundai Motor Company Ltd. Vs. DCIT reported in (2017) 81 Taxmann.com 5. The assessee has also challenged rejection of claim made towards deduction of interest paid on forex loan amounting to Rs. 1,61,42,938/- in light of decision of the Hon'ble Supreme Court in the case of Goetz (In....
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....d, I direct the assessing officer to allow the claim of foreign exchange loss arisen out of external commercial borrowings for acquisition of indigenous assets at Rs. 2,19,97,400/- for the A.Y 2012-13 and Rs. 5,54,38,500/- for the A.Y 2013-14 as revenue expenditure allowable u/s 37(1) of the IT Act 1961. The additions made on this count stands deleted in the respective assessment years. The grounds taken are allowed." 6. As regards additional claim made towards deduction of interest expenses on forex loan, the learned CIT(A) noted that request made for deduction of interest expenses inadvertently added with memo of income do not constitute a fresh claim and what is claimed by the assessee is notified mistake of offering particular income to tax, even though said income is not taxable to tax and hence, restriction imposed by the Hon'ble Supreme Court in the case of Goetz (India) Ltd. (supra) shall not applicable to the facts of the present case and accordingly, admitted the additional claim made by the assessee by filing revised total income and directed the Assessing Officer to verify the claim in accordance with law. The relevant findings of the learned CIT(A) are as under:- ....
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....ny exemption or any other concession. 18. Relying on the judgments o jurisdictional Tribunal and jurisdictional High Court referred to in above. l am of the considered view that the claim of deduction of interest expenses inadvertently added with the memo of income to me tune of Rs. 1,61,42,938/- for the assessment year 2012-13 do not constitute any fresh claim in terms of the judgement of Goetze (India) Ltd. Accordingly I direct the assessing officer to verify the claim made for assessment year 2012-13 and if found correct, allow deduction in accordance with law. Ground taken is allowed for statistical purpose." 7. The first issue that came up for our consideration from ground no.1 to 1.2 of Revenue appeal is disallowance of expenditure on foreign exchange fluctuation loss incurred for acquisition of domestic asset. The learned AR for the assessee, at the time of hearing, submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in the case of M/s.Hyundai Motor Company Ltd. Vs. DCIT (supra), where the Tribunal by following the decision of the Hon'ble Supreme Court in the case of CIT vs. Tata Iron & Steel Co.Ltd. (supra) a....
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....tively has been accepted. The Assessing Officer did not agree. He relied upon Hon'ble Supreme Court's judgment in the case of CIT Vs Woodward Governor I.T.A. No. 739 and 853 /Chny/2014, 563 and 614 /Chny/2015, 842 and 761/Chny/16 and CO 73/Chny/16 Assessment years: 2009-10, 2010-11 and 2011-12 Page 39 of 55 India Pvt Ltd [(2009) 312 TR 254 (SC)] and held that the loss due to fall in value of foreign exchange cannot be adjusted in the value of asset. He was of the view that this is a notional loss and that too in capital field. He declined to allow the same. Aggrieved, assessee carried the matter before the DRP. In its brief order, the DRP held as follow: We do not find anything wrong in AO's reliance on the Supreme Court decision in Woodward Governor's case. Merely restatement of the foreign currency loan cannot be considered a business transaction resulting into loss, particularly when no repayment was made during the year. The transaction even then will be capital in nature. Hence, we reject this objection. 72. The Assessing Officer thus proceeded to make the disallowance of Rs. 49,63,29,426 aggrieved by which the assessee is in appeal before us. 73. We have hea....
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....enominated foreign currency using the closing rate at the end of the accounting year. It also requires that any difference, loss or gain, arising from such conversion of the liability at the closing rate should be recognized in the profit & loss account for the reporting period. In the same vain, CBDT notification S.O. 892(E) dated 31-03-2015 referred to also inter alia deals with recognition of exchange differences. The notification also sets out that the exchange differences arising on foreign currency transactions have to be recognized as income or business expense in the period in which they arise subject to exception as set out in Section 43A or Rule 115 of the Income Tax Rules, 1962 as the case may be. 10.3 The contention of the revenue that the loss is only contingent and notional and subsisting has been examined. As per section 209 of the Companies Act, 1956, the Assessee being a company is required to compulsorily follow mercantile system of accounting. S. 211 of the Companies Act, 1956 also, in terms, mandates that accounting standards as applicable is required to be followed while drawing statement of affairs. S. 145 of the Income Tax Act,1961 similarly casts ob....
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.... in section 35A; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of subsection (1) of section 36; or (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid: Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liabil....
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....ed to acquire asset cannot alter actual cost of assets. The relevant operative para is reproduced hereunder. "Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be borne in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non-repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiring the asset. In the instant case, the allegation is that at the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. In our j....
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....oans. Besides AS-11, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to augment the profitability or reduce revenue losses of the assessee. The impugned fluctuation loss therefore has a direct nexus to the saving in interest costs without bringing any new capital asset into existence. Thus, the business exigencies are implicit as well explicit in the action of the Assessee. The argument that the act of conversion has served a hedging mechanism against revenue receipts from export also portrays commercial expediency. Thus, We are of the opinion that the plea of the assessee for claim of expenditure is attributable to revenue account has considerable merits. 10.8 Section 145 of the Income Tax Act deals with method of accounting and states that business income inter-alia has to be computed in accordance with cash or mercantile system of accounting. Sub-section (2) thereof authorizes the Central Government to notify accounting standards to be followed for determination of business income. Section 211 of the Companies Act also similarly casts a duty on a company....
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....el co. (supra) also weighs in favour of the assessee. We also note that reliance placed by the CIT(A) on Elecon Engineering Co. Ltd. (supra) is misplaced. The decision concerns applicability of S. 43A in the facts of that case and thus clearly distinguishable. 11. For the aforesaid reasons, in the absence of applicability of section 43A of the Act to the facts of the case and in the absence of any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the Assessee in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAI and also in conformity with CBDT notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices has been brought to our notice. Otherwise also, in the light of fact that the conversion in foreign currency loans which led to impugned loss, were dictated by revenue considerations towards saving interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. 75. We are in considered agreement ....
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.... to verify the claim and allow interest expenditure which was voluntarily offered by the assessee in its original return of income as not allowable deduction. The learned D.R further submitted that the learned CIT(A) has erred in ignoring the decision of the Hon'ble Supreme Court in the case of M/s. Goetz (India) Ltd Vs. CIT (supra), where it was held that claim of assessee is not allowable unless such claim is made by filing revised return as per the provisions of the Act. 13. The learned A.R for the assessee supporting the order of the learned CIT(A) submitted that claim made by the assessee by filing revised memo of income is not a fresh claim because facts with regard to impugned disallowance of interest expenditure in the memo of income was very much available with the Assessing Officer and further the claim of interest expenditure is allowable deduction and hence, the learned CIT(A) has after considering the relevant facts rightly directed the Assessing Officer to verify the claim of the assessee in accordance with law and the said finding cannot be faulted. 14. We have heard both the parties, perused the material available on record and gone through the orders of autho....