ACIT, CHENNAI V. Continuum Wind Energy (India) Pvt. Ltd., CHENNAI

ITA 211/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4266 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 23-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREENIVASAN
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Capital asset; Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.3344/MDS/2016 & '& / ASSESSMENT YEAR : 2013-14 M/S CONTINUUM WIND ENERGY (INDIA) PVT. LTD. (FORMERLY KNOWN AS M/S SURAJBARI WINDFARM DEVELOPMENT PVT. LTD.), SOUTH WING, 4 TH FLOOR, KAKANI TOWERS, NO.15, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI - 600 006. PAN : AAKCS 8353 F V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI - 600 034. ()*/ APPELLANT) (+,)*/ RESPONDENT) ./ ITA NO.211/MDS/2017 & '& / ASSESSMENT YEAR : 2013-14 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI - 600 034. V. M/S CONTINUUM WIND ENERGY (INDIA) PVT. LTD., SOUTH WING, 4 TH FLOOR, KAKANI TOWERS, NO.15, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI - 600 006. ()*/ APPELLANT) (+,)*/ RESPONDENT) &-. / 0 /ASSESSEE BY : SH. B. RAMAKRISHNAN, CA / 0 /REVENUE BY : SH. SREENIVASAN, JCIT 1 / .' / DATE OF HEARING : 06.06.2017 23' / .' / DATE OF PRONOUNCEMENT : 16.06.2017 2 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH, THE ASSESSEE AND THE REVENUE FILED THE ABO VE APPEALS AGAINST THE ORDER PASSED BY THE COMMISSIONE R OF INCOME TAX (APPEALS)-1, CHENNAI, DATED 08.11.2016 AND PERT AIN TO ASSESSMENT YEAR 2013-14. THEREFORE, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. LETS FIRST TAKE THE ASSESSEES APPEAL IN I.T.A. NO.3344/MDS/2016. 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IN THIS APPEAL IS DISALLOWANCE OF ` 36,33,334/- BEING THE PREMIUM PAID ON FORWARD CONTRACTS TO COVER THE EXCHANGE FLUCTUATIONS ON THE REPAYMENT OF LOAN. 4. SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE AVAILED LOAN FROM STATE BANK OF INDIA FOR ITS PROJECT AT SURAJBARI. THE PR OJECT WAS 1.5 MW. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE I S ADMITTEDLY ENGAGED IN THE BUSINESS OF GENERATION OF WIND ENERG Y. AFTER AVAILING LOAN FROM STATE BANK OF INDIA, THE ASSESSE E REQUESTED THE 3 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 BANK TO CONVERT THE SAID LOAN IN FOREIGN CURRENCY I N THE MONTH OF AUGUST, 2011. STATE BANK OF INDIA, IN FACT, CONVER TED THE SAID LOAN IN FOREIGN CURRENCY AT THE RATE OF 44.44 PER USD WH ICH COMES TO NEARLY ` 50 LAKHS. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE HAS ALSO ENTERED INTO FORWARD CONTRACTS IN ORDER TO GUARD ITSELF FROM FOREIGN EXCHANGE FLUCTUATIONS. THE ASSESSEE HAS PA ID ` 1.9 LAKHS TOWARDS PREMIUM ON FORWARD CONTRACTS. THE ASSESSEE AMORTIZED THE PREMIUM PAID IN THE BOOKS OF ACCOUNT OVER A PER IOD OF THREE YEARS. 5. THE LD. REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION, A SUM OF ` 36,33,333/- WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE WHICH WAS ALSO CONFIRMED BY THE CIT(APPEALS). BOTH THE AUTHORITIES, ACCORDING TO T HE LD. REPRESENTATIVE, SUBMITTED THAT HEDGING LOSS ON ACCO UNT OF FOREIGN EXCHANGE FLUCTUATION CANNOT BE A REVENUE EXPENDITUR E, BUT IT WAS A CAPITAL EXPENDITURE. ACCORDING TO THE LD. REPRESEN TATIVE, IN FACT, THE ASSESSEE SUFFERED A LOSS, THEREFORE, IN CASE THE LO SS SUFFERED ON ACCOUNT OF FOREIGN CURRENCY COULD NOT BE TAKEN AS R EVENUE LOSS, THE SAME HAS TO BE TAKEN AS CAPITAL LOSS AND IT HAS TO BE ADDED TO THE 4 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 COST OF THE CAPITAL ASSET. HENCE, ACCORDING TO THE LD. REPREUUSENTATIVE, DEPRECIATION HAS TO BE ALLOWED ON THE ENHANCED VALUE OF CAPITAL ASSET. THE LD. REPRESENTATIVE HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN JSW STEEL LTD. V. ACIT (2010) 133 TTJ 742. 6. ON THE CONTRARY, SHRI SREENIVASAN, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT HE IS PLACING HIS RE LIANCE ON THE ORDER OF THE CIT(APPEALS). THE LD. D.R. FURTHER SU BMITTED THAT IN VIEW OF SECTION 43A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), THE CIT(APPEALS) HAS RIGHTLY FOUND THAT THE LOSS SU FFERED BY THE ASSESSEE IN FOREIGN EXCHANGE CONTRACTS WAS IN THE C OURSE OF SETTING UP OF THE PLANT, THEREFORE, THE LOSS HAS TO BE TREA TED AS CAPITAL LOSS, HENCE, IT CANNOT BE ALLOWED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY BORROWED LOAN IN INDIAN CURRENCY FROM ST ATE BANK OF INDIA FOR THE PURPOSE OF SETTING UP OF PLANT / PROJ ECT, NAMELY, SURAJBARI I PROJECT. THE SAID LOAN WAS CONVERTED I NTO FOREIGN CURRENCY LOAN AND THE ASSESSEE HAS PAID PREMIUM OF ` 1.9 LAKHS. THE ASSESSEE AMORTIZED THE PREMIUM PAID OVER A PERI OD OF THREE 5 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 YEARS AND 1/3 RD OF PREMIUM TO THE EXTENT OF ` 36,33,333/- HAS BEEN CLAIMED AS REVENUE EXPENDITURE, DURING THE YEAR UND ER CONSIDERATION. BOTH THE AUTHORITIES BELOW CONCURRE NTLY FOUND THAT THE PREMIUM PAID BY THE ASSESSEE WAS IN THE COURSE OF SETTING UP OF PROJECT SURAJBARI I PROJECT, THEREFORE, THE LOSS, I F ANY, IS ON THE CAPITAL FIELD AND IT CANNOT BE ALLOWED AS REVENUE L OSS. 8. THE ASSESSEE NOW CLAIMS ALTERNATIVELY THAT IF IT IS CAPITAL LOSS, IT WILL DEFINITELY GO TO INCREASE THE COST OF THE P ROJECT, HENCE, THE ASSESSEE SHALL BE GIVEN DEPRECIATION ON THE ENHANCE D VALUE OF ASSET. ADMITTEDLY, THE LOAN WAS BORROWED FOR SETTI NG UP OF PLANT FOR GENERATION OF WIND ENERGY, THEREFORE, THE LOSS SUFF ERED IN FOREIGN EXCHANGE FLUCTUATION WOULD DEFINITELY GO TO INCREAS E THE COST OF THE PROJECT TO THE EXTENT OF LOSS SUFFERED BY THE ASSES SEE. HENCE, AS RIGHTLY FOUND BY THE BANGALORE BENCH OF THIS TRIBUN AL IN JSW STEEL LTD. (SUPRA), THE ASSESSEE IS ENTITLED FOR DEPRECIA TION ON THE ENHANCED VALUE. ACCORDINGLY, WHILE CONFIRMING THE ORDERS OF THE LOWER AUTHORITIES THAT THE LOSS SUFFERED BY THE ASS ESSEE IS CAPITAL LOSS, THE ASSESSING OFFICER IS DIRECTED TO GRANT DE PRECIATION TO THE ASSESSEE AS APPLICABLE ON THE ENHANCED VALUE OF THE PROJECT AFTER COMMENCEMENT OF ITS BUSINESS. 6 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 9. NOW, COMING TO REVENUES APPEAL IN I.T.A. NO.211 /MDS/17, THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE OF EXPENDITURE IN EARNING THE EXEMPT INCOME UNDER SECT ION 14A OF THE ACT ALONG WITH RULE 8D OF INCOME-TAX RULES, 1962. 10. SHRI SREENIVASAN, THE LD. DEPARTMENTAL REPRESEN TATIVE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED ` 7,41,93,117/- UNDER SECTION 14A OF THE ACT. THE CIT(APPEALS) ALL OWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. REFERRING TO RULE 8D, THE LD. D .R. SUBMITTED THAT INCOME-TAX ACT DOES NOT SAY WHEN THERE WAS NO EXEMPT INCOME, THE EXPENDITURE NEED NOT BE DISALLOWED. AC CORDING TO THE LD. D.R., IRRESPECTIVE OF INCOME EARNED BY THE ASSE SSEE, WHEN THE ASSESSEE INCURRED THE EXPENDITURE FOR INVESTING IN THE SHARES WHICH WOULD RESULT IN EXEMPTED INCOME, THE SAME HAS TO BE DISALLOWED UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. 11. ON THE CONTRARY, SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, THERE CANN OT BE ANY DISALLOWANCE ON VACUUM AS HELD BY MADRAS HIGH COURT IN 7 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMA NN.COM 257. MOREOVER, THE INVESTMENTS WERE MADE ONLY IN SUBSIDI ARY COMPANIES. THEREFORE, THE CIT(APPEALS) BY PLACING HIS RELIANCE ON THE JUDGMENT OF DELHI HIGH COURT IN CHEMINVEST LTD. V. CIT (378 ITR 33) AND ORDER OF THIS TRIBUNAL IN ACIT V. M. BASKAR AN IN I.T.A. NO.1717/MDS/2013 DATED 31 ST JULY, 2014, HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE INVESTMENTS WERE MADE IN SUBSIDIAR Y COMPANIES. WHEN THE INVESTMENTS WERE MADE IN WHOLLY OWNED SUBS IDIARY COMPANIES, THIS TRIBUNAL IS CONSISTENTLY TAKING A V IEW THAT IT CANNOT BE CONSTRUED THAT INVESTMENT IS MADE FOR EARNING EX EMPT INCOME. INVESTMENT MADE IN WHOLLY OWNED COMPANY IS ONLY FOR THE PURPOSE OF BUSINESS. MOREOVER, THE MADRAS HIGH COURT IN RE DINGTON (SUPRA) HELD THAT WHEN THERE WAS NO EXEMPT INCOME, THERE CA NNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 8 I.T.A. NO.3344/MDS/16 I.T.A. NO.211/MDS/17 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED WHILE THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON 16 TH JUNE, 2017 AT CHENNAI. SD/- SD/- ( ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 16 TH JUNE, 2017. KRI. / +.67 87'. /COPY TO: 1. &-. / ASSESSEE 2. ASSESSING OFFICER 3. 1 9. () /CIT(A)-1, CHENNAI-34 4. PRINCIPAL CIT-1, CHENNAI 5. 7: +. /DR 6. ;& < /GF.