TMI Blog2019 (3) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... d require the Assessing Officer to carry out the same exercise and axiomatically come to the same conclusion. This line, we are adopting, is within the fold of the requirement of the order of Assessing Officer being 'erroneous'. Undisputed facts are that the assessee was constituted as a special purpose vehicle to carry out the foundational tasks for setting up a coal based power plant, during the period relevant to Assessment Year in question, the business of the assessee had not yet commenced and the assessee had entered into contract for purchase of plant and machinery from abroad. In relation to such purchase, either on account of cancellation of contracts or on account of notional adjustment, due to favouable fluctuation of foreign exchange rate. The assessee had gained certain income. This being the position, as per settled law, the profits or gains arising out of the fluctuation of the foreign exchange rate, would undoubtedly on the capital account In case of CIT v/s. Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME COURT] the facts were that, the assessee-company was set up to produce steel. During period relevant to Assessment Year in question, construction of the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent-Assessee is a registered company and was constituted as a special purpose vehicle to facilitate the acquisition of land and complete preliminary formalities for setting up a power project at Mundra, based on imported coal at Mundra in District Kutch, Gujarat. (ii) For the Assessment Year 2009-10, the assessee had filed return of income on 29th September, 2009, declaring total income at 'Nil'. This return was taken in scrutiny by the Assessing Officer who passed order under Section 143 (3) of the Act on 26th December, 2011. He examined the various transactions of the assessee during the relevant accounting period. He noted that during the year under consideration, the assessee had continued the construction activity at the site at Mundra. (iii) He also noted that, the assessee had earned interest of ₹ 94.75 lakhs (rounded of) from Paschim Gujarat Vij Co. Ltd., (PGVCL) against security deposit of ₹ 14.788 Crores (rounded of), which the assessee had not offered to tax, showing it by way of credit to the capital work-in-progress. The Assessing Officer disputed the such treatment given by the assessee to the income. He was of the opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre-commencement period. The Company also enters into the forward contracts in respect of such payments to be made to the overseas suppliers. 3.5: The gain arising on forward contracts is on account of cancellation of forward contracts entered into in connection with the purchase of offshore equipment and Bypass Valves System. 3.6:As the commercial production of power had not begun in the captioned year, the company had capitalized all the expenses incurred in relation to setting up its plant and the gains on forward contracts were reduced from the expenses to be capitalized resulting in lesser capitalization to that extent. 3.7: The assessee receives any amount which is inextricably linked with the process of setting up its plant and machinery; such receipts will go to reduce the cost of its assets. These are receipts of capital nature and cannot be taxed as income. Ignoring such pleas of the assessee, the Commissioner passed impugned order, making following observations: I have perused the submission made. An uncontroverted fact remains that AO did not examine on what account foreign exchange transactions were undertaken. Whether, these were in conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject of setting up power plant. It was recorded that, the business of the company had not commenced during period relevant to Assessment Year 2009-10. The Tribunal also referred to the judgment of the Supreme Court in case of Sutlej Cotton Mills Ltd., v/s. CIT reported in 116 ITR 1 in which, it was held that, the profit or loss which arises to an assessee on account of appreciation or depreciation in the value of foreign currency held as capital asset is liable to be treated as capital in nature. This judgment, the Revenue has challenged in the present appeal. 5. Learned Counsel Shri Malhotra for the Revenue vehemently contended that, the Tribunal has committed serious error while interfering with the order of the Commissioner, which was based on sound principles. The Assessing Officer had not carried out any enquiries with respect to the assessee's gain arising out of foreign exchange rate fluctuation. The Commissioner, therefore, was justified in directing the Assessing Officer to carry out such enquiries. He submitted that, the Assessing Officer had not followed the instructions of the CBDT as recorded by the Commissioner. 6. On the other hand, learned Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the present case has. In this context, we do not accept the contention of the Counsel for the Revenue that, answer in law had to come from the Assessing Officer and not the Tribunal. He had argued that even if the Tribunal was right in law, since the Assessing Officer had not come to the said conclusion, the order of the Commissioner should not be disturbed. In our opinion, if the Tribunal has come to the correct conclusions in law and said conclusions are based on materials already on record, it would be futile to reinstate the order of the Commissioner, which in turn, would require the Assessing Officer to carry out the same exercise and axiomatically come to the same conclusion. This line, we are adopting, is within the fold of the requirement of the order of Assessing Officer being 'erroneous'. In other words, if it can be demonstrated that the order was not erroneous, the order of revision would, in any case, require an interference. The matter can be looked from slightly different angle. If while examining the order of the A..O. Commissioner notices that, though the A.O. was not examined for claim of the assessee, but the claim itself is legally tenable, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity etc. during the period of formation. It was held that, said receipts were capital in nature and not income of the assessee. Such receipts would be adjusted against project cost of the main business of the assessee. 14. In case of Sutlej Cotton Mills Ltd.,v/s. CIT, West Bengal reported in 116 ITR 1 , it was held that where profit or loss arises to an assessee on account of appreciation or depreciation, in the value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account but if the foreign currency was held as a capital or as a fixed deposit, such profit or loss would be capital in nature. 15. In view of the above, we do not find that Tribunal has committed any error. We are conscious of the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.,v/s. CIT reported in 227 ITR 172. It was a case in which assessee had invested the borrowed fund and earned income from such investments prior to the commencement of business. It was in this background, Supreme Court held that said prior period income, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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