TaxTMI 
TaxTMI 
2021 (12) TMI 455
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....by making addition on account of disallowance of foreign exchange fluctuation loss of Rs. 6,94,34,761/-, disallowance of interest paid on borrowings of Rs. 2,56,84,639/-, disallowance u/s. 14A read with Rule 8D to the tune of Rs. 9,29,235/- and disallowance of expenses for more than Rs. 20,000/- to the tune of Rs. 1,02,386/-. 3. When the assessee preferred appeal before the ld. CIT(A), by way of impugned order, ld. CIT(A) upheld the disallowance of foreign exchange fluctuation loss, but deleted the disallowance of interest paid on borrowings and expenses for cash for more than Rs. 20,000/-. Learned CIT(A) partly granted relief to the assessee in respect of the disallowance u/s. 14A read with Rule 8D by limiting the disallowance to the amount of dividend received, i.e., Rs. 2,07,615/-. So against upholding of the additions on account of foreign exchange fluctuation loss and u/s. 14A read with Rule 8D, the assessee preferred appeal; whereas against the deleted additions, Revenue is in appeal. 4. Now coming to the appeal of the assessee, ground No. 1 is general in nature and ground Nos. 2 to 6 are in respect of disallowance on account of foreign exchange fluctuation loss and ground ....
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....ered Bank is concerned, there is no dispute that it was for acquiring 70% stake in Vimercati SPA, which also deals in auto spare parts. There is no dispute that for the assessment year 2014-15, 2015-16 and 2016-17the amount of export was Rs. 18.64 crores, Rs. 27.74 crores and Rs. 31.16 crores respectively, which shows without any doubt that by purchase of 70% shares in Vimercati SPA, the assessee stood to benefit in the shape of enhancement of export. It, therefore, establishes the fact that the purchase of shares of Vimercati SPA by the assessee was for commercial expediency and in view of the decision of Hon'ble Supreme Court in the case of SA Builders (supra), such expense shall be deemed to have been incurred for the business purpose and the assessee has got right to decide their affairs. 9. Now coming to the treatment of accounts, the assessee places reliance on para 7 of accounting standard-11, para 2(1)(k) of ICDS-VI and also the provisions of section 43AA inserted by Finance Act, 2018. For the sake of completeness, we reproduce such provisions - "PARA 7 of Accounting Standard-11 defines Monetary items as under: 'Monetary items' are money held and assets and liabilities....
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....bility into India currency by applying the foreign exchange rate prevailing as at the closing date of relevant accounting year. By placing reliance on the decision of Apex court in the case of CIT vs. Tata Iron and Steel Co. Ltd., 231 ITR 285, he submits that the cost of an asset and cost of raising money for purchase of asset are two different and independent transactions and therefore, the events subsequent to acquisition of assets cannot change price paid for it and accordingly, fluctuations in foreign exchange rate while repaying instalments of foreign loan raised to acquire asset cannot alter actual cost of assets. On this premise, he refutes the contention of the Revenue that this expenditure falls in the realm of capital. 12. On a perusal of the judgment in Jagatjit Industries (supra), it is clear that in this case the transaction was raising of share capital, which was kept in overseas account and currency was remitted in accordance with need to India. Such a transaction cannot be equated to obtain the loan repayable with interest for purchase of an asset which would enhance the benefits in revenue field. A perusal of the record clearly shows that by purchase of shares in ....
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....w.e.f. 01.04.2004 clearly spells out that the capital borrowed for the acquisition of an asset is required to be capitalized till the acquisition of asset. Therefore, even if a capital asset is acquired, the interest or for that matter reinstatement of foreign exchange fluctuation loss could have been capitalized only till the acquisition of capital asset, i.e., acquisition of shares in this case. In the instant case, admittedly the shares were acquired in the financial year ended 31.03.2012 and therefore, the capitalization of the foreign exchange fluctuation loss could, at the most, be relevant for the financial year 2011-12 relevant to assessment year 2012-13 and there is no occasion to treat any part of the interest or for that matter exchange rate fluctuation gain or loss to treat the same as in the capital field during the year under consideration. 15. Further, it is an undisputed fact that for the assessment year 2012-13, 2013-14 and 2016-17, the assessee declared loss on account of foreign exchange fluctuation which was accepted by the Assessing Officer; whereas for the assessment year 2015-16, there was a gain to the tune of Rs. 4.65 crores, which the assessee offered to ....
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....o as to earn the exempt income. It is a clear case where the interest component u/r. 8D(2)(ii) has to be deleted straight by restoring only the disallowance u/r. 8D(2)(iii), which is Rs. 1,65,703/- both according to the assessee and the Assessing Officer. In this scenario, the question of restricting the disallowance to the amount of dividend earned does not arise. In such case, instead of restriction, it amounts to expansion which is not permissible under law. We, therefore, hold that the entire addition of Rs. 9,29,235/- is liable to be deleted. By observing so, we allow ground No.7 of assessee's appeal and dismiss ground No. 3 of Revenue's appeal. 19. Ground No. 1 & 2 of Revenue's appeal relate to the disallowance of interest of Rs. 2,56,84,639/- on account of interest paid on borrowings. According to the Assessing Officer the assessee borrowed loans from its directors, share holders by paying interest at 9%. Assessee also raised convertible redeemable debentures of Rs. 24 crores by paying interest. However, the assessee gave loans to its subsidiary, namely, Vimercati SPA and was receiving interest only at 2.32%. Ld. Assessing Officer calculated the difference between 9% and 2.....