Hueco Electronics (I) Pvt.Ltd,(Now known as Hitachi Automotive Systems Pune (I) Pvt.Ltd), Pune V. Deputy Commissioner of Income tax,

ITA 2/PUN/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8627 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 02-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MALVIYA
• Keywords: Capital asset; Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 201; 43; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 0 2 /PUN/201 7 / ASSESSMENT YEAR : 20 1 2 - 1 3 HUECO ELECTRONICS (I) PVT. LTD. (NOW KNOWN AS HITACHI AUTOMOTIVE SYSTEMS PUNE (I) PVT. LTD.,) PLOT NO.1, SURVEY NO.19, KONDHWA ROAD, YEWLEWADI, PUNE 411048 PAN : A ABCH4660H ....... / APPELLANT / V/S. THE DY . COMMISSIONER OF INCOME TAX , CIRCLE 11 , PUNE / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI ALOK MALVIYA / DATE OF HEARING : 13 - 0 1 - 20 20 / DATE OF PRONOUNCEMENT : 20 - 01 - 2020 / ORDER PER ANIL CHATURVEDI , A M : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(A) - 1 , PUNE , DATED 2 6 .0 9 .201 6 , FOR THE ASSESSMENT YEAR 201 2 - 1 3 . 2 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER : - THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE ELECTRONIC COMPONENTS AND RESEARCH IN AUTOMOTIVE ELECTRONIC COMPONENTS. IT FILED ITS RETURN OF INCOME FOR A.Y. 2012 - 13 ON 30.11.2012 DECLARING TOTAL INCOME AT RS.41,46,684/ - . TH E CASE WAS TAKEN UP FOR SCRUTINY AND THEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 27.03.2015 AND THE TOTAL INCOME WAS DETERMINED AT RS.45,41,460/ - . AGGRIEVED BY THE ORDER OF ASSESSING OFFICER , ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER D ATED 26.09.2016 (IN APPEAL NO. PN/CIT(A) - 1/DCIT.CIR.11/PN/67/15 - 16 ) DISMISSED THE APPEAL OF ASSESSEE . AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : - 1 . THE LEARNED CIT(A) - 1, PUNE ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION MADE BY THE LEARNED DICT, CIRCLE 11, PUNE AMOUNTING TO RS.4,57,841/ - REGARDING FOREIGN EXCHANGE FLUCTUATION (LO SS) ARISING ON REPAYMENT OF ECB LOAN. THE LEARNED IT - AUTHORITIES OUGHT TO HAVE APPRECIATED THAT FOREIGN EXCHANGE LOSS HAD ARISEN DUE TO OBLIGATION AS TO REPAYMENT OF ECB LOAN AVAILED FOR BUSINESS PURPOSE AND THEREFORE IS AN ALLOWABLE DEDUCTION U/S 37(1) O F THE ITA, 1961. 2 . THE LEARNED CIT(A) - 1 AND THE LEARNED AO ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT FOREIGN EXCHANGE LOSS ON REPAYMENT OF ECB LOAN IS REVENUE IN NATURE AS PER ACCOUNTING STANDARD 16 R.W. ACCOUNTING STANDARD INTERPRETATION 10. 3 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PERUSING THE DETAILS FILED BY ASSESSEE , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED FOREIGN EXCHANGE LOSS OF RS.4,57,841/ - . ON ENQUIRIES IT WAS NOTICED THAT IT WAS ON ACCOUNT OF LOSS TOWARD S REPAYMENT OF ECB LOAN WHICH WAS UTILIZED BY THE ASSESSEE FOR PURCHASE OF FIXED ASSETS. THE 3 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. ASSESSEE WAS SHOW CAUSED AS TO WHY LOSS SHOULD NOT BE CAPITALIZED INSTEAD OF ITS CLAIM OF REVENUE EXPENDITURE, TO WHICH THE ASSESSEE MADE THE SUBMISSIONS WHICH WE RE NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. THE ASSESSING OFFICER THEREAFTER HELD THE EXPENDITURE TO BE CAPITAL EXPENDITURE, BUT ELIGIBLE FOR DEPRECIATION. HE THEREAFTER, GRANTED THE BENEFIT OF DEPRECIATION AMOUNTING TO RS.66,067/ - AND DISALLOWED T HE BALANCE EXPENDITURE OF RS.3,94,774/ - (RS.4,57,841 RS.66,067). AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO UPHELD THE ORDER OF ASSESSING OFFICER BY OBSERVING AS UNDER: - 7. I HAVE CAREFULLY CONSIDERE D THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, IT IS SEEN THAT ECB WAS UTILIZED FOR ACQUIRING ASSETS IN INDIA. THIS BEING SO, PROVISIONS OF SECTION 43A OF THE I.T. ACT, 1961 CANNOT BE APPLIED IN THE PRESENT CASE. THIS BEING SO, THE IMPORTANT POINT TO BE DECIDED IS TREATMENT OF FOREIGN EXCHANGE LOSS ON ACCOUNT OF ECB FOR ASSETS ACQUIRED IN INDIA. THE APPELLANT HAS RELIED UPON THE DECISION OF HON. SUPREME COURT IN THE CASE OF TATA IRON & STEEL (TISCO - 1998) 231 ITR 285 (SC). IN T HAT CASE THE HON. APEX COURT HAD AN OCCASION TO DEAL WITH THIS ISSUE FOR PERIOD PRIOR TO INTRODUCTION OF SECTION 43A OF THE I.T. ACT, 1961 WHICH WAS INTRODUCED BY FINANCE ACT 1967 W.E.F. 1/4/1967. IN THAT CASE THE ASSESSEE HAD ACQUIRED CERTAIN DEPRECIABLE ASSETS USING FOREIGN CURRENCY LOANS AND ADJUSTED THE FOREIGN EXCHANGE FLUCTUATION WITH COST OF ASSET. THE HON. APEX COURT ON THESE SET OF FACTS HELD THAT SECTION 43A IS INAPPLICABLE AS THE SAME WAS INTRODUCED LATER AND ALSO HELD THAT THE MANNER OF REPAYM ENT OF LOAN CANNOT AFFECT THE COST OF ASSET SO ACQUIRED. THE ABOVE OBSERVATION WAS GIVEN IN THE CONTEXT OF APPLICABILITY OF SECTION 43A OF THE I.T. ACT, 1961 AND THEREFORE, THE SAME CANNOT BE APPLIED IN THE PRESENT CASE. IN SUTLEJ COTTON MILLS LTD (1979) 116 ITR 1 (SC), HON. SUPREME COURT DECIDED THE ISSUE IN CLEAR TERMS HOLDING THAT THE LAW MAY, THEREFORE, NOW BE TAKEN TO BE WELL SETTLED THAT WHERE THE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIG N CURRENCY HELD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMBARKED I N THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR A FIXED CAPITAL, SUCH PROFIT OR LOSS WOULD BE OF CAPITAL NATURE. SIMILAR VIEW WAS TAKEN IN THE CASE OF TATA LOCOMOTIVE & ENGG. CO. LTD. (TELCO - (1996) 60 ITR 405 (SC). THE AFORESAID DECISIONS WERE LATER CONSISTENTLY FOLLOWED BY SOME HIGH COURTS IN THE CONTEXT OF ECB HOLDING THAT IF FOREIGN EXCHANGE FLUCTUATION LOSS ARISES ON RESTATEMENT OF ECB UTILIZED FOR ACQUIRING CAPITAL ASSETS INDIGENOUSLY IN INDIA, THEN SUCH LOSS WILL BE CAPITAL IN NATURE. THE DETAILS OF THE JUDGMENTS ARE AS UNDER: ( I ) BESTOBELL (INDIA) LTD. (1979) 2 TAXMANN 62 (CAL) ( II ) UNION CARBIDE INDIA (1981) 130 ITR 351 (CAL) ( III ) OIL INDIA LTD. (1982) 137 ITR 156 (CAL) 4 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. ( IV ) BHARAT GEN. & TEXTILE INDUST. LTD. (1986) 15 7 ITR 158 (CAL) ( V ) GROZ BECKERT SABOO LTD. (1981) 127 ITR 608 (P&H) ( VI ) SANDOZ INDIA LTD. (1994) 206 ITR 599 (BOM) ( VII ) ELECTRIC LAMB MFG. (INDIA) LTD. (1992) 198 ITR 760 (CAL) ( VIII ) V S DEMPO & CO. LTD. 206 ITR 291 (BOM) THE APPELLANT HAS RELIED UPON DECISION OF HON. PUNE TRIBUNAL IN THE CASE OF COOPER CORPORATION (P) LTD. (2006) 69 TAXMANN.COM 244. IN THAT CASE FACTS WERE SLIGHTLY ON DIFFERENT FOOTING AS INITIALLY LOANS WERE TAKEN IN INDIAN RUPEES FROM BANKS FOR ACQUISITION OF ASSETS AND EXPANSION OF PROJECT. SUBSEQUENT LY, THE LOANS WERE CONVERTED INTO FOREIGN CURRENCY LOANS IN ORDER TO AVAIL BENEFIT OF LOWER RATES OF INTEREST. THE ASSESSEE SAVED INTEREST COST BUT SUFFERED LOSSES DUE TO EXCHANGE FLUCTUATION. THE LOSS WAS INCURRED ON ACCOUNT OF EFFECT TO SAVE INTEREST C OST DUE TO LOW INTEREST RATE OF FOREIGN CURRENCY LOAN BY SWITCHING OVER. THEREFORE, IN THE STRICT SENSE THE LOSS WAS NOTHING BUT SAVING OF INTEREST COST WHICH IS REVENUE IN NATURE. THEREFORE, CONSIDERING THE TOTALITY OF FACTS, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AO AND ADDITI ON OF RS.4,57,841/ - IS UPHELD. 4 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A ) AND FURTHER SUBMITTED THAT LOSS IS ON ACCOUNT OF REINSTATEMENT OF FOREIGN CURRENCY LOAN AVAILED BY THE ASSESSEE FOR ACQUISITION OF DOMESTIC ASSETS. HE SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAME METHOD OF ACCOUNTING AND NO DISALLOWANCE WAS MADE BY ASSESSI NG OFFICER EITHER IN A.Y. 2010 - 11 OR IN A.Y. 2011 - 12. HE THEREFORE, SUBMITTED THAT ON THE PRINCIPLE OF CONSISTENCY, THE ASSESSING OFFICER WAS NOT RIGHT IN DENYING THE CLAIM AND MAKING THE ADDITION. HE FURTHER SUBMITTED THAT PUNE TRIBUNAL IN THE CASE OF M /S. NEUMAN & ESSER COMPRESSOR APPLICATION CENTRE PVT. LTD. VS. DCIT IN ITA NOS.2656 & 2657/PUN/2017 HAS HELD THAT FOREIGN CURRENCY LOAN WHICH WAS CLAIMED BY ASSESSEE AS REVENUE EXPENDITURE WAS HELD BY THE ASSESSING OFFICER TO BE CAPITAL EXPENDITURE BY INVO KING PROVISIONS OF SECTION 43 - A OF THE ACT. HE SUBMITTED THAT THE HONBLE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND HELD THAT FOREIGN CURRENCY LOSS WAS THE REVENUE EXPENDITURE. 5 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. HE SUBMITTED THAT THE FACTS OF CASE IN ASSESSEES CASE ARE IDENTI CAL TO THAT OF M/S. NEUMAN & ESSER COMPRESSOR APPLICATION CENTRE PVT. LTD. VS. DCIT (SUPRA). HE FURTHER SUBMITTED THAT ACCOUNTANT STANDARD 11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) MANDATES THAT ALL FOREIGN CURRENCY LOSS / GAIN S RELATING TO REINSTATEMENT OF FOREIGN CURRENCY LOANS WHICH INCLUDES THE CAPITAL ITEMS ARE TO BE TAKEN TO PROFIT AND LOSS ACCOUNT COMPULSORILY AND THE HONBLE APEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P.) LTD. 312 ITR 254 (SC) HAS HELD THA T ACCOUNTING STANDARDS OF ICAI ARE BINDING FOR ISSUES ON FOREIGN EXCHANGE TREATMENT. HE THEREAFTER SUBMITTED THAT COCHIN TRIBUNAL IN THE CASE OF BABY MEMORIAL HOSPITAL LTD. VS. ACIT (2019) 111 TAXMAN.COM 189 (COCHIN - TRIB.) AFTER CONSIDERING VARIOUS DECISI ONS CITED THEREIN HAS HELD THAT FOREIGN CURRENCY FLUCTUATION IN RESPECT OF LOAN IN FOREIGN CURRENCY USED FOR ACQUIRING FIXED ASSETS SHOULD BE ALLOWED AS REVENUE EXPENDITURE BY CHARGING THE SAME TO PROFIT AND LOSS ACCOUNT AND NOT AS CAPITAL EXPENDITURE BY D EDUCTING THE SAME FROM COST OF RESPECTIVE FIXED ASSETS. HE ALSO PLACED ON RECORD COPY OF THE AFORESAID DECISION. HE THEREFORE, SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIM OF EXPENDITURE TO BE REVENUE EXPENDITURE. 6 . THE LD. DR ON THE OTHER HAND TOOK US THROUGH THE OBSERVATIONS OF CIT(A) AND SUPPORTED THE ORDER OF CIT(A). 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WITH RESPECT TO TREATMENT OF LOAN ON ACCOUNT OF FOREIGN CURRENCY. IT IS AN UNDISPUTED FACT THAT LOSS IS ON ACCOUNT OF REINSTATEMENT OF FOREIGN CURRENCY LOAN WHICH HAS BEEN TAKEN BY 6 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. THE ASSESSEE FOR ACQUISITION OF ASSETS IN INDIA. WE FIND THAT THE CIT(A) HAS GIVEN A FIND ING THAT PROVISIONS OF SECTION 43 - A OF THE ACT ARE NOT APPLICABLE TO THE PRESENT CASE. WE FIND THAT THE CO - ORDINATE PUNE TRIBUNAL IN THE CASE OF M/S. NEUMAN & ESSER COMPRESSOR APPLICATION CENTRE PVT. LTD. VS. DCIT (SUPRA) HAS HELD THAT THE PROVISIONS OF S ECTION 43 - A OF THE ACT ARE APPLICABLE WHEN THE ASSETS ACQUIRED FROM OUTSIDE INDIA. IT FURTHER HELD THAT THE SAID PROVISIONS ARE NOT APPLICABLE TO THE ACQUISITION OF INDIGENOUS ASSETS. WE FURTHER FIND THAT THE CO - ORDINATE BENCH OF COCHIN IN THE CASE OF BA BY MEMORIAL HOSPITAL LTD. VS. ACIT (SUPRA) AFTER CONSIDERING VARIOUS CASE LAWS INCLUDING THE DECISION OF HONBLE APEX COURT IN THE CASE OF SUTLEJ COTTON MILLS LTD. VS. CIT 116 ITR 1 (SC) AND OTHER DECISIONS HAS HELD THAT FOREIGN EXCHANGE LOSS ARISING OUT O F FOREIGN EXCHANGE FLUCTUATION IN RESPECT OF LOAN IN FOREIGN CURRENCY USED FOR ACQUIRING FIXED ASSETS SHOULD BE ALLOWED AS REVENUE EXPENDITURE BY CHARGING THE SAME INTO PROFIT AND LOSS ACCOUNT AND NOT AS CAPITAL EXPENDITURE BY DEDUCTING THE SAME FROM COST OF RESPECTIVE FIXED ASSETS. BEFORE US REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR HAS DEMONSTRATED AS TO HOW THE DECISION OF COCHIN TRIBUNAL IN THE CASE OF BABY MEMORIAL HOSPITAL LTD. VS. ACIT (SUPRA) WOULD NOT BE APPLICABLE TO THE PRESENT FACTS. IN SUCH SITUATION, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIM OF REVENUE EXPENDITURE. WE HOWEVER, FIND THAT THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION ON THE AMOUNTS CAPITALIZED. SINCE WE ARE HOLDING THE AMOUNT OF EXPENDITURE CLAIMED BY ASSESSEE TO BE REVENUE EXPENDITURE, WE DIRECT THE ASSESSING OFFICER TO WITHDRAW THE BENEFIT OF DEPRECIATION ON THOSE ASSETS THAT WAS ALLOWED BY HIM TO THE ASSESSEE AND RE - WORK THE DEPRECIATION THEREON. WE THUS, DIRECT 7 ITA NO.02/PUN/2017 HEUCO ELECTRONICS (I) PVT. LTD. ACCORDINGLY. IN VIEW OF THE AFORESAID, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 8 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 20 TH DAY OF JANUARY , 20 20 . SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 20 TH JANUARY , 20 20 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 1 , PUNE 4. / THE PR.CIT - 1, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // // TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE