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Vassantram Mehta And Co. (P) Ltd. Versus Joint Commissioner of Income-Tax

2015 (5) TMI 269 - BOMBAY HIGH COURT

Disallowance of claim of interest payment - interest-free advances made to sister concern - Held that:- Neither the Revenue led any evidence to show how the borrowed funds were utilized by BBPL or the appellant given an opportunity to establish the need of the funds by BBPL for the benefit of appellant-Assesses. In the above view, we set aside the order of the Tribunal disallowing payment of interest to the extent of ₹ 17.27 lakhs and restore the issue to the Tribunal for fresh considerati .....

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d demurrage payable to a foreign buyer - Held that:- Claiming of revenue loss on account of foreign exchange rate fluctuation, is an allowable expenditure on the date of making its balance sheet. This revenue loss is not to be postponed to a future date when the transaction gets crystalised either by performance and/or cancellation of the contract. This is so agreed, as the issue now stands covered by Apex Court decision in Commissioner of Income Tax V/s. Woodward Governor India P. Ltd. reported .....

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the Petitioner : Mr Mihir Naniwadekar & Ms Vinita Palyekar, Advs. For the Respondent : Ms Asha Desai, Adv. JUDGMENT (Per M. S. Sanklecha, J.) In this appeal under Section 260A of the Income Tax Act (the Act) the challenge is to the order dated 8/08/2007 passed by the Income Tax Appellate Tribunal (Tribunal) in respect of Assessment year (AY) 2001-02. 2. This appeal was admitted on 10/03/2008 on the following substantial questions of law: (A) Whether on the facts and in the circumstances of t .....

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(Appeals) disallowing the actual loss incurred due to fluctuation in currency rates in respect of advance received from a foreign buyer and demurrage payable to a foreign buyer ? Facts:- 3. For the assessment year 2001-02 the appellant-Assessee filed its return of income declaring a total income of ₹ 28.61 lakhs. In its return of income the appellant had : (a) claimed an expenditure on account of interest aggregating to ₹ 27.03 lakhs being the interest paid on pre shipment packing c .....

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onclusion that the interest was being paid in respect of credit facilities obtained not for the appellant's own business; and (b) claimed an amount of ₹ 12.85 lakhs as loss on foreign exchange fluctuation. The appellant had received advances for supply from foreign parties for supply of iron ore. The variation/fluctuation in the exchange rate led to a revenue loss/profit. Therefore, at the end of the accounting period i.e 31st March. 2001 being the previous year relevant to subject ass .....

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the Act the enhanced the appellant's income from ₹ 28.61 lakhs to 35.87 lakhs after adjusting an enhanced deduction on account of 80HHC of the Act.4. Being aggrieved by the order dated 26.3.2004 of the Assessing Officer, the appellant preferred an appeal to the Commissioner of Income of Income Tax (Appeals) [CIT(A)]. By an order dated 26/12/2005, the CIT(A) concluded as under: (a) On principle upheld the disallowance of interest on pre shipment packing credit in respect of funds divert .....

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he appellant in respect of advances made by it to BBPL (diverted funds) out of the packing credit facility obtained by it. (b) Not only upheld the amount of ₹ 9,26,842/- disallowed by the Assessing Officer on account of fluctuation in rate of foreign exchange but further on principle also disallowed the amount of ₹ 3.59 lakhs which was allowed by the Assessing Officer. This on the ground that no amount on account of foreign exchange fluctuation can be debited to the profit and loss a .....

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reign exchange fluctuation by the appellant to its profit and loss account was disallowed. 5. Being aggrieved, the appellant filed an appeal to the Tribunal. By the impugned order, the Tribunal upheld the order dated 26.12.2005 of the CIT(A) in its entirety as under:- (a) on account of interest paid on pre shipment packing credit to the extent the funds were diverted by the appellant to its sister concern BBPL; and (b) disallowance of the entire loss claimed on foreign exchange fluctuation while .....

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ssessing Officer. Notwithstanding the above, the presumption in the impugned order is that funds advanced to M/s BBPL were out of borrowed funds is contrary to the decision of this Court in CIT Vs. Reliance Utilities & Power Ltd reported in 2009(313) ITR 340. Further it is contended that the advances were given to M/s BBPL for the purposes of the appellant's business so as to ensure an uninterpreted supply of iron ore from BBPL. This advance to BBPL according to the appellant was given o .....

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r the appellant that question (A) be answered in favour of the appellant. As against the above, it is contended by Ms. Dessai, the learned Counsel on behalf of the Revenue, that no interference is warranted to the impugned order. This is particularly so as there are concurrent finding of fact in favour of the Revenue. (ii) We proceed on the basis of the admitted position (Assessment Order dated 26.3.2004) that the appellant had enough funds of its own to make advances to M/s BBPL. However, all t .....

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t free funds can have no application in the face of finding of fact in this case. Thus no interference with the impugned order on application of incorrect presumption, is called for. (iii) However, the Apex Court in S. A. Builders Ltd(supra) has held that even where the funds are advanced out of interest bearing funds to its sister concern, yet the deduction of interest paid on account of the borrowed funds cannot be disallowed as an expenditure if the amounts have been given to a sister concern .....

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isfying the test of purpose of assesse's business. The Apex Court in S.A. Builders Ltd.(supra) has observed as under: "We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obvious .....

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