ACIT, Haridwar V. M/s Kirby Building Systems India (Uttaranchal) Pvt. Ltd., Haridwar

ITA 2626/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2702 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital receipt; Revenue expenditure; Set aside
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2626/DEL./2016 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE, VS. M/S. KIRBY BUILDING SYSTEMS INDI A HARIDWAR. (UTTARANCHAL) PVT. LTD., PLOT NO.2, SECTOR 11, IIE, SIDCUL, HARIDWAR. (PAN : AACCK5926G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAVEEN AGARWAL, FCA REVENUE BY : SHRI SURENDER PAL, SENIOR DR DATE OF HEARING : 12.06.2019 DATE OF ORDER : 14.06.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE, HARIDWAR (HEREINAFTER REF ERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 01.02.2016 PASSED BY THE COMMI SSIONER OF INCOME-TAX (APPEALS), DEHRADUN QUA THE ASSESSMENT Y EAR 2008-09 ON THE GROUNDS INTER ALIA THAT :- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING ADDITION OF RS.64,04,165/- ON ACCOUNT OF FOREIGN EX CHANGE FLUCTUATION ON THE GROUND THAT THE SAME WAS A CAPIT AL RECEIPT BECAUSE THE LOAN WAS TAKEN FOR THE PURPOSE OF SETTI NG OF THE PLANT OF THE ASSESSEE COMPANY AND NOT FOR ITS REVENUE EXP ENDITURE, ITA NO.2626/DEL./2016 2 IGNORING THE FACTS OF THE CASE AND ALSO NOT CONSIDE RING THE FACT THAT THE AMOUNT OF RS.64,04,165/- WAS NOT ELIGIBLE FOR DEDUCTION U/S 800IC OF THE INCOME-TAX IN THE LIGHT OF HON'BLE SUPREME COURT DECISION IN THE CASE OF LIBERTY INDIA VS CIT 183 TAXMAN 349 (2009) AS PER WHICH 'THE INCOME DERIVED FROM IN DUSTRIAL UNDERTAKING' HAS BEEN HELD TO BE. ELIGIBLE FOR THE SAID DEDUCTION AND NOT 'THE INCOME ATTRIBUTABLE TO INDUSTRIAL UNDE RTAKING. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS ENGAGED I N THE MANUFACTURE OF PRE-ENGINEERED BUILDING HAVING MANUF ACTURING FACILITIES AT PLOT NO.2, SECTOR 11, IIE, SIDCUL, HA RDWAR. ASSESSEE HAS FILED RETURN OF INCOME FOR THE FIRST TIME CLAIM ING DEDUCTION UNDER SECTION 80IC OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AT RS.22,19,00,333/- AS PER AUDIT REPORT IN 1 0CCB. AO MADE ADDITION OF RS.64,04,165/-/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ON THE GROUND THAT THE SAME WAS CAPITAL RECEIPT AS THE LOAN WAS TAKEN FOR THE PURPOSE OF SETTING OF PLANT OF THE ASSESSEE COMPANY AND NOT FOR ITS REVENUE EXPENDITURE WHICH W AS NOT ELIGIBLE FOR DEDUCTION U/S 80IC. 3. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.2626/DEL./2016 3 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) RELIED UPON THE ASSESSMEN T ORDER PASSED BY THE AO. HOWEVER, ON THE OTHER HAND, LD. AR FOR THE ASSESSEE RELIED UPON THE IMPUGNED ORDER PASSED BY THE LD. CI T (A) AND ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CIT VS. WOODWARD GOVERNOR INDIA (P.) LTD. 312 ITR 254 (SC) AND SUTLEJ COTTON MILLS LTD. VS. CIT 188 ITR 255 (SC) . 6. LD. CIT (A) DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION BY RETURNING FOLLOW ING FINDINGS :- 6. WITH REGARD TO THE GAIN ON ACCOUNT OF FOREIGN E XCHANGE FLUCTUATION ON ECB LOANS, IT IS OBSERVED FROM THE L OAN AGREEMENTS FURNISHED BEFORE THE UNDERSIGNED THAT TH E LOAN AGREEMENT DATED 28.02.2006, 30.06.2006 AND 12.12.20 06 BETWEEN THE ASSESSEE AND M/S ALGHANIM INDUSTRIES (MAURITIUS ) LTD. HAVE BEEN ENTERED INTO FOR THE PURPOSES OF CAPITAL EXPEN DITURE IN SETTING UP THE PLANT FOR MANUFACTURE OF PRE ENGINEE RED STEEL BUILDINGS AND ON ACCOUNT OF PROJECT COST OVERRUN OF THIS PLANT AND EXPANSION OF THIS PLANT. THUS, THE LOAN WAS QUI TE CLEARLY TAKEN ON CAPITAL ACCOUNT. THE HON'BLE SUPREME COURT HAS QUITE CLEARLY LAID DOWN IN THE CASE OF SUTLEJ COTTON MILL S VS. CIT 116 ITR 1 THAT THE NATURE OF THE LOSS WOULD DEPEND ON W HETHER THE LOSS WAS ON ACCOUNT OF TRADING ASSET OR CAPITAL ASS ET. IT WAS FURTHER OBSERVED THAT IF THE FOREIGN CURRENCY WAS T O BE UTILIZED FOR TRADING OR REVENUE PURPOSES THAN THE LOSS FROM SUCH FLUCTUATION WOULD BE A REVENUE LOSS BUT IF THE AMOUNT WAS HELD AS A CAPITAL ASSET THAN THE LOSS ARISING FROM DEPRECIATION WOULD BE A CAPITAL LOSS. FURTHER, IN THE CASE OF CIT VS. TATA LOCOMOTI VE & ENGINEERING LTD. (1996) 60 ITR 0405, THE HON'BLE SU PREME COURT HELD THAT WHERE CONSIDERATION THAT WAS RECEIV ED IN FOREIGN EXCHANGE WAS RETAINED ABROAD FOR THE PURCHASE OF CA PITAL ASSETS, THE GAIN ON ACCOUNT OF SUBSEQUENT DEVALUATION OF RU PEE WOULD BE A CAPITAL ACCRETION. IN THE CASE OF UNION CARBIDE I NDIA LTD. VS CIT (1994) 116 CTR 0596 THE HON'BLE CALCUTTA HIGH C OURT HELD ITA NO.2626/DEL./2016 4 THAT WHERE DOLLAR LOAN WAS TAKEN FOR PURCHASE OF MA CHINERY WHICH IS A CAPITAL ASSET, EXCESS LIABILITY TOWARDS LOAN ON ACCOUNT OF DEVALUATION OF INDIAN RUPEE WAS A CAPITAL EXPEND ITURE. ON ACCOUNT OF THE FINDINGS OF ALL THESE JUDGMENTS IT I S QUITE CLEAR THAT ANY GAIN (EVEN IF NOTIONAL) ARISING ON ACCOUNT OF RESTATEMENT OF ECB LOANS FOR COMPLIANCE WITH AS 11, WOULD BE A CAPITAL RECEIPT BECAUSE THE LOAN WAS TAKEN FOR THE PURPOSES OF SETTING UP THE PLANT OF THE ASSESSEE COMPANY AND NOT FOR ITS R EVENUE EXPENDITURES. IT IS SEEN DURING THE ASSESSMENT PROC EEDINGS THE AO HIMSELF CONSIDERED THE UNREALIZED FOREIGN EXCHAN GE GAIN OF RS.6406165/- ON ACCOUNT OF RESTATEMENT OF ECB LOAN AS A CAPITAL RECEIPT. IN THE CIRCUMSTANCES, THE AO WAS REQUIRED TO REDUCE THE COST OF THE DECREASED LIABILITY FROM THE ACTUAL COS T OF THE ASSET, FOR VARIOUS ADMISSIBLE DEDUCTIONS AS PER THE ACT. HOWEV ER, HE COULD NOT INCLUDE THE FOREIGN EXCHANGE GAIN IN THE TOTAL INCOME OF THE ASSESSEE AND TAX THE SAME. IN THE CIRCUMSTANCES, TH E ADDITION MADE IN THIS REGARD IS DELETED. 7. WHEN WE EXAMINE THE FINDINGS OF LD. CIT (A) IN T HE LIGHT OF THE SETTLED PRINCIPLE OF LAW LAID DOWN BY HONBLE S UPREME COURT IN SUTLEJ COTTON MILLS AND CIT VS. TATA LOCOMOTIVE & E NGINEERING LTD. (SUPRA) RELIED UPON BY THE LD. CIT (A), THE RATIO OF WHICH IS WHEN THE FOREIGN CURRENCY WAS TO BE UTILIZED FOR TR ADING OR REVENUE PURPOSES THEN THE FOREIGN CURRENCY FLUCTUATION LOSS WOULD BE TREATED AS REVENUE LOSS BUT, IN CASE, THE AMOUNT WA S HELD AS A CAPITAL ASSET THEN THE LOSS WOULD BE TREATED AS CAP ITAL LOSS. IN THE INSTANT CASE, AO HIMSELF TREATED THE UNREALIZED FOR EIGN EXCHANGE GAIN OF RS.64,06,165/- ON ACCOUNT OF RESTATEMENT OF ECB LOAN AS A CAPITAL RECEIPT. AT THE SAME TIME, AO HAS NOT DISP UTED ACCOUNTING METHOD CONTINUOUSLY BEING FOLLOWED BY THE ASSESSEE. MOREOVER, IN WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA) CASE, THE HONBLE APEX COURT HELD THAT LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF ITA NO.2626/DEL./2016 5 FOREIGN EXCHANGE ITSELF AS ON DATE OF BALANCE SHEET IS AN ITEM OF EXPENDITURE U/S 37(1) OF THE ACT. SO, WE ARE OF TH E CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION B Y GIVING A DIRECTION TO THE AO THAT HE WAS REQUIRED TO REDUCE THE COST OF THE DECREASED LIABILITY FROM THE ACTUAL COST OF THE ASS ET FOR ADMISSIBLE DEDUCTION UNDER THE ACT AND THE AO WAS NOT EMPOWERE D TO INCLUDE THE FOREIGN EXCHANGE GAIN IN THE TOTAL INCOME OF TH E ASSESSEE AND TAXED THE SAME BECAUSE ANY GAIN ON ACCOUNT OF FOREI GN EXCHANGE ACQUIRED WAS CAPITAL RECEIPT AS THE LOAN WAS UNDISP UTEDLY TAKEN FOR THE PURPOSE OF SETTING UP THE PLANT BY THE ASSESSEE . MOREOVER, THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION U/S 80IC ON THE AMOUNT OF GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. S O, FINDING NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER PASS ED BY THE LD. CIT (A), PRESENT APPEAL FILED BY THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF JUNE, 2019. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH ) VICE PRESIDENT JUDICIAL MEMBER DATED THE 14 TH DAY OF JUNE, 2019 TS ITA NO.2626/DEL./2016 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), DEHRADUN. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.