TMI Blog2023 (4) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... running account maintained with the holding company and the assessee company wherein funds were transferred as per the business requirement - no notional interest on such recurring transactions is called for. Accordingly, we direct the AO not to charge any notional interest. Rent deposit given to Kamineni Estates (P) Ltd., for the purpose of leasing a space to operate a Wellness Centre - No addition of notional interest on account of rental advance for lease of property in our opinion can be made since the same is for business purposes. Similarly, the disallowances of notional interest on the advances given to professionals who are doctors in our opinion cannot be made - we are of the considered opinion that the CIT (A) is not justified in sustaining the addition of proportionate notional interest on the advances to professionals made by the AO - The various other advances do not call for disallowance of notional interest. Accordingly, the same is directed to be deleted. The second issue raised by the assessee is accordingly allowed. - ITA No.90/Hyd/2018 - - - Dated:- 31-3-2023 - Shri R.K. Panda, Accountant Member And Shri K. Narasimha Chary, Judicial Member For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Wellness Centre at Jubilee Hills. 4. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. So far as the investment in shares of M/s Kamineni Health Care is concerned, he noted that shares have not been allotted during the year. Therefore, it is in nature of advance on which the assessee is claiming interest during the year. He further noted that the investment was done in earlier year out of borrowed funds and therefore, interest on such investment is to be disallowed. 4.1 As regards advances given to USAIPL and M/s. Kamineni Estates (P) Ltd are concerned, he noted that the assessee could not substantiate with supporting documents. He noted that interest paid on advances given to USAIPL was disallowed in A.Y 2012-13 and the assessee gave the same explanation. He referred to the decision of the Hon'ble Punjab Haryana High Court in the case of CIT. Patiala Vs M/s Punjab Tractors, where it has been held that once it is established that the assessee had raised certain loans for business purposes, on which interest liability is being incurred and on the other hand the funds were advanced to sister concern for non-business purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case, as brought out by the Assessing Officer in the assessment order and as furnished by the AR, during the appeal proceedings, the appellant failed to substantiate the claim that the interest free loans/advances given to the sister concerns was out of commercial expediency. As rightly noted by the Assessing Officer, on one hand the appellant was paying huge interest on the borrowed funds and on the other hand it has been advancing interest free loans to its sister concerns, ostensibly without any commercial expediency. In the absence of case being made out by the appellant that the said interest free loans/advances were out of commercial expediency, the action of the Assessing Officer in disallowing interest @ 12% on the interest free loans/advance amounting to Rs.95,50,483/- is upheld and the grounds of appeal are dismissed . 6. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal by raising the following revised grounds of appeal: 1. The order of the learned CIT (Appeals), in so far as it is prejudicial to the interest of the appellant, is against law, weight of evidence and probabilities of the case. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,483/- overlooking the fact that the appellant had given the money to USAIPL for construction of a super specialty hospital in Vijayawada with an intention to acquire shares in that company and had further advanced funds to others for the purpose of business. Ground No. 6: 6. Without prejudice to the above grounds, the learned CIT (Appeals) grossly erred in disallowing estimated finance cost@ 12% on the amounts paid to United Steel Allied Industries Private Limited (USAIPL) as well as others for business purpose to the tune of Rs.95,50,483/-. It is prayed that the Hon'ble Income Tax Appellate Tribunal be pleased to a admit this Revised Grounds in the interests of justice. 7. The first issue raised by the assessee in the grounds of appeal is regarding the disallowance of foreign exchange fluctuation loss of Rs.29,56,433/-. 7.1 The learned Counsel for the assessee submitted that the assessee has purchased an MRI Machine during October, 2011 by availing buyers credit of US dollars 9,45,000 from Bank of India, San Francisco. The machinery was put to use on 6.10.2011 and the rate of exchange prevailing at that time was Rs.51/-. The foreign currency loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um/2007 for the A.Y 2004-05. ii) Hon'ble Supreme Court in the case of CIT vs. Arvind Mills Ltd reported in (1992) 60 Taxmann.192 (S.C) iii) Hon'ble Bombay High Court in the case of Padamjee Pulp and Paper Mills Ltd vs. CIT reported in (1994) 210 ITR 97 dated 6th October, 1993. iv) Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Fertilizers Co. Ltd reported in (2003) 126 Taxmann 572 (Gu.) dated 19th October, 2002. 8 We have considered the rival arguments made by both sides, perused the orders of the Assessing Officer and the CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed foreign exchange fluctuation loss of Rs.29,56,433/- debited in the P L A/c on the ground that the loan was taken for the purpose of acquisition of a capital asset and hence foreign exchange fluctuation loss incurred thereon is to be treated as a capital expenditure and not as revenue expenditure. We find the learned CIT (A) upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be added to the actual cost of the asset as defined in clause (1) of section 43 of the Act. This section specially provides for the treatment of increased liability of the assessee as expressed in Indian currency for repayment of the moneys borrowed by him from any person in foreign currency specifically for the purposes of acquiring the asset. In the present case, the assessee had acquired a capital asset from a country outside India lor the purpose of its business by making payment in foreign currency. For this specific purpose, it borrowed moneys in foreign currency from the Industrial Finance Corporation of India and the liability in respect thereof was outstanding at the end of the relevant previous years. This liability had increased on account of change in the rate of exchange. Thus, section 43A fully applies and the additional liability so raised had to be added to the cost of acquisition. This view is also in consonance with the clarification issued by the Ministry of Finance, by its letter of January 4, 1967, addressed to the Federation of Indian Chambers and Industry, the extracts of which have been reproduced in the judgment of the Supreme Court in CIT v. Arvind M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count to modify the figure of actual cost and secondly that such adjustment should be made in the year in which the increase or decrease in liability arises on account of the fluctuation in the rate of exchange . In view of the foregoing discussion and the decision of the Supreme Court referred to above, it is clear that the Tribunal was not justified in holding that the sums of Rs.21,36,840 and Rs.4,89,502 did not constitute additional cost of machinery imported by the assessee for the purpose of depreciation. We are of the clear opinion that in view of section 43A of the Act, these amounts are to be added in the cost of acquisition of the asset for the purpose of depreciation for the A.Ys concerned. We, therefore, answer question No.2 in the negative, i.e. in favour of the assessee and against the Revenue . 8.4 Respectfully following the above decision, we hold that the loss on foreign exchange fluctuation loss has to be added to the cost of the asset and depreciation has to be allowed on this but such foreign exchange fluctuation loss cannot be allowed as a revenue expenditure. The ground raised by the assessee is accordingly decided in the above terms. 9. So far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case made addition of Rs.95,50,483/- being the interest @ 12% on advances of Rs.7,95,87,355/- given to various persons on the ground that interest bearing funds have been diverted for non-business purposes. We find the learned CIT (A) sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. A perusal of the details of break-up of advances filed by the learned Counsel for the assessee shows that an amount of Rs.7,00,000,000/- was given as advance for the Vijayawada Project being investment in shares in Kamineni Health Care Pvt. Ltd. We find identical issue had come up before the Tribunal in assessee s own case for the preceding A.Y, vide ITA 384/Hyd/2017 order dated 3.7.2017 and the Tribunal restored the issue to the file of the Assessing Officer by observing as under:- 5. After hearing both the parties, we find that assessee s contention has always been that it has given the advance for construction of a hospital at Vijavawada and that it was to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained with the holding company and the assessee company wherein funds were transferred as per the business requirement the details of which are as per page 9 of the paper book and which are is as under: 14.1 In our opinion, no notional interest on such recurring transactions is called for. Accordingly, we direct the Assessing Officer not to charge any notional interest on the amount of Rs.65,31,314/-. 15. Similarly, amount of Rs.18,10,089/- pertains to the rent deposit given to Kamineni Estates (P) Ltd., for the purpose of leasing a space to operate a Wellness Centre. Therefore, no addition of notional interest on account of rental advance for lease of property in our opinion can be made since the same is for business purposes. 16. Similarly, the disallowances of notional interest on the advances given to professionals who are doctors at Rs.9,29,192/- in our opinion cannot be made. In this view of the matter, we are of the considered opinion that the CIT (A) is not justified in sustaining the addition of proportionate notional interest on the advances to professionals of Rs.9,29,192/- made by the Assessing Officer. The various other advances do not call for disall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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