Paramount Communications Ltd., New Delhi V. DCIT, New Delhi

ITA 1378/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3184 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSHMA SINGH
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Rule of consistency; Earning of tax free income; Right to appeal; Capital receipt; Revised return; Revenue expenditure; Capital expenditure; Rule 8D; Set aside; Capital Gains
• Section: 14A; 205; 64; 113; 43; 48; 73; 72; 13; 22; 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, F: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.767/DEL/2014 [ASSESSMENT YEAR: 2009-10] M/S PARAMOUNT COMMUNICATIONS LTD. C-125, PARAMOUNT HOUSE, NARAINA INDL. AREA, PHASE-I, NEW DELHI-110028 DY. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI PAN-AAACP0969Q ASSESSEE REVENUE ITA NO.1378/DEL/2017 [ASSESSMENT YEAR: 2010-11] M/S PARAMOUNT COMMUNICATIONS LTD. C-125, PARAMOUNT HOUSE, NARAINA INDL. AREA, PHASE-I, NEW DELHI-110028 DY. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI PAN-AAACP0969Q ASSESSEE REVENUE ITA NO.2288/DEL/2017 [ASSESSMENT YEAR: 2010-11] DY. COMMISSIONER OF INCOME TAX, CIRCLE-19(1), ROOM NO.221, C.R. BUILDING, NEW DELHI M/S PARAMOUNT COMMUNICATIONS LTD. C-125, PARAMOUNT HOUSE, NARAINA INDL. AREA, PHASE-I, NEW DELHI-110028 PAN-AAACP0969Q REVENUE REVENUE 2 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ASSESSEE BY SH. SATYAN SETHI, ADV. SH. ARTA TRANA PADNA, ADV. REVENUE BY MS. SUSHMA SINGH CIT-DR DATE OF HEARING 12.04.2021 DATE OF PRONOUNCEMENT 15.06.2021 ORDER PER R.K. PANDA, AM, ITA NO.767/DEL/2014 FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED11.11.2013 OF THE LEARNED CI T(A)-XVII, NEW DELHI, RELATING TO ASSESSMENT YEAR 2009-10. IT A NO.1378/DEL/2017 FILED BY THE ASSESSEE AND ITA NO.2288/DEL/2017 FILED BY THE REVENUE ARE CROSS APP EAL AND ARE DIRECTED AGAINST THE ORDER DATED 30.01.2017 OF THE LEARNED CIT(A)-7, NEW DELHI, RELATING TO THE ASSESSMENT YEA R 2010-11. FOR THE SAKE OF CONVENIENCE THESE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.767/DEL/2014 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF POWER CABLE, JELLY FILLED TELEPHONE CABLES & OPTICAL FIBR E CABLES. ITS FINISHED PRODUCTS ARE SUPPLIED MAINLY TO GOVERNMENT 3 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DEPARTMENTS, RAILWAY, DOT/BSNL/MTNL/PSU, MNCS & OTH ER COMPANIES. IT FILED ITS RETURN OF INCOME ON 29.09.2 009 DECLARING NIL INCOME. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE SUFF ERED A TOTAL FOREX LOSS OF RS.30,21,30,000/- DURING THE YEAR OUT OF WHICH RS.15,71,07,600/- PERTAINED TO NON-DEPRECIABLE ASSE TS OF RS.59,43,53,142/- INCLUDING INVESTMENT OF RS.24,82, 23,001/-. AFTER EXCLUDING THE AMOUNT OF INVESTMENT BALANCE OF RS.34,61,30,141/- WAS IN RESPECT OF FOLLOWING ITEMS I. LAND RS.6,17,61,000/- II. LAND OF KKR PHASE-II RS.24,04,66,312/- III. ISSUE EXPENSES RS.4,39,02,829/- 3. HE OBSERVED THAT OUT OF THE ABOVE LOSS OF RS.15,71,07,600/-, A LOSS OF RS.12,50,03,577/- WAS DEDUCTED FROM THE INCOME IN COMPUTATION OF INCOME THOUGH IT WAS NOT DEBITED TO P & L ACCOUNT THEREBY REDUCING THE INCOME/ENHANCING THE LOSS BY THIS AMOUNT. THIS LOSS OF RS.12,50,03,577/- RELATES TO THE ABOVE MENTIONED 03 NON DEPRECIABLE ASSETS. ACCORDING TO THE AO AS PER PROV ISIONS OF SECTION 43A READ WITH RULE 115 SUCH LOSS IS NOT ALL OWABLE AS A REVENUE EXPENDITURE BUT HAS TO BE CAPITALIZED IN TH E VALUE OF 4 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ASSETS. REASON FOR CLAIMING SUCH LOSS FROM THE INC OME HAS NOT BEEN EXPLAINED. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE REASON FOR CLAIMING SUCH LOSS FROM THE INCOME. 4. THE ASSESSEE, IN RESPONSE TO THE ABOVE FILED TH E DETAILS VIDE LETTER DATED 09.12.2011 WHICH HAVE BEE N REPRODUCED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER AND WHICH READS AS UNDER:- FOLLOWING ALLOCATIONS OF FOREIGN EXCHANGE VARIATIO N WAS DONE IN AUDITED ACCOUNTS AS DULY VERIFIED BY STATUT ORY AUDITORS. ALLOCATED TO FCMITDA 157107600 LESS: TRANSFERRED TO P & L A/C 34725800 LESS TRANSFERRED TO GENERAL RESERVE 52930800 ALLOCATED TO FIXED ASSETS DOMESTIC 126554992 IMPORTED 18467408 TREATED IN INCOME TAX COMPUTATION AS PER INCOME TAX ACT FOREIGN EXCHANGE FLUCTUATION IS GOVERNED BY FOLLOWING SECTION/RULES. - RULE 115 - 4 3 A ACCORDINGLY ASSESSEE WHILE PREPARING INCOME TAX RET URN HAS FOLLOWED TAX TREATMENT AS PER THESE REQUIREMENT S OF INCOME TAX ACT. EXCHANGE TAXATION ON FCCBS HAS BEEN DEALT AS TO GIV EN BELOW: - EXCHANGE FLUCTUATION, FOR PRO RATA BORROWINGS USED FOR ACQUIRING IMPORTED FIXED ASSETS HAS NEITHER BEE N CLAIMED AS DEDUCTION IN P & L A/C NOR ADJUSTED IN COST OF FIXED ASSETS DURING THE YEAR (SECTION 43A). EXCHANGE FLUCTUATION FOR PRO RATA BORROWINGS USED F OR ACQUIRING INDIGENOUS DEPRECIABLE FIXED ASSETS HAS BEEN ADJUSTED IN COST OF FIXED ASSETS DURING THE YE AR. 5 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 EXCHANGE, FLUCTUATION FOR PRORATE BORROWINGS USED F OR OTHER PURPOSES HAS BEEN CLAIMED AS AN EXPENDITURE. EXCHANGE FLUCTUATION, FOR PRO RATA BORROWING USED F OR INVESTMENT IN PARAMOUNT HOLDING LTD . HAS NOT BEEN CLAIMED AS AN EXPENSE NOR CAPITALIZED ACCORDINGLY, 12,65,54,992/ - HAS BEEN ADDED- TO FIXED ASSETS AS ADDED TIN COST OF FIXED ASSETS FOR CLAIMI NG DEPRECIATION AS PER INCOME TAX RULES. FCMITDA WRITTEN OFF DURING THE YEAR OF RS.3,47,25,8 00/- HAS BEEN ADDED BACK TO COMPUTATION OF INCOME & FORE IGN EXCHANGE FLUCTUATION OF RS.12,50,03,577/- NOT PERTA INING TO NON-DEPRECIABLE ASSETS HAS BEEN CLAIMED AS DEDUCTIO N FROM COMPUTATION BEING LOSS ON FOREIGN EXCHANGE FLUCTUAT ION DURING THE YEAR. 5. SUBSEQUENTLY, THE ASSESSEE FILED ANOTHER LETTER DATED NIL FILED ON 15.12.2011 AND EXPLAINED AS UNDER:- EXCHANGE FLUCTUATION OF RS. 12,50,03,577/- FOR PRO RATE BORROWINGS USED FOR OTHER PURPOSES HAS BEEN CLAIMED AS AN EXPENDITURE. IN COMPUTATION OF INCOME ASSESSEE HAS ALSO ADDED BACK EXCHANGE FLUCTUATION OF RS.3,47,25,600/- WHICH WAS WRITTEN OFF TO PROFIT AND LOSS ACCOUNT AS FCMIT DA WRITTEN OFF DURING THE YEAR. EXCHANGE FLUCTUATION OF RS.3,21,04,023/- FOR PRO RA TA BORROWING USED FOR INVESTMENT IN PARAMOUNT HOLDING LTD. HAS NOT BEEN CLAIMED AS AN EXPENSE NOR CAPITALIZED. FCMITDA WRITTEN OFF DURING THE YEAR OF RS.3,47,25,600/- HAS BEEN ADDED BACK TO COMPUTATION OF INCOME AND FOREIGN EXCHANGE FLUCTUATION OF RS. 12,50,03,577/- PERTAINING TO NON-DEPRECIABLE ASSETS HAS BEEN CLAIMED AS DEDUCTION FROM COMPUTATION BEING LO SS ON FOREIGN EXCHANGE FLUCTUATION DURING THE YEAR 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM , THE EXPLANATION GIVEN BY THE ASSESSEE DOES NOT SAY ANYT HING ABOUT THE ALLOWABILITY OF SUCH CLAIM AS TO HOW, WHY AND U NDER WHAT PROVISIONS, HE HAS DEDUCTED THIS AMOUNT FROM ITS IN COME IN THE 6 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 COMPUTATION OF INCOME. ACCORDING TO HIM, SINCE, THE LOSS OF RS.12,50,03,577/- PERTAINS TO CAPITAL ASSET, IT IS REQUIRED TO BE CAPITALIZED IN THE VALUE OF SUCH ASSETS. FURTHER, IT RELATES TO NON-DEPRECIABLE ASSETS AND THEREFORE BENEFIT OF ANY DEPRECIATION ON THIS ACCOUNT ALSO CANNOT BE GIVEN T O THE ASSESSEE. HE ACCORDINGLY MADE THE ADDITION OF RS.12,50,03,577/-. 7. THE AO FURTHER NOTED THAT THE ASSESSEE HAS OPEN ING AND CLOSING INVESTMENTS OF RS.27,39,71,001/-. SINC E, THE INCOME FROM THE INVESTMENT IS EXEMPT, THEREFORE, PR OVISIONS OF SECTION 14A ARE APPLICABLE TO THE FACTS OF THE CASE . ON BEING QUESTIONED BY THE AO, IT WAS EXPLAINED BY THE ASSES SEE THAT IT HAS NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR AND PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. HOWEV ER, THE AO WAS NOT SATISFIED BY THE ARGUMENTS ADVANCED BY THE ASSESSEE. RELYING ON THE DECISION THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS CIT, WHERE IT IS HELD THAT THE PROVISIONS OF SECTION 14A ARE CONSTITUTIONALLY VALID AND THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD VS ITO (2009) 317 ITR (A.T.) 0086, W HEREIN IT WAS HELD THAT IF ANY INCOME IS EXEMPT FROM TAX BY V IRTUE OF 7 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 SECTION 10 OF THE ACT AND NOT INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE, THE SAME WOULD ATTRACT THE PROVISIONS OF SECTION 14A, THE AO MADE DISALLOWANCE OF RS.26,92,582/-. 8. THE AO SIMILARLY DISALLOWED AN AMOUNT OF RS.12,13,352/- ON ACCOUNT OF SHORT DEDUCTION U/S 35 D OF THE ACT. THUS, THE AO DETERMINED THE LOSS OF THE ASSESS EE AT RS.37,98,97,365/- AS AGAINST THE RETURNED LOSS OF RS.50,63,80,172/-. 9. IN APPEAL, THE LEARNED CIT(A) NOT ONLY CONFIRME D THE ADDITION OF RS. 12,50,03,577/- BUT ALSO ISSUED ENHA NCEMENT NOTICE ON THE GROUND THAT THE ASSESSEE CLAIMED BENE FIT U/S 43A WHICH HE WAS NOT ENTITLED TO CLAIM. HE ACCORDINGLY DISALLOWED THE DEPRECIATION CLAIMED ON ASSETS AT RS.1,56,34,10 4/-. 9.1. SO FAR AS THE DISALLOWANCE OF EXCHANGE FLUCTU ATION LOSS OF RS.12,50,03,577/- IS CONCERNED, THE LEARNED CIT(A) RELYING ON VARIOUS DECISIONS OBSERVED THAT THE FORE IGN EXCHANGE FLUCTUATION LOSS WOULD BE ALLOWED AS A DEDUCTION TO THE ASSESSEE IF IT IS IN RESPECT OF A TRANSACTION WHICH HAD TAKEN PLACE DURING THE RELEVANT YEAR AND IN RESPECT OF EX CHANGE RATE DIFFERENCE ON ACCOUNT OF ANY TRANSACTION IN THE REL EVANT YEAR. 8 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 HE ANALYSED AS-11 AND NOTED THAT AS-11 REQUIRES THA T EVERY TRANSACTION IN FOREIGN CURRENCY HAS TO BE RECORDED AT THE PREVAILING RATE OF EXCHANGE AS ON THE DATE OF TRANS ACTION. ALSO PROFIT OR LOSS ARISING DUE TO EXCHANGE DIFFERENCE I N RESPECT OF EACH ITEM DURING AN ACCOUNTING PERIOD IS TO BE RECO GNIZED AS INCOME OR EXPENSE IN THE PERIOD IN WHICH IT ARISES. ACCORDING TO HIM THE RELEVANT TERM IS TRANSACTION. ALSO THAT THE PRO FIT OR LOSS ARISING ON ACCOUNT OF SUCH TRANSACTION INCURRE D DURING THE RELEVANT ACCOUNT PERIOD WOULD BE CONSIDERED. HE NO TED THAT NO TRANSACTION HAS TAKEN PLACE IN THE YEAR UNDER QUEST ION IN THIS CASE I.E. NO PAYMENT HAS BEEN MADE TO ANY PERSON. T HE ENTIRE PROCEEDS WERE UTILIZED IN THE A. Y. 2007-08 AND 200 8-09. THE FOREIGN EXCHANGE BORROWINGS WERE FOR THE PURPOSES O F REPAYMENT WHICH FELL BEYOND THE ACCOUNTING YEAR AND LIABILITY TO SUCH A LOSS DID NOT OCCUR IN THE YEAR UNDER CONS IDERATION. THUS, THE ASSESSEE HAS CLAIMED LOSS OF RS.12,50,03,577/- ON ACCOUNT OF NON DEPRECIABLE ASSETS. FURTHER, THE ASS ESSEE HAS NOT MADE ANY TRANSACTIONS FOR REPAYMENT OF THE LOAN S OR FOR PAYMENT TOWARDS THE ASSETS DURING THIS YEAR. THE LO SS ON ACCOUNT OF FOREIGN EXCHANGE HAS NOT OCCURRED DUE TO A TRANSACTION IN THIS YEAR. WITHOUT ANY TRANSACTION T HE ASSESSEE 9 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 CANNOT CLAIM ANY LOSS ON ACCOUNT OF FOREIGN EXCHANG E. THE TERM USED EVERYWHERE BY THE ASSESSEE ALSO IS 'IMPORT OF EXCHANGE DIFFERENCES ARISING IN FOREIGN CURRENCY TRANSACTION S'. WITHOUT ANY TRANSACTION THE ASSESSEE CANNOT CLAIM A DIFFERE NCE IN EXCHANGE AND CLAIM IT AS A LOSS. FURTHER, THE FORE IGN LOAN WERE USED FOR ACQUIRING NON DEPRECIATION CAPITAL ASSETS AND THE ASSESSEE USED THIS PLOY TO CLAIM THIS AMOUNT AS A L OSS AS DEPRECIATION COULD NOT BE CLAIMED ON THESE ASSETS. HE, THUS, HELD THAT SINCE, THE ASSESSEE HAS CLEARLY CLAIMED THE LOSS ON NON DEPRECIATION CAPITAL ASSETS TO REDUCE THE INCID ENCE OF TAX AND THAT THIS IS FIRST TIME THAT THE ASSESSEE HAS C LAIMED THIS LOSS, THEREFORE, IF THERE IS REDUCTION OR INCREASE IN THE LIABILITY OF THE ASSESSEE BECAUSE OF FOREIGN EXCHANGE FLUCTUA TION IT SHOULD BE ADDED TO OR REDUCED FROM THE COST OF THE ASSETS. THE LOSS OF RS.12,50,03,577/- CAN BE CLAIMED AS A CAPIT AL LOSS AND NOT AS A REVENUE LOSS U/S 37 ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. HOWEVER, EVEN THIS CAPITAL LOSS WOULD BE ALLOWED ONLY IN THE YEAR IN WHICH THE TRANSACTION HAD TAKEN PLACE. THE GAIN CAN BE CLAIMED AS A CAPITAL RECEIPT. DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE H IM AND RELYING ON VARIOUS OTHER DECISIONS, HE HELD THAT TH E ASSESSEE 10 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 CANNOT CLAIM THE AMOUNT OF RS. 12,50,03,577/- AS FO REX LOSS ON REVENUE ACCOUNT WITHOUT INDULGING IN ANY TRANSACTIO N AND WITHOUT ANY REVENUE ELEMENT TO THE TRANSACTION. THE FOREIGN CURRENCY WAS NOT PART OF THE TRADING ASSETS OF THE COMPANY, THE LOSS WAS NOT INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS AND WAS NOT INCIDENTAL TO IT. THEREFORE THE FOREIGN EXCHANGE LOSS CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE AS A LOSS U/S 37. HE, ACCORDINGLY, CONFIRMED THE ADDITION OF RS.12,50,03, 577/- MADE BY THE AO. 9.2. THE LEARNED CIT(A) WHILE DECIDING THE APPEAL FILED BY THE ASSESSEE FURTHER NOTED THAT THE ASSESSEE HAS AL SO CLAIMED AN AMOUNT OF RS.12,65,54,992/- U/S 43A WHICH WAS AD DED TO THE COST OF ASSETS AND DEPRECIATION CLAIMED THEREUP ON. HOWEVER, HE NOTED THAT THE ASSESSEE WAS NOT ENTITLE D TO CLAIM BENEFIT U/S 43A AND THE AMOUNT OF RS.12,65,54,992/- COULD NOT BE ADDED TO THE COST OF THE ASSETS AND NO DEPRE CIATION COULD BE CLAIMED ON THIS AMOUNT AS THE ASSETS WERE INDIGE NOUS. HE THEREFORE, ISSUED A SHOW CAUSE NOTICE TO THE ASSESS EE PROPOSING TO REDUCE THE COST OF THE ASSETS TO THE TUNE OF RS.12,65,54,992/- AND DISALLOW DEPRECIATION ON THIS AMOUNT. 11 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 9.3. REJECTING THE VARIOUS EXPLANATION GIVEN BY TH E ASSESSEE, THE LEARNED CIT(A) DIRECTED THE AO TO DIS ALLOW DEPRECIATION OF RS.1,56,34,104/- BY OBSERVING AS UN DER:- I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. 5.24. SECTION 43A IN BRIEF STATES THE FOLLOWING: 1. ) WHERE THE ASSESSEE HAS ACQUIRED ANY ASSETS FROM A COUNTRY OUTSIDE INDIA. 2. ) THE ASSETS ARE ACQUIRED FOR THE PURPOSE OF BUSINE SS OR PROFESSION. 3. ) CONSEQUENT TO CHANGE IN RATE OF EXCHANGE THERE IS INCREASE/DECREASE IN THE LIABILITY OF THE ASSESSEE EXPRESSED IN INDIAN CURRENCY TOWARDS COST OF THE AS SETS OR REPAYMENT OF MONEY BORROWED FOR ACQUIRING CAPITAL A SSET ATONGWITH INTEREST IN FOREIGN CURRENCY. 4. ) SUCH INCREASE OR REDUCTION IN THE LIABILITY SHALL BE ADDED OR DEDUCTED FROM THE ACTUAL COST OF ASSETS AS AND WHEN PAID OR RECEIVED. ' 5.25. AS CAN BE SEEN FROM THE PROVISIONS THE APPELLANT SHOULD HAVE ACQUIRED THE ASSETS FROM OUTSIDE INDIA. THE APPELLANT HAS ITSELF CATEGORICALLY STATED THAT ASSE TS WERE INDIGENOUS ASSETS. IN VIEW OF THIS THE FOREIGN LOAN S WERE UTILIZED FOR PURCHASING INDIGENOUS ASSETS AND THERE FORE 43A CANNOT BE APPLICABLE. THE APPELLANT HAS NOT GIV EN ANY JUSTIFICATION FOR MAKING AN INCORRECT CLAIM. 5.26. FURTHER, DUE TO CHANGE IN RATE OF EXCHANGE THERE HAS TO BE AN INCREASE DECREASE IN THE LIABILITY OF THE APPELLANT EXPRESSED IN INDIAN CURRENCY TOWARDS COST OF THE AS SETS ON REPAYMENT OF MONEY BORROWED FOR ACQUIRING CAPITAL A SSETS ALONGWITH INTEREST IN FOREIGN CURRENCY. THE LIABILI TY OF THE APPELLANT HAS NOT INCREASED/DECREASED DURING THE YE AR TOWARDS THE COST OF THE ASSETS OR REPAYMENT OF MONE YS BORROWED FOR ACQUIRING SUCH ASSETS. THE APPELLANT H AS CATEGORICALLY STATED THAT THE ASSETS WERE ACQUIRED IN A. V. 2006- 07 AND 2007-08. IN VIEW OF THE ABOVE, THE APPELLANT IS NOT ENTITLED TO ADD RS.L2,65,54,992/-T O THE COST OF ASSETS AND CLAIM DEPRECIATION AS IT IS NOT COVERED BY 43A. 5.27. THE APPELLANT HAS QUOTED SEVERAL JUDICIAL DE CISIONS WHOSE FACTS ARE DIFFERENT. THE APPELLANT HAS MADE A CLAIM 12 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 UNDER 43A AND NOT U/S 37. I HAVE ALREADY STATED THA T THE APPELLANT WOULD NOT BE ALLOWED TO CLAIM THE LOSS U/ S 37. NOW IT IS ESTABLISHED THAT THE CLAIM U/S 43A WOULD NOT BE ALLOWED. 5.28. THE DEPRECIATION CLAIMED ON THE ASSETS IS RS.1,56,34,104/-. THE INCOME OF THE APPELLANT IS EN HANCED BY THIS AMOUNT. THE AMOUNT OF RS.12,65,54,992/- IS DEDUCTED FROM THE COST OF ASSETS AND DEPRECIATION O N THIS AMOUNT IS DISALLOWED. PENALTY PROCEEDINGS U/S 271(L )(C) ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS INCOME. 10. SO FAR AS THE DISALLOWANCE U/S 14A IS CONCERNE D, THE LEARNED CIT(A) ALSO CONFIRMED THE ADDITION MADE BY THE AO. 11. AGGRIEVED WITH SUCH ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISIN G THE FOLLOWING GROUNDS:- 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS)-XVII, NEW DELHI [BRIEFLY THE CIT(A)] HAS ERRED IN UPHOLDING THE A SSESSMENT AT THE TOTAL LOSS OF RS.37,98,97,365/-. THE APPELLANT DENIES HIS LIABILITY TO BE ASSESSED AT LOSS OF RS.37,98,97,365 /-. 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT EXCHANGE LOSS OF RS. 12,50,33,577/- ON FOREIGN CURRENCY CONVERTIBLE BOND S WAS NOT ALLOWABLE UNDER ANY OF THE PROVISIONS OF THE INCOME TAX ACT, 1961 (BRIEFLY THE ACT). 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPRECIATING THAT FOREIGN CURRENCY CONVERTIBLE BONDS WERE ISSUED FOR THE PURP OSE OF BUSINESS AND HENCE, INCREASE IN LIABILITY ON ACCOUN T OF FOREIGN CURRENCY FLUCTUATION WAS FOR THE PURPOSE OF BUSINES S AND AS SUCH WAS ALLOWABLE BECAUSE UTILIZATION OF BOND PROC EEDS DOES NOT AFFECT THE PURPOSE FOR WHICH THE FOREIGN C URRENCY LOAN THROUGH FCCBS WERE RAISED. 3) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 1,56,34,104/- BEING THE DEPRECIATION ALLOWED BY THE 13 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ASSESSING OFFICER ON UTILIZATION OF FCCB PROCEEDS T OWARDS DEPRECIABLE ASSETS. 4) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.8,53,916/- UNDER SECTION 14A OF THE ACT READ WIT H RULE 8D OF INCOME TAX RULES, 1962. 4.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPRECIATING THAT NO INTEREST BEARING FUNDS WERE UTILIZED TO EARN EXEMPT INCOME. 4.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPRECIATINGG THAT IN THE ABSENCE OF NEXUS BETWEEN BORROWED FUNDS AND INVESTM ENT, DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE ON PRESUMPTION. 12. THE ASSESSEE HAS ALSO FILED AN APPLICATION UND ER RULE 11 OF THE INCOME TAX APPELLATE TRIBUNAL RULES, 1963 FOR ADMISSION OF ADDITIONAL GROUNDS WHICH READS AS UNDE R:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 12,65,54,992/- WAS ALLOWABLE DEDUCTION UNDER SECTIO N 37 OF THE ACT. HENCE THE APPELLANT IS ENTITLED TO RELI EF OF RS.12,65,54,992/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) WHILE WITHDRAWING DEPRECIATION OF RS.1,56,34,104/- OUGHT TO HAVE ALLOWED DEDUCTION OF RS.12,65,54,992/- BEING THE LOSS ON ACCOUNT OF FORE IGN EXCHANGE FLUCTUATIONS ATTRIBUTABLE TO ACQUISITION O F INDIGENOUS DEPRECIABLE ASSETS. 13. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE EXP LAINING THE REASONS FOR FILING OF THE ABOVE ADDITIONAL GROU NDS SUBMITTED THAT DURING THE FINANCIAL YEAR 2006-07, THE ASSESSE E HAD ISSUED 14 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 UNSECURED FOREIGN CURRENCY CONVERTIBLE BONDS OF US$2,70,00,000/- FOR A PERIOD OF FIVE YEARS WHICH W ERE REDEEMED ON 23.11.2011. AS AT 31.03.2008, LIABILIT Y TOWARDS FCCBS CONVERTED INTO INDIAN RUPEE WAS RS.108,00,00, 000/- AND AS AT 31.03.2009, IT WAS RS.138,21,30,000/-. A S SUCH, THE ASSESSEE INCURRED LOSS OF RS.30,21,30,000/- ON ACCO UNT OF DEPRECIATION OF RUPEE. THE ASSESSEE IN THE ACCOUNTS HAS DEALT WITH THE LOSS OF RS.30,21,30,000/- WAS DEALT AS UND ER:- S. NO AMOUNT OF LOSS REMARKS (0 1,84,67,408 ATTRIBUTABLE TO IMPORTED ASSETS. LOSS WAS NEITHER C LAIMED AS DEDUCTION NOR ADJUSTED IN THE COST OF FIXED ASSETS. (11) 12,65,54,992 ATTRIBUTABLE TO ASSETS ACQUIRED IN INDIA. INCREASED LIABILITY WAS ADDED TO THE COST OF FIXED ASSETS. DEPRECIATION WAS ALLOWED BY THE ASSESSING OFFICER. (III) 12 ,50,03,577 ATTRIBUTABLE TO FCCBS USED FOR OTHER BUSINESS PURPO SES. LOSS WAS CLAIMED AS ALLOWABLE BUT WAS NOT ALLOWED. (IV) 3,21,04,023 ATTRIBUTABLE TO ACQUISITION OF FOREIGN SUBSIDIARY. LOSS WAS NEITHER CLAIMED AS DEDUCTION NOR HAS BEEN CAPITALIZ ED. TOTA L - 30,21,30,000 14. ACCORDING TO HIM, THE POSITION THAT EMERGES IS TH AT OUT OF FOREX LOSS OF RS.30,21,30,000/-:- (I) LOSS OF RS. 5,05,71431 {1,84,67,408 + 3,21,04,023 } WAS NOT CLAIMED. (II) IN RESPECT OF LOSS OF RS. 12,65,54,992/- BEING THE 15 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 LOSS ATTRIBUTABLE TO ACQUISITION OF INDIGENOUS DEPRECIABLE ASSETS, DEPRECIATION WAS ALLOWED; (III) LOSS OF RS. 12,50,03,577/- WAS DISALLOWED BY THE ASSESSING OFFICER, FOR IT RELATED TO ACQUISITION OF NON- DEPRECIABLE ASSETS. 15. HE SUBMITTED THAT IN THE FIRST APPEAL, THE G RIEVANCE OF THE ASSESSEE WAS CONFINED TO THE LOSS OF RS.12,5 0,03,577/- AND THE ASSESSEE DID NOT CLAIM THE REMAINING LOSS N OR IT WAS ALLOWED BY THE AO. HOWEVER, THE LEARNED CIT(A) IN H IS ORDER DATED 11.11.2013, NOT ONLY UPHELD THE DISALLOWANCE OF LOSS OF RS.12,50,03,577/- BUT ALSO ENHANCED THE INCOME BY RS.1,56,34,104/- I.E. DEPRECIATION ON EXCHANGE LOSS OF RS.12,65,54,992/- ON ACQUISITION OF INDIGENOUS DEPR ECIABLE ASSETS ALLOWED BY THE AO WAS WITHDRAWN. HE SUBMITTE D THAT THOUGH FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 12, 65,54,992/- WAS AN ALLOWABLE DEDUCTION, HOWEVER, THE ASSESSEE U NDER MIS- APPRECIATION OF THE LEGAL POSITION RESTRICTED ITS C LAIM TO DEPRECIATION ONLY. 15.1. REFERRING TO VARIOUS DECISIONS, HE SUBMITT ED THAT IT IS WELL SETTLED THAT IF AN ASSESSEE, UNDER A MISTAKE, MISCONCEPTION OR ON NOT BEING PROPERLY INSTRUCTED I S OVER 16 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ASSESSED, THEN THE LAWFUL RIGHT OF THE ASSESSEE TO CLAIM THAT HE WAS NOT LIABLE TO TAX CANNOT BE DENIED SINCE THE TA X CAN BE LEVIED AND COLLECTED ONLY IN ACCORDANCE WITH LAW. HE SUBMITTED THAT IT IS REPEATEDLY HELD BY THE COURTS IN VARIOUS DECISIONS THAT EVEN IF AN ASSESSEE DECLARES AN INCOME IN THE RETUR N, THE ASSESSING OFFICER CANNOT ASSESS IT MERELY ON THAT B ASIS AND HE HAS TO CONSIDER ITS TAXABILITY IN THE LIGHT OF OTHE R CIRCUMSTANCES DE HORS THE ADMISSION MADE IN THE RETURN. HE SUBMIT TED THAT SINCE, THE LOSS OF RS.12,65,54,992/- WAS ALLOWABLE DEDUCTION AS PER LAW, THEREFORE, THE ASSESSEE DESERVES TO BE ALL OWED DEDUCTION. IT CANNOT BE DENIED RELIEF MERELY BECAU SE THE LOSS WAS NOT CLAIMED AS DEDUCTION IN THE RETURN OF INCOM E. THERE IS NO ESTOPPELS AGAINST THE STATUTE IS WELL SETTLED AS HELD IN VARIOUS DECISIONS. 15.2 REFERRING TO THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF NTPC LTD. VS CIT 229 ITR 383(S C) AND VARIOUS OTHER DECISIONS, HE SUBMITTED THAT SINCE AL L MATERIAL FACTS ARE ALREADY AVAILABLE ON RECORD AND NO NEW FA CTS ARE REQUIRED TO BE INVESTIGATED, THEREFORE, THE ADDITIO NAL GROUNDS RAISED BY THE ASSESSEE SHOULD BE ADMITTED FOR ADJUD ICATION. 17 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 16. THE LEARNED DR, ON THE OTHER HAND, STRONGLY O PPOSED THE ADMISSION OF THE ADDITIONAL GROUNDS RAISED BY T HE ASSESSEE. SHE SUBMITTED THAT THERE IS NO GRIEVANCE CAUSED TO THE ASSESSEE EXCEPT THE ADDITION OF RS.1,56,34,104/- WH ICH IS ALREADY AGITATED BY THE ASSESSEE IN GROUND NO.3 OF THE APPEAL. SHE SUBMITTED THAT IT IS THE SETTLED LAW THAT THERE IS NO RIGHT TO APPEAL IF NO GRIEVANCE IS CAUSED TO THE ASSESSEE SI NCE THE ASSESSEE ITSELF HAS TREATED IT AS CAPITAL INVESTMEN T AND FILED RETURN OF INCOME CLAIMING ONLY THE DEPRECIATION. SI NCE, THE ASSESSEE HAS NOT CLAIMED LOSS OF RS.12,65,54,992/- IN THE RETURN OF INCOME, THE ASSESSEE CANNOT CLAIM THE SAM E IN SHAPE OF ADDITIONAL GROUND BEFORE ITAT. RELYING ON VARIO US DECISIONS, SHE SUBMITTED THAT THE ADDITIONAL GROUNDS SHOULD NO T BE ADMITTED. 17. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES ON THE ISSUE OF ADMISSION OF THE ADDITIONAL G ROUNDS FILED BY THE ASSESSEE IN THE APPLICATION UNDER RULE 11 OF THE ITAT RULES, 1963. FROM THE, VARIOUS DETAILS FURNISHED BY THE ASSESSEE, IT CAN BE SEEN THAT ALL MATERIAL FACTS AR E ALREADY AVAILABLE ON RECORD AND NO NEW FACTS ARE REQUIRED T O BE INVESTIGATED. 18 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 18. THE HONBLE SUPREME COURT IN THE CASE OF NTPC LTD . (SUPRA) HAS REITERATED THE WIDE POWERS THAT THE TRI BUNAL HAS IN ADMITTING THE ADDITIONAL GROUND. IT HAS BEEN HELD T HAT THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TA XING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILIT Y OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE T HE TRIBUNAL, IT IS FOUND THAT NON-TAXABLE ITEM IS TAXED OR A PER MISSIBLE DEDUCTION IS DENIED, THERE IS NO REASON AS TO WHY T HE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFO RE THE TRIBUNAL. 18.1. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PRUTHVI BROKERS SHAREHOLDERS PVT. LTD. 349 I TR 336(BOM.) HAS HELD THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPE LLATE AUTHORITIES, BUT IS ALSO ENTITLED TO RAISE ADDITION AL CLAIMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE THE DISCRETION WHETHER OR NOT TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. IT CANNOT, HOWEVER, BE SAID THAT THEY HAVE NO JURISDICTION TO CONSIDER THE SAME. VARIOUS OTHER DECISIONS RELIED UPON BY THE LE ARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE CASE FOR ADMISSION OF 19 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE ADDITIONAL GROUND. UNDER THESE CIRCUMSTANCES, W E ADMIT THE ADDITION GROUNDS RAISED BY THE ASSESSEE. 19. GROUND NO.1 BEING GENERAL IN NATURE IS DISMISSED. 20. GROUNDS OF APPEAL NO.2 AND 2.1 RELATES TO DENIAL OF EXCHANGE LOSS OF RS.12,50,33,577/-. 20.1. THE LEARNED COUNSEL FOR THE ASSESSEE, REFERRING T O PAGE 34 READ WITH PAGE 45 OF THE PAPER BOOK SUBMITT ED THAT IN THE AY 2009-10, THE ASSESSEE INCURRED EXCHANGE LOSS OF RS.30,21,30,000/- [138,21,30,000 108,00,00,000] I N RESPECT OF FCCBS. HE SUBMITTED THAT DURING THE FY 2006-07, THE ASSESSEE ISSUED UNSECURED FOREIGN CURRENCY CONVERTI BLE BONDS OF US$2,70,00,000/-. THE EARLIER PROCEEDS WERE UTIL ISED IN AY 2007-08 AND 2008-09. THE LIABILITY AS ON 31.03.2009 WAS IN RUPEE TERMS OF RS.1,38,21,30,000/-, WHEREAS IT WAS RS.1,08,00,00,000/- AS ON 31.03.2008. THUS, THE DIF FERENCE WAS RS.30,21,30,000/- 20.2. HE SUBMITTED THAT OUT OF THE FOREX LOSS O F RS.30,21,30,000/-, RS.3,21,04,023/- AND RS.L,84,67, 407/- WAS NOT CLAIMED AS A DEDUCTION. RS.12,65,54,992/- WAS THE AMOUNT WHICH PERTAINED TO ACQUISITION OF INDIGENOUS FIXED ASSETS. THIS 20 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 WAS ADDED TO THE COST OF THE ASSETS BY THE ASSESSEE AND DEPRECIATION WAS CLAIMED ON THIS AMOUNT AND THIS DE PRECIATION WAS CLAIMED AS AN EXPENSE IN THE P & L A/C. THE AMOUNT OF RS.12,50,03,577/- WAS CLAIMED AS LOSS FROM INCOME. THIS LOSS AS PER THE ASSESSEE PERTAINED TO NON DEPRECIABLE AS SETS. 20.3. REFERRING TO PAGE 135-143 OF THE PAPER BOOK, HE SUBMITTED THAT AS-11 DEALS WITH EFFECT OF CHANGES I N FOREIGN EXCHANGE RATES. IT PROVIDES THAT TRANSACTIONS INVOL VING FOREIGN EXCHANGE BE REPORTED IN ENTERPRISES REPORTING CURR ENCY (RUPEE). AS-11 WAS REVISED IN 2003. HE SUBMITTED THAT PRIOR TO REVISION OF AS-11, EXCHANGE DIFFERENCE ATTRIBUTABLE TO ACQUI SITION OF FIXED ASSETS WAS TO BE ADJUSTED IN THE SCHEDULE OF FIXED ASSETS. HOWEVER, AS PER AS-11 (REVISED 2003), SUCH DIFFEREN CE IS REQUIRED TO BE RECOGNIZED AS INCOME OR EXPENSE. 20.4. RECOGNITION OF EXCHANGE DIFFERENCE UNDER AS-1 1 (REVISED 1994) READS AS UNDER: EXCHANGE DIFFERENCES ARISING ON REPAYMENT OF LIAB ILITIES INCURRED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, WHICH CARRIED IN TERMS OF HISTORICAL COST, SHOULD BE ADJU STED IN THE CARRYING AMOUNT OF THE RESPECTIVE FIXED ASSETS. THE CARRYING AMOUNT OF SUCH FIXED ASSETS SHOULD TO THE EXTENT NO T ALREADY SO ADJUSTED OR OTHERWISE ACCOUNTED FOR ALSO BE ADJU STED TO ACCOUNT FOR ANY INCREASE OR DECREASE IN THE LIABILI TY OF THE 21 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ENTERPRISE, AS EXPRESSED IN THE REPORTING CURRENCY BY APPLYING THE CLOSING RATE, FOR MAKING PAYMENT TOWAR DS THE WHOLE OR A PART OF THE COST OF THE ASSETS OR FOR RE PAYMENT OF THE WHOLE OR A PART OF THE MONIES BORROWED BY THE E NTERPRISE FROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THOSE ASS ETS. 20.5. RECOGNITION OF EXCHANGE DIFFERENCE UNDER AS-11 (REVISED 2003) READ AS UNDER: EXCHANGE DIFFERENCE ARISING ON THE SETTLEMENT OF MONETARY ITEMS OR ON REPORTING AN ENTERPRISES MONE TARY ITEMS AT RATES DIFFERENT FROM THOSE AT WHICH THEY WERE INITIALLY RECORDED DURING THE PERIOD, OR REPORTED I N PREVIOUS FINANCIAL STATEMENTS, SHOULD BE RECOGNIZED AS INCOME OR AS EXPENSES IN THE PERIOD IN WHICH THEY A RISE, WITH THE EXCEPTION OF EXCHANGE DIFFERENCES DEALT WI TH IN ACCORDANCE WITH PARAGRAPH 15. 20.6. REFERRING TO PAGES 60-63 OF THE PAPER BOOK-II, HE SUBMITTED THAT THOUGH AS-11 (REVISED 2003) WAS NOTI FIED ON 7.12.2006, HOWEVER, SCHEDULEVI TO THE COMPANIES AC T CONTINUED TO PROVIDE THAT EFFECT OF EXCHANGE FLUCTU ATION BE ADJUSTED IN FIXED ASSETS. IT WAS CORRECTED IN MARCH 2009 BY NOTIFICATION 31.3.2009. 20.7. REFERRING TO THE DECISION IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA P. LTD. (2009) 312 ITR 254 (SC) @ 265], HE SUBMITTED THAT AS-11 IS MANDATORY AND IS R EQUIRED TO 22 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 BE FOLLOWED IN COMPUTING THE INCOME AS REQUIRED BY SECTION 145(1) READ WITH SECTION 145(2) OF THE ACT. REFERRI NG TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V. VIRTUAL SOFT SYSTEMS LTD. (2012) 341 ITR 593(DEL) @ 602 603, HE SUBMITTED THAT THE HONBLE DELHI HIGH COURT HAS ELABORATED THE DUTY OF THE AO TO FOLLOW ACCOUNTING STANDARDS. THIS JUDGMENT HAS BEEN APPROVED BY HONBLE SUPREME COURT IN CIT V. VIRTUAL SOFT SYSTEMS LTD. [2018] 404 ITR 409(SC) . 20.8. REFERRING TO PAGE 78 OF THE PAPER BOOK, HE D REW THE ATTENTION OF THE BENCH TO THE COMPANIES (AS) AMENDM ENT RULES 2009 AND SUBMITTED THAT AS PER THE SAID RULES, NOTW ITHSTANDING AS-11 (REVISED 2003), COMPANIES (ACCOUNTING STANDAR DS) AMENDMENT RULES, 2009 GAVE FOLLOWING OPTION TO AN E NTERPRISE W.R.E.F. 7.12.2006: EXCHANGE DIFFERENCE RELATING TO ACQUISITION OF A DEPRECIABLE CAPITAL ASSET, CAN BE ADDED TO OR DEDUC TED FROM THE COST OF THE ASSET AND SHALL BE DEPRECIATED OVER THE BALANCE LIFE OF THE ASSET. IN OTHER CASES, EXCHANGE DIFFERENCE CAN BE ACCUMULA TED IN A FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFE RENCE ACCOUNT IN THE ENTERPRISES FINANCIAL STATEMENT AN D 23 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 AMORTIZED OVER THE BALANCE PERIOD OF SUCH LONG TERM ASSET / LIABILITY BUT NOT BEYOND 31ST MARCH 2011. HE ACCORDINGLY SUBMITTED THAT EXCHANGE DIFFERENCE RELATABLE TO ACQUISITION OF DEPRECIABLE CAPITAL ASS ETS IS TO BE ADJUSTED IN THE COST OF THE ASSETS AND ALL OTHER EX CHANGE DIFFERENCES ARE TO BE ACCUMULATED IN A FCMITDA AND AMORTISED. 20.9. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRI NG TO PAGES 39 & 40 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO THE ACCOUNTING TREATMENT IN RESPECT OF FO REIGN CURRENCY TRANSACTIONS, WHERE FOLLOWING NOTE WAS GIV EN IN THE BALANCE SHEET AS AT 31.03.2009. EXCHANGE DIFFERENCE ARISING ON REPORTING OF LONG TERM FOREIGN CURRENCY MONETARY ITEMS: - IN SO FAR AS, THEY RELATE TO THE ACQUISITION OF A DEPRECIABLE CAPITAL ASSETS ARE ADJUSTED IN THE COST OF ASSTS. - IN OTHER CASES ARE ACCUMULATED IN A FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT (FCMITDA) AND AMORTIZED OVER THE BALANCE PERIOD OF SUCH LONG TERM MONETARY ITEM BUT NOT BEYOND 31 ST MARCH, 2011. 20.10. REFERRING TO PAPER BOOK PAGE 42, HE SUBMIT TED THAT THE EXERCISE OF OPTION IS ALLOWED BY COMPANIES (AS) AMENDMENT 24 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 RULES, 2009. HE SUBMITTED THAT PURSUANT TO EXERCIS E OF OPTION BY COMPANIES (AS) AMENDMENT RULES, 2009, THE ASSESS EE EXERCISED THE OPTION OF ADJUSTING EXCHANGE DIFFEREN CE IN AY 2009-10. 20.11. REFERRING TO PAGE 34 R.W. PAGE 42 OF THE PAP ER BOOK, HE SUBMITTED THAT FROM NOTE 7 TO ACCOUNTS R/W NOTE 9 TO SCHEDULE-E TO THE BALANCE SHEET AS ON 2009, IT IS C LEAR THAT THOUGH THE OPTION WAS EXERCISED IN AY 2009-10, HOWE VER, EFFECT WAS GIVEN W.E.F. AY 2008-09, INASMUCH AS, DEPRECIAT ION OF RS.8,53,890/- ON FOREX GAIN CLAIMED IN AY 2008-09 W AS DEDUCTED FROM THE GROSS BLOCK AND WAS TAKEN TO GENE RAL RESERVE. 20.12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE STAND OF THE DEPARTMENT IS INCONSISTENT. IN THE PRECEDING ASSESSMENT YEAR I.E. 2008-09, THERE WAS FOREIGN EXC HANGE GAIN OF RS.4,72,43,028/- (PAGE 56 R/W 63 OF PAPER BOOK). BY THE REVISED RETURN FILED ON 3.11.2009, INCOME OF RS.40, 83,13,502/- WAS DECLARED. IN COMPUTING THE INCOME, NET PROFIT O F RS.50,32,29,300/- AS PER P&L A/C WAS TAKEN AS THE S TARTING POINT (PAGE_56 OF THE PAPER BOOK), WHICH INCLUDED F OREX GAIN OF RS.4,72,43,028/-. GAIN OF RS.4,72,43,028/- WAS NOT REDUCED IN 25 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 COMPUTING THE INCOME AND THE ASSESSMENT WAS MADE AT THE INCOME OF RS.41,05,91,605/-. THUS, FOREX GAIN OF RS.4,72,43,028/- HAS BEEN TAXED IN THE ASSESSMENT Y EAR 2008- 09. 20.13. HE SUBMITTED THAT EVEN IN THE SUCCEEDING ASSESSMENT YEAR I.E. 2010-11, THERE WAS NET GAIN OF RS.5,44,92,768/-, WHICH IN THE ORIGINAL RETURN FILE D ON 22.9.2010 WAS OFFERED TO TAX. HOWEVER, ON ACCOUNT OF INCONSISTENT STAND OF THE DEPARTMENT, THE GAIN WAS CLAIMED AS NOT TAXABLE AND THE ISSUE WAS RAISED BEFORE THE CIT (A). THE CIT(A) APPRECIATING THE INCONSISTENCY IN THE STAND HAS PASSED THE FOLLOWING ORDER IN APPEAL NO.05/CIT(A)-7/DEL/14 -15 DATED 30.01.2017. ' DURING THE YEAR UNDER CONSIDERATION, IT EARNED FORE X GAIN FOR RS.5,44,92,768/- AND SHOWED THE SAME AS INCOME IN THE RETURN BUT CLAIMED THE SAME IN A REVISED COMPUTATIO N IN VIEW OF THE FACT THAT LOSS ON THIS ACCOUNT WAS NOT ALLOWED IN THE EARLIER YEAR AND THEREFORE, THE DEPARTMENT NEED S TO BE CONSISTENT IN ITS APPROACH THAT IF THE LOSS WAS TRE ATED AS OF CAPITAL NATURE, EVEN THE RECEIPT SHOULD BE TREATED AS OF CAPITAL NATURE. THERE IS MERIT IN THE SUBMISSION OF THE LD. AR AND THIS ARGUMENT IS VALID. THE AO IS DIRECTED T O EXCLUDE THE RECEIPT FROM THE TOTAL INCOME. HOWEVER, IF IN F URTHER APPEAL FOR THE AY 2009-10, IT IS HELD THAT THE LOSS HAS TO BE ALLOWED AS REVENUE EXPENDITURE THE GAIN FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION WOULD ALSO HAS TO BE TAXED AS INCOME . 26 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 20.14. HE ACCORDINGLY SUBMITTED THAT APPLYING THE PRINCIPLE OF CONSISTENCY, EXCHANGE LOSS OF RS.12,50,33,577/- SHOULD BE ALLOWED AS DEDUCTION. HE SUBMITTED THAT IN THE FINA NCE ACT, 2018, SECTION 43AA HAS BEEN INSERTED TO PROVIDE THA T GAIN OR LOSS ARISING ON ACCOUNT OF EXCHANGE FLUCTUATION SHA LL BE TREATED AS REVENUE INCOME OR LOSS. 21. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIE D ON THE ORDER OF THE LEARNED CIT(A). 22. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH SIDES, PERUSED THE ORDERS OF THE LEARNED AO AN D CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US, WE FIND DURING THE F. Y. 2006-07, THE ASSESSEE HAD ISSUED U NSECURED FOREIGN CURRENCY CONVERTIBLE BONDS OF US$ 2,70,00,0 00/-. THE ENTIRE PROCEEDS WERE UTILIZED IN AY 2007-08 & 2008-09. AS ON 31.03.2009, THE LIABILITY WAS IN RUPEE TERMS RS.138,21,30,000/- WHEREAS ON 31.03.2008 IT WAS RS.1,08,00,00,000/-. THUS, THE AMOUNT OF RS.30,21,3 0,000/- WAS THE DIFFERENCE BETWEEN THE TWO FIGURES. OUT OF THE FOREX LOSS OF RS.30,21,30,000/-, RS.3,21,04,023/- AND 27 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 RS.L,84,67,407/- WERE NOT CLAIMED AS A DEDUCTION. RS.12,65,54,992/- WAS THE AMOUNT WHICH PERTAINED TO ACQUISITION OF INDIGENOUS FIXED ASSETS. THIS WAS AD DED TO THE COST OF THE ASSETS BY THE ASSESSEE AND DEPRECIATION WAS CLAIMED ON THIS AMOUNT AND THIS DEPRECIATION WAS CLAIMED AS AN EXPENSE IN THE P & L A/C. THE AMOUNT OF RS.12,50,03,577/- WAS CLAIMED AS LOSS FROM INCOME. THIS LOSS AS PER T HE ASSESSEE PERTAINED TO NON DEPRECIABLE ASSETS. 22.1. WE FIND THE LOSS OF RS.12,50,03,577/- (PROPO RTIONATE TO NON-DEPRECIABLE ASSETS) CLAIMED AS DEDUCTION WAS DISALLOWED FOR THE REASON THAT THE LOSS PERTAINED TO CAPITAL A SSETS (LAND) AND WAS REQUIRED TO BE CAPITALIZED IN THE VALUE OF SUCH ASSET. SINCE, ASSET ACQUIRED WAS NOT DEPRECIABLE, THEREFOR E, LOSS CANNOT BE ALLOWED. WE FIND THAT THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT NO TRANSACTION HAS TAKEN PLACE DURING THE YEAR, FOR NO PAYMENT WAS MADE DURI NG THE YEAR. FURTHER, ASSETS WERE NOT ACQUIRED DURING THE YEAR. LOSS CAN BE ALLOWED IN THE YEAR IN WHICH TRANSACTION HAD TAKEN PLACE. FURTHER, SUCH EXCHANGE LOSS WAS CAPITAL LOSS AND NOT REVENUE LOSS. IT IS THE SUBMISSION OF THE LEARNED C OUNSEL FOR THE ASSESSEE THAT THE STAND OF THE DEPARTMENT IS INCONS ISTENT SINCE 28 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 IN AY 2008-09, FOREIGN EXCHANGE GAIN OF RS.4,72,43, 028/- WAS TAXED AS INCOME AS THE SAME WAS NOT REDUCED IN COMP UTING THE INCOME. SIMILARLY, IN AY 2010-11, THE NET GAIN WAS OFFERED TO TAX. HOWEVER, DUE TO INCONSISTENT STAND OF THE DEP ARTMENT, THE GAIN WAS CLAIMED AS NOT TAXABLE AND THE CIT(A) GAVE CERTAIN DIRECTIONS WHICH HAS BEEN REPRODUCED IN THE PRECEDI NG PARAGRAPHS. 22.2. WE FIND SOME FORCE IN THE ARGUMENTS OF THE L EARNED COUNSEL FOR THE ASSESSEE. WE FIND THE ASSESSEE HAS PREPARED ITS ACCOUNTS AS PER AS-11 WHICH DEALS WITH EFFECT OF CH ANGES IN FOREIGN EXCHANGE RATE AND SUCH DIFFERENCE IS REQUIR ED TO BE RECOGNIZED AS INCOME OR EXPENDITURE. THE HONBLE SU PREME COURT IN THE CASE OF CIT V WOODWARD GOVERNOR INDIA P. LTD. (SUPRA) HAS HELD THAT AS-11 IS MANDATORY AND IS REQ UIRED TO BE FOLLOWED IN COMPUTING THE INCOME AS REQUIRED BY SEC TION 145(1) READ WITH SECTION 145(2) OF THE ACT. THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT V. VIRTUAL SOFT SYSTEMS LT D. (SUPRA) HAS EXPLAINED THE DUTY OF THE AO TO FOLLOW ACCOUNTING S TANDARDS. THE HONBLE SUPREME COURT HAS APPROVED THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS VIRTUAL SOFT SYS TEMS LTD. REPORTED IN 404 ITR 409. FURTHER, DURING THE AY 200 8-09, SUCH 29 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 FOREIGN EXCHANGE GAIN OF RS.4,72,43,028/- WAS TREAT ED AS INCOME OR DECLARED AS INCOME WAS ACCEPTED BY THE AO . SIMILARLY, IN AY 2010-11, ALTHOUGH THE ASSESSEE HAS OFFERED THE FOREIGN EXCHANGE GAIN TO TAX, HOWEVER, DUE TO INCON SISTENT STAND OF THE DEPARTMENT IT CLAIMED THE GAIN IS NOT TAXABLE AND THE ISSUE WAS RAISED BEFORE THE CIT(A). THE LEARNE D CIT(A) ALSO APPRECIATING THE INCONSISTENCY IN THE STAND OF THE DEPARTMENT HELD THAT THE DEPARTMENT NEEDS TO BE CONSISTENT IN ITS APPROACH THAT IF THE LOSS WAS TREATED AS OF CAPITAL NATURE, EVEN THE RECEIPT SHOULD BE TREATED AS OF CAPITAL NATURE. HE, ACCORD INGLY, DIRECTED THE AO TO EXCLUDE THE RECEIPT FROM THE TOT AL INCOME. HOWEVER, HE HELD THAT IF IN FURTHER APPEAL FOR THE AY 2009-10, IT IS HELD THAT THE LOSS HAS TO BE ALLOWED AS REVENUE EXPENDITURE THE GAIN FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N WOULD ALSO HAS TO BE TAXED AS INCOME. IN VIEW OF THE ABO VE DISCUSSION, FOLLOWING THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF CIT V WOODWARD GOVERNOR INDIA P. LTD . (SUPRA), WHERE IT IS HELD THAT AS-11 IS MANDATORY AND REQUIR ED TO BE FOLLOWED IN COMPUTING THE INCOME AND THE DECISION O F THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS VIRT UAL SOFT SYSTEMS LTD.(SUPRA), HOLDING THAT IT IS THE DUTY O F THE AO TO 30 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 FOLLOW ACCOUNTING STANDARDS AND FOLLOWING THE RULE OF CONSISTENCY, WE HOLD THAT THE FOREIGN EXCHANGE LOSS OF RS.12,50,33,577/- SHOULD BE ALLOWED AS REVENUE EXPE NDITURE. GROUND NO.2 AND 2.1 FILED BY THE ASSESSEE ARE ACCOR DINGLY ALLOWED. 23. GROUND NO.3 RELATES TO ENHANCEMENT OF THE INCO ME OF THE ASSESSEE BY RS. 1,56,34,104/- BEING THE DEPRECI ATION ALLOWED BY THE ASSESSING OFFICER ON UTILIZATION OF FCCB PROCEEDS TOWARDS DEPRECIABLE ASSETS BY THE CIT(A). THE ADDITIONAL GROUND RELATES TO THE ALLOWABILITY OF FO REIGN EXCHANGE FLUCTUATION LOSS OF RS.12,65,54,992/- AS AN ALLOWAB LE DEDUCTION U/S 37 OF THE I.T. ACT, 1961. 23.1. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT EXCHANGE LOSS OF RS.12,65,54,992/-WAS ATTRIBUTABLE TO ACQUISITION OF INDIGENOUS DEPRECIABLE ASSETS. INCRE ASED LIABILITY ON ACCOUNT OF FOREX LOSS WAS ADDED TO THE COST OF T HE FIXED ASSETS AND DEPRECATION OF RS.1,56,34,104/- CLAIMED, WHICH WAS ALLOWED BY THE ASSESSING OFFICER. THE CIT(A) E NHANCED THE INCOME, INASMUCH AS, DEPRECATION OF RS.1,56,34,104/ - WAS WITHDRAWN AND THE AMOUNT OF RS.12,65,54,992/- WAS R EDUCED FROM THE WDV, FOR THE REASON THAT (I) SECTION 43A W AS NOT 31 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 APPLICABLE TO SUCH A CASE BECAUSE THE ASSETS WERE N OT ACQUIRED FROM ABROAD AND (II) LIABILITY OF THE ASSESSEE TOWA RDS COST OF THE ASSETS OR REPAYMENT OF MONEY BORROWED HAS NOT INCRE ASED OR DECREASED DURING THE YEAR. 23.2. HE SUBMITTED THAT SECTION 43A HAS NO APPLICA BILITY IN A CASE SUCH AS THE PRESENT ONE, AS HAS BEEN HELD IN COOPER CORPORATION (P) LTD. V. DY. CIT (2016) 159 ITD 165 (PUNE), HOWEVER, THE CONCLUSION THAT THE LIABILITY DUE TO E XCHANGE FLUCTUATION HAS NOT INCREASED DURING THE YEAR BECAU SE THE ASSETS WERE ACQUIRED IN EARLIER YEARS RUNS CONTRARY TO THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS TAT A IRON & STEEL CO. LTD. REPORTED IN 231 ITR 285, WHEREIN IT WAS LAID DOWN THAT TRANSACTION OF LOANS WAS DISTINCT AND IND EPENDENT TRANSACTION IN COMPARISON TO ACQUISITION OF ASSETS. HE SUBMITTED THAT IN COOPER CORPORATION (P) LTD. (SUPR A), INITIALLY THE ASSESSEE HAD TAKEN RUPEE LOAN. ON ACCOUNT OF LO WER INTEREST COST, THE LOAN WAS CONVERTED IN FOREIGN CU RRENCY LOAN. HOWEVER, THE ASSESSEE SUFFERED LOSSES DUE TO EXCHAN GE FLUCTUATIONS. THE SAME LOSS WAS CLAIMED AS BUSINESS LOSS. THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR THE REAS ON THAT (I) THE LOSS WAS A NOTIONAL LOSS AND (II) THE LOANS WER E UTILIZED TO 32 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ACQUIRE CAPITAL ASSETS AND THEREFORE, THE LOSS CANN OT BE ALLOWED AS REVENUE EXPENSE. THE CIT(A) ALLOWED PARTIAL RELIEF. LOSS TO THE EXTE NT OF RS.37,92,087/- BEING ATTRIBUTABLE TO REVENUE ITEMS WAS ALLOWED. HOWEVER, LOSS OF RS.1,02,06,863/- WAS DISA LLOWED, FOR THE SAME WAS UTILIZED TO ACQUIRE CAPITAL ASSETS . ON SECOND APPEAL, THE TRIBUNAL INTER- ALIA HELD THAT: (I) AS PER AS-11 READ WITH NOTIFICATION S.O. 892(E) DA TED 31.3.2015, EXCHANGE DIFFERENCE HAS TO BE RECOGNIZED AS 'INCOME' OR 'EXPENSE' AS THE CASE MAY BE (PARAS 10.2 & 10.3 R/W 11 OF THE ORDER). (II) SECTION 43A OPENS WITH NON OBSTANTE CLAUSE AND IT COMES INTO PLAY ONLY WHEN THE ASSETS ARE ACQUIRED FROM A COUNTRY OUTSIDE INDIA AND THAT IT DOES NOT APPLY TO ACQUISI TION OF INDIGENOUS ASSETS (PARA 10.4 OF THE ORDER). (III) LOSS WAS ALLOWABLE ON THE BASIS OF GENERALLY ACCEPT ED ACCOUNTANCY PRINCIPLES. INCREASED LIABILITY DUE TO EXCHANGE LOSS CANNOT BE LOADED TO THE ACTUAL COST U/S 43(1) OF THE ACT. LOAN HAS NO BEARING ON THE COST OF THE ASSET. TRANS ACTION OF LOAN WAS DISTINCT AND INDEPENDENT TRANSACTION IN COMPARISON TO ACQUISITION OF ASSETS AS HAS BEEN HEL D IN CIT V. TATA IRON & STEEL CO. LTD. (1998) 231 ITR 285 (S C) (PARAS 10.5 & 10.6 OF THE ORDER). 23.3. HE SUBMITTED THAT ON EXACTLY SIMILAR FACTS A ND CIRCUMSTANCES, THE CO-ORDINATE BENCH OF THE TRIBUNA L IN ACIT V. M/S. KEI INDUSTRIES LTD. [ITA NO.1433/DEL/2014 & ITA NO.528/DEL/2016 DATED 3.12.2020] HAVE ALLOWED DEPRE CIATION 33 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ON ENHANCED COST FOR THE ASSESSMENT YEARS 2009-10 A ND 2012- 13. CONSIDERING THE ISSUE, THE HONBLE TRIBUNAL IN PARA 10 OF THE ORDER (PAGE 47 TO 50 OF ITS ORDER) HAS OBSERVED THAT: IT IS, THEREFORE, CLEAR THAT THOUGH SECTION 43A AP PLY TO THE ASSETS ACQUIRED FROM ABROAD, STILL THE A.O. WITHOUT JUSTIFICATION APPLIED SECTION 43A FOR MAKING THE DI SALLOWANCE OF DEPRECIATION AGAINST THE ASSESSEE. SECTION 43A T HUS COULD NOT APPLY IN THE CASE OF THE ASSESSEE WHICH IS ALSO HELD BY VARIOUS BENCHES OF THE TRIBUNAL IN THE DECISIONS QU OTED ABOVE. ACCOUNTING STANDARD-11 WOULD ALSO APPLY IN T HE CASE OF THE ASSESSEE. THE ASSESSEE HAS ALSO EXPLAINED TH AT COMPANIES AMENDMENT RULES ALSO APPLY TO THE FACTS O F THE CASE BECAUSE OPTION IS GIVEN TO ASSESSEE AND IT PRO VIDED WHERE LONG TERM FOREIGN CURRENCY MONETARY ITEMS RE LATES TO ACQUISITION OF DEPRECIABLE CAPITAL ASSET, THE SAME SHALL BE ADDED/DEDUCTED FROM THE COST OF THE ASSET AND SHALL BE DEPRECIATED ACCORDINGLY OVER THE BALANCE LIFE OF TH E ASSET.. IT IS NOT IN DISPUTE THAT ASSESSEE FOLLOWED AS-11 REGU LARLY. IN A.Y. 2010-2011 THE LD. CIT(A) ALLOWED SIMILAR CLAIM OF THE ASSESSEE, BUT, THE DEPARTMENT DID NOT FILE ANY APPE AL AGAINST THE SAME ORDER. 23.4. HE ALSO RELIED ON THE DECISION IN THE CASE O F DY. CIT V. MADDI LAKSHMAIAH & CO. LTD [2017] 82 TAXMARN N.COM 205 (VISAKHAPATNAM) AND THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF MFAR HOTELS & RESORTS L TD. V. ACIT VIDE ITA NO.63/COCH/2015, ORDER DATED 16.03.2018. F URTHER, COOPER CORPORATION (P) LTD. (SUPRA) HAS BEEN FOLLOW ED IN HYUNDAI MOTOR INDIA LTD V. DY. CIT [2017] 81 TAXMAN N.COM 5 (CHENNAI). 34 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 23.5. HE SUBMITTED THAT BASED ON DECISIONS RENDERED IN COOPER CORPORATION (P) LTD. (SUPRA), MFAR HOTELS & RESORTS LTD. (SUPRA) AND MADDI LAKSHMAIAH & CO. LTD (SUPRA) , THE ASSESSEE HAS A GOOD CASE TO ARGUE THAT EXCHANGE FLU CTUATION LOSS ATTRIBUTABLE TO DEPRECIABLE ASSETS ACQUIRED IN INDIA IS AN ALLOWABLE EXPENDITURE 23.6. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH LOSS IS ALLOWABLE, IN CASE THE BENCH IS NOT INCLINED TO ALL OW DEDUCTION OF RS.12,65,54,992/- AS CLAIMED IN THE ADDITIONAL G ROUND FOR THE REASON THAT THE ASSESSEE HAD CLAIMED DEPRECIATI ON IN THE RETURN OF INCOME, THEN THE DEPRECIATION MAY BE ALLO WED. FOR THE ABOVE PROPOSITIONS, HE REFERRED TO THE DECISION IN THE CASE OF CIT VS. INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (2009) 185 TAXMAN 296 ('DEL). IN THIS CASE ALSO, THOUGH TH E DIFFERENCE BETWEEN FORWARD CONTRACT RATE AND EXCHANGE RATE ON DATE OF ENTERING INTO CONTRACT WAS HELD TO BE ALLOWABLE AS BUSINESS EXPENDITURE IN YEAR OF ENTERING INTO FORWARD CONTRA CT ITSELF, HOWEVER, SINCE THE ASSESSEE HAD SPREAD OVER THE EXP ENSE, THE HON'BLE COURT ALLOWED THE SPREAD OVER. APPLYING THI S PRINCIPLE OF INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (SU PRA), THE 35 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DEPRECIATION MAY BE ALLOWED TO THE ASSESSEE. 23.7. REFERRING TO THE DECISION IN THE CASE OF DDI T V. STAUBIL A.G. INDIA BRANCH OFFICE (ITA NO.3703/MUM/2 005 PARA 14 TO 20 OF THE ORDER) , HE DREW THE ATTENTION OF THE BENCH TO THE SAME AND SUBMITTED THAT FOLLOWING GROUND WAS RAISED BY THE DEPARTMENT: '2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN HOLDING THAT THE ASSE SSING OFFICER WAS NOT JUSTIFIED IN DISALLOZVING DEPRECIAT ION OF RS. 18,636/- ON CAPITALIZATION OF EXCHANGE CONTROL FLUCTUATION ARISING ON FOREIGN CURRENCY BORROWING F ROM ITS HEAD OFFICE RELATABLE TO FIXED ASSETS ACQUIRED IN I NDIA WITHOUT APPRECIATING THAT SECTION 43A IS NOT APPLIC ABLE IN THE PRESENT CASE.' 23.8. HE SUBMITTED THAT IN THIS CASE, OUT OF FOREI GN CURRENCY LOANS, ASSESSEE HAD ACQUIRED PREMISES IN I NDIA. IN THE COMPUTATION INCOME ENHANCED LIABILITY ON ACCOUNT OF CURRENCY FLUCTUATION WAS ADDED TO THE FIXED ASSETS STATING T HAT 'ADDITIONS TO THE FIXED ASSETS INCLUDE LOSS OF FOREIGN EXCHANG E RATES AT THE YEAR-END WHICH IS ADDED TO THE WRITTEN DOWN VALUE O F THE BLOCK OF ASSETS' . THE ASSESSING OFFICER DISALLOWED DEPRECIATION FOR THE REASON THAT DEFINITION OF WDV DOES NOT ENVISAGE SUC H ADJUSTMENT AND SECTION 43A WAS NOT APPLICABLE, FOR ASSETS WERE NOT ACQUIRED FROM A COUNTRY OUTSIDE INDIA. CIT(A) ALLOWED 36 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DEPRECIATION OBSERVING THAT ELSE THERE WOULD BE A C ASE TO CLAIM FULL AMOUNT OF EXCHANGE FLUCTUATION AS REVENUE LOSS . IN APPEAL, THE TRIBUNAL REFERRING TO CIT V WOODWARD GOVERNOR INDIA P. LTD. (2009) 312 ITR 254 (SC) UPHELD THE ORDER OF CI T(A). 23.9. HE ACCORDINGLY SUBMITTED THAT THE DEPRECIATI ON CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED AND ACCOR DINGLY THE ADDITIONAL GROUND MAY BE TREATED AS INFRUCTUOUS. 23.10. THE LEARNED CIT-DR ON THE OTHER HAND, HEAVI LY RELIED ON THE ORDER OF THE CIT(A). SHE SUBMITTED T HAT THE LEARNED CIT(A) HAS GIVEN VALID REASONS FOR DISALLOW ING THE DEPRECIATION WHILE ENHANCING THE INCOME OF DEPRECIA TION TO THE EXTENT OF RS.1,56,34,104/-, SINCE, THE ASSETS WERE NOT ACQUIRED FROM ABROAD AND THE LIABILITY OF THE ASSESSEE COMPA NY TOWARDS COST OF THE ASSETS OR REPAYMENT OF MONEY BORROWED H AS NOT INCREASED OR DECREASED DURING THE YEAR. SHE ACCORD INGLY SUBMITTED THAT BOTH GROUND NO.3 AND ADDITIONAL GROU ND RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 23.11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH SIDES, PERUSED THE ORDERS OF THE LEARNED AO AN D CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE 37 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE HAD ATTRIBUTED THE EXCHANGE LOSS OF RS.12,65,54,992/- TO ACQUISITION OF INDIGEN OUS DEPRECIABLE ASSETS. ACCORDINGLY, IT HAD ATTRIBUTED THE LIABILITY ON ACCOUNT OF FOREX LOSS TO THE COST OF THE FIXED ASSETS AND CLAIMED DEPRECIATION OF RS.1,56,34,104/- WHICH WAS ALLOWED BY THE ASSESSING OFFICER. WE FIND THE LEARNED CIT(A) E NHANCED THE INCOME TO THE EXTENT OF DEPRECIATION OF RS.1,56,34, 104/- BY DIRECTING THE ASSESSING OFFICER TO REDUCE AN AMOUNT OF RS.12,65,54,992/- FROM THE WDV ON THE GROUND THAT S ECTION 43A WAS NOT APPLICABLE SINCE THE ASSETS WERE NOT AC QUIRED FROM ABROAD AND THE LIABILITY OF THE ASSESSEE TOWARDS CO ST OF THE ASSETS OR REPAYMENT OF MONEY BORROWED HAS NOT INCRE ASED OR DECREASED DURING THE YEAR. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT PROVISIONS OF SECTION 43A ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. HOWEVER, T HE CONCLUSION THAT THE LIABILITY DUE TO EXCHANGE FLUCTUATION HAS NOT INCREASED DURING THE YEAR BECAUSE THE ASSETS WERE ACQUIRED IN EARLIER YEARS RUNS CONTRARY TO THE JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF CIT V. TATA IRON AND STEEL CO. LTD ( 1998) 231 ITR 285, WHEREIN, IT WAS LAID DOWN THAT TRANSACTION OF LOAN WAS 38 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DISTINCT AND INDEPENDENT TRANSACTION IN COMPARISON TO ACQUISITION OF ASSETS. 23.12. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFO RE THE TRIBUNAL IN THE CASE OF ACIT V. M/S. KEI INDUST RIES LTD. IN ITA NO.1433/DEL/2014 & ITA NO.528/DEL/2016 ORDER DA TED 3.12.2020, WHEREIN THE TRIBUNAL HAD ALLOWED DEPREC IATION ON ENHANCED COST FOR THE ASSESSMENT YEARS 2009-10 AND 2012-13 BY OBSERVING AS UNDER:- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THA T IN ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD CAPITALIZED A SUM OF RS.27,37,25,941/- ON ACCOUNT O F EXCHANGE RATE FLUCTUATION IN RESPECT OF MACHINERIES BOUGHT IN INDIA FROM THE FOREIGN FUNDS RAISED THROUGH FCCB S. NO REPAYMENT OF LOAN BY WAY OF FCCBS WAS MADE DURING T HE YEAR UNDER APPEAL. HOWEVER, INCREASE IN ANY LIABILI TY ON ACCOUNT OF PREVAILING EXCHANGE RATE WAS SHOWN IN TH E BALANCE-SHEET UNDER THE HEAD UNSECURED LOANS THE FLUCTUATIONS TO THE EXTENT OF ACQUISITION OF FIXED ASSETS IN INDIA BY UTILISING FCCBS WAS ADDED TO THE ACTUAL CO ST AND DEPRECIATION CHARGED THEREON. THUS, THE ASSESSEE PURCHASED THE MACHINERY IN INDIA FROM THE FOREIGN F UNDS THROUGH FCCBS WHICH FACT IS NOT DISPUTED BY THE AUTHORITIES BELOW. IT IS, THEREFORE, CLEAR THAT THO UGH SECTION 43A APPLY TO THE ASSETS ACQUIRED FROM ABROAD, STILL THE A.O. WITHOUT JUSTIFICATION APPLIED SECTION 43A FOR MAKING THE DISALLOWANCE OF DEPRECIATION AGAINST THE ASSESS EE. SECTION 43A THUS COULD NOT APPLY IN THE CASE OF THE ASSESSEE WHICH IS ALSO HELD BY VARIOUS BENCHES OF T HE TRIBUNAL IN THE DECISIONS QUOTED ABOVE. ACCOUNTING STANDARD-11 WOULD ALSO APPLY IN THE CASE OF THE ASS ESSEE. THE ASSESSEE HAS ALSO EXPLAINED THAT COMPANIES AMENDMENT RULES ALSO APPLY TO THE FACTS OF THE CASE 39 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 BECAUSE OPTION IS GIVEN TO ASSESSEE AND IT PROVIDED WHERE LONG TERM FOREIGN CURRENCY MONETARY ITEMS RELATES T O ACQUISITION OF DEPRECIABLE CAPITAL ASSET, THE SAME SHALL BE ADDED/DEDUCTED FROM THE COST OF THE ASSET AND SHALL BE DEPRECIATED ACCORDINGLY OVER THE BALANCE LIFE OF TH E ASSET.. IT IS NOT IN DISPUTE THAT ASSESSEE FOLLOWED AS-11 R EGULARLY. IN A.Y. 2010-2011 THE LD. CIT(A) ALLOWED SIMILAR CL AIM OF THE ASSESSEE, BUT, THE DEPARTMENT DID NOT FILE ANY APPEAL AGAINST THE SAME ORDER. IN A.Y. 2011-2012 THOUGH TH E DEPARTMENT FILED APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE ON ALLOWING DEPRECIATION, BUT, THE SAME HAS BEEN DISMISSED VIDE ORDER DATED 21.10.2019 (SUPRA). THUS , THE LD. CIT(A) WAS BOUND TO FOLLOW RULE OF CONSISTENCY AND SHOULD NOT HAVE TAKEN A CONTRARY VIEW IN A.Y. 2012- 2013. WE RELY UPON THE JUDGMENTS OF THE HONBLE SUPREME C OURT IN THE CASE OF RADHASOAMI SATSUNG 193 ITR 321 (SC) AND EXCEL INDUSTRIES LTD., 358 ITR 295 (SC). THE ASSESS EE HAS ALSO FOLLOWED COMPANIES RULES, 2009 BECAUSE IT HAS GIVEN OPTION TO THE ASSESSEE TO DO SO. THE DECISION OF MU MBAI BENCH IN THE CASE OF DDIT V. STAUBIL A.G. INDIA BRA NCH OFFICE (SUPRA), RELIED UPON BY THE LD. CIT(A) IS ON IDENTICAL FACTS. THEREFORE, THERE IS NO INFIRMITY IN THE ORDE R OF THE LD. CIT(A) IN FOLLOWING THE SAME. IT MAY ALSO BE NOTED HERE THAT WHEREVER THERE WAS AN EXCHANGE GAIN TO THE ASSESSEE , THE SAME WAS REDUCED FROM THE WDV AND CLAIM WAS MADE ACCORDINGLY, THEREFORE, ASSESSEE IS FOLLOWING THE A S-11 CONSISTENTLY AND AS SUCH THE SAME SHOULD NOT HAVE B EEN DISPUTED BY THE AUTHORITIES BELOW. THE LD. D.R. HAS NOT POINTED-OUT ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) IN ALLOWING THE DEPRECIATION TO THE ASSESSEE AS PER LA W. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND NO. 2 OF THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 24. SINCE, THE ASSESSEE IN THE INSTANT CASE HAS AT TRIBUTED THE INCREASED LIABILITY OF RS.12,65,54,992/- TO THE COST OF THE ASSETS AND THE DEPRECIATION WAS ALLOWED, THEREFORE, ALTHOUGH THE ASSESSEE HAS A GOOD CASE TO ARGUE THAT EXCHANGE 40 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 FLUCTUATION LOSS ATTRIBUTABLE TO DEPRECIABLE ASSETS ACQUIRED IN INDIA IS AN ALLOWABLE REVENUE EXPENDITURE, HOWEVER, IT WOULD REQUIRE TEDIOUS EXERCISE OF MODIFYING ASSESSMENTS F OR NUMBER OF YEAR. THEREFORE, WE HOLD THAT THE ASSESSEE IS E NTITLED TO DEPRECIATION ON EXCHANGE LOSS AND THE ADDITIONAL GR OUNDS RAISED BY THE ASSESSEE FOR AY 2009-10 BECOMES IN-FR UCTUOUS. IT IS HELD IN THE CASE OF CIT V. INDUSTRIAL FINANCE CORP OF INDIA LTD. (2009) 185 TAXMAN 296, THAT REVENUE EXPENDITUR E (LOSS) IS ALLOWABLE IN THE YEAR IN WHICH IT IS INCURRED BUT W HERE THE ASSESSEE HAS SPREAD IT OVER, THE COURT WOULD ALLOW THE BENEFIT. WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSE L FOR THE ASSESSEE THAT IT CANNOT BE HELD THAT NEITHER DEPREC IATION ON ENHANCED COST DUE TO EXCHANGE FLUCTUATION IS TO BE ALLOWED NOR THE LOSS ITSELF WAS TO BE ALLOWED MORE SO BECAUSE C LAIM TO THIS EFFECT WAS RAISED BOTH BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A). ACCORDINGLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED AND ADDITIONAL GROUND BEING INFRUCTUOUS IS DISMISSED. 25. GROUND NUMBER 4 RELATES TO DISALLOWANCE OF RS.8,53,916/- UNDER SECTION 14A OF THE ACT READ WIT H RULE 8D OF INCOME TAX RULES, 1962. 41 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 25.1. FACT OF THE CASE, IN BRIEF ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAS OPENING AND CLOSING INVESTMENT OF RS.27,39,71,001/- , THE INCOME FROM THE INVESTMENT OF WHICH IS EXEMPT UNDER PROVISIONS OF INCOME TAX ACT. THE AO RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD VS ITO ( 2009) 317 ITR (A.T.) 0086 COMPUTED THE DISALLOWANCE U/S 14A R .W.R. 8D AT RS.26,92,582/-. IN APPEAL, THE LEARNED CIT(A) UPHEL D THE DISALLOWANCE SO MADE BY THE AO. 25.2. IT IS THE SUBMISSION OF THE LEARNED COUNSEL THAT SINCE, THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR HAS NOT RECEIVED ANY DIVIDEND INCOME, THEREFORE, THE PR OVISION OF SECTION 14A IS NOT APPLICABLE. FOR THE ABOVE PROPO SITION, HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF CHEMINVEST LTF. VS CIT REPORTED IN 378 ITR 33. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT THERE WA S NO FRESH INVESTMENT, INASMUCH AS, TOTAL INVESTMENT AS ON 31. 3.2008 AND 31.3.2009 WAS RS.27,39,71,001/- (PAGE 29 OF THE PAPER HOOK). HE SUBMITTED THAT NOTWITHSTANDING THAT SECTI ON 14A WAS NOT ATTRACTED AND THERE WAS NO FRESH INVESTMENT, ST ILL THE ASSESSEE HAS SUO- MOTO DISALLOWED RS.27,99,459/-, O UT OF 42 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 INTEREST EXPENDITURE. NO DISALLOWANCE U/S 14A READ WITH RULE 8D CAN BE MADE WITHOUT RECORDING SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF AN ASSESSEE, SUO-MOTO DIS ALLOWANCE U/S 14A WAS NOT CORRECT. IN THE PRESENT CASE, SATIS FACTION WAS NOT RECORDED. THEREFORE, NO DISALLOWANCE WAS CALLED FOR. RELIANCE IS PLACED ON GODREJ & BOYCE MFG. V. DY. CI T (2017) 394 ITR 449 (SC). HE SUBMITTED THAT THOUGH THERE IS NO ESTOPPEL AGAINST THE STATUE AND IT CAN BE ARGUED TH AT NO DISALLOWANCE U/S 14A WAS CALLED FOR, HOWEVER, THE A SSESSEE TO AVOID LITIGATION HAD AGREED TO DISALLOWANCE OF RS.2 7,99,459/-. THEREFORE, TO THIS EXTENT THE ASSESSEE HAS NO GRIEV ANCE. HE SUBMITTED THAT OUT OF INVESTMENT OF RS.27,39,71,001 /- INVESTMENT OF RS.24,82,23,001/- (RS.24.82 CR) WAS M ADE ON 3.8.2007 IN THE EQUITY SHARES OF PARAMOUNT HOLDING LTD, CYPRUS, A SUBSIDIARY COMPANY. DIVIDEND FROM FOREIG N SUBSIDIARY IS TAXABLE, THEREFORE, SECTION 14A HAS N O APPLICABILITY-CIT V SUZLON ENERGY LTD. (2013) 354 I TR 630 (GUJ.) 25.3. REFERRING TO PAGE 35 OF THE PAPER BOOK, HE SUBMITTED THAT THE REMAINING INVESTMENT OF RS.2,57, 48,000/- (RS.2.57 CR) WAS MADE IN EARLIER YEARS AS UNDER:- 43 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 I. INVESTMENT OF RS.1,68,000/- IN THE SHARES OF HARYA NA FINANCIAL CORPORATION WAS MADE IN THE ASSESSMENT Y EAR 1996-97 AND II. INVESTMENT OF RS.2,55,80,000/- IN THE SHARES OF PARAMOUNT WIRES & CABLES LTD. ANOTHER SUBSIDIARY COMPANY WAS MADE IN THE ASSESSMENT YEARS 2000-01 AN D 2001-02. 25.4. NOTWITHSTANDING THE ABOVE, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT CALCULATION OF DISALLOWANCE UNDER RULE 8D. THE SAME WAS SUBMITTED UNDER PROTEST (PAGE 4 OF ASSESSMENT ORDER). EXCLUDING THE SUO-MOTO DISALLOWANCE, THE ASSESSING OFFICER MADE FURTHER DI SALLOWANCE OF RS.26,92,582/- WHICH IS NOT JUSTIFIED. HE ACCORD INGLY SUBMITTED THAT NO DISALLOWANCE U/S 14A R.W.R 8D IS CALLED FOR. 25.5. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE LEARNED CIT(AO. 25.6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE RECORD. WE FIND BEFORE THE AO, THE ASSESSEE HAS CAT EGORICALLY STATED THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVID END INCOME DURING THE YEAR. THIS FACT WAS NOT CONTROVERTED BY THE AO OR 44 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE CIT(A). EVEN THE LEARNED DR ALSO COULD NOT BRI NG ANY MATERIAL BEFORE US TO SHOW THAT THE ASSESSEE HAS RE CEIVED ANY DIVIDEND INCOME DURING THE YEAR. WE, THEREFORE, FOL LOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CHEMINVEST LTD. VS CIT (SUPRA) HOLD THAT THE LEARNE D CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE MADE B Y THE AO U/S 14A R.W.R 8D WHEN ASSESSEE HAS ADMITTEDLY NOT RECEI VED ANY DIVIDEND DURING THE YEAR. ACCORDINGLY, GROUND RAISE D BY THE ASSESSEE ON THIS ISSUE IS ALLOWED. ITA NO.2288/DEL/2017 (REVENUES APPEAL) 26. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENU E READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF FO REX GAIN OF RS.5,44,92,768/-. 27. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE IN RESPECT OF FOREIGN CURRENCY MONETARY ITEM TRANSLATI ON DIFFERENCE ACCOUNT (FCMITDA) HAD BEEN CONSISTENTLY FOLLOWING THE METHOD OF SHOWING THE GAIN AS INCOME AND THE LO SS AS ALLOWABLE DEDUCTION IN COMPUTING THE TAXABLE INCOME . FOLLOWING THIS CONSISTENT PRACTICE, THE ASSESSEE FO R THE RELEVANT ASSESSMENT YEAR HAD ADDED BACK AMOUNT OF RS.5,44,92 ,768/- 45 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 AS INCOME BEING THE GAIN ON ACCOUNT OF FCMITDA. SI NCE, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE LOSS ON ACCOUNT OF SUCH CLAIM WAS DENIED BY THE DEPARTMENT TREATING THE SAME AS CAPITAL LOSS WHICH WAS UPHELD BY THE LE ARNED CIT(A), THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THIS AMOUNT OF RS.5,44,92,768/- OFFERED AS INCOME I S NOT CHARGEABLE TO TAX SINCE THE SAME WAS CAPITAL RECEIP T IN VIEW OF THE STAND TAKEN BY THE DEPARTMENT. HOWEVER, THE ASS ESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE AS SESSEE ON THE GROUND THAT PRINCIPLE OF RES-JUDICATA DOES NOT APPL Y TO THE ASSESSMENT PROCEEDINGS AND THEREFORE FCMITDA GAIN O F THE CURRENT YEAR WOULD NOT BE AFFECTED BY DISALLOWANCE OF LOSS MADE IN PRECEDING ASSESSMENT YEAR. HE, FURTHER HELD THAT SINCE, THE ASSESSEE HAS NOT FILED ANY REVISED RETUR N, THEREFORE, CLAIM MADE BY A LETTER CANNOT BE ALLOWED. 28. BEFORE THE CIT(A), THE ASSESSEE, RELYING ON TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS PRUTHVI BROKERS SHAREHOLDERS PVT. LTD. 349 ITR 3 36(BOM.) AND VARIOUS OTHER DECISIONS SUBMITTED THAT THE JURI SDICTION OF THE APPELLATE AUTHORITIES TO CONSIDER AFRESH A NEW GROUND OR CLAIM IS NOT RESTRICTED TO CASES WHERE SUCH GROUND DOES NOT 46 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 EXIST WHEN THE RETURN WAS FILED AND THE ASSESSMENT ORDER WAS MADE. IT WAS ACCORDINGLY HELD THAT THE ASSESSEE CAN RAISE A NEW CLAIM WHICH WAS NOT MADE IN THE RETURN OR WHEN THE ASSESSMENT ORDER WAS MADE. IT WAS FURTHER SUBMITTE D THAT THE DEPARTMENT SHOULD BE CONSISTENT IN ITS APPROACH AND CANNOT TAKE TWO DIFFERENT VIEWS IN TWO DIFFERENT ASSESSMEN T YEARS. 29. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E, THE LEARNED CIT(A) HELD THAT SINCE, THE LOSS ON ACC OUNT OF FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFEREN CE ACCOUNT WAS TREATED AS CAPITAL IN NATURE IN PRECEDI NG YEARS, THEREFORE, DEPARTMENT NEEDS TO BE CONSISTENT IN ITS APPROACH AND EVEN RECEIPT SHOULD BE TREATED AS CAPITAL IN NA TURE. HE, ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO EXCLU DE THE RECEIPTS FROM THE TOTAL INCOME. HE, HOWEVER, HELD THAT IF IN ANY FURTHER APPEAL FOR AY 2009-10, IT IS HELD THAT THE LOSS HAS TO BE ALLOWED AS REVENUE EXPENDITURE, THE GAIN FOR THE AS SESSMENT YEAR UNDER CONSIDERATION WOULD ALSO HAS TO BE TAXED AS INCOME. 30. WHILE DECIDING THE ISSUE FOR AY 2009-10, WE HA VE ALREADY HELD THAT FOREIGN EXCHANGE FLUCTUATION LOSS TO BE REVENUE IN NATURE. THEREFORE, FOLLOWING THE SIMILAR REASONING, 47 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE GAIN FOR THIS ASSESSMENT YEAR HAS TO BE TREATED AS INCOME OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, HOLD THAT THE AMOUNT OF RS. 5,44,92,768/ - HAS TO BE TREATED AS INCOME OF THE ASSESSEE. ACCORDINGLY, TH E ORDER OF THE ASSESSING OFFICER IS UPHELD AND THE GROUND RAISED B Y THE REVENUE IS ALLOWED. ITA NO. 1378/DEL/2017(ASSESSEES APPEAL) 31. GROUND OF APPEAL NO.1 AND 1.1 RAISED BY THE ASSESSEE READS AS UNDER:- 1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME- TAX(APPEALS)-XVII, NEW DELHI [BRIEFLY THE CIT(A)] HAS ERRED IN UPHOLDING THE ADDITION OF RS.45,64,91,290/- ON ACCOUNT OF BUYBACK AT DISCOUNT OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS), TREATING THE SAME AS REVENUE RECEIPT. 1.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) DID NOT APPRECIATE THAT FCCBS WERE BOUGHT BACK AT A PRICE LESS THAN THE ISSUE PRICE I.E. US$ 5000 AND AS SUCH, THE JUDGMENTS RELIED UPON WERE NOT APPLICABLE. 32. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE FILED ITS E-RETURN FOR THE AY 2010-11 ON 22 ND SEPTEMBER, 2010 DECLARING LOSS OF RS.44,44,97,533/-. DURING THE AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE IN 48 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ITS COMPUTATION OF INCOME HAS CLAIMED GAIN ON FCCB BUYBACK FOR RS.45.65 CRORE AS NOT TAXABLE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROFIT OF RS.45.65 CR ORES SHOULD NOT BE TREATED AS BUSINESS INCOME IN THE HANDS OF T HE ASSESSEE THROUGH BUYBACK OF FCCBS AT DISCOUNTED PRICE. THE A SSESSEE RELYING ON VARIOUS DECISIONS SUBMITTED THAT REMISSI ON OF A LOAN LIABILITY IN RESPECT OF WHICH NO DEDUCTION FOR LOAN AMOUNT HAS BEEN CLAIMED, IS NOT ASSESSABLE AS INCOME. HOWEVE R, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ARGUME NTS ADVANCED BY THE ASSESSEE AND HELD THAT SUCH WRITE B ACK OF LIABILITY OF RS.45,64,91,290/- ON ACCOUNT OF FCCBS PREPAYMENT/BUYBACK IS TAXABLE FOR THE FOLLOWING REA SONS:- FCCBS USED BY ASSESSEE FOR RAISING FUNDS ARE SPECIAL BONDS HAVING AN INBUILT OPTION OF CONVERSION INTO EQUITY AT A PREMIUM. BUYBACK OF FCCBS IS NOT BUYBACK OF SHARES. BUYBACK HAS BEEN MADE BY OBTAINING LOAN FROM INDIAN BANK. INTEREST AND FINANCE CHARGES HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT. DURING THE PRECEDING AND CURRENT FINANCIAL YEAR, THE ASSESSEE HAS CAPITALIZED THE INTEREST ON THE ASSETS UP TO DATE OF PUT TO USE AND AFTER THAT DATE INTEREST HAS BEEN CHARGED TO PROFIT AND LOSS ACCOUNT. SINCE THE PROJECT WAS COMPLETED DURING ASSESSMENT YEAR 2007-08 OUT OF FCCBS PROCEEDS, THEREFORE FINANCE COST ON THE PROJECT HAS CEASED. 49 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 EVEN IF IT IS ACCEPTED THAT WAIVER OF INTEREST IS A CAPITAL RECEIPT THEN THE SAME SHOULD HAVE BEEN REDUCED FROM THE COST OF CAPITAL ASSETS ACQUIRED FROM THE FCCB PROCEEDS U/S 43(1). 33. HE ACCORDINGLY MADE ADDITION OF THE SAME TO TH E TOTAL INCOME OF THE ASSESSEE. 34. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMIT TED THAT THE THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRONICS PVT. LTD. VS. CIT (2011) 333 ITR 386(BO M.). IT WAS ARGUED THAT DUE TO THE FOLLOWING REASONS THE ADDITI ON OF RS.45.64 CRORES WAS NOT WARRANTED:- I. SECTION 41(1) DID NOT APPLY TO BUYBACK OF FCCBS. II. EVEN SECTION 28(IV) DOES NOT APPLY TO BUYBACK OF FC CBS. III. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRONICS P. LTD. VS CIT (2011) 333 ITR 3786 (DEL .) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE IV. THERE IS NO PROVISION TO CHARGE TO TAX THE SUM OF RS.45,64,91,290/-. 34.1. RELYING ON VARIOUS OTHER DECISIONS, IT WAS ARGUED THAT ADDITION MADE BY THE ASSESSING OFFICER HAS TO BE DELETED. 50 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 35. HOWEVER, THE LEARNED CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD T HE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER:- 4.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE AR OF THE APPELLANT AND THE ORDER MASSED BY THE AO. THE APPELLANT RAISED A SUM OF USD 27 MILLION (RS. 118.1 7 CRORE) BY WAY OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) ON 22- 11-2006. THE FCCBS WERE TO CARRY 1% INTEREST PER AN NUM AND HAD TO BE REDEEMED AT A PREMIUM OF 45.54% ON MA TURITY ON 23.11.2011. THE BOND-HOLDERS HAD THE OPTION TO C ONVERT THE BONDS INTO EQUITY SHARES ON MATURITY AT A PRE-D ETERMINED PRICE. THE FCCB AMOUNTING TO RS. 92.91 CRORES WERE REDEEMED DURING THE PREVIOUS YEAR UNDER CONSIDERATI ON FOR RS.47.26 CRORES, I.E. AT A DISCOUNT OF RS.45.65 CRO RES. THIS AMOUNT OF RS.45.65 CRORES WAS SHOWN AS PART OF 'OTH ER INCOME IN THE PROFIT AND LOSS ACCOUNT BUT WAS REDU CED FROM THE NET PROFIT WHILE COMPUTING THE PROFIT OF BUSINE SS IN THE COMPUTATION OF INCOME. ACCORDING TO THE APPELLANT, IT WAS A CAPITAL RECEIPT AS IT REPRESENTED REMISSION OF CAPI TAL LIABILITY. 4.3. THE APPELLANT IS AGGRIEVED, BY THE AOS ACTION OF T REATING THE AMOUNT AS REVENUE RECEIPT, ON THE FOLLOWING COUNTS: I. IT CANNOT BE TREATED AS 'PROFIT CHARGEABLE TO TAX U/S 41(1) OR 59(1) OF THE ACT II. IT CANNOT BE TREATED AS 'BENEFIT OR PERQUISITE U/S 28(IV) OF THE ACT III. THERE IS NO PROVISION IN THE INCOME TAX ACT TO TAX SUCH RECEIPT AS INCOME 4.4. IT HAS ALSO ARGUED THAT ITS CASE IS SQUARELY COVER ED BY THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF LOG ITRONICS P LTD. V CIT (2011) 333 ITR 386. 4.5. NORMALLY, A BORROWING COMPANY PAYS PREMIUM TO THE INVESTOR IN THE BONDS (APART FROM OR INSTEAD OF INT EREST PAYABLE ON REGULAR INTERVALS). SUCH PREMIUM CAN BE PAID IN EITHER OF THE FOLLOWING 2 WAYS: I. UPFRONT DISCOUNT IN PRICE AT THE TIME OF ISSUE 51 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 II. PREMIUM AT THE TIME OF MATURITY. 4.6. THE NATURE OF THE PREMIUM PAYABLE ON BONDS/DEBENTURES WAS A CONTENTIOUS ISSUE AND THE SA ME WAS EXAMINED BY THE HON. SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VS . CIT (1997) 225 ITR 802. IT WAS HELD BY THE HONBLE COUR T THAT THE DISCOUNT ALLOWED BY THE BORROWER WHILE ISSUING DEBE NTURES CONSTITUTES REVENUE EXPENDITURE AND THAT THE SAME N EEDS TO SPREAD PROPORTIONATELY OVER THE LIFE OF DEBENTURES AND BE ALLOWED AS DEDUCTION ON YEAR TO YEAR BASIS. '10. THEREFORE, ALTHOUGH EXPENDITURE PRIMARILY DENO TES THE IDEA OF SPENDING OR PAYING OUT, IT MAY, IN GIVE N CIRCUMSTANCES, ALSO COVER AN AMOUNT OF LOSS WHICH H AS NOT GONE OUT OF THE ASSESSEE'S POCKET BUT WHICH IS ALL THE SAME, AN AMOUNT WHICH THE ASSESSEE HAS HAD TO GIVE UP. IT ALSO COVERS A LIABILITY WHICH THE ASSES SEE HAS INCURRED IN PRAESENTI ALTHOUGH IT IS PAYABLE IN FUT URO. A CONTINGENT LIABILITY THAT MAY ARISE IN FUTURE IS, H OWEVER, NOT 'EXPENDITURE'. IT WOULD ALSO COVER NOT JUST A O NE-TIME PAYMENT BUT A LIABILITY SPREAD OUT OVER A NUMBER OF YEARS... 15. ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER SUC H INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO T HE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PER IOD OF THE DEBENTURES.' 4.7. FOLLOWING THAT RATIO, THE MADRAS HIGH COURT, IN THE CASE OF CIT V. TUBE INVESTMENTS OF (INDIA) LTD.[2003] 261 ITR 753, HELD THAT PRO-RATA ANNUAL ALLOCATION OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IS ALLOWABLE AS REVENUE EXPENDITURE. THE CALCUTTA HIGH COURT, IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. V. CIT[1999 ] 236 ITR 577, HELD AS BELOW: '9. IN OUR CASE, WE ARE CONCERNED NOT WITH DEBENTUR ES ISSUED AT A DISCOUNT FROM THE FACE VALUE BUT WITH DEBENTURES WHICH CARRY A PREMIUM TO BE PAID AT THE END OF THE ENTIRE PERIOD, IF THE DEBENTURES ARE HELD THROUGHOUT. WE DO NOT SEE ANY DISTINCTION BETWEEN A DISCOUNT AND A PREMIUM. THE RESULT IN BOTH IS THAT SOMETHING OVER AND ABOVE THE FACE VALUE AND THE SPECIFIED INTEREST IS PAID, THE ACCOUNTING PROCEDUR E IN ONE CASE BEING BY WAY OF A PRELIMINARY DEDUCTION FR OM 52 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE MENTIONED AMOUNT, AND THE ACCOUNTING PROCEDURE IN THE OTHER CASE BEING AN ADDITION AT THE END OVER THE PRESCRIBED AND MENTIONED FACE VALUE AMOUNT. 4.8. CONTINUING IN THE SAME VEIN, THE MADRAS HIGH COURT IN THE CASE OF CIT VS FIRST LEASING COMPANY OF INDIA LIMIT ED (2007) 292 ITR 110, HELD AS BELOW: 'APPLYING THE RATIO LAID DOWN IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT REPORTED IN [1997] 225 ITR 802 (SC) AND IN THE CONTEXT OF THE RATIO LAID DOWN IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. V. CIT REPORTED IN [1999] 236 ITR 577 (CAL), WHERE UNDER IT IS HELD THAT THERE IS NO DISTINCTION BETWEEN DISCOUNT AND PREMIUM, THE DISCOUNT ON DEBENTURES AS WELL AS THE PREMIUM PAYABLE ON ACTUAL REDEMPTION ON DEBENTURES IN FUTURE YEARS AND THE EXPENDITURE INCURRED FOR ISSUE OF SUCH DEBENTURES ARE ALL HELD TO BE REVENUE EXPENDITURE, ENTITLED TO BE SPREAD OVER THE PERIOD OF DEBENTURES AND CONSEQUENTLY, ALLOWABLE AS DEDUCTION IN A PARTICULAR ASSESSMENT YEAR.' 4.9. THE SETTLED LAW, THUS, IS THAT THE DISCOUNT AL LOWED ON DEBENTURES/BONDS AT THE TIME OF ISSUE OR THE PREMIU M PAID ON THE SAME AT THE TIME OF MATURITY CONSTITUTE REVE NUE EXPENDITURE IN THE HANDS OF THE BORROWER. 4.10. IN THIS CASE, THE APPELLANT HAD UNDERTAKEN TO PAY P REMIUM AT THE END OF THE TENURE OF THE FCCBS. BUT, DUE TO CERTAIN CIRCUMSTANCES, THE BORROWER AND THE LENDER AGREED T HAT PART OF THE FCCBS BE REDEEMED AT DISCOUNT PREMATURELY. THUS , INSTEAD OF PAYING PREMIUM, THE APPELLANT ENDED UP RECEIVING THE SAME AS FAR AS THE FCCBS THUS REDEEMED ARE CONCERNED. THE Q UESTION FOR CONSIDERATION IS: WHAT TAX TREATMENT SHOULD BE GIVE N TO SUCH CONSTRUCTIVE RECEIPT BY THE APPELLANT, I.E. WHETHER IT SHOULD BE TREATED AS REVENUE RECEIPT OR CAPITAL RECEIPT? 4.11. DISCOUNT IN THE APPELLANTS HANDS IS NOTHING BUT N EGATIVE PREMIUM IN THE HANDS OF THE LENDER/INVESTOR. IF THE PREMIUM PAYABLE/PAID BY THE APPELLANT ON FCCBS CONSTITUTES REVENUE EXPENDITURE, IT IS AXIOMATIC THAT THE DISCOUNT RECE IVED BY IT ON PREMATURE REDEMPTION OF THE SAME SHOULD CONSTITUTE REVENUE RECEIPT, I.E. INCOME CHARGEABLE TO TAX. IT WOULD BE ABSURD TO SAY THAT THE DISCOUNT ALLOWED BY THE APPELLANT ON DEBEN TURES SHOULD BE REVENUE EXPENDITURE BUT THE DISCOUNT RECEIVED BY HIM ON THE 53 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 SAME SHOULD BE CAPITAL RECEIPT. 4.12. .. AS PER THE TERMS OF THE FCCBS, THEY HAD TO BE REDEEMED AT PREMIUM OF 45.54%. IT HAS BEEN ASCERTAI NED THAT THE APPELLANT TREATED THE SAID PREMIUM AS REVE NUE EXPENDITURE. WHEN THE APPELLANT CLAIMED DEDUCTION F OR PREMIUM PAYABLE AS REVENUE EXPENDITURE, THERE IS NO REASON WHY THE DISCOUNT RECEIVED BY IT ON THE SAME SHOULD NOT BE TREATED AS REVENUE RECEIPT. IT IS NOT THE CA SE THAT LIABILITY TO THE EXTENT OF RS.45.65 CRORES HAD CEAS ED TO EXIST AND THAT THE APPELLANT REPAID ONLY THE LIABILITY OF RS.47.26 CRORES AT FACE VALUE. IT IS A CASE WHERE THE ENTIRE LIABILITY OF RS.92.91 CRORES REMAINED INTACT. IT IS JUST THAT TH E APPELLANT DISCHARGED THE SAME BY PAYING ONLY RS.47.26 CRORES. FLENCE, IT IS NOT A CASE OF EXTINGUISHMENT OF THE L OAN LIABILITY BUT RECEIPT OF DISCOUNT WHILE DISCHARGING THE SAME. 4.13. THE APPELLANT HAS RELIED ON SOME DECISIONS IN SUPPO RT OF ITS CONTENTION THAT WHEN A PART OF THE LOAN AMOU NT IS WAIVED BY THE LENDER, SUCH BENEFIT DOES NOT CONSTITUTE INCOME CHARGEABLE TO TAX IN THE HANDS OF THE BORROWER. THOSE DECISIONS A RE NOT APPLICABLE TO THE FACTS OF THIS CASE. IN THE CASE O F A LOAN, INTEREST IS PAYABLE AT REGULAR INTERVALS AND THE PRINCIPAL I S REPAID AT FACE VALUE AT THE END OF THE TENURE. THE NATURE OF FCCB IS DIFFERENT. HERE THE BORROWER PAYS PREMIUM OVER THE FACE VALUE AT THE TIME OF REDEMPTION. SUCH PREMIUM MAY CONSTITUTE CAPITAL RECEIPT IN THE HANDS OF THE INVESTOR. BUT, AS DISCUSSED ABOVE, THE HONBLE SUPREME COURT AS HELD THAT THE SAME CONSTITUTES REV ENUE EXPENDITURE IN THE HANDS OF THE BORROWER. IT HAS AL SO BEEN DISCUSSED ELABORATELY WHY FOR, THE SAME REASON, THE DISCOUNT SHOULD BE TREATED AS REVENUE RECEIPT. 4.14. THIS ISSUE CAN BE APPROACHED FROM ANOTHER ANGLE AL SO. ADMITTEDLY, THE FCCBS WERE RAISED FOR, AND HAD ACTU ALLY BEEN UTILISED FOR, ACQUIRING CAPITAL ASSETS FOR THE APPE LLANTS BUSINESS AND. AFTER THAT, THE APPELLANT ENTERED INTO AGREEME NT WITH THE BONDHOLDERS AND DISCHARGED ITS OBLIGATION OF REPAYI NG RS.92.91 CRORES BY PAYING ONLY RS. 47.26 CRORES. IN VIEW OF THIS, IT CAN BE SAID THAT THE COST OF THOSE CAPITAL ASSETS WAS INDI RECTLY MADE BY THOSE BOND-HOLDERS TO THE EXTENT OF RS.45.65 CRORES . BY THIS LOGIC, THE ACTUAL COST OF THOSE ASSETS WOULD BE LIABLE T O BE REDUCED BY 54 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE SUM OF RS.45.65 CRORES AND DEPRECIATION WOULD G O DOWN ACCORDINGLY FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION AND THE SUBSEQUENT ASSESSMENT YEARS. THIS COURSE OF ACTION, HOWEVER, NEED NOT BE RESORTED BECAUSE THE DISCOUNT HAS BEEN HELD TO BE INCOME. 4.15. IN VIEW OF THE FOREGOING DISCUSSION, IT IS HELD TH AT THE DISCOUNT RECEIVED BY THE APPELLANT AT THE TIME OF P REMATURE REDEMPTION OF FCCBS CONSTITUTED REVENUE RECEIPT AND , HENCE, INCOME CHARGEABLE TO TAX. THE ADDITION OF RS.45.65 CRORES MADE BY THE AO IS ACCORDINGLY CONFIRMED. 36. AGGRIEVED WITH SUCH ORDER OF THE LEARNED CIT( A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 37. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OU TSET SUBMITTED THAT THE ISSUE OF ADDITION ON ACCOUNT OF BUYBACK ON FCCBS AT DISCOUNT IS COVERED IN FAVOUR OF THE ASSES SEE BY THE FOLLOWING DECISIONS:- CIT VS MAHINDRA & MAHINDRA LTD. (2018) 404 ITR 1(SC ) DY. CIT VS PIDILITE INDUSTRIES LTD. (2019) 177 ITD 472(MUM.) OK PLAY INDIA LTD. VS JCIT (ITA NO.3402/D/2016 DATE D 13.01.2020) ACIT VS M/S KEI INDUSTRIES LTD. (ITA NO.1433/DEL/20 14 DATED 03.12.2020) 38. HE SUBMITTED THAT FCCB MEANS A BOND ISSUED BY AN INDIAN COMPANY EXPRESSED IN FOREIGN CURRENCY. THE P RINCIPAL AND INTEREST IN RESPECT OF SUCH A BOND IS PAYABLE I N FOREIGN 55 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 CURRENCY. THESE BONDS, AT THE OPTION OF BOND HOLDER S ARE CONVERTIBLE INTO SHARES. FCCBS ARE UNSECURED LOANS. REFERRING TO PAGES 144 TO 151 OF THE PAPER BOOK, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON 22.11.2006, THE ASSESSEE HAD ISSUED 5400 FCCBS AGGREGATING TO US$ 27 MILLION. TH E BONDS WERE TO BE REDEEMED ON 23.11.2011 AT A PRICE OF US$ 7277 PER BOND. DURING THE PERIOD 22.11.2006 TO 13.11.2011, BONDHOLDERS HAD THE OPTION TO CONVERT THE BONDS INT O EQUITY SHARES @RS.265/- PER SHARE AT A FIXED RATE OF EXCHA NGE OF RS.44.99 = US$ 1. HE SUBMITTED THAT THE FCCB PROCE EDS WERE UTILIZED FOR SETTING UP NEW MANUFACTURING FACILITY OR EXPANSION OF MANUFACTURING FACILITY. REFERRING TO PAGE 203 O F THE PAPER BOOK, HE SUBMITTED THAT ASSESSEE IN TERMS OF AUTOMA TIC ROUTE REPURCHASED FCCB OF THE VALUE OF US$ 19.50 MILLION (RS.92,91,10,000/ - RUPEE EQUIVALENT AT PREVAILING EXCHANGE RATE). OUT OF 5400 FCCBS OF US$ 5000 EACH, 3900 WER E REPURCHASED (3900 X 5000 = US$ 19.50 MILLION) AT RS.47,26,18,710/-. AS SUCH, THE ASSESSEE REDUCED IT S OBLIGATION TO REPAY THE PRINCIPAL AMOUNT OF FCCBS BY RS.45,64, 91,290/-. REFERRING TO PAGE 114 TO 117 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE NOTE GIVEN IN THE BAL ANCE SHEET FOR 56 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE YEAR ENDED ON 31.03.2010, AS REGARDS THE BUYBAC K OF FCCBS AS UNDER:- DURING THE YEAR 1% FOREIGN CURRENCY CONVERTIBLE BO NDS (FCCBS) OF USD 19.50 MILLION HAVE BEEN BOUGHT BAC K. THIS HAS RESULTED IN PROFIT OF RS.45,64,91,290/- (PREVIOUS Y EAR RS.NIL) WHICH HAS BEEN INCLUDED UNDER OTHER INCOME. PRORA TA EXCHANGE DIFFERENCE ON THESE FCCBS TRANSFERRED TO FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT (FCMI TDA) HAS BEEN WRITTEN OFF TO PROFIT & LOSS ACCOUNT. 39. REFERRING TO PAGE 109 & 132 TO 134 OF THE PAP ER BOOK, HE SUBMITTED THAT THE DISCOUNT OF RS.45,64,91 ,290/- WAS SHOWN IN THE BALANCE SHEET AS ON 31.3.2010 UNDER TH E HEAD OTHER INCOME-SCHEDULE-N. HOWEVER, WHILE COMPUTING THE INCOME, THE AMOUNT OF RS.45,64,91,290/- WAS CLAIMED AS CAPITAL RECEIPT. REFERRING TO PAGE 147 OF THE PAPE R BOOK AND PAGE 113 OF THE PAPER BOOK, HE SUBMITTED THAT SINCE REDEMPTION PREMIUM WAS PAYABLE AT THE TIME OF REDEM PTION, THEREFORE, THE SAME WAS NOT PROVIDED IN THE ACCOUNT AND THE FOLLOWING NOTE WAS GIVEN : ..UNLESS PREVIOUSLY CONVERTED, REDEEMED OR REPURCHASED OR CANCELLED, THE COMPANY WILL REDEEM T HESE BONDS AT 145.54 PERCENT OF THE PRINCIPAL AMOUNT ON 23 RD NOVEMBER 2011. UP TO MARCH 31, 2010 OUT OF THE TOTA L ISSUE, FCCBS AGGREGATING TO USD 19.50 MILLION HAVE BEEN REPURCHASED AT DISCOUNT. BALANCE OF FCCBS OF USD 7.50 MILLION OUTSTANDING AS ON MARCH 31, 2010 HAVE BEEN INCLUDED AND DISCLOSED IN THE SCHEDULE OF UNSECURE D LOANS. IN VIEW OF THESE DEVELOPMENTS THE COMPANY E XPECTS THAT NO PREMIUM WOULD BE PAYABLE AND ON THAT BASIS THE 57 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 SAME IS NOT PROVIDED FOR . HOWEVER, THE PREMIUM, IF PAID WOULD BE ADJUSTED AGAINST THE SECURITIES PREMIUM AC COUNT . ACCORDINGLY MAXIMUM PREMIUM AMOUNT PAYABLE BEING RS.15,38,93,891/- (PREVIOUS YEAR RS.62,94,22,002/-) WOULD BE ACCOUNTED FOR AND ADJUSTED AGAINST SECURITIES PR EMIUM ACCOUNT IN THE YEAR OF SUCH REDEMPTION OF REPURCHAS E OR CANCELLATION. 40. REFERRING TO THE AFORESAID NOTE, HE SUBMITTED IT IS CLEAR THAT PREMIUM PAYABLE ON REDEMPTION WAS NOT PR OVIDED. HE SUBMITTED THAT BOTH BEFORE THE ASSESSING OFFICER AND THE CIT(A) ASSESSEE HAS CLARIFIED THAT FCCBS WERE BOUGH T BACK AT DISCOUNT. SUCH FCCBS WERE SHOWN IN THE ACCOUNTS AS UNSECURED LOAN AND THE AMOUNT OF FCCBS WERE NEITHER CLAIMED NOR ALLOWED AS DEDUCTION IN COMPUTING THE INCOME AN Y EARLIER YEAR. REFERRING TO THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS HAVELLS INDIA LTD. (2013) 352 ITR 376(DEL.), HE SUBMITTED THAT HONBLE DELHI HIGH COU RT WHILE ANSWERING THE QUESTION AS TO WHETHER EXPENDITURE ON FULLY CONVERTIBLE DEBENTURES WAS REVENUE EXPENDITURE DID NOT ACCEPT THE STAND OF THE DEPARTMENT THAT SINCE THE DEBENTUR ES ARE FULLY CONVERTIBLE AND AS SUCH, IT WOULD STRENGTHEN THE CA PITAL BASE OF THE COMPANY ON CONVERSION INTO EQUITY, THEREFORE, T HE POSITION SHOULD NOT BE SEEN ONLY WITH REFERENCE TO TIME AT W HICH CONVERTIBLE DEBENTURES WERE ISSUED. IT WAS HELD THA T THE FACT 58 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THAT DEBENTURES ARE TO BE CONVERTED IN THE NEAR FUT URE INTO EQUITY SHARES IS IRRELEVANT. THEREFORE, THE ALLEG ATION OF THE ASSESSING OFFICER THAT FCCBS WERE CONVERTIBLE INTO SHARES DID NOT CHANGE ITS INHERENT CHARACTER. AT THE TIME OF BUYBACK, FCCBS WERE NOTHING BUT UNSECURED LOANS. 40.1. SO FAR AS THE ALLEGATION OF THE ASSESSING OF FICER THAT BUYBACK OF FCCBS ON DISCOUNT HAS RESULTED IN CESSAT ION OF LIABILITY TOWARDS INTEREST COST OF FCCBS IS CONCERN ED, HE SUBMITTED THAT SUCH REASONS IS FACTUALLY INCORRECT. IT WAS CLARIFIED BEFORE THE REVENUE AUTHORITIES THAT THERE IS NO WAIVER OF INTEREST OF FCCB HOLDERS AND ONLY WAIVER IS A PA RT OF PRINCIPAL WHICH WAS BORROWED IN SHAPE OF FCCB, AND WAS REPAYABLE. THEREFORE, THE ALLEGATION OF DISCOUNT O F RS.45,64,91,290/- REPRESENTING WAIVER OF REDEMPTION PREMIUM DOES NOT ARISE. 40.2. SO FAR AS THE ALLEGATION OF THE REVENUE THAT THE FINANCIAL STATEMENTS AND NOTES TO ACCOUNT, IT IS CL EAR THAT THE ASSESSEE HAS FOLLOWED IN THE PRECEDING ASSESSMENT Y EAR AND CURRENT YEAR, THE POLICY OF CAPITALIZATION OF FINAN CE COST AND AFTER DATE OF PUT TO USE, INTEREST HAS BEEN CHARGED TO PROFIT & LOSS ACCOUNT AS REVENUE EXPENDITURE IS CONCERNED, H E 59 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 SUBMITTED THAT THIS REASON IS AFFIRMATION OF THE ST AND OF THE ASSESSEE THAT FCCB PROCEEDS WERE USED ONLY FOR CAPI TAL EXPENDITURE AND/OR BUYING OVERSEAS COMPANIES. FURT HER, THE ASSESSEE IS NOT IN MONEY LENDING BUSINESS. HE SUBM ITTED THAT THE LEARNED CIT(A) WAS ALSO UNDER MISTAKEN BELIEF T HAT DISCOUNT ON FCCBS WAS PREMIUM PAYABLE ON REDEMPTION. THE L EARNED CIT(A) DID NOT APPRECIATE THAT THE SAVING MADE BY T HE ASSESSEE ON ACCOUNT OF BUYBACK OF FCCBS AT A DISCOUNT WAS O N CAPITAL ACCOUNT. THE DISTINCTION BETWEEN PRINCIPAL AMOUNT O F FCCBS AND THE PREMIUM PAYABLE ON REDEMPTION HAS BEEN OVER LOOKED BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). HE SUBMITTED THAT THE FCCBS IS NOTHING BUT A LOAN. 40.3. REFERRING TO THE DECISIONS ALREADY EARLIER C ITED, HE SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA). HE SUBMI TTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD WAIVER OF LOAN CAN NEVER TO BE TAXED U/S 28(IV) NOR U/S 41 (1) OF THE ACT. REFERRING TO THE DECISION OF MUMBAI BENCH OF T HE TRIBUNAL IN THE CASE OF DCIT VS PIDILITE INDUSTRIES LTD. REP ORTED IN (2019) 177 ITD 472(MUM.), HE SUBMITTED THAT THE TRIBUNAL I N THE SAID 60 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DECISION HAS HELD THAT DISCOUNT RECEIVED BY THE ASS ESSEE ON BUYBACK OF FOREIGN CURRENCY CONVERTIBLE BONDS COULD NOT BE TAXED U/S 28(IV) AS SAID RECEIPT IN HANDS OF THE AS SESSEE WAS IN FORM OF CASH/MONEY AND FURTHER, SUCH PROCEEDS WERE UTILIZED PARTLY FOR ONGOING CAPITALIZATION PROGRAMS AND THUS , SAME WAS CAPITAL RECEIPT. 41. REFERRING TO THE DECISION OF THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF OK PLAY INDIA LTD. VS J CIT IN ITA NO.3402/DEL/2016, ORDER DATED 13.01.2020, HE SUBMIT TED THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRI NICS (P) LTD. (SUPRA) AND VARIOUS OTHER DECISIONS HAS HELD THAT D ISCOUNT RECEIVED ON FCCBS IS NOT TAXABLE IN THE HANDS OF TH E ASSESSEE. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF T HE TRIBUNAL IN THE CASE OF ACIT VS M/S KEI INDUSTRIES LTD. IN I TA NO.1433/DEL/2014. HE ACCORDINGLY SUBMITTED THAT TH IS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE, THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE SHOULD BE SET-ASIDE AN D THE GROUNDS OF THE ASSESSEE SHOULD BE ALLOWED. 42. THE LEARNED CIT-DR ON THE OTHER HAND HEAVILY R ELIED UPON THE ORDER OF THE LEARNED CIT(A). 61 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 43. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH SIDES, PERUSED THE ORDERS OF THE LEARNED AO AN D LEARNED CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US, WE FIND THE ASSESSEE, IN THE INSTANT CASE, HAD ISSUED 5400 FCCBS AGGREGATING TO US$ 27 MILLION ON 22.11.2006. THE BO NDS WERE TO BE REDEEMED ON 23.11.2011 AT A PRICE OF US$ 7277 PER BOND. DURING THE PERIOD 22.11.2006 TO 13.11.2011, BONDHOL DERS HAD THE OPTION TO CONVERT THE BONDS INTO EQUITY SHARES @RS.265/- PER SHARE AT A FIXED RATE OF EXCHANGE OF RS.44.99 = US$ 1. THE ASSESSEE IN TERMS OF AUTOMATIC ROUTE REPURCHASED FC CB OF THE VALUE OF US$ 19.50 MILLION (RS.92,91,10,000/ - RUPE E EQUIVALENT AT PREVAILING EXCHANGE RATE). OUT OF 540 0 FCCBS OF US$ 5000 EACH, 3900 BONDS WERE REPURCHASED (3900 X 5000 = US$ 19.50 MILLION) AT RS.47,26,18,710/-. AS SUCH T HE ASSESSEE REDUCED ITS OBLIGATION TO REPAY THE PRINCIPAL AMOUN T OF FCCBS BY RS.45,64,91,290/.-WE FIND THE ASSESSING OFFICER TREATED THE PROFIT OF RS.45.65 CRORE THROUGH BUY BACK OF FCCB A T A DISCOUNTED PRICE AS REVENUE RECEIPT AND ACCORDINGLY MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASS ESSEE AMOUNTING TO RS.45.65 CRORES. WE FIND THE LEARNED C IT(A) 62 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 UPHELD THE ACTION OF THE ASSESSING OFFICER, THE REA SONS OF WHICH HAVE ALREADY BEEN REPRODUCED IN THE PRECEDING PARAG RAPHS. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT DISCOUNT RECEIVED BY THE ASSESSEE ON BUYBACK OF FCC BS COULD NOT BE TAXED U/S 28(IV) OF THE ACT AS SUCH RECEIPT IN THE HANDS OF THE ASSESSEE WAS IN FORM OF CASH/MONEY AND FURTH ER, SUCH PROCEEDS WERE UTILIZED FOR ONGOING CAPITALIZATION P ROGRAMS AND THUS, SAME WAS CAPITAL RECEIPT. WE FIND FORCE IN TH E ABOVE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE A SSESSEE ON THIS COUNT. IT IS AN ADMITTED FACT THAT THE FCCB P ROCEEDS WERE UTILIZED FOR SETTING UP OF NEW MANUFACTURING FACILI TY OR EXPANSION OF MANUFACTURING FACILITY. THE UTILIZATIO N OF SUCH PROCEEDS FOR CAPITAL PURPOSES HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER OR LEARNED CIT(A). WE FIND AN IDE NTICAL ISSUE HAD COME UP BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS PIDILITE INDUSTRIES LTD. (SUPRA), W HEREIN, THE TRIBUNAL FOLLOWING THE VARIOUS DECISIONS HAS UPHELD THE ACTION OF THE LEARNED CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AND DISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER:- 5.4 UPON CAREFUL CONSIDERATION, IT EMERGES THAT TH E ASSESSEE HAS REPURCHASED CERTAIN FCCB DURING IMPUGNED AY AT A 63 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 DISCOUNT OF 25%. THE FACT THAT THE PROCEEDS OF THES E BONDS WAS UTILIZED PARTLY FOR INVESTMENT IN FOREIGN SUBSI DIARIES AND PARTLY FOR ONGOING CAPITALIZATION PROGRAMS REMAIN U NREBUTTED BEFORE US. IN FACT, THE RBIS TERMS OF ISSUE OF BON DS PROHIBITS UTILIZATION OF PROCEEDS FOR TRADING PURPOSES. THE S AID FACTS LEAD US TO FORM AN OPINION THAT THE GAINS WERE ON C APITAL ACCOUNT. THE LD. AO, WHILE MAKING ADDITIONS HAS INV OKED THE PROVISIONS OF SECTION 28(IV). THESE PROVISIONS CONS IDER VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE I N MONEY OR NOT, ARISING FROM THE BUSINESS AS BUSINESS INCOME. HOWEVER, THE BENEFIT HAS TO BE IN SOME FORM OTHER THAN IN TH E SHAPE OF MONEY, AS HELD BY HIGHER JUDICIAL AUTHORITIES. 5.5 THE HONBLE SUPREME COURT IN RECENT DECISION OF CIT V/S MAHINDRA AND MAHINDRA LTD. [93 TAXMANN.COM 32] HAS OBSERVED AS UNDER: - 10. THE TERM 'LOAN' GENERALLY REFERS TO BORROWING S OMETHING, ESPECIALLY A SUM OF CASH THAT IS TO BE PAID BACK AL ONG WITH THE INTEREST DECIDED MUTUALLY BY THE PARTIES. IN OT HER TERMS, THE DEBTOR IS UNDER A LIABILITY TO PAY BACK THE PRI NCIPAL AMOUNT ALONG WITH THE AGREED RATE OF INTEREST WITHI N A STIPULATED TIME. 11. IT IS A WELL-SETTLED PRINCIPLE THAT CREDITOR OR HIS SUCCESSOR MAY EXERCISE THEIR 'RIGHT OF WAIVER' UNILATERALLY T O ABSOLVE THE DEBTOR FROM HIS LIABILITY TO REPAY. AFTER SUCH EXERCISE, THE DEBTOR IS DEEMED TO BE ABSOLVED FROM THE LIABILITY OF REPAYMENT OF LOAN SUBJECT TO THE CONDITIONS OF WAIV ER. THE WAIVER MAY BE A PARTLY WAIVER I.E., WAIVER OF PART OF THE PRINCIPAL OR INTEREST REPAYABLE, OR A COMPLETE WAIV ER OF BOTH THE LOAN AS WELL AS INTEREST AMOUNTS. HENCE, WAIVER OF LOAN BY THE CREDITOR RESULTS IN THE DEBTOR HAVING EXTRA CASH IN HIS HAND. IT IS RECEIPT IN THE HANDS OF THE DEBTOR/ASSE SSEE. THE SHORT BUT COGENT ISSUE IN THE INSTANT CASE ARISES W HETHER WAIVER OF LOAN BY THE CREDITOR IS TAXABLE AS A PERQ UISITE UNDER SECTION 28(IV) OF THE IT ACT OR TAXABLE AS A REMISS ION OF LIABILITY UNDER SECTION 41 (1) OF THE IT ACT. 12. THE FIRST ISSUE IS THE APPLICABILITY OF SECTION 28(IV) OF THE IT ACT IN THE PRESENT CASE. BEFORE MOVING FURTHER, WE DEEM IT APPOSITE TO REPRODUCE THE RELEVANT PROVISION HEREIN BELOW: 64 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 28. PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS PROFESSION', * * ** ** (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETH ER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXE RCISE OF A PROFESSION; ** ** **' 13. ON A PLAIN READING OF SECTION 28(IV) OF THE IT ACT, PRIMA FACIE, IT APPEARS THAT FOR THE APPLICABILITY OF THE SAID PROVISION, THE INCOME WHICH CAN BE TAXED SHALL ARIS E FROM THE BUSINESS OR PROFESSION. ALSO, IN ORDER TO INVOKE TH E PROVISION OF SECTION 28(IV) OF THE IT ACT, THE BENEFIT WHICH IS RECEIVED HAS TO BE IN SOME OTHER FORM RATHER THAN IN THE SHA PE OF MONEY. IN THE PRESENT CASE, IT IS A MATTER OF RECOR D THAT THE AMOUNT OF RS. 57,74,064/- IS HAVING RECEIVED AS CAS H RECEIPT DUE TO THE WAIVER OF LOAN. THEREFORE, THE VERY FIRS T CONDITION OF SECTION 28(IV) OF THE IT ACT WHICH SAYS ANY BENEFIT OR PERQUISITE ARISING FROM THE BUSINESS SHALL BE IN TH E FORM OF BENEFIT OR PERQUISITE OTHER THAN IN THE SHAPE OF MO NEY, IS NOT SATISFIED IN THE PRESENT CASE. HENCE, IN OUR VIEW, IN NO CIRCUMSTANCES, IT CAN BE SAID THAT THE AMOUNT OF RS 57,74,064/- CAN BE TAXED UNDER THE PROVISIONS OF SE CTION 28(IV) OF THE IT ACT. WE AGREE WITH THE SUBMISSIONS OF LD. AR THAT THE PROPOSITIONS LAID DOWN IN THE ABOVE DECISION SQUARE LY APPLY TO FACTUAL MATRIX BEFORE US. THEREFORE, THE BENEFIT TO BE RECEIVED BY THE ASSESSEE HAS TO BE IN SOME FORM OTH ER THAN IN THE SHAPE OF MONEY SO AS TO BRING THE SAME WITHI N THE AMBIT OF SECTION 28(IV). 5.6 SIMILAR VIEW HAS BEEN TAKEN BY HONBLE BOMBAY H IGH COURT IN CIT V/S XYLON HOLDINGS PVT. LTD [SUPRA] WH EREIN THE CASE LAW OF SOLID CONTAINERS LTD. [SUPRA] AS RELIED UPON BY LD. AO, HAS BEEN DISTINGUISHED. SIMILAR VIEW HAS BE EN EXPRESSED IN CIT V/S SANTOGEN SILK MILLS LTD. [SUPR A]. 5.7 RESPECTFULLY FOLLOWING THE AFORESAID BINDING J UDICIAL PRECEDENTS, WE CONFIRM THE VIEW TAKEN BY LD. FIRST APPELLATE AUTHORITY. THIS GROUND STANDS DISMISSED. 44. WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE 65 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 CASE OF OK PLAY INDIA LTD. VS JCIT (SUPRA) WHILE DE CIDING AN IDENTICAL ISSUE HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE BY OBSERVING AS UNDER:- 3.7 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED FC CB IN THE EARLIER YEAR AND DURING THE YEAR REPAID WITH DISCOU NT OF 9,46,73,015/- RECEIVED. ACCORDING TO THE ASSESSEE, THE DISCOUNT RECEIVED IS IN THE NATURE OF CAPITAL RECEI PT BUT ACCORDING TO THE REVENUE THE DISCOUNT IS IN THE NAT URE OF TRADING RECEIPT. THE ASSESSING OFFICER HAS ALLEGED THE ACTIVITY OF RAISING FCCB AS AN ADVENTURE IN THE NATURE OF TR ADE. THIS FINDING OF THE ASSESSING OFFICER IS WITHOUT ANY BAS IS. THE ASSESSEE IS NOT ENGAGED IN RAISING THE FCCB WITH MO TIVE OF ANY TRADING AND DISCOUNTING AND THEREBY EARNING PRO FIT ON THE SAME. THE ALLEGATION BY THE ASSESSING OFFICER O F MOTIVE AND INTENT OF EARNING PROFIT BY THE ASSESSEE ARE UNSUBSTANTIATED WITH ANY EVIDENCES. ON THE CONTRARY , THE ASSESSEE HAS SUBSTANTIATED THAT IT RAISED THE FCCB FOR FUNDING ITS ACQUISITION OF ASSETS. FURTHER, THE LD. CIT(A) HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF LOGITRINICS (P) LTD (SUPRA), WHEREIN IT IS HELD AS UNDER: '27..... WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION WITH A DIRECTION TO THE ASSESSEE TO FURNISH ALL THE DETA ILS AND PARTICULARS OF LOAN, AND THE PURPOSE FOR WHICH THE LOAN TAKEN FROM BANK WAS UTILIZED. ALL THESE INFORMATION ARE WITHIN THE CONTROL AND SPECIFIC KNOWLEDGE OF THE ASSESSEE AND, THEREFORE, IT WOULD BE THE DUTY OF THE ASSESSEE TO PROVE AND ESTABLISH THA T THE AMOUNT OF LOAN TAKEN FROM THE BANK WAS UTILIZED FOR THE PURPOSE OF ACQUIRING CAPITAL ASSETS IN CASE THE ASSESSEE WANTS TO HAVE THE BENEFIT OF DECISION OF H ON BLE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNAT IONAL LTD. (SUPRA) AS WELL AS THE DECISION OF HON'BLE BOM BAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA). IF ON AN ENQUIRY AND VERIFICATION, IT TRAN SPIRES THAT THE ASSESSEE HAS UTILIZED THE LOAN FOR THE PUR POSE OF ITS BUSINESS ACTIVITY OR TRADING ACTIVITY, THE A MOUNT OF LOAN TO THE EXTENT IT HAS BEEN WAIVED BY THE BAN K SHALL BE DEEMED TO BE THE ASSESSEES INCOME CHARGEABLE TO TAX AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD. (SUPRA), WHERE THE PRINCIPLE LAID DOWN BY THE HONB LE 66 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 SUPREME COURT IN THE CASE OF TV. SUNDARAMLYENGAR& SONS LTD. (SUPRA) HAS BEEN APPLIED AND FOLLOWED. UNDER SECTION 4 , THE CHARGING SECTION, THE CHARGE OF INCOME-TAX IS UPON THE 'TOTAL INCOME OF THE PREVIOU S YEAR. THE TERM INCOME IS DEFINED UNDER SECTION 2 (24). IN GENERAL, ALL RECEIPTS OF REVENUE NATURE, UNLESS SPECIFICALLY EXEMPTED, ARE CHARGEABLE TO TAX. LOAN TAKEN IS NOT NORMALLY A KIND OF RECEIPT WHICH WILL BE TREATED AS INCOME. HOWEVER, WHEN A PART OF THAT LOA N IS WAIVED OFF BY THE CREDITOR, SOME BENEFIT ACCRUES TO THE ASSESSEE. QUESTION IS WHAT WOULD BE THE CHARACT ER OF WAIVER OF PART OF THE LOAN AT THE HANDS OF THE ASSESSEE? WAIVER DEFINITELY GIVES SOME BENEFIT TO T HE ASSESSEE. WHETHER IT IS TO BE TREATED AS CAPITAL RE CEIPT? IF IT IS SO, THEN ONLY CAPITAL GAINS TAX WOULD BE CHARGEABLE UNDER SECTION 45 OR ELSE, WHETHER REMISS ION OF LOAN IS NO INCOME AT ALL? THE ANSWER TO THESE QUESTIONS WOULD DEPEND UPON THE PURPOSE FOR WHICH THE SAID LOAN WAS TAKEN. IF THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITAL ASSET, WAIVER THEREOF WOULD N OT AMOUNT TO ANY INCOME EXIGIBLE TO TAX, BUT ON THE OT HER HAND, IF THE LOAN WAS TAKEN FOR TRADING PURPOSE AND WAS TREATED AS SUCH FROM THE VERY BEGINN ING IN THE BOOKS OF ACCOUNT, THE WAIVER THEREOF MAY RESULT IN THE INCOME, MORE SO WHEN IT WAS TRANSFERRED TO THE PROF IT AND LOSS ACCOUNT. [PARA 23] 3.8 THE HONBLE HIGH COURT HAS LAID DOWN TEST FOR H OLDING THE AMOUNT OF WAIVER OF LOAN AS CAPITAL OR TRADING RECE IPT. IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR CAPITAL EX PENDITURE, THEN THE WAIVER AMOUNT IS IN THE NATURE OF THE CAPI TAL RECEIPT AND IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR TRADING PURPOSES THEN THE WAIVER AMOUNT RECEIVED WOULD BE I N THE NATURE OF TRADING RECEIPT. 3.9 BEFORE US, THE ASSESSEE HAS DEMONSTRATED HOW TH E FCCB AMOUNT HAS BEEN UTILIZED TOWARDS CAPITAL EXPENDITUR E. THE ASSESSEE SUBMITTED ENTIRE LIST OF CAPITAL ASSET ACQ UIRED THROUGH THE FUNDS OF FCCB, WHICH IS AVAILABLE ON PA GE 235 TO 241 OF THE PAPER BOOK. THE ASSESSEE HAS SHOWN CAPIT AL EXPENDITURE OF MORE THAN RS.21 CRORES UPTO MARCH, 2 008. THE LD. DR COULD NOT CONTROVERT THIS FACTUAL ASPECT OF UTILIZATION OF THE FCCB TOWARD CAPITAL EXPENDITURE. IN INSTANT CASE, ONCE IT IS UNDISPUTED THAT FCCB AMOUNT HAS BE EN UTILIZED TOWARD CAPITAL EXPENDITURE, IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGOTRO NICS (P) LTD (SUPRA), THE DISCOUNT ON FCCB FALLS IN THE NATURE O F CAPITAL RECEIPT NOT EXIGIBLE TO TAX. THE LD. CIT(A) HAS GIV EN HIS 67 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 FINDING ON WRONG ASSUMPTION OF THE FACT THAT FCCB F UNDS WERE UTILIZED FOR TRADING OR REVENUE EXPENDITURE, W ITHOUT VERIFYING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 3.10 THE HONBLE APEX COURT IN THE CASE OF CIT VS. MAHINDRA AND MAHINDRA LTD. (SUPRA) ON THE ISSUE OF BENEFIT T AXABLE UNDER SECTION 28(IV) HAS HELD AS UNDER: 10. THE TERM 'LOAN' GENERALLY REFERS TO BORROWING SOMETHING, ESPECIALLY A SUM OF CASH THAT IS TO BE P AID BACK ALONG WITH THE INTEREST DECIDED MUTUALLY BY TH E PARTIES. IN OTHER TERMS, THE DEBTOR IS UNDER A LIAB ILITY TO PAY BACK THE PRINCIPAL AMOUNT ALONG WITH THE AGREED RATE OF INTEREST WITHIN A STIPULATED TIME. 11. IT IS A WELL-SETTLED PRINCIPLE THAT CREDITOR OR HIS SUCCESSOR MAY EXERCISE THEIR 'RIGHT OF WAIVER' UNILATERALLY TO ABSOLVE THE DEBTOR FROM HIS LIABILI TY TO REPAY. AFTER SUCH EXERCISE, THE DEBTOR IS DEEMED TO BE ABSOLVED FROM THE LIABILITY OF REPAYMENT OF LOAN SU BJECT TO THE CONDITIONS OF WAIVER. THE WAIVER MAY BE A PARTL Y WAIVER I.E., WAIVER OF PART OF THE PRINCIPAL OR INT EREST REPAYABLE, OR A COMPLETE WAIVER OF BOTH THE LOAN AS WELL AS INTEREST AMOUNTS. HENCE, WAIVER OF LOAN BY THE C REDITOR RESULTS IN THE DEBTOR HAVING EXTRA CASH IN HIS HAND . IT IS RECEIPT IN THE HANDS OF THE DEBTOR/ASSESSEE. THE SH ORT BUT COGENT ISSUE IN THE INSTANT CASE ARISES WHETHER WAIVER OF LOAN BY THE CREDITOR IS TAXABLE AS A PERQ UISITE UNDER SECTION 28 (IV) OF THE IT ACT OR TAXABLE AS A REMISSION OF LIABILITY UNDER SECTION 41 (I) OF THE IT ACT. 12. THE FIRST ISSUE IS THE APPLICABILITY OF SECTION 28 (IV) OF THE IT ACT IN THE PRESENT CASE. BEFORE MOVING FURTH ER, WE DEEM IT APPOSITE TO REPRODUCE THE RELEVANT PROVISIO N HEREIN BELOW: ' 28. PROFITS AND GAINS OF BUSINESS OR PROFESSION. T HE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS PROFESSION' , (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CON VERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXE RCISE OF A PROFESSION; 13. ON A PLAIN READING OF SECTION 28 (IV) OF THE IT ACT, PRIMA FACIE, IT APPEARS THAT FOR THE APPLICABILITY OF THE SAID PROVISION, THE INCOME WHICH CAN BE TAXED SHALL ARISE FROM THE BUSINESS OR PROFESSION. ALSO, IN ORDER TO INVOKE THE PROVISION OF SECTION 28 (IV) OF THE IT ACT, THE BENEFIT WHICH IS RECEIVED HAS TO BE IN SOME OTHER FORM RATH ER THAN IN THE SHAPE OF MONEY. IN THE PRESENT CASE, IT IS A 68 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 MATTER OF RECORD THAT THE AMOUNT OF RS. 57,74,064/- IS HAVING RECEIVED AS CASH RECEIPT DUE TO THE WAIVER O F LOAN. THEREFORE, THE VERY FIRST CONDITION OF SECTION 28 ( IV) OF THE IT ACT WHICH SAYS ANY BENEFIT OR PERQUISITE ARISING FROM THE BUSINESS SHALL BE IN THE FORM OF BENEFIT OR PER QUISITE OTHER THAN IN THE SHAPE OF MONEY, IS NOT SATISFIED IN THE PRESENT CASE. HENCE, IN OUR VIEW, IN NO CIRCUMSTANC ES, IT CAN BE SAID THAT THE AMOUNT OF RS 57,74,064/- CAN B E TAXED UNDER THE PROVISIONS OF SECTION 28 (IV) OF TH E IT ACT. [EMPHASIS SUPPLIED] 3.11 IN THE INSTANT CASE, THE BENEFIT HAS BEEN RECE IVED IN THE SHAPE OF THE MONEY AND THUS, THE SAID BENEFIT CANNO T BE HELD AS TAXABLE EVEN UNDER SECTION 28(IV) OF THE ACT. 3.12 IN VIEW OF THE DISCUSSION ABOVE, WE SET ASIDE THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE A ND HOLD THAT THE DISCOUNT RECEIVED ON FCCB IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. THE GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 45. WE FURTHER FIND THE DELHI BENCH OF THE TRIBUNA L IN THE CASE OF KEI INDUSTRIES LTD. IN ITA NO.1433/DEL/ 2014 HAS ALSO TAKEN SIMILAR VIEW BY OBSERVING AS UNDER:- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE STAND OF THE AS SESSEE SINCE THE BEGINNING HAD BEEN THAT FCCBS PROCEEDS WE RE FOR SETTING-UP NEW PROJECT FOR MANUFACTURE OF WIRE HAS NOT BEEN DISPUTED BY THE A.O. IN FACT ONE OF THE REASON TO M AKE THE ADDITION IS THAT FCCBS WERE UTILISED IN INCREASING THE DEPRECIABLE ASSET OF THE ASSESSEE COMPANY. THE LD. CIT(A) HAS VERIFIED THIS FACT FROM THE BALANCE-SHEET OF TH E ASSESSEE COMPANY AND FOUND THE UTILIZATION OF FCCBS PROCEEDS TOWARDS CAPITAL ACCOUNT WERE FOUND TO BE CORRECT. T HIS FACT IS ALSO NOT DISPUTED BY THE A.O. THE ASSESSEE HAS A LSO SATISFIED THE CONDITIONS OF RBI TO BUY-BACK FCCBS. THE ASSESSEE ALSO PROVED ON RECORD THAT ALL THE CONDITI ONS OF RBI IN THIS REGARD HAVE BEEN MADE BY ASSESSEE COMPANY. SECTION 41(1) OF THE I.T. ACT WOULD NOT APPLY BECAU SE THE AMOUNT OF FCCBS WAS NOT ALLOWED AS EXPENDITURE OR T RADING LIABILITY IN EARLIER YEAR. FURTHER, NO ADDITION COU LD BE MADE UNDER SECTION 28(IV) OF THE I.T. ACT. THE ASSESSEE IS IN 69 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 MANUFACTURING BUSINESS AND HAS ADMITTEDLY UTILISED THE FCCBS BY INCREASING THE ASSET OF THE ASSESSEE COMPA NY AND MOST OF THEM BEING DEPRECIABLE ASSET WHICH FACT IS ALSO MENTIONED BY THE A.O. IN THE ASSESSMENT ORDER. SINC E THE FCCBS WERE RAISED TO USE THE PROCEEDS FOR SETTING-U P OF NEW PROJECT AND THIS FACT IS ADMITTED BY THE A.O. IN TH E ASSESSMENT ORDER, THEREFORE, ASSESSEE USED THE LOAN TO PURCHASE THE CAPITAL ASSET FOR THE COMPANY. THE ITAT, DELHI E- BENCH, DELHI IN THE CASE OF M/S. OK PLAY INDIA LTD. , ROZ- KA-MEO INDUSTRIAL ESTATE, TEHSIL NUH, DISTRICT MEWAT, HARYANA VS., JCIT, RANGE-II, GURGAON (SUPRA), CONSI DERING THE JUDGMENT OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF LOGITRONICS P. LTD., VS., CIT (SUPRA) AND J UDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS., MAHIN DRA & MAHINDRA LTD., (SUPRA), DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AND APPEAL OF ASSESSEE HAS BEEN ALL OWED. THE FINDINGS OF THE TRIBUNAL IN PARAS 3.7 TO 3.12 A RE REPRODUCED AS UNDER : 3.7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISE D FCCB IN THE EARLIER YEAR AND DURING THE YEAR REPAID WITH DI SCOUNT OF RS.9,46,73,015/- RECEIVED. ACCORDING TO THE ASSESSE E, THE DISCOUNT RECEIVED IS IN THE NATURE OF CAPITAL RECEI PT BUT ACCORDING TO THE REVENUE THE DISCOUNT IS IN THE NAT URE OF TRADING RECEIPT. THE ASSESSING OFFICER HAS ALLEGED THE ACTIVITY OF RAISING FCCB AS AN ADVENTURE IN THE NATURE OF TRADE. THIS FINDING OF THE ASSESSING OFFICER IS WITHOUT ANY BAS IS. THE ASSESSEE IS NOT ENGAGED IN RAISING THE FCCB WITH MO TIVE OF ANY TRADING AND DISCOUNTING AND THEREBY EARNING PRO FIT ON THE SAME. THE ALLEGATION BY THE ASSESSING OFFICER O F MOTIVE AND INTENT OF EARNING PROFIT BY THE ASSESSEE ARE UNSUBSTANTIATED WITH ANY EVIDENCES. ON THE CONTRARY , THE ASSESSEE HAS SUBSTANTIATED THAT IT RAISED THE FCCB FOR FUNDING ITS ACQUISITION OF ASSETS. FURTHER , THE LD. CIT(A) HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF LOGITRINICS (P) LTD (SUPRA), WHEREIN IT IS HELD AS UNDER: '27 WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION WITH A DIRECTION TO THE ASSESSEE TO FURNISH ALL THE DETAIL S AND PARTICULARS OF LOAN, AND THE PURPOSE FOR WHICH THE LOAN TAKEN FROM BANK WAS UTILISED. ALL THESE INFORMATION ARE WITHIN THE CONTROL AND SPECIFIC KNOWLEDGE OF THE 70 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ASSESSEE AND, THEREFORE, IT WOULD BE THE DUTY OF TH E ASSESSEE TO PROVE AND ESTABLISH THAT THE AMOUNT OF LOAN TAKEN FROM THE BANK WAS UTILIZED FOR THE PURPOSE OF ACQUIRING CAPITAL ASSETS IN CASE THE ASSESSEE WANTS TO HAVE THE BENEFIT OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) AS WELL AS THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF MAHINDRA & MAHINDRA LTD. (SUPRA) IF ON AN ENQUIRY AND VERIFICATION, IT TRANSPIRES THAT THE ASSESSEE H AS UTILIZED THE LOAN FOR THE PURPOSE OF ITS BUSINESS A CTIVITY OR TRADING ACTIVITY, THE AMOUNT OF LOAN TO THE EXTE NT IT HAS BEEN WAIVED BY THE BANK SHALL BE DEEMED TO BE T HE ASSESSEES INCOME CHARGEABLE TO TAX AS PER THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA), WHERE THE PRINCIPLE LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF TV. SUNDARAMLYENGAR & SONS LTD. (SUPRA) HAS BEEN APPLIED AND FOLLOWED. UNDER SECTION 4, THE CHARGING SECTION, THE CHARGE O F INCOME-TAX IS UPON THE 'TOTAL INCOME OF THE PREVIOU S YEAR. THE TERM INCOME IS DEFINED UNDER SECTION 2 (24). IN GENERAL, ALL RECEIPTS OF REVENUE NATURE, UNLESS SPECIFICALLY EXEMPTED, ARE CHARGEABLE TO TAX. LOAN TAKEN IS NOT NORMALLY A KIND OF RECEIPT WHICH WILL BE TRE ATED AS INCOME. HOWEVER, WHEN A PART OF THAT LOAN IS WAIVED OFF BY THE CREDITOR, SOME BENEFIT ACCRUES TO THE ASSESS EE. QUESTION IS WHAT WOULD BE THE CHARACTER OF WAIVER O F PART OF THE LOAN AT THE HANDS OF THE ASSESSEE ? WAI VER DEFINITELY GIVES SOME BENEFIT TO THE ASSESSEE. WHET HER IT IS TO BE TREATED AS CAPITAL RECEIPT ? IF IT IS SO, THEN ONLY CAPITAL GAINS TAX WOULD BE CHARGEABLE UNDER SECTION 45 OR ELSE, WHETHER REMISSION OF LOAN IS NO INCOME AT ALL ? THE ANSWER TO THESE QUESTIONS WOULD DEPEND UPON THE PURPOSE FOR WHICH THE SAID LOAN WAS TAKEN. IF THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITAL ASSET, WAIVER T HEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX, BUT ON THE OTHER HAND, IF THE LOAN WAS TAKEN FOR TRADING PURPOSE AND WAS TREATED AS SUCH FROM THE VERY BEGINNING IN THE BOOKS OF ACCOUNT, THE WAIVER THERE OF MAY RESULT IN THE INCOME, MORE SO WHEN IT WAS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. [PARA 2 3] 71 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 3.8 THE HONBLE HIGH COURT HAS LAID DOWN TEST FOR HOLD ING THE AMOUNT OF WAIVER OF LOAN AS CAPITAL OR TRADING RECE IPT. IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR CAPITAL EX PENDITURE, THEN THE WAIVER AMOUNT IS IN THE NATURE OF THE CAPI TAL RECEIPT AND IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR TRADING PURPOSES THEN THE WAIVER AMOUNT RECEIVED WOULD BE I N THE NATURE OF TRADING RECEIPT. 3.9 BEFORE US, THE ASSESSEE HAS DEMONSTRATED HOW THE FCCB AMOUNT HAS BEEN UTILIZED TOWARDS CAPITAL EXPENDITURE. THE ASSESSEE SUBMITTED ENTIRE LIST OF CAPITAL ASSET ACQUIRED THROUGH THE FUNDS OF FCCB, WHICH IS AVAILABLE ON PA GE 235 TO 241 OF THE PAPER BOOK. THE ASSESSE HAS SHOWN CAPITA L EXPENDITURE OF MORE THAN RS.21 CRORES UPTO MARCH, 2008. THE LD. DR COULD NOT CONTROVERT THIS FACTUAL ASPECT OF UTILIZATION OF THE FCCB TOWARD CAPITAL EXPEND TURE. IN INSTANT CAS E, ONCE IT IS UNDISPUTED THAT FCCB AMOUNT HAS BEEN UTILIZED TO WARD CAPITAL EXPENDITURE, IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGOTRONICS (P) LTD (SUPR A), THE DISCOUNT ON FCCB FALLS IN THE NATURE OF CAPITAL REC EIPT NOT EXIGIBLE TO TAX. THE LD. CIT(A) HAS GIVEN HIS FINDI NG ON WRONG ASSUMPTION OF THE FACT THAT FCCB FUNDS WERE UTILIZE D FOR TRADING OR REVENUE EXPENDITURE, WITHOUT VERIFYING T HE BOOKS OF ACCOUNT OF THE ASSESSEE. 3.10. THE HONBLE APEX COURT IN THE CASE OF CIT YS. MAHINDRA AND MAHINDRA LTD. (SUPRA) ON THE ISSUE OF BENEFIT TAXABLE UNDER SECTION 28(IV) HAS HELD AS UNDER: 10. THE TERM 'LOAN' GENERALLY REFERS TO BORROWING SOMETHING, ESPECIALLY A SUM OF CASH THAT IS TO BE P AID BACK ALONG WITH THE INTEREST DECIDED MUTUALLY BY TH E PARTIES. IN OTHER TERMS, THE DEBTOR IS UNDER A LIAB ILITY TO PAY BACK THE PRINCIPAL AMOUNT ALONG WITH THE AGREED RATE OF INTEREST WITHIN A STIPULATED TIME. 11. IT IS A WELL-SETTLED PRINCIPLE THAT CREDITOR OR HIS SUCCESSOR MAY EXERCISE THEIR 'RIGHT OF WAIVER' UNIL ATERALLY TO ABSOLVE THE DEBTOR FROM HIS LIABILITY TO REPAY. AFT ER SUCH EXERCISE, THE DEBTOR IS DEEMED TO BE ABSOLVED FROM THE LIABILITY OF REPAYMENT OF LOAN SUBJECT TO THE CONDITIONS OF W AIVER. THE WAIVER MAY BE A PARTLY WAIVER I.E , WAIVER OF PART OF THE PRINCIPAL OR INTEREST REPAYABLE, OR A COMPLETE WAIV ER OF BOTH THE LOAN AS WELL AS INTEREST AMOUNTS. HENCE WAIVER OF LOAN BY 72 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 THE CREDITOR RESULTS IN THE DEBTOR HAVING EXT A CAS H IN HIS HAND. IT IS RECEIPT IN THE HANDS OF THE DEBTOR/ASSE SSEE. THE SHORT BUT COGENT ISSUE IN THE INSTANT CASE ARISES W HETHER WAIVER OF LOAN BY THE CREDITOR IS TAXABLE AS A PERQ UISITE UNDER SECTION 28 (IV) OF THE IT ACT OR TAXABLE AS A REMIS SION OF LIABILITY UNDER SECTION 41 (I) OF THE IT ACT. 12. THE FIRST ISSUE IS THE APPLICABILITY OF SECTION 28 (IV) OF THE IT ACT IN THE PRESENT CASE. BEFORE MOVING FURTHER, WE DEEM IT APPOSITE TO REPRODUCE THE RELEVANT PROVISION HEREIN BELOW : 28. PROFITS AND GAINS OF BUSINESS OR PROFESSION . THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS PROFESSION ', (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHE R CONVERTIBLE INTO MONEY OR NO , ARISING FROM BUSINES S OR THE EXERCISE OF A PROFESSION; 13. ON A PLAIN READING OF SECTION 28(IV) OF THE IT ACT, PRIMA FACIE, IT APPEARS THAT FOR THE APPLICABILITY OF THE SAID PROVISION, THE INCOME WHICH CAN BE TAXED SHALL ARISE FROM THE BUSINESS OR PROFESSION. ALSO, IN ORDER TO INVOKE THE PROVISI ON OF SECTION 28 (IV) OF THE IT ACT, THE BENEFIT WHICH IS RECEIVE D HAS TO BE IN SOME OTHER FORM RATHER THAN IN THE SHAPE OF MONEY. IN THE PRESENT CASE, IT IS A MATTER OF RECORD THAT THE AMO UNT OF RS.57,74,064/- IS HAVING RECEIVED AS CASH RECEIPT D UE TO THE WAIVER OF LOAN. THEREFORE, THE VERY FIRST CONDITION OF SECTION 28 (IV) OF THE IT ACT WHICH SAYS ANY BENEFIT OR PERQUI SITE ARISING FROM THE BUSINESS SHALL BE IN THE FORM OF BENEFIT O R PERQUISITE OTHER THAN IN THE SHAPE OF MONEY, IS NOT SATISFIED IN THE PRESENT CASE. HENCE, OUR VIEW, IN NO CIRCUMSTANCES , IT CAN BE SAID THAT THE AMOUNT OF RS 57,74,064/- CAN BE TAXED UNDER THE PROVISIONS OF SECTION 28 (IV) OF THE IT ACT. [E MPHASIS SUPPLIED] 3.11. IN THE INSTANT CASE, THE BENEFIT HAS BEEN RECEIVED IN THE SHAPE OF THE MONEY AND THUS, THE SAID BENEFIT C ANNOT BE HELD AS TAXABLE EVEN UNDER SECTION 28(IV) OF THE AC T. 3.12. IN VIEW OF THE DISCUSSION ABOVE, WE SET ASIDE THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE A ND HOLD THAT THE DISCOUNT RECEIVED ON FCCB IS NOT TAXABLE I N THE HANDS OF THE ASSESSEE. THE GROUND NO. 1 OF THE APPE AL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 73 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 8.1. THUS THE ISSUE IS COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL AS WELL AS BY JUDGMENT OF HONBLE D ELHI HIGH COURT IN THE CASE OF LOGITRONICS P. LTD., VS., CIT (SUPRA). NO MATERIAL IS PRODUCED BEFORE US TO CONTRADICT THE FI NDINGS OF FACT RECORDED BY THE LD. CIT(A) IN FAVOUR OF THE AS SESSEE. THEREFORE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS REQUIRED IN THE MATTER. WE CONFIRM THE FINDING OF FACT RECOR DED BY THE LD. CIT(A) AND DISMISS GROUND NO.L OF THE APPEAL OF THE REVENUE. 46. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS (SU PRA), WE HOLD THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THE DISCOUNT RECEIVED THROUGH BUYBACK OF FCCBS AT A DIS COUNTED PRICE AS INCOME OF THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE LEARNED CIT(A) IS SET-ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 47. GROUND OF APPEAL NO. 2, 2.1 FILED BY THE ASSES SEE READS AS UNDER:- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF DEPRECIATION OF RS.65,64,364/- RELATED TO EXCHANGE FLUCTUATIONS IN RESPECT OF ASSETS ACQUIRED IN INDIA FROM THE FUN DS RAISED THROUGH FOREIGN CURRENCY CONVERTIBLE BONDS [FCCBS]. 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) DID NOT APPRECIATE THAT THE ENHANCE D DEPRECIATION WAS NOT CLAIMED WITHIN THE MEANING OF SECTION 43A OF THE ACT. 48. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUNDS ARE IDENTICAL TO THE GROUNDS OF APPEAL NO. 3 AND 74 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 ADDITIONAL GROUND OF ITA NO.761/DEL/2014. WE HAVE A LREADY HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION RELATABLE TO EXCHANGE FLUCTUATION IN RESPECT OF ASSETS ACQUIRED IN INDIA FROM THE FUNDS RAISED FROM FCCBS. FOLLOWING THE SIMILAR REASONING, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 49. GROUND OF APPEAL NO.3 READS AS UNDER:- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPRECIATING THAT FOREX GAIN OF RS.5,44,92,768/- WAS A CAPITAL RECEIPT AND WAS NOT LIABLE TO TAX. 50. AFTER HEARING BOTH SIDES, WE FIND THIS ISSUE H AS BEEN ALREADY BEEN ANSWERED EARLIER, WHILE DECIDING HE GR OUND RAISED BY THE REVENUE. THEREFORE, THIS GROUND RAISED BY TH E ASSESSEE IS DISMISSED. 51. IN THE RESULT, ITA NO.767/DEL/2014 IS PARTLY A LLOWED, ITA NO.2288/DEL/2014 IS ALLOWED AND ITA NO.1378/DEL /2017 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2021. SD/- SD/- [SUCHITRA KAMBLE] [R.K. PANDA] JUDICIAL MEMBER ACCOUNTANT MEMBER DELHI; DATED: 15/06/2021. F{X~{T? F{X~{T? F{X~{T? F{X~{T? FA FA FA FA P.S P.SP.S P.S 75 ITA NO.767/DEL/2014 ITANO.1378 & 2288/DEL/2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI