M/s. Magna Electro Castings Ltd., Coimbatore V. ACIT, Coimbatore

ITA 186/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81200 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SASI KUMAR
• Assessee Lawyers: K RAGHU
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , ! ' , % & BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 186/MDS/2013 ( / ASSESSMENT YEAR : 2009-10) M/S. MAGNA ELECTRO CASTINGS LTD. 43, BALASUNDARAM ROAD, COIMBATORE-641 018. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), COIMBATORE. PAN:AABCM4711E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. K.RAGHU, C.A. /RESPONDENT BY : MR. A. SASI KUMAR, JCIT / DATE OF HEARING : 25 TH AUGUST, 2014 /DATE OF PRONOUNCEMENT : 16 TH OCTOBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD , JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBA TORE DATED 18.12.2012 FOR THE ASSESSMENT YEAR 2009-10. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT AMOUNT OF ` 1,20,69,785/- WAS AN ALLOWABLE DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD PROFITS & G AINS OF BUSINESS . 2 ITA NO.186/MDS/2013 2. BRIEF FACTS ARE THAT ASSESSEE FILED RETURN OF IN COME DECLARING INCOME OF ` 5,55,84,644/- UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS OF ` 3,67,66,847/- UNDER SECTION 115JB OF THE ACT. THE ASSESSEE DEBITE D IN ITS PROFIT AND LOSS ACCOUNT LOSS ON ACCOUNT OF EXCHANGE RATE FLUCTUATION IN RESPECT OF FOREIGN CURRENCY TERM LO AN CLAIMED AS REVENUE LOSS. THE ASSESSING OFFICER WHILE COMPU TING THE ASSESSMENT DISALLOWED THE SAID EXCHANGE RATE FLUCTU ATION IN RESPECT OF FOREIGN CURRENCY TERM LOAN OF ` 1.20 CRORES HOLDING IT AS A CAPITAL LOSS AND NOT REVENUE LOSS. THE ASSE SSEE SUBMITTED THAT IT HAD ACQUIRED MACHINERY BY TAKING TERM LOANS FROM THE BANKS AND LATER THE ASSESSEE CONVERTED THE SE TERM LOANS INTO FOREIGN CURRENCY LOANS AND ACCOUNTED FOR FOREX GAIN/LOSS AS REVENUE IN TERMS OF ACCOUNTING STANDAR D 11 CONSISTENTLY. THEREFORE ASSESSEE CONTENDED THAT LOS S ARISING ON ACCOUNT OF EXCHANGE FLUCTUATION IS REVENUE LOSS. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE ACCEPTING THE CONTENTION OF THE ASSESSING OFFICER THAT ASSETS PURCHASED BY THE ASSE SSEE IN INDIA OUT OF FOREIGN CURRENCY TERM LOAN, THE NOTION AL GAIN OR LOSS OUT OF FOREIGN CURRENCY EXCHANGE FLUCTUATION H AS TO 3 ITA NO.186/MDS/2013 INCREASE/REDUCE THE COST OF ASSETS AND IT CANNOT BE DEBITED OR CREDITED TO PROFIT AND LOSS ACCOUNT. 3. COUNSEL FOR THE ASSESSEE REFERRING TO SECTION 43 A OF THE ACT SUBMITS THAT PROVISIONS OF SECTION 43A APPLIES ONLY IN CASE ASSETS ARE PURCHASED FROM OUTSIDE INDIA IN FO REIGN EXCHANGE. PROVISIONS OF SECTION43A HAVE NO APPLICAT ION WHEN THE ASSETS WERE ACQUIRED BY THE ASSESSEE IN IN DIA. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAD TAKEN TERM LOANS FROM BANKS AND ACQUIRED ASSETS IN INDIA AND THIS FACT IS ALSO ACCEPTED BY THE ASSESSING OFFICER . COUNSEL SUBMITS THAT LATER ASSESSEE APPROACHED THE BANK TO CONVERT EXISTING THREE TERM LOANS WITH AGGREGATE OUTSTANDIN G LIABILITY OF ` 7.65 CRORES INTO FOREIGN CURRENCY TERM LOAN AND TH E BANKS HAVE CONVERTED THE EXISTING TERM LOANS TO FOREIGN C URRENCY TERM LOAN. COUNSEL SUBMITS THAT ASSESSEE HAS BEEN ACCOUNTING FOR EXCHANGE GAIN OR LOSS ON ACCOUNT OF THIS FOREIGN CURRENCY TERM LOAN IN ITS BOOKS OF ACCOUNT AS REVENUE LOSS/GAIN CONSISTENTLY FOLLOWING ACCOUNTING STANDAR D 11. COUNSEL SUBMITS THAT IN FACT THERE IS A GAIN IN THE ASSESSMENT YEAR 2008-09 WHICH WAS OFFERED AS INCOME. HE FURTHE R 4 ITA NO.186/MDS/2013 SUBMITS THAT EVEN IN THE ASSESSMENT YEAR 2010-11 TH ERE IS A GAIN WHICH WAS OFFERED TO TAX. COUNSEL FOR THE ASSE SSEE ALSO SUBMITS THAT IT IS IN THE NATURE OF INTEREST AS DEF INED IN SECTION 2(22)(E) OF THE ACT. 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN TREATING FOREIGN CUR RENCY TERM LOAN AS CAPITAL LOSS. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND SUBMISSIONS. ASSESSEE OBTAINED TERM LOANS FROM CORPORATION BANK AND ACQUIRED ASSETS WITHIN INDIA. BY LETTER DATED 23.6.2007, CORPORATION BANK CONVERTED EXISTED THREE TERM LOANS WITH AGGREGATE OUTSTANDING LIABILITY OF ` 7.65 CRORES INTO FOREIGN CURRENCY TERM LOAN AT AN INTERE ST RATE OF 3% ABOVE THREE MONTHS LIBOR DURING THE ASSESSMENT Y EAR 2009-10 WHICH IS UNDER APPEAL. THE ASSESSEE CLAIMED ` 1.20 CRORES BEING EXCHANGE RATE FLUCTUATION ON ACCOUNT O F FOREIGN EXCHANGE TERM LOAN OBTAINED BY THE ASSESSEE FROM CORPORATION BANK AS REVENUE LOSS. THE ASSESSING OF FICER DISALLOWED THE SAID LOSS AS CAPITAL IN NATURE. ACCO RDING TO 5 ITA NO.186/MDS/2013 HIM, THE ASSESSEE PURCHASED MACHINERY OUT OF FOREIG N CURRENCY TERM LOAN THEREFORE NOTIONAL GAIN/LOSS OUT OF FOREIGN CURRENCY FLUCTUATION CANNOT BE DEBITED OR CREDITED TO PROFIT AND LOSS ACCOUNT AND THEREFORE IT SHOULD GO TO INCR EASE OR REDUCE THE COST OF ASSET. THE COMMISSIONER OF INCOM E TAX (APPEALS) AFFIRMED THE SAME. ON A READING OF THE AS SESSMENT ORDER AND THE LETTER ISSUED BY CORPORATION BANK, CR EDIT DIVISION (SANCTIONS), IT IS CLEAR THAT ASSESSEE DID NOT UTILIZE FOREIGN CURRENCY TERM LOAN FOR ACQUIRING CAPITAL AS SET IN INDIA. THE ASSESSEE HAS OBTAINED TERM LOANS IN INDIAN CURR ENCY FROM CORPORATION BANK ACQUIRED THE ASSETS AND LATE R ON THE OUTSTANDING LIABILITY OF THREE TERM LOANS WAS CONVE RTED INTO FOREIGN CURRENCY TERM LOAN. THE ASSESSEE HAS NOT AC QUIRED ASSETS FROM OUTSIDE INDIA, THEREFORE PROVISIONS OF SECTION 43A WHICH PROVIDES FOR ADJUSTMENT OF RATE OF EXCHANGE I N CURRENCY TO THE ACTUAL COST HAS NO APPLICATION IN ASSESSEES CASE AS THE PROVISIONS OF SECTION 43A APPLIES TO AN ASSESSE E WHO HAS ACQUIRED ANY ASSET IN ANY PREVIOUS YEAR FROM THE CO UNTRY OUTSIDE INDIA AND INCREASE IN LIABILITY IN CONSEQUE NCE OF ANY CHANGE IN THE RATE OF EXCHANGE DURING THAT PREVIOUS YEAR AFTER ACQUISITION OF SUCH ASSET. EVEN THE DEFINITION OF ACTUAL COST IN 6 ITA NO.186/MDS/2013 SECTION 43A DOES NOT PROVIDE FOR ANY INCREASE OR RE DUCTION DUE TO EXCHANGE RATE FLUCTUATION ON ACCOUNT OF ASSE SSEE CONVERTED ITS INDIAN TERM LOANS INTO FOREIGN CURREN CY TERM LOAN. THE ASSESSEE IS CONSISTENTLY FOLLOWING METHOD OF SHOWING GAIN/LOSS ON ACCOUNT OF EXCHANGE FLUCTUATIO N AS REVENUE LOSS FOLLOWING THE ACCOUNTING STANDARD 11. AS SUBMITTED BY THE COUNSEL, ASSESSEE HAD IN FACT SHOW N GAIN IN EXCHANGE FLUCTUATION DURING THE ASSESSMENT YEAR 200 8-09 AND ALSO IN ASSESSMENT YEAR 2010-11. IN SUCH CIRCUMSTANCES, THE LOSS ON ACCOUNT OF EXCHANGE FLUC TUATION CANNOT BE TREATED AS CAPITAL LOSS. THE GROUNDS OF A PPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 16 TH DAY OF OCTOBER, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( & () ) ( DR. O.K. NARAYANAN ) ( CHALLA NAGE NDRA PRASAD ) ,- /VICE-PRESIDENT ( . / JUDICIAL MEMBER ( /CHENNAI, / /DATED, 16 TH OCTOBER, 2014 SOMU 7 ITA NO.186/MDS/2013 12 32 /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .