TMI Blog2017 (3) TMI 1871X X X X Extracts X X X X X X X X Extracts X X X X ..... with the prescribed authority - HELD THAT:- During the course of hearing before us, Ld. Counsel stated that this issue is covered in favour of the assessee by the decisions of the Tribunal for earlier years. Though in the earlier years, this issue was sent back to the file of the AO for the limited purpose of verification of order of approval in form 3CM, but in the year under appeal, the said approval in form 3CM was filed before the lower authorities, and Ld.CIT(A) had granted relief after verifying the same. Therefore, no purpose would be served in sending the matter back to the file of lower authorities especially when nothing wrong has been pointed out in the findings of Ld. CIT(A). DR did not make any serious objection to the proposition. Under these circumstances, we find that the relief has been granted by the Ld. CIT(A) after verifying the requisite approval in proper form. Nothing wrong or contradictory has been brought before us by the Ld. DR. Thus, we do not find any need or justification to interfere in the order of the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) is upheld. Thus, ground of the Revenue is dismissed. Disallowance u/s.36(1)(iii) - since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce.(0.5% disallwoance).First Ground of appeal is decided in favour of the assessee,in part. Disallowance of foreign exchange fluctuation - HELD THAT:- We find that the assessee had availed foreign currency term loan from SBI and a loan by way of ECB,that it had claimed the loss arising on account of fluctuation in foreign exchange borrowings as revenue expenditure, that the FAA,while confirming the order of the AO,held that the loss claimed by the assessee was not revenue loss,but was capital loss.The issue of revenue/capital loss has been subject of extensive litigation. It is a fact that the loan from the SBI and the ECB was availed by the assessee for purchasing capital assets and the loss arising out of the fluctuation in foreign exchange was not relatable to circulating capital or stock in trade of the assessee.It is not the case of the assessee that borrowed amount for the purpose of import of capital goods was utilised for other purposes or that the loan amount had undergone a change and had assumed a new character.It was a plain and simple transaction of purchasing the capital goods,so any loss related with it has to be considered as capital loss.It is also found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Mumbai the Assessing Officer (A.O.) and the assessee have filed cross appeals for the above mentioned year. Assessee-company,engaged in the business of manufacturing of organic /inorganic chemicals and intermediates,filed its return on 30.09.09 declaring total income at ₹ 79.54 crores .A revised return was filed on 29/07/2010,declaring total income at ₹ 78.36 crores.The AO completed assessment u/s.143(3) of the Act determining its income at ₹ 95.21 crores under normal provisions and at ₹ 115.29 crores under section 115JB of the Act. Before us,the Authorised Representative(AR) did not press Ground No.1,7 and 10, hence same stand dismissed as not pressed. ITA/6827/Mum/2014 : 2. First Ground of appeal raised by AO, is about allowing depreciation of ₹ 2.53 crores on Plant Machinery.It was brought to our notice that identical issue was decided by the Tribunal,while adjudicating the appeal for AY 2008-09 (ITA/2421/M/2014,dt.21.12.2016). We are reproducing the relevant portion of the order and it reads as under:- 22. Ground 1: In this ground, the Revenue has challenged the action of Ld. CIT(A) in allowing depreciation of ₹ 32, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) examined the copy of certificate provided by the assessee and allowed the relief with following observations:- 3.3 I have carefully considered the finding of the AO in the impugned assessment order and the above submission of the appellant. The DSIR vide letter dated 10.10.2010 has approved the claim of accelerated depreciation allowance under Rule 5(2) of the I.T.Act Rules for F.Y.2004-05 and 2005-06. I find the AO had followed the decision taken by the predecessors for A.Y.2005-06 and 2006-07 when no approval was available, while completing the assessments. Since the approval is now granted, I find the claim of the appellant needs to be allowed. However, I direct the AO to allow the depreciation on the corrected W.D.V. after giving effect to the claim of depreciation for A.Y.2005-06 to A.Y.2007-08. Subject to this direction, this ground is partly allowed. 26. During the course of hearing before us, it has been stated by the Ld. Counsel that since required certificate has been provided by the assessee which has been examined by the Ld. CIT(A), and only thereafter relief has been provided by him in line with earlier years orders which have been confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years. Though in the earlier years, this issue was sent back to the file of the AO for the limited purpose of verification of order of approval in form 3CM, but in the year under appeal, the said approval in form 3CM was filed before the lower authorities, and Ld.CIT(A) had granted relief after verifying the same. Therefore, no purpose would be served in sending the matter back to the file of lower authorities especially when nothing wrong has been pointed out in the findings of Ld. CIT(A). 30. Per contra, the Ld. DR did not make any serious objection to the proposition. Under these circumstances, we find that the relief has been granted by the Ld. CIT(A) after verifying the requisite approval in proper form. Nothing wrong or contradictory has been brought before us by the Ld. DR. Thus, we do not find any need or justification to interfere in the order of the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) is upheld. Thus, ground of the Revenue is dismissed. Respectfully following the same,Ground No.2 is decided against the AO. 4. Third Ground is about interest disallowance of ₹ 1.79 crores u/s.36(1)(iii) of the Act.We find the identical issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preferred an appeal before the First Appellate Authority (FAA).He held that the assessee had purchased the microsoft windows 2008 to carry out day to day back office work, that it was a standard operating software that needed frequent updation.He referred to the case of Asahi India Safety Glass Ltd.(64DTR63) of Hon'ble Delhi High Court and held that software packages like MS Window 2008 were utility packages,that they were for regular business use, that such programmes help the assessee to carry-out the business more efficiently and did not enhance the value of profit making apparatus.Finally,deleting the addition made by the AO he held that the expenditure incurred by the assessee for purchasing software should be treated as revenue expenditure. Before us, the DR stated that the matter could be decided on merits. The AR relied upon the judgment of Asahi India Safety Glass Ltd. of the Hon'ble Delhi High Court (supra). We find that the issue stands covered by the above order of the Hon ble Delhi High Court. Respectfully,following the same, we dismiss Ground No.4 raised by AO. 6. Last Ground of appeal is about deleting the addition of ₹ 15.03 lakhs,received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sum while computing the income for the year under consideration. As there is no legal or factual infirmity in the order of the FAA,so confirming the same, we dismiss last Ground of appeal,raised by the AO. ITA/7039/Mum/2014: 7. First effective Ground (GOA2),raised by the assessee,is about disallowance of ₹ 1.86 crores made u/s.14A of the Act r.w.r 8D of the Income tax Rules,1962(Rules).During the assessment proceedings the AO found that the assessee had received dividend income of ₹ 24.28 lakhs and had claimed it as exempt, that the accounts maintained by it were mixed, that the common funds were employed for earning exempt income as well as taxable income, that the assessee had made a disallowance of ₹ 48,387/- on its own. After considering the judgment of Godrej Mfg. Co.Ltd. of the Hon'ble Bombay High Court (328ITR81),he made a disallowance of ₹ 1.86 crores invoking the section of 14A r.w.r.8Dof the Act. 7.1. Aggrieved by the order of AO,the assessee preferred an appeal before the FAA and made elaborate submissions.Referring to his own order for the AY 2008-09, the FAA upheld the order of the AO stating that there was no change in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is rejected. 10. However, the Ld. Counsel also stated that investment in the subsidiary / group companies should be excluded while working out the average amount of investments since investment in these companies have been made not for the purpose of earning exempt income but for acquiring control and for strategic reasons. We find force in the argument of the Ld. Counsel in view of the judgments relied upon in support of his arguments as have been mentioned above, viz. Cheminvest Ltd (supra), CIT vs Oriental Structural Engineers Pvt Ltd (supra), Garware Wall Ropes Ltd (supra) and JM Financial Ltd vs Addl CIT (supra). Therefore, the AO is directed to exclude the amount of investment made in the group companies for strategic reasons. For this limited purpose, this issue is sent back to the file of the AO, who shall decide this issue afresh after giving adequate opportunity of hearing to the assessee to furnish required details of investments made in the group companies. The disallowance shall be made by the AO after excluding the amount of investment in group / subsidiary companies for working out the average value of investments. For the purpose of rule 8D(2)(iii). As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was on account of capital, that the claim of the assessee ,that the losses arose while carrying on business were not acceptable.Finally, he upheld the order of the AO. 9.2. Before us,the AR relied upon the case of Health Prime Services (India) Ltd. (ITA/122/ Mum/2013,dt.18.11.2016) and Cooper Corporation Pvt.Ltd. (159ITD165). DR supported the order of the FAA. 9.3. We have heard the rival submissions and perused the material before us.We find that the assessee had availed foreign currency term loan from SBI and a loan by way of ECB,that it had claimed the loss arising on account of fluctuation in foreign exchange borrowings as revenue expenditure, that the FAA,while confirming the order of the AO,held that the loss claimed by the assessee was not revenue loss,but was capital loss.The issue of revenue/capital loss has been subject of extensive litigation.So,before proceeding further,we would like to enumerate certain principles governing the losses and same can be summarised as under: i). Words revenue loss and Capital loss have not defined anywhere in the Act.But,whether a particular loss is a trading loss or a loss on the capital side,would depend on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had assumed a new character of stock-in-trade or circulating capital and,therefore,any loss suffered by the assessee on account of foreign exchange fluctuation would have to be treated as revenue loss and not capital loss. ix). With regard to treatment to be given to foreign exchange fluctuation it has been 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 him on revenue account or as a trading asset or as part of circulating capital in the business. It would, however, be profit or loss of capital nature,if the foreign currency is held as a capital asset or as fixed capital.For determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilisation of the amount at the time of devaluation and not the object for which the loan had been obtained. Even if the foreign currency was intended or had originally been utilised for acquisition of fixed asset,if at the time of devaluation it had changed its character and had assumed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange was not relatable to circulating capital or stock in trade of the assessee.It is not the case of the assessee that borrowed amount for the purpose of import of capital goods was utilised for other purposes or that the loan amount had undergone a change and had assumed a new character.It was a plain and simple transaction of purchasing the capital goods,so any loss related with it has to be considered as capital loss.It is also found that the AO had allowed depreciation on the assets.We would like mention that we have gone through the cases relied upon by the assessee.It is found that both the cases are clearly distinguishable on facts.In the case of Health Prime Services(supra) the issue was disallowance of loss resulting on account of fluctuation in foreign exchange rate on the closing date of the year under consideration, primarily on the ground that it was a contingent liability and notional in nature.It was a matter of reinstatement of the External Commercial Borrowings (ECB).It had nothing to do with acquisition of capital assest.In the case before us,the FAA has not held that the liability was contigent.He has given a categorical finding of fact of purchase of machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation and the relevant provisions have to be construed reasonably and purposively. The additional depreciation is allowed in the year of purchase and if in the year of purchase the assessee is eligible only for 50 per cent. depreciation, the balance 50 per cent. can be carried forward for the subsequent year. 11. Next ground is about disallowance of ₹ 7.83 lakhs u/s.40a(ia) of the Act.During the course of assessment proceedings the AO found that the assessee had claimed prior period expenses of ₹ 7,83,852/-.He directed it to file a detailed explanation in that regard.From the details filed,the AO could ascertain that the payments related to freight and commissio ,that the auditor,while auditing the books for subsequent year had pointed out that the expenses related to the year under appeal.He held that the assessee did not deduct Tax at source,while making payment invoking provisions of section40(a)(ia). He disallowed the entire payment. 11.1. Before the FAA it was argued that tax was deducted at source and same was deposited before the due date of filing of return i.e.,before 31/09/2009, that the AO wrongly alleged that the assessee did not comply to the TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u - nity to the assessee and decide the issue afresh.Ground No.8 is decided in favour of the assessee,in part. 13. Disallowance of depreciation on asset purchased from Pravin Metal Corporation is the subject-matter of Ground No.9. It was brought to our notice that identical issue was set aside to the file of AO by the Tribunal in the earlier years.While deciding the appeal for earlier AY the Tribunal has observed as under : 12. Ground 3: This ground is with regard to the disallowance of depreciation on assets purchased from M/s Pravin Metal Corporation of ₹ 22,057/-. During the course of hearing it was brought to our notice that this issue has been set aside to the file of the AO vide order of the Tribunal for A.Ys 2005-06 to 2007-08 dated 06-02-2015. 13. We have gone through the order passed by the Tribunal for earlier years and noted that this issue has been sent back to the file of the AO to be decided in the light of directions contained in the earlier order of the Tribunal. We find it appropriate to send this issue back to the file of the AO to be decided afresh by the AO in the light of the directions given in the aforesaid order of the Tribunal. This gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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