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2018 (11) TMI 1790 - ITAT KOLKATAForeign exchange fluctuations on Foreign Currency Convertible Bonds (FCCB) - whether the foreign exchange fluctuation gain/loss on foreign currency loan borrowed to acquire indigenous fixed assets and/or imported fixed assets is chargeable to income tax or is not allowable as a revenue loss? - HELD THAT:- We hold that such exchange gain or loss is on capital account and hence it is neither taxable nor a deduction from profits can be allowed on the same. The Ld. Senior Counsel, Mr. J.P. Khaitan was fair enough to submit that the revenue’s ground for the Assessment Year 2009-10 has to be allowed in view of this legal position. We reverse the order of the ld. First Appellate Authority and uphold the finding of the Assessing Officer for the Assessment Year 2009-10 that the assessee is not eligible for claim of deduction on account of exchange fluctuation loss. Similarly, the exchange fluctuation gain for the Assessment Year 2010 -11, cannot be brought to tax as the same is on capital account, by applying the same principles of law. This claim of the assessee can be entertained by the ITAT in view of the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs Commissioner Of Income Tax [1996 (12) TMI 7 - SUPREME COURT]. Hence this additional ground of the assessee is allowed. Disallowance of foreign exchange loss - HELD THAT:- We find that this issue is covered in favour of the assessee by the decision of the ITAT, Kolkata ‘B’ Bench of the Tribunal in the case of Hindustan Gum & Chemicals Pvt. Ltd. [2017 (3) TMI 1173 - ITAT KOLKATA]. Applicability of Section 40(a)(i) - HELD THAT:- Gains/loss is on capital account and no deduction is admissible for the Assessment Year 2009-10, the question of disallowance u/s 40(a)(i) of the Act, does not arise. Allowability of the claim of the assessee for deduction of premium payable on redemption of FCCB bonds - HELD THAT:- Liability is not a contingent liability. Deduction is liable on yearly basis as the liability accrues on time basis. The Hon’ble Calcutta High Court in the case of National Engg. Industries Ltd. v. Commissioner of Income-tax [1998 (9) TMI 65 - CALCUTTA HIGH COURT] is relied in this regard. The Hon’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. [1997 (4) TMI 5 - SUPREME COURT] laid down the principle that, deduction should be allowed on pro-rata basis over the terms of the bond. Applying the propositions of law in these case-law to the facts of this case, we hold that the deduction in question is allowable. Applicability of provision of Section 40(a)(i) same is not applicable as only a provision has been claimed as a deduction during the year. The provisions relating to tax deduction at source apply only in the year of redemption. On the issue of applicability of Section 43A of the Act, the assessee submits that the imported assets were put to use by March 31st, 2008. The pro-rata premium for the period up to 31st March, 2008, was capitalized by the assessee. The premium relating to the period after the imported assets were put to use did not form part of the actual cost. Hence Section 43A of the Act, does not apply. Disallowance u/s 14A r.w.r. 8D(2)(ii) - HELD THAT:- No disallowance can be made u/s 14A r.w.r. 8D(2)(ii) of the Rules, as the presumption is that interest free funds have been utilized for making investments. These principles were laid down by the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. The Jurisdictional High Court in the case of Principal Commissioner Of Income vs Rasoi Limited, [2017 (2) TMI 863 - CALCUTTA HIGH COURT] took the same view.
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