TaxTMI 
TaxTMI 
2021 (8) TMI 22
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....epreciation 3 In the grounds of appeal filed before the Hon'ble ITAT, the applicant had raised the issue of disallowance of difference in exchange loss claimed as revenue expenditure Rs. 251,63,00,000/-. via Ground no. 16 of the Grounds of appeal. [ Copy of the Form No. 36B along with grounds of appeal is attached at Page No. 46 to 60]. For ready reference Ground No. 16 raised before the Hon'ble ITAT reads as follows: 16. Disallowance of deduction for Difference in Exchange of Rs. 251.63 crores On the facts and in the circumstances of the case and in law the learned Addl C.I.T. erred in proposing and the DRP erred in not allowing deduction for difference in exchange of Rs. 251.63 crores as claimed by the Appellant in the computation of income. The Learned Addl CIT/DRP ought to have accepted the contention that there is no requirement in the Law to capitalize the difference in exchange to the capital assets acquired by the Appellant as also the loss arising due to difference in exchange was not contingent in nature and therefore was allowable as revenue deduction while computing the taxable income of the Appellant. Without prejudice to the aforesai....
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....ing MA No. 446/Mum/2019 ('first MA application'). [Copy of the Miscellaneous application is attached at Page No. 61 to 67]. In the said MA, the applicant had raised the issue that since the Hon'ble ITAT had treated the foreign exchange gain or loss as capital in nature, the Hon'ble ITAT did not adjudicate the without prejudice issue of allowance of depreciation raised vide ground of appeal no. 16 in the grounds of appeal filed before the Hon'ble ITAT. Therefore, we pray that there is a mistake apparent from record in the ITAT order which required rectification. 8 The Hon'ble ITAT vide its order ('MA order') dated February 21, 2020 in M.A. No. 446/Mum/2019 [the MA order is attached at Page No. 68 to 76] did not adjudicate the without prejudice issue of allowance of depreciation on the foreign exchange loss treated as capital in nature. 9 The Applicant submits that the issue of allowance of depreciation on foreign exchange loss was raised in the ground of appeals filed before the Hon'ble ITAT vide ground no. 16. The Hon'ble ITAT in the IT AT order did not adjudicate the issue of allowance of depreciation in the ITAT order. Fur....
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....y it within six months from the end of the month in which the order requiring rectification was passed. The MA order was passed on February 21, 2020. Therefore, as per section 254(2) of the Act, the last date to amend the order was August 31, 2020. However, on March 31, 2020 the president promulgated the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020. (the ordinance is attached at Page No. 77 to 82). As per section 3(1) of the Ordinance due dates under the Act falling during the period of March 20 to June 29, 2020 were extended to June 30, 2020. On June 24,2020 the Central Board of Direct Taxes ('CBDT') issued a notification and a press release to further extend the due dates (the notification and press release is attached at Page No. 83 to 89). The time limit for due dates under the Act falling between March 20 to December 31, 2020 is extended to March 31, 2021. Therefore, this application is within the time limit." 3. We have heard both the parties and perused the record. We find that the assessee has already filed a Miscellaneous Application on this issue which was dealt with by the ITAT vide order in M.A.No. 446/Mum/2019 vide order dated 2....
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.... 3 General working capital purpose ICS S Given 0982 -982 Total 25164 21400 3764 36. It was submitted that the assessee has not debited this amount in the profit and loss account and has accounted the same in compliance with Accounting Standard 11. The assessee has charged the same to the fixed Currency Monetary item Translation Difference Account' to be written-off to the profit & loss account in later years. The assessee submitted that the foreign exchange expense fluctuation liability has been capitalized in the books but for income tax purposes it is considered as revenue expense. Accordingly the cost of assets for computation of depreciation allowable under section 32, such foreign expense has not been considered as cost of capital asset. The deduction has been claimed in the computation of total income filed. 37. The AO has disallowed this expenditure stating that the same is a contingent liability. Also, for the loans taken for fixed assets, the same was required to be capitalized and hence the AO has disallowed this expenditure. 38. The DRP upon assessee's appeal has dea....
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....penditure, as per information submitted, the loss of Rs. 32.88 crores has been incurred in relation to investment in the equity of Mahindra Gears International Limited Mauritius and Mahindra OVERSEAS Investment Company Mauritius limited. Therefore the forex loss of Rs. 32.88 crores is on capital account and the disallowance in this regard does not need any intervention. 21.8. Another foreign exchange loss of Rs. 14.55 crores is stated to be incurred in relation to working capital loan from Union Bank of India; the copy of loan document regarding such loan has been produced. This is an undated document signed by the assessee purporting to be a Packing Credit Agreement with Union bank of India, Industrial finance Branch, Nariman Point for packing credit loan of Rs. 100 crore. This loan is in Indian currency. Therefore this is not foreign currency loan and hence any foreign currency loss cannot be incurred in relation to this loan. 21.9. The Assessee has also credited Foreign exchange gain of Rs. 9.82 crore under the Revenue account being Foreign Exchange Loss accrued on Inter Corporate deposits given in Foreign currency. This gain has been treated ....
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....ome or expense.‖ 41. Upon hearing both the Counsel and perusing the records, we find that Hon'ble Apex Court in the case of Satlej Cotton Mills Ltd., vs. VIR 116 ITR 1 had expounded that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. 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. In this view of the matter, in our considered opinion the action of the authorities below in holding that foreign exchange gain or loss incurred on acquisition of capital asset has to be adjusted with the cost of capital asset is correct. 42. As regards the gain or loss of revenue account, the same has to be dealt with in the revenue field. The AO in this regard has erred in holding that these are contingent as the same is contrary to the Hon'ble Apex Court dec....
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....al) and * loan form Union Bank (which has been upheld to be loan in local currency by Ld. DRP) is also loan in foreign currency. 7. We have heard both the Counsel and perused the records in this regard. The learned counsel of the assessee has reiterated the submissions as above. Per contra learned departmental representative submitted that ITAT in its order has found that the decision of honourable Supreme Court in the case of Sutlej cotton Mills (supra) is directly applicable on the facts of the case. Hence learned departmental representative pleaded that the order of the honourable Supreme Court takes precedence over decision of inferior courts and Tribunals. Furthermore learned departmental representative submitted that by claiming that there was no need to furnish details for claim of allowance of depreciation the assessee is itself making out a case for review. As regards the other issues mentioned in the submission learned departmental representative submitted that these are not arising out of the grounds of appeal or the order of the ITAT. He claimed that the assessee is pleading for some further issues to the adjudicated as "rela....