TMI Blog2016 (7) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... ion while computing Total Income. As in the case of Mahindra & Mahindra 2009 (10) TMI 639 - ITAT MUMBAI ) though FCCB were convertible into shares at a later point of time, they were in the nature of loan at the time of their issue till conversion and any expenditure incurred in connection with issuing FCCB would be admissible as a revenue expenditure. This principle has been extended to be applicable on account of fluctuation of foreign currency in respect of foreign currency convertible bond FCCB in the case of Mahindra and Mahindra Limited [supra]. The AO even though has not mentioned the submissions of the assessee in this regard, has nevertheless not made any disallowance of loss on account of foreign exchange fluctuation claimed by the assessee. The conclusion in such circumstances is that AO was satisfied with the claim of the assessee for deduction of the aforesaid sum. It may be that contrary view may also exist on the issue. The view taken by the AO is a possible view and the CIT in exercising of powers cannot seek to substitute his view with that of the AO. - Decided in favour of assessee - I.T.A No. 840/Kol/2013 - - - Dated:- 15-7-2016 - Waseem Ahmed (Accountant M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provision for Loss on FCL of Karur Vysya Bank upto March,08 5,158 Loss on FCL of Union Bank 3,28,696 Provision for Loss on FCL of Bank of India upto March,08 12,95,000 Loss on FCCB Issue 2,50,94,109 TOTAL 3,51,94,109 3. It can be seen from the aforesaid break up of loss on foreign exchange fluctuation that a sum of ₹ 2,50,94,109/- had been claimed as a loss on foreign exchange fluctuation on FCCB Issue by the assessee. During the previous year the assessee had issued Foreign Currency Convertible Bonds (FCCB). As on the last date of the previous year, due to foreign exchange fluctuation, the amount payable by the assessee towards the Bonds was higher by a sum of ₹ 2,50,94,110/- and this was claimed as revenue expenditure while computing the income from business. 4. The AO issued a notice u/s 142(1) of the Act dated 31.08.2010. He raised a specific query with regard to the allowability of the aforesaid sum as deduction. The relevant query of the AO in this regard were as follows :- 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n convertible does not militate against the nature of the debenture and therefore, the expenditure incurred would be admissible as revenue expenditure. The SLP filed by the Department against the aforesaid case was rejected by the Hon'ble Supreme Court vide SLP No. CC 10548/2009. Following the decision of Rajasthan High Court in Secure Meters(supra) Hon'ble Mumbai ITAT in the case of Mahindra Mahindra -vs.- ClT (2010) 36 SOT 348 (Mum) has held that expenditure incurred on account of foreign currency convertible bonds (FCCB) would be admissible as revenue expenditure. In view of the above judicial pronouncements, the assessee has claimed the said expenses as allowable revenue expenditure in computing total income chargeable to tax. Further, at the time of remittance of money in India, received from issue of FCCB, the dollar value fell from ₹ 45.55 to ₹ 39.37. Due to fall in the rupee value, the amount in the bank account has to be reinstated at the rate of ₹ 39.37. Since the transaction is settled during the year under consideration, as per Accounting Standard -11 The effects of changes in Foreign Exchange Rates , the exchange difference is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on merits the action of the AO in allowing deduction on account of loss on account of foreign exchange fluctuation was correct. 10. The CIT however, was not convinced with the reply given by the assessee. He was of the view that as per the decision of the Hon ble Supreme Court in the case of CIT vs Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC) it has been laid down that loss due to foreign exchange fluctuation is allowable as revenue expenditure provided the foreign currency transaction is on account of revenue item. According to CIT in the case of the assessee the loss due to foreign exchange fluctuation in foreign currency relate to transactions on capital item and therefore expenditure was capital in nature and not allowable as deduction to the assessee. He therefore held that the order of AO was erroneous. Thereafter the CIT discussed the powers u/s 263 of the Act as well as judicial pronouncements wherein the scope of power of 263 has been explained. Finally the CIT concluded as follows :- 10. In the light of the observations made above and the submissions of the assessee/consider the assessment order to be erroneous in so far as it is prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en duly accounted as 'Unsecured Loan' in the Balance Sheet following accounting principles. It was submitted that the Hon'ble Mumbai Tribunal in Mahindra Mahindra Limited -vs.- ACIT (2014) 29 ITR (Trib) 95 (Mum) has held that since issue of premium payable on FCCBs has been held to be revenue in nature, similarly the difference in the exchange which has resulted in loss on re-valuation of loan liability in the form of FCCB, has also to be given similar treatment thereby allowing such loss as revenue expenditure. Hence, debenture or FCCBs issued, whether convertible into shares at a future date is in the nature of loan and cannot be treated as capital raised by the assessee. Accordingly, the expenditure or loss incurred on issuance of any debt is allowable while computing Total income. Attention was drawn to the decision of the Hon'ble Rajasthan High Court in CIT -vs.- Secure Meters Ltd (2010) 321 ITR 611 (Raj) wherein it has held that debentures when issued are loan, and whether it is convertible or non convertible does not militate against the nature of the debenture and therefore, the expenditure incurred would be admissible as revenue expenditure. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency convertible bond FCCB by the Hon ble ITAT Mumbai in the case of Mahindra and Mahindra Limited. The AO even though has not mentioned the submissions of the assessee in this regard, has nevertheless not made any disallowance of loss on account of foreign exchange fluctuation claimed by the assessee. The conclusion in such circumstances is that AO was satisfied with the claim of the assessee for deduction of the aforesaid sum. It may be that contrary view may also exist on the issue. The view taken by the AO is a possible view and the CIT in exercising of powers cannot seek to substitute his view with that of the AO. The decision rendered by the Hon ble Bombay High Court in the case of CIT Vs. Gabriel India Limited (supra) clearly supports the plea of the assessee. The conclusion of the CIT in the impugned order that the loss in question is on account capital item cannot be sustained in the light of the decisions referred to by the learned counsel for the Assessee in the reply to the show-cause notice u/s.263 of the Act. Therefore it cannot be said that the order of the AO was erroneous and prejudicial to the interest of the revenue. Consequently the order passed u/s 263 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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