TMI Blog2010 (4) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... cy loan, which was not the subject-matter of appeal before the Hon ble Tribunal. Ground No. 5 is to the effect that the ld. CIT (Appeals) erred in not appreciating that the aforesaid claim of deduction was made under a bona fide belief and the same cannot amount to furnishing inaccurate particulars of income. In view of the aforesaid, other grounds are dismissed as not pressed. 1.1 In the course of hearing, the assessee filed two additional grounds, which read as under: "( i )On the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the penalty order of the ld. Assessing Officer, which is void ab initio as no satisfaction was recorded by the ld. Assessing Officer during the course of assessment proceedings that the appellant has furnished inaccurate particulars of income. ( ii )On the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the penalty levied by the ld. Assessing Officer by merely relying on section 271(1B) inserted by the Finance Act, 2008 with retrospective from 1st April, 1989. The Hon ble Delhi High Court in the case of Madhushree Gupta v. UOI [WP (C) No. 5059/2008] and British Airways Plc. v. UOI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized both on capital and revenue accounts. The evidence on record shows that only a sum of Rs. 1.25 lakhs was utilized on revenue account and the propor-tionate loss on this amount works out to Rs. 4,224. It is further mentioned that the explanation of the assessee in the penalty proceedings is that there is always a difference of opinion whether an expenditure is of capital nature or revenue nature. The auditor s report does not suggest whether the expenditure was on capital account or revenue account. The money was actually utilized and, thus, there is no concealment of income or making of false or bogus entries in the books of account. Therefore, it was contended that on the facts and in the circumstances of the case, penalty under section 271(1)( c ) is not leviable. The Assessing Officer considered the explanation. It was mentioned that the assessee could substantiate revenue expenditure of Rs. 4,224 only. The rest of the expenditure is on capital account. This leads to an inference that the assessee furnished inaccurate particulars of income, inasmuch as capital expenses were claimed as revenue expenses. On the facts, there could be no debate that the expenditure was by and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bom.) and CIT v. Bharat Heavy Electricals Ltd. [1999] 239 ITR 756 (Delhi). The claim of deduction would, thus, depend upon the purpose for which the foreign currency is held or utilized. In the case of Bestobell (India) Ltd. ( supra ), the Hon ble Calcutta High Court had disallowed such a loss as the same was held to be capital in nature. In the case of IAC v. Renusagar Power Co. Ltd. [1989] 28 ITD 439 (Cal.), it was observed that whereas for the allowance of expenditure incurred in obtaining a loan, it is not necessary to enquire whether the loan was used for acquiring the capital asset or current asset, but the expenditure incurred for repaying the loan would be allowable depending upon whether it was utilized for acquiring capital asset or a current asset. The case of the ld. counsel was that right from the inception of the assessment proceedings, the assessee had informed the Assessing Officer that the deductibility of the expenditure would depend upon the fact whether the loan was used towards capital account or current account. Its determination is a vexed question and has to be decided on the facts of each case. Coming to the facts of this case, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also placed on the decision of Hon ble Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217, in which one of the questions before the Hon ble Court was whether, the Appellate Tribunal was justified in law in holding that the technical fee paid to Warner Lambert Pharmaceuticals Co. of USA of Rs. 51,264 and Rs. 1,56,771 for assessment years 1970-71 and 1971-72 respectively was revenue expenditure? (Question No. 6). It was held that the Tribunal was not justified in holding that the amounts paid by the assessee in two assessment years constituted revenue expenses. Reliance was also placed on the decision of Hon ble Supreme Court in the case of East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627, in which it was held that interest paid on borrowed capital used to meet personal obligation of the assessee would not be deductible expenditure under section 37(1) of the Act. Reliance was also placed on the decision of Hon ble Supreme Court in the case of CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254, in which it was held that the loss incurred on account of additional liability arising from fluctuation in rate of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te satisfaction of the Assessing Officer for initiation of the penalty under sub-section (1). As mentioned in para 4.1 of this order, the AR himself referred to and confirmed the fact that the deductibility of the foreign exchange loss would depend on the purpose for which the said foreign currency loan is taken. This being so, the appellant itself should have taken pains to bifurcate the expenses relating to capital nature and the revenue nature and instead of wrong claim made in its return of income, should have claimed correct figures of the revenue expenses pertaining to the loss on foreign exchange fluctuation. The appellant could do so only during the course of the proceedings before the CIT(A)-IX, New Delhi, which shows that the appellant has filed inaccurate particulars while filing the return of income for the subject assessment year. Regarding the contentions of the AR that the penalty has been levied on the contentious issue as mentioned in para 4.2 of this order, the ld. AR has filed to realize that though the decisions of other High Courts may be its favour but the decision rendered by the Hon ble Apex Court in the case of East India Pharmaceutical Works Ltd. ( s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year, constituted revenue or capital expenditure? The assessee had not furnished the details of utilization of loan or the loss before the Assessing Officer. The details were obtained by the CIT (Appeals) in the course of appeal against the quantum order. These have been mentioned by the ld. CIT(A) on page 8 of his order in Appeal No. 4/2003-04. The details are as under: Particulars Security Deposit Purpose Capital Purpose Revenue Balance sheet item 40425500 Tax payment Advance/self tax 35169966 Computers 24028396 Plant Machinery 9870134 Furniture 5994760 Other fixed assets 2451944 Revenue items 125000 4.1 The learned CIT(A) held, only a sum of Rs. 1.25 lakhs to be revenue expenditure, deductible as such. The expenditure on computers, plant and machinery, furniture and other fixed assets, and the security deposit were held to be on capital account. Payment of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid statutory form. The report also mentions that expenditure of capital nature amounted to Rs. 5,89,650. The note further states that assets costing below Rs. 40,000 amounting to Rs. 55,19,919 have been charged to profit and loss account. Annexure IV, furnishing the details of such assets, has not been enclosed with the report, as filed in the paper book. Annexure XI of the tax audit report shows opening balance at Rs. 13,39,65,467 addition to loan at Rs. 39.90 lakhs (because of exchange fluctuation), payment of Rs. 66,75,467 and closing balance at Rs. 13,12,80,000. Thus, the evidence does not through any light on the issue before us. In view thereof, the assessee s case cannot draw any support from the reports. Further, in the case of Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi [1979] 118 ITR 507 (not referred to by any of the parties but supplied by us ), a case dealing with delay in filing special leave petition, the Hon ble Supreme Court inter alia held that it is a settled law that the mistake of counsel may in certain circumstances be taken into account in condoning the delay. However, there is no general proposition of law in this behalf. The questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not advance the case of the assessee. In fact, it goes against its case for the simple reason that the assessee utilized the foreign currency denominated loan inter alia for placing security deposits, purchase of computers, plant and machinery, furniture and other fixed assets, which led to creation of new capital assets, and discharge of tax liability. In the case of Madras Industrial Investment Corpn. Ltd. ( supra ), the finding of the Tribunal was that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that Accounting year. The court came to the conclusion that this conclusion was not justified looking to the nature of the liability. Although the liability was incurred in the accounting year, yet it was a continuing liability which stretched over a period of 12 years. In this context, the Hon ble Court observed that ordinarily, the revenue expenditure which incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred even though it has been written off in the books of account over a num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of a capital asset and benefit of enduring nature but also whether the expenditure was in the capital field or the revenue field. Even when seen in the light of this decision, the foreign exchange was utilized for security deposit, tax payment and purchase of fixed assets. Therefore, the utilization was either in capital field or amounted to appropriation of profit. The ratio of this case does not advance the case of the assessee. Thus, on the face of it, various amounts mentioned in the table in paragraph 3.4, except for Rs. 1.25 lakhs, were spent for acquisition of capital asset and payment of tax. These expenses are capital in nature and there cannot be any dispute about it. 5.2 Coming to the issue whether increase in liability on account of fluctuation in foreign exchange, referable to the aforesaid amount would be revenue or capital in nature, the assessee relied on the decision of Hon ble Supreme Court in the case of Woodward Governor India (P.) Ltd. ( supra ). The ratio of the decision is that such expenditure would be revenue expenditure if the liability was incurred on revenue account and it would be capital expenditure if it was incurred on capital account. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls with interest only, yet there could be genuine doubt in the mind of the assessee that such loss is to be at par with interest expenditure, both being revenue in nature even in absence of any specific provision dealing with foreign exchange loss. In that sense, one could conclude that insofar as loss relatable to security deposit and purchase of computers, plant and machinery, furniture and other fixed assets is concerned, the same is allowable as revenue expenditure. In case of fixed assets, even if the loss is capitalized, the assessee would be entitled to deduction of depreciation and, thus, will ultimately be able to get the deduction albeit over a number of years. However, the assessee also utilized a portion of the loan for payment of advance-tax. The general proposition canvassed before us about the issue being debatable is not applicable at all in respect of this payment because payment of advance-tax and self-assessment tax is not an expenditure incurred for the purpose of business. This is an item of appropriation of income. Therefore, we are of the view that there could be no dispute in regard to the loss pertaining to the payment of advance-tax. 6. Coming to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the details are factually correct, mere omission or negligence would not lead to either suppressio veri or suggestio falsi . However, the finding regarding mens rea has been displaced by the decision in the case of Dharmendra Textile Processors ( supra ). These cases along with other cases were considered by the Hon ble Supreme Court in the case of Reliance Petro Products (P.) Ltd. ( supra ). The aforesaid and other cases were considered and thereafter it was held that the word "particulars" means details furnished in respect of a particular claim and, therefore, if the details are accurate, the inference regarding concealment of income or furnishing inaccurate particulars of income cannot be drawn. Thus, the ratio which emanates from these cases is that - ( i ) the levy will depend upon the statutory language and Explanations thereto; and ( ii ) the inference of inaccurate particulars cannot be drawn if details furnished are correct. 6.3 In this case, the details of foreign exchange loss were not furnished in the return of income. In the tax audit report, it was shown as increase in liability of the loan. The loss was not debited in Schedule K of the audited accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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