TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 110
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....ssee has claimed Rs.29,56,433/- on a/c of foreign exchange fluctuation. On being asked by the Assessing Officer to substantiate the same, the assessee submitted that it has taken buyers credit facility from Bank of India, Sanfransico. The exchange difference as on 31.3.2013 amounting to Rs.29,56,433/- for buyers credit was debited to Foreign Exchange Fluctuation a/c. According to the Assessing Officer since the loan is a capital liability therefore, he held that the Foreign Exchange Fluctuation loss on same cannot be allowed as revenue expenditure. He accordingly made addition of Rs.29,56,433/-. 3.1 The Assessing Officer further noted that the assessee has shown interest free advances of Rs.7,95,87,355/- as on 31.03.2013. He observed from the P&L A/c that the assessee has incurred financial charges amounting to Rs.3,19,99,386/-. On being confronted by the Assessing Officer, the assessee submitted that other advances include share application money of Rs.7.00 crores which was invested in M/s. Kamineni Health Care Pvt Ltd during the earlier years and shares have been allotted on 30th March, 2015. It also includes advances paid to M/s. United Steel Allied India Pvt. Ltd (USAIPL) of R....
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....at Rs.1,26,04,650/- out of Rs.1,39,74,652/-, he determined the taxable income at Nil. 5. In appeal, the learned CIT (A) upheld both the additions made by the Assessing Officer. 5.1 So far as the issue relating to foreign exchange fluctuation loan is concerned, the learned CIT (A) dismissed the ground raised before him by observing as under: "3. The above action of the Assessing Officer was contested in ground No.2 of appeal. However, no submissions were made by the appellant either oral or written during the appeal proceedings. It is, therefore, taken that the appellant has nothing to state in the matter. Since the Assessing Officer had duly considered the facts of the case and disallowed the foreign exchange fluctuation on loan amount being on capital account, the action of the Assessing Officer is upheld and the ground of appeal is dismissed". 5.2 So far as the issue relating to disallowance of interest expenditure is concerned, the learned CIT (A) dismissed the issue by observing as under: "7. I have carefully considered the issue and submissions made by the AR. The cardinal principle of allowing expenditure u/s 36(1)(iii) as laid down by the Hon'ble Supreme Court in ....
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....truction of super specialty hospital in Vijayawada and shares were also allotted by that company against such advances. 5. The learned CIT (Appeals) ought to have considered the decision of the Hon'ble Supreme Court in the case of S.A. Builders v. CIT 288 ITR 1 (SC) and ACIT vs. Tulip Star Hotels Ltd. (2012) (SC), the facts of which are squarely applicable to the case of appellant. 6. Without prejudice to the above grounds, the learned CIT (Appeals) grossly erred in disallowing finance cost @ 12% on the advance given to United Steel Allied Industries Pvt Ltd (USAIPL) of Rs 95,50,483/-. 7. The appellant craves leave to add to, amend or modify the above ground(s) of appeal either before or at the time or hearing of the appeal". In the present case, disallowance made by the lower authorities refer to estimated interest expenditure incurred in obtaining a loan and using the same to provide interest free advances to USAIPL as well as other business advances. However, grounds 3 and 6 emphasize on estimated interest expenditure @ 12% w.r.t. payment made to USAIPL only and hence we are revising the grounds to bring the correct facts on record for proper adjudication of the matt....
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....capital asset and therefore, even the foreign exchange fluctuation loss/gains must be capitalized is accepted, even in that case, the whole exercise remains tax neutral since the fact of disallowing foreign exchange would mean capitalization of a loss and addition of the same to the value of the medical equipment on which there would be a claim of depreciation in the subsequent years. He accordingly submitted that the disallowance of foreign exchange fluctuation loss of Rs.29,56,453/- by the Assessing Officer and sustained by the CIT (A) is not justified. 7.3. The learned DR, on the other hand, drew the attention of the Bench to the findings given by the learned CIT (A) on this issue at Para 3 of his order and submitted that before the CIT (A) the assessee had not made any argument either orally or written for which the learned CIT (A) upheld the action of the Assessing Officer on this issue. Even otherwise also, he submitted that since the foreign currency was obtained for purchase of a machinery i.e. a capital asset, therefore, any increase in liability on account of fluctuation in rate of foreign exchange in respect of such outstanding loan had to be added to the cost of the ca....
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....n various decisions that when the assessee import machinery with loan obtained from foreign banks which is repayable in foreign exchange, the increased liability on account of fluctuation in the rate of foreign exchange in respect of outstanding loan amount to be added to the actual cost of acquisition of assets for the purpose of depreciation for the relevant A.Y. 8.2 We find the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd vs. CIT (1979) 116 ITR 1 has held that the additional liability on account of fluctuation in the foreign exchange rate in respect of liability incurred for the import of machinery by the assessee would not constitute revenue expenditure. 8.3 We find the Hon'ble Bombay High Court in the case of Padamjee Pulp and Paper Mills Ltd vs. CIT reported in (1994) 210 ITR 97 (Bom) held as under: From a reading of the above section it is clear that where an assessee had borrowed money for acquisition of any asset from a country outside India and in consequence of the change in the rate of exchange at any time after the acquisition of such asset there is an increase in the Liability of the assessee as expressed in Indian currency in repayment of ....
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.... been contended that the actual cost can only be the original purchase price in the year of acquisition of the asset and that, even if there is any subsequent increase in the liability, it cannot be added to the actual cost at any stage and that, for the purposes of all the statutory allowances, the amount of actual cost once determined would be final and conclusive. Also section 43A provides for a case in which as in the present case, the assessee has completely paid for the plant or machinery in foreign currency prior date to the of devaluation but the variation in exchange rate affects the liability of the assessee (as expressed in Indian currency) lor repayment of the whole or part of the monies borrowed by hum from any person, directly or indirectly, in any foreign currency specifically for the purposes of acquiring the asset. It is a moot question as to the whether in such a case, on general principles, the actual cost of the assessee's plant or machinery would be the revised liability or the original lability. This is also a situation which is specifically provided in the section.... As we had said earlier, there is no need to speculate problems on all the problems that migh....
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....d the holding company had restored the issue to the file of the Assessing Officer with a direction to consider as to whether the advance was given for business purposes. Referring to page 39 of the Paper Book, he submitted that the Assessing Officer in the consequential proceedings accepted the fact that the advances given were for business purposes and accordingly deleted the addition. Therefore, the proportionate interest relating to advances given to Vijayawada Project has to be deleted. 9.3 So far as the other advances amounting to Rs.95,87,355/- is concerned, he submitted that the amount of Rs.65,31,314/- arises from the running a/c maintained between the holding company (USAIPL) and the assessee company wherein funds were transferred as per business requirements and needs. He accordingly submitted that the addition made by the Assessing Officer and sustained by the CIT (A) on this amount is not justified. So far as the other advances are given, he submitted that these are advances given during the course of business for business purposes and therefore, no disallowance is called for on account of notional interest. 10. The learned DR, on the other hand, heavily relied on the....
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.... AO for de-novo consideration. Needless to say that the assessee shall be given fair opportunity of hearing in the matter." 12. We find the Assessing Officer in the consequential order after considering the details filed by the assessee deleted the addition by observing as under: "5. Following the orders/directions of the ITAT, the assessee was issued notices u/s 142(1) from time to time. In response, assessee filed MoU dated 1/10/2009 between Kamineni Health Services Pvt. Ltd (KHSPL) and United Steel Allied Industries Pvt. Ltd (USAIPL), share certificates and other details from time to time. 6. The online submission made by the assessee has been carefully examined and considered and returned loss of Rs.13,66,338/- is accepted". 13. Since the advance paid to Vijayawada Project amounting to Rs.7.00 crore is continuing in this year also and since the issue has already been decided by the Tribunal and the Assessing Officer in the consequential order has allowed the same, therefore, no disallowance of interest on this amount issue is called for. Accordingly, the Assessing Officer is directed to delete the disallowance of interest on this amount of Rs.7,00,00,000/-. 14. So far as....