TMI Blog2013 (2) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant year - in favour of assessee. Addition on account of notional gain on conversion of foreign exchange deposit placed with its wholly owned subsidiary company relying on AS-11 - Held that:- As per the classification made in AS-11, monetary items mainly include amounts held on current account, such as, cash receivables, payables etc. while non-monetary items include amounts held on capital account, such as, fixed assets, investment in shares etc. In the present case, the shareholders’ deposit represented the amount held by the assessee on capital account inasmuch as it was convertible into equity shares within a period of 10 years and if not so converted, it was liable to be refunded to the assessee company only after a period of 10 years thus the said amount thus was in the nature of non-monetary item which was required to be reported/recognized at the exchange rate prevailing on the date of relevant transaction even as per AS-11 as rightly held by the CIT(Appeals) - no infirmity in the impugned orders of the CIT(Appeals) deleting the additions made by the AO on this issue and upholding the same -in favour of assessee. Deduction u/s 80HHC with regard to meals suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the CIT(Appeals) on this issue thus is not sustainable and deleting the same, allow assessee’s appeal. - ITA No.2273/Mum/2009, ITA No.393, 1115, 3620, 3871, 3872, 5965 /Mum/2010 , CO No.203/Mum/2009, CO No.54, 131, 148, 168/Mum/2010 - - - Dated:- 23-11-2012 - P.M. Jagtap and Amit Shukla, JJ. Appellant Rep by: Shri P.K. Shukla Respondents Rep by: Shri Sunil M. Lala, Shri Sandeep Bhalla, Shri Abhishek Mundada ORDER Per: Bench: Out of these seven appeals and five cross objections filed in this case, two appeals being ITA No. 3871/Mum/2010 and ITA No.3620/Mum/2010 are cross appeals for assessment year 1994-95 while the remaining five appeals are the appeals of the Revenue filed for assessment years 1998-99 to 2002-03 against which the assessee has filed its cross objections. Since the issues involved therein are common, the same have been heard together and are being disposed of by this single composite order for the sake of convenience. 2. The first common issue involved in the appeals of the Revenue for all the six years under consideration relating to the deletion by the learned CIT(Appeals) of the disallowance made by the AO on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney to several companies was held by the AO as diversion of borrowed funds and interest attributable to the amount so diverted was disallowed by him after rejecting the contention of the assessee that the entire share application money was paid by it out of non-interest bearing funds. The learned CIT(Appeals), however, accepted the contention of the assessee and held that the entire share application money having been paid by the assessee company out of interest free funds available at the relevant time, the disallowance of interest as made by the AO was not justified. 6. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is squarely covered in favour of the assessee by the decision of the Tribunal rendered in assessee s own case for the earlier years. In assessment year 1995-96, it was held by the Tribunal vide its order date 12th Sept., 2006 passed in ITA No. 2527 and 3264/Mum/2002 that there being no diversion of interest bearing funds for non business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds .It was also noted by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the said deposit into further equity of TIHK any time over a period of 10 years and any portion of the deposit not so converted into equity will be repatriated back to India only after the period of 10 years. In the light of these facts, it was claimed by the assessee that the shareholders deposit with TIHK is long term investment akin to equity and the same was liable to be recognized at the exchange rate prevailing on the transaction date. This claim of the assessee was not found acceptable by the AO on the following grounds : a) AS-11 requires monetary items to be reported at the closing rate. The assessee follows this Accounting Standard and has, therefore, defaulted in not translating the deposit made to TIHK at the closing exchange rate. b) The auditors have also qualified on the above departure from the accounting policy. c) In A.Y. 1996-97 the assessee has suo-moto booked exchange gain on repatriation of a part of the shareholders deposit. For the reasons given above, the AO converted the amount of shareholders deposit outstanding as on the last dates of the relevant previous years at the exchange rate prevailing on such last dates and brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.784M with TIHK is on capital account and is more in the nature of investment in shares of overseas ventures; b) it is in the nature of non-monetary asset and gains thereon are taxable, if at all, only in the year of realization. c) no gain has arisen during this year even under the mercantile system of accounting even as per AS-11 and d) as per settled judicial pronouncements, such gains are on capital account not taxable at all. For the reasons given above as well as relying on the decisions of Hon ble Supreme Court and Hon ble Bombay High Court cited on behalf of the assessee company, the learned CIT(Appeals) held that there was no gain that had arisen to the assessee during the years under consideration even as per AS-11 and the additions made by the AO on this issue for all the five years under consideration were not sustainable. Accordingly, he deleted the said additions. 11. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has strongly relied on the order of the learned CIT(Appeals) in support of the assessee s case on this issue whereas the learned DR has relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80HHC of the Act. According to the AO, the same did not constitute export out of India and the assessee, therefore, was not entitled to claim deduction u/s 80HHC thereon. The learned CIT(Appeals), however, accepted the contention of the assessee that the relevant sale proceeds constituted export in respect of which the assessee was entitled to claim deduction u/s 80HHC. 14. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that a similar issue was involved in assessee s own case for the earlier years and the same has been decided by the Tribunal in favour of the assessee consistently from assessment years 1989-90 to 1997-98. Respectfully following the said decisions of the Tribunal rendered in assessee s own case for the earlier years on a similar issue, we uphold the impugned order of the learned CIT(Appeals) allowing the claim of the assessee for deduction u/s 80HHC in respect of sale proceeds of meals supplied by its flight kitchen to foreign airlines holding that the same constituted export eligible for deduction u/s 80HHC. The relevant grounds of the Revenue s appeals are accordingly dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal in favour of the assessee in the earlier years. Respectfully following the orders of the Tribunal in assessee s own case for earlier years upto assessment 1996-97 on a similar issue, we uphold the impugned order of the learned CIT(Appeals) allowing the deduction claimed by the assessee on account of expenditure incurred on replacement on linen and dismiss the relevant grounds of the Revenue s appeals. 19. Ground No.7 raised in the appeals of the Revenue for assessment years 1998-99, 2000-01, 2001-02 and 2002-03 as well as ground No. 8 of its appeal for assessment year 1999-2000 are general in nature seeking no specific decision from us. 20. Ground No. 8 of the Revenue s appeal for assessment year 2001-02 is relating to the issue of interest levied by the AO u/s 234D which has been cancelled by the learned CIT(Appeals). 21. The return of income filed by the assessee for assessment year 2001-02 was initially processed by the AO u/s 143(1) on 15-11-2002 and refund due amounting to Rs. 6,06,88,637/- was granted to the assessee which was comprising of interest u/s 244A amounting to Rs.73,45,958/-. Thereafter, assessment was completed u/s 143(3) vide an order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee has not pressed ground No. 2 to 10 raised therein. The same are accordingly dismissed as not pressed. 25. What survives for our consideration now is only ground No. 1 of the assessee s appeal for assessment year 1994-95 which involve the issue relating to addition of Rs.3,14,70,562/- made by the AO and confirmed by the learned CIT(Appeals) on account of interest capitalized in the books treating the same as income of the assessee. 26. During the previous years relevant to assessment years 1991-92, 1992-93 and 1993-94, the assessee company had incurred interest expenditure on capital borrowed for the purpose of construction of fixed assets in respect of its Lucknow hotel project and Aurangabad hotel project aggregating to Rs.3,14,70,562/- and the said expenditure debited to the profit loss account was claimed as deduction. In the year under consideration, the assessee company, however, changed the method of accounting for such interest and accordingly the interest charged in the earlier years was reversed in the books of account and the same was considered as part of cost of relevant fixed asset. The interest of Rs.3,14,70,562/- thus was treated as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income merely to comply with the requirement of AS-10 issued by the ICAI which are mandatorily required to be followed by the Corporate, the facts remains that the amount having been credited to the profit and loss account, is an admittance of the fact that the said sum represent income of the appellant in terms of section 41(1) of the Act as cessation of liability. The passing of such entry amounted to cessation of liability as the same had been taken into account in earlier years and section is directly applicable to the facts of the case. In this connection, reliance could be placed on Gee Bros vs. ITO (2009) 34 SOT 519 (Mum) in which it was held that remission or cessation of trading liability by unilateral act of the assessee by way of writing off its liability in its books of account will amount to obtaining a benefit for the purposes of section 41(1) and said act by itself would be sufficient to attract the provisions of the section. The company not only wrote off the liability but also offered the said liability in the return of income on the ground that the same had ceased to exist. Such writing off would be liable to tax as per Explanation 1 to section 41(1) broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 29. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the addition made by the AO on account of reversal of interest claimed in the earlier years by crediting the same in the books of account for the year under consideration has been confirmed by the learned CIT(Appeals) relying on the provisions of section 41(1) of the Act. However, as submitted on behalf of the assessee before the authorities below as well as before us, the accounting entries reversing the interest claimed in the earlier years and including the same in the cost of relevant fixed assets in the year under consideration was done by the assessee to comply with the monetary requirements of AS-10 and there was no remission or cessation of any liability on account of interest which was payable to the lending companies. As submitted on behalf of the assessee, even no depreciation on the interest amount capitalized was claimed by the assessee. The assessee thus had not obtained any advantage or benefit either in cash or in any other manner in respect of liability on account of interest in question and this being so, we are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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