TMI Blog2021 (6) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... en the capital receipt and revenue receipt will also serve to distinguish between capital disbursement and revenue disbursement. The issue involve in the present case is directly covered by the decision of Jagatjit Industries Ltd. [ 2009 (9) TMI 62 - DELHI HIGH COURT] held that, once that aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuations, in the event of such share capital being collected in foreign exchange, the determination as to whether it is to be treated as capital receipt or revenue receipt cannot depend upon the end-use of the share capital. There is no averment in the reply of the assessee that the amount of share application money was received for brand building of the assessee company. Again turning to the core issue that the share application money in nothing but a capital receipt and its return will not change its character. Even otherwise the assessee has not incurred any other amount except the exchange rate difference, which in our considered view is nothing but a capital expenses . Thus, in view of the aforesaid legal discussion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(2) and 142(1) of the Act proceeded for assessment. The AO after considering the various explanations, furnished by the assessee, made addition on account of various expenses of ₹ 1,08,460/-. The additions were made on adhoc basis, being 20% various expenses of ₹ 5,42,286/- debited by the assessee. The assessment was completed under section 143(3) on 17.03.2016. Thereafter, the assessment was revised Ld. PCIT by exercising his power under section 263 vide his order dated 21.03.2018. Before passing the order, the ld. PCIT issued show cause notice under section 263 dated 29.01.2018 by taking view that on verification of balance sheet, Profit and Loss Account, computation of income furnished by assessee, during the assessment proceedings, the assessee returned the share application money to Soma Tech Inc. (USA) of ₹ 1,76,23,119/- on 07.05.2012 and ₹ 66,37,861/- on 12.11.2012. The ld. PCIT further noted that exchange difference of ₹ 9,90,518/- and ₹ 5,43,600/- were credited to Soma Tech Inc. (USA). Further, as per the Profit and Loss Account of the assessee, the assessee debited total exchange difference of ₹ 26,69,857/-, which includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Philips Company to give sub-distributorship for the DUNLEE to the assessee company for Indian Territory. As DUNLEE brand of instruments and equipment s was being introduced in India, there was a need of heavy fund for development of its market and to setup the establishment. Thus assessee s associate company is US based provided fund to the assessee as it was not having huge fund for expansion of its business. The assessee further stated that in the meantime, the assessee company was financed by DUNLEE for promotion of marketing requirements for introduction of new market for its office produce in various states in India in requirement of fund. Since USA base associate company of assessee is the Authorised Dealer of DUNLEE, the DUNLEE provided necessary fund to the assessee by way of External Commercial Borrowings [ECB]. Hence, the assessee company returned the share application money to USA based its associated company. The share application money was used wholly and exclusively for the purpose of carrying business and hence, the exchange rate difference aroused out of repayment of share application money was a Revenue expenditure and assessee company accordingly claimed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 12.11.2012 of ₹ 5,43,600/-. The ld. AR for the assessee further submits that the assessee vide its reply dated 22.12.2015 filed before the AO explained the complete fact. The assessee explained about the receipt of share application money in previous financial year. The assessee was unable to issue the share and therefore, as per provision of Companies Act and guidelines of Reserve Bank of India (RBI) the amount was returned back during the year under consideration on 07.05.2012. The assessee furnished copy of bank realisation certificate. Further, for another transaction wherein the assessee received share application money of ₹ 74,94,000/- on 14.11.2011 and ₹ 91,38,600/- on 16.11.2011 total of ₹ 1,66,32,600/-. Due to technical reasons, the assessee could not issue share and therefore as per the provisions of Companies Act and guidelines of RBI the assessee was required return the share application money, which was returned on 07.05.2012. The assessee also received ₹ 10,83,000/- on 06.05.2012 and ₹ 54,51,250/- on 18.05.2012 which were also returned on 12.11.2012. The assessee also explained the fact leading to non-utilization/nonissuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Corpn. Ltd., 184-TTJ-741 (Mumbai), Yash Raj Films (P) Ltd., 105-TTJ-591 (Delhi D ), Silicon Graphics Systems (I) Ltd, 161-Taxman-166 (Jp. Trib.), Indian Shaving Products Ltd., 200-Taxman-177(Kar.) (Mag.),Wipro Finance Ltd., 180-TTJ-727 (Pune), Cooper Corporation (P) Ltd., 153-ITD-241 (Chennai), Toll (India) Logistics (P.) Ltd, and 144-ITD-448 (Delhi), Qualcomm India (P.) Ltd. 8. On the other hand, the ld.CIT-DR for the Revenue supported the order of Ld. PCIT. The ld.CIT-DR submits that before revision the order of Ld. PCIT has clearly held that the assessment order is passed without making proper enquiries or verification, which ought to have been made. The share application money received form part of capital receipt and its subsequent return would form part of capital expenditure, thus the expenditure on account of exchange rate difference is nothing but a capital expenditure. Thus, the assessment order passed by the AO is erroneous and in so far as prejudicial to the interest of the Revenue. The AO has taken a view which is not a sustainable view under the law. The ld. CIT-DR prayed for dismissal of the appeal. 9. We have considered the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . All details furnished by the company wre examined and placed on record. Place: Surat Date: 17/03/16 Sd- (SANDEEP KUMAR) Deputy Commissioner of Income-tax, Circle -2(1)(2) Surat 10. We find that the ld. PCIT, before passing under section 263 of the Act identified the issue that exchange rate difference on returning share application money is required to be treated as capital expenditure, same was required to be disallowed as per the contents of show cause notice dated 29.01.2018. The assessee in its reply dated 26.02.2018 explained that the issue was examined by Assessing Officer and that the assessment order is not erroneous. We find that the assessee while filing reply before ld. PCIT, twisted the facts and stated that share application money was received by assessee for development of its existing running finance and the amount was utilized during the period for the purpose of business activities. The assessee also tried to justify that exchange rate difference on returning share application money is revenue expenditure; same was required to be allowed as such. No such contention was raised before assessing officer. The Ld. PCIT not accepted the explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. 12. The Hon ble Jurisdictional High Court in well known leading case in CIT Vs Arvind Jewellers (259 ITR 502), while relying on the decision of Hon ble Apex Court has taken a view that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous, that section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The Supreme Court has also made it clear that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer and that every loss of revenue as a consequence of an order of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of business activities. This stand of the assessee is not tenable as the assessee never allotted the share to its US based associated company. The assessee has taken a another stand that the assessee company convinced DUNLEE for providing necessary funds by way of ECB and the assessee returned the share application money. 15. We find that during the assessment the assessing officer obtained certain information with regard to the expenses of foreign exchange. The assessing officer after seeking reply from the assessee instead of passing any speaking order kept all such information in the form of a Note appended with the assessment order, which we have extracted (supra). The assessing officer, thus, impliedly allowed the said foreign exchange fluctuation expenditure as revenue expenditure in favour of the assessee. The ld PCIT while revising the assessment order clearly held that share application received form part of capital receipt and its subsequent return form part of capital expenditure, any exchange rate difference associated with such capital payment also form part of capital expenditure and that the expenses of ₹ 15,34,118/- is nothing but a capital expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt. On further appeal by the revenue the Hon ble High Court held that, once that aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuations, in the event of such share capital being collected in foreign exchange, the determination as to whether it is to be treated as capital receipt or revenue receipt cannot depend upon the end-use of the share capital. 18. We further noted that Hon ble Madras High Court in Continuum Wind Energy (India) (P) ltd Vs DCIT [2020] 122 taxmann.com 102 (Mad) also held that when the assessee incurred foreign exchange loss on foreign currency loan which was utilized by the assessee for purchase of fixed asset, as loss was to be regarded as capital in nature not allowable under section 37(1). 19. Both the above referred decisions were confronted to the learned AR for the assessee and he was asked to furnish his comment on 04.06.2021. The learned AR for the assessee filed his written submissions dated 31.05.2021on record, copy of which was supplied to the ld. CIT-DR for revenue. In the written submissions dated 31.05.2021, the ld. AR for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue that the share application money in nothing but a capital receipt and its return will not change its character. Even otherwise the assessee has not incurred any other amount except the exchange rate difference, which in our considered view is nothing but a capital expenses . 21. The ratio of various case laws relied by ld. AR for the assessee is not helpful to the assessee. We find the Pune Tribunal in ACIT Vs Rohit Exhaust System Pvt. Ltd (ITA NO. 687/PN/2011) held that interest paid on refund of share application money is revenue expenditure. In the said case the assessee treated the said money as borrowed capital and was used for its business purpose and paid interest on borrowed money, thus the facts of this case law is not helpful to the assessee. In CIT Vs Woodward Governor India Pvt Ltd (supra) it was held that gain on fluctuation in exchange would be revenue receipt. In the said case the liability was arising out of loan availed for the purpose of business. Similarly in Oil Natural Gas Corporation Ltd,(supra) the liability on foreign exchange fluctuation on the amount of loan availed for thr purpose of business. Similarly, the Hon'ble Karnataka High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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