TaxTMI 
TaxTMI 
2021 (6) TMI 601
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.... the expenditure of Rs. 15,34,118/- (Rs. 9,90,518/- + Rs. 5,43,600/-) as capital expenditure of the assessee on account of exchange rate difference on returning of share application money and thereby erred in giving direction to modify the assessed income of the assessee. 3. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honour deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 2. Brief facts of the case are that the assessee is a Private Limited engaged in the trading of medical instruments. The assessee filed its return of income for assessment year (A.Y.) 2013-14 on 14.10.2018 declaring taxable income of Rs. 64.73 lakhs. The return was selected for scrutiny. The Assessing Officer (AO) after serving the statutory notice under section 143(2) and 142(1) of the Act proceeded for assessment. The AO after considering the various explanations, furnished by the assessee, made addition on account of various expenses of Rs. 1,08,460/-. The additions were made on adhoc basis, being 20% various expenses of Rs. 5,42,286/- de....
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....e rate account and claimed as revenue expenditure for the reasons that share application money was received by assessee for development of its existing running finance and the amount was utilised during the period by the assessee company for the purpose of business activities. It was further submitted that assessee is engaged in providing medical instruments and equipment related to Biomedical and imaging system like CTScan and MRI machines and other equipment's used in the operation theatre and in intensive care units (ICU's). In the assessee company, 25% of stock holding is by Soma Tech Inc.(USA), who is also engaged in similar line of business in USA. The assessee's associated company in US base is distributing and branding partner of DUNLEE, a Philips Health Care for South Asia Region and the said company had financed the Philips Company to give sub-distributorship for the DUNLEE to the assessee company for Indian Territory. As DUNLEE brand of instruments and equipment's was being introduced in India, there was a need of heavy fund for development of its market and to setup the establishment. Thus assessee's associate company is US based provided fund to the assessee as it w....
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....nd perused the orders of lower authorities and record carefully. The assessee has also filed detailed written submissions with copy of various decision of record under the signature of unknown person. The name and designation of that signatory is not mentioned on the said written submissions. The ld. AR of the assessee submits that during the assessment, the AO examined the issue in depth. The ld. AR submits that during assessment, the AO issued notice under section 142(1) of the Act dated 12.10.2015. In the said notice in question no. (x), the assessee was asked to furnish the complete details with regard to exchange rate difference. The assessee vide its reply dated 19.10.2015, furnished complete details of exchange rate difference which consist of exchange rate difference debited on 07.05.2012 of Rs. 9,90,518/- and on 12.11.2012 of Rs. 5,43,600/-. The ld. AR for the assessee further submits that the assessee vide its reply dated 22.12.2015 filed before the AO explained the complete fact. The assessee explained about the receipt of share application money in previous financial year. The assessee was unable to issue the share and therefore, as per provision of Companies Act and....
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.... it would be assessable under section 28 of the Act. The ld. AR for the assessee further explain that section 43A of the Act is the only reference required capitalization of foreign exchange allows, that too only in case of borrowing. The share application money is neither a liability, nor a borrowing and secondly even if it were to be impossibly held as a liability there has been absolutely insignificant addition which the assessee would have sourced from its own funds. To support his contention, the learned AR of the assessee relied upon the following decisions: • ITA No.686 & 687/PN/2011 (Pune ITAT), Rohit Exhaust Systems Pvt. Ltd. • 312-ITR-254 (SC), Woodward Governor India P. Ltd., • [2010] 326 ITR 435 (Delhi), Indian Toners & Developers Ltd., • 189 Taxman 292 (SC), Oil & Natural Gas Corpn. Ltd., • 184-TTJ-741 (Mumbai), Yash Raj Films (P) Ltd., • 105-TTJ-591 (Delhi 'D'), Silicon Graphics Systems (I) Ltd, • 161-Taxman-166 (Jp. Trib.), Indian Shaving Products Ltd., • 200-Taxman-177(Kar.) (Mag.),Wipro Finance Ltd., • 180-TTJ-727 (Pune), Cooper Corporation (P) Ltd.,....
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....he AR of the assessee submitted that due to technical reasons the company could not allot the shares to Soma Tech INC. as per the guidelines and the provisions of the Companies Act and Reserve Bank of India, it must be return to the applicant. The details furnished by the assessee were examined and placed on record. Mainly part of the share application was received in AY 12-13 which return back in AY 13-14 and one lot was received in AY 13-14 for operational expenses purpose which was wrongly entered as share application money, the bank advice however was showing the amount as operational expenses only and not share application money. The clarification in this regard has been kept on file. 2. Further, during the assessment proceedings, the books of accounts of the company were called for and examined on the test check basis. No incriminating details/ unexplained deviations of figures in the books of account were found. All details furnished by the company wre examined and placed on record. Place: Surat Date: 17/03/16 Sd- (SANDEEP KUMAR) Deputy Commissioner of Income-tax, Circle -2(1)(2) Surat" 10. We find that the ld. PCIT, before passing u....
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....us. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. 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 agr....
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....r the law that share capital is always treated as 'capital receipt'. The assessee received the share capital in the form of foreign currency (US dollar). The assessee could not allot the share to its group company due to technical reasons and ultimately had to return the same. However, in the mean time the currency conversion rate was fluctuated and the assessee while returning the share application money has to pay the difference of the foreign exchange fluctuation difference, which the assessee claimed it to be revenue in nature. Admittedly, the foreign exchange difference paid by the assessee was paid on the capital receipt. The said exchange difference was not paid by the assessee in the course of its business nor was it in the form of borrowing. As noted above the assessee in its reply before ld. PCIT tried to justify the exchange rate difference as revenue expenses by pleading that the share application money was utilized for the purpose of business activities. This stand of the assessee is not tenable as the assessee never allotted the share to its US based associated company. The assessee has taken a another stand that the assessee company convinced DUNLEE for providing nec....
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....ad to be mandatorily retained overseas and was to be repatriated into the country as and when required for approved end uses and, therefore, the assessee kept the entire share capital in fixed deposits with a bank in the US. During the year under appeal, the assessee had accounted for certain gain arising from exchange rate fluctuation of foreign currency in its balance sheet. The assessing officer treated the same as revenue receipt exigible to tax. On appeal, the Commissioner (Appeals) held that the share capital was to be used for acquiring fixed capital assets, the gain on exchange fluctuation to that extent was to be treated as capital receipt and the share capital raised was to be utilized for other business expenses, the said gain was to be treated as revenue receipt exigible to tax. On cross appeals, the Tribunal dismissed the appeal of the revenue but allowed the appeal of the assessee treating the entire gain as capital receipt. On further appeal by the revenue the Hon'ble High Court held that, once that aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuation....
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....ose of meeting the brand building expenditure. The ld. AR for the assessee further reaffirmed his reliance on various case laws relied during the hearing on 17.05.2021. 20. We again examined the reply furnished by the assessee before assessing officer. In reply dated 22.11.2015, the assessee clearly mentioned that amount was received on account of share application money of Rs. 74,94,000/- on 14.11.2011 and on Rs. 91,38,600/- on 16/11/2011 and the same was return on 07.05.2012 and that amount of Rs. 10,83,000/- received on 16.05.2012 and Rs. 54,51,250/- received on 18.05.2012, were also return back on 12.11.2012. The assessee in its reply stated that it was wrongly shown as ECB loan which was corrected in the next financial year. Thus, there is no averment in the reply of the assessee that the amount of share application money was received for 'brand building' of the assessee company. Again turning to the core issue that the share application money in nothing but a 'capital receipt' and its return will not change its character. Even otherwise the assessee has not incurred any other amount except the exchange rate difference, which in our considered view is nothing but a 'capital....