AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 29
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....ence proceed to dispose of all the appeals by a consolidated order but however proceed with narrating the facts for A.Y. 2012-13. 3. Brief facts of the case as culled out from the material on record are as under:- 4. Assessee is a wholly owned subsidiary of M/s. Idemitsu Kosan Co. Ltd., Japan and is stated to be engaged in the business of trading of petro chemical products including lubricant oil and is also stated to be providing technical assistance in the related areas. Assessee filed its return of income for A.Y. 2012-13 on 29.11.2012 declaring total income of Rs.5,87,52,089/-. Since the tax liability u/s 115JB was higher, accordingly MAT was paid on book profit of Rs.11,17,46,315/-. The case was selected for scrutiny and thereafter, assessment was framed u/s 143(3) of the Act vide order dated 29.12.2013 and the total taxable income was determined at Rs13,30,92,970/- and book profit of Rs.11,17,46,315/-. 5. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 27.08.2018 in Appeal No.313/16-17 granted partial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following grounds in ITA No....
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....d in deleting the addition of Rs.14,67,94,400/- made on account of foreign-exchange gain realized by the assessee on re-statement of the outstanding loan liability at the year end. 1.a) Whether the Ld CIT(A) has erred in holding that the gain on the re-statement on loan liability at the year was on capital account as the external commercial borrowing was raised for acquisition of fixed assets, not appreciating the fact that the underlying loan amount was no longer held by the assessee in foreign currency as it stood converted into Indian Rupees, a part of which was deposited in the form of FDRs. 1.b) Without prejudice to the generality of the foregoing, the Ld CIT(A) has erred in not giving the direction to reduce the cost of capital asset by the gain on fluctuation of foreign currency. 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 1,61,97,594/- on account of interest received on FDR by holding that the said interest income was liable to be netted off against the interest expense on borrowed funds, not appreciating the ratio of the judgment of the Hon'ble Supreme Court in the case of Tutico....
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....see had reduced the income by an amount of Rs.6,31,06,600/- on account of foreign exchange profit on restatement of ECB loan. The assessee was asked to justify its claim and furnish the necessary details. Assessee submitted that it was engaged in the construction of new manufacturing plant at Maharashtra and for that assessee had taken ECB loan of JPY 143,00,00,000 from its parent company. Assessee inter alia submitted that foreign exchange gain represents the unrealized foreign exchange gain on outstanding ECB loan which was restated in accordance with the Accounting Standard 11 (AS 11) issued by Institute of Chartered Accountant of India. It was further submitted since ECB loan has been utilized for acquisition of fixed assets, the net notional foreign exchange translation gain was capital in nature and therefore it was excluded from the computation of taxable income. Assessee also placed reliance on various decisions which are cited by the AO in the order. The submissions of the assessee was not found acceptable to AO. AO was of the view that the ratio of the decisions relied upon by the assessee was not applicable to the facts of the assessee's case as the assessee was not hold....
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....attracted only when capital assets are acquired from outside India and some liability is incurred on capital account for acquiring such assets from outside India. CIT(A) also noted that in A.Ys. 2012-13 & 2013-14, AO had treated the amount as taxable whereas in A.Y. 2014-15 when it was a loss on account of reinstatement and assessee had given the similar treatment by offering it as a disallowance in the return of income the same is accepted by AO. CIT(A), thereafter has given a finding with the reinstatement of loan liability at the year-end was on capital account, no actual reinstatement had taken place during the year under consideration and since the AO has himself accepted the treatment of the item in A.Y. 2014-15, there was no reason for the AO to give a different treatment to the issue in A.Y. 2012-13. He, accordingly, held the foreign exchange gain on reinstatement of ECB loan to be non taxable. 13. With respect to the addition on account of interest on FDRs of Rs.38,03,898/-, CIT(A) at para 4.5.3.3 has given finding that ECB loans obtained by the assessee from its parent company was obtained and utilized for acquisition of capital assets and assessee had also paid interest....
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....accepted by the AO as a notional loss but however in A.Ys. 2012- 13 & 2013-14, AO is treating the same loss arising out of the restatement of the same loan as taxable income and thus there is an inconsistency in the approach of AO in the treatment in 2 different years. We further find that the CIT(A) has further given a finding that provision of Section 43A & 43AA are not applicable to the facts of the case of the assessee, as the ECB loan obtained by the assessee was for the purpose of setting up of a plant and the ECB loans acquired by the assessee have been utilized for the purpose of acquisition of capital assets in India. As far as the issue with respect to interest earned from fixed deposits on unutilized ECB loans is concerned, we find that CIT(A) after relying on the various decisions cited in his order has given a finding that the payment of interest and the earning of interest was inextricably linked to each other and the same was required to netted off and therefore, assessee had rightly capitalized the interest amount of Rs.38,03,898/-. We further find that Hon'ble Delhi High Court in the case of PCIT vs. Triumph Realty Pvt. Ltd. (supra) has held that the interest earne....
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....that the order of CIT(A) be set aside. 21. Learned AR on the other hand reiterated the submissions made before lower authorities and further submitted that for the construction of new plant at Patalganga, the contract was given to Shimizu Corporation India Pvt. Ltd. on turn-key basis and none of the employees of the company was directly involved in the construction of the plant. With respect to the four employees which AO has noted to be for the purpose of construction, he submitted that those four employees were experienced in the field of trading and manufacturing of petrochemical products and were rendering the services in the existing business of the company and there was no direct or indirect nexus between any services provided by them in respect of construction of new plant. He therefore submitted that after considering the factual matrix, CIT(A) has rightly deleted the addition and no interference to the order of CIT(A)'s order is called for. He thus supported the order of CIT(A). 22. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the deletion of addition on account of salary that was hel....
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....before us. 28. Before us, Learned AR submitted that during the year under consideration, assessee had earned total interest income of Rs.2,00,77,828/- from FDRs that was made out of ECB loans, which was for acquiring capital assets. It was submitted that the interest was required to be treated as capital in nature and reduced from the cost of fixed assets as it was having direct nexus for the purpose of acquiring assets in India. He submitted that before CIT(A), assessee had raised an additional ground but the same was dismissed by CIT(A) by holding that it does not arise from the order of AO. Before us, Learned AR submitted that issue involved in the ground was a legal claim and the legal claim can be raised before the appellate authorities and in support of the aforesaid contention, he placed reliance on the decision in the case of National Thermal Power Company Ltd. vs. CIT reported in 229 ITR 383 (SC) and Jute Corporation vs. CIT reported in 187 ITR 688 (SC). He fairly admitted that since CIT(A) has not adjudicated the issue on merits, the matter may be remitted back to CIT(A) with appropriate directions. 29. Learned DR on the other hand supported the order of CIT(A) and subm....