Balaji Murlidhar Arakal, Solapur V. Income-tax Officer, Ward - 2(3), Solapur

ITA 2662/PUN/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5631 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 16-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH GAWLI
• Assessee Lawyers: P S SHINGTE
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE . , BEFORE SHRI D. KARUNAKARA RAO , AM . / ITA NO. 2662 /P U N/201 7 / ASSESSMENT YEAR : 20 12 - 13 BALAJI MURLIDHAR ARAKAL, 155/2A1, AKKALKOT ROAD, GANDHI NAGAR, SOLAPUR. PAN : AEBPA4354G . / APPELLANT VS. ITO, WARD - 2 ( 3 ) , SOLAPUR . . / RESPONDENT / APPELLANT BY : SHRI P. S. SHINGTE / RESPONDENT BY : SHRI RAJESH GAWLI / DATE OF HEARING : 01 . 11 .2018 / DATE OF PRONOUNCEMENT: 20 . 1 1 .201 8 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 7 , PUNE DATED 04.08.2017 FOR THE ASSESSMENT YEAR 20 12 - 13 . 2. THE EFFECTIVE GROUND RAISED BY THE ASSESSEE IS EXTRACTED HEREUNDER : - THE LEARNED HONBLE CIT(APPEALS) - 7, PUNE, ERRED, BOTH IN FACTS AND LAW, IN UPHOLD ING THE ACTION OF THE A.O. IN MAKING DISALLOWANCE OF RS.2,04,793/ - BY TREATING IT IS CAPITAL LOSS, WHICH IN FACT, WAS ALLOWABLE AS BUSINESS EXPENDITURE. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUS INESS OF MANUFACTURING OF CHADDARS, TOWELS AND OTHERS. THE ASSESSEE IN HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.90,000/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF ITA NO. 2662 /PUN /201 7 - 2 - THE ACT, THE ASSESSING OFFICER MADE ADDITION OF RS.2, 0 4,793/ - ON ACCOUNT OF BUSINESS LOSS (FOREIGN EXCHANGE DIFFERENCE ON INTEREST PAID ON THE LOAN). THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE TOOK LOAN OF RS.30,00,000/ - FROM THE LAXMI CO - OPERATIVE BANK LTD. ON 12.05.2011 AND 03.06.2011. THE SAID LOAN WA S TAKEN FOR IMPORT OF WEAVING MACHINERY FROM TURKEY. THE ASSESSEE PAID THE SAME TO THE SUPPLIER OF MACHINERY IN FOREIGN EXCHANGE. SUBSEQUENTLY, ON FINDING OF SOME TECHNICAL OBJECTIONS, THE PROPOSAL FOR IMPORT OF THE MACHINERY STANDS CANCELLED. CONSEQUEN TLY, THERE WAS CORRESPONDENCE BETWE EN THE ASSESSEE AND THE IMPORTER RELATING TO THE REFUND OF THE MONEY CONSEQUENT TO THE DECISION OF CANCELLATION OF THE ORDER FOR IMPORT OF THE MACHINERY. EVENTUALLY, THE SUPPLIERS REFUNDED THE AMOUNT AT THAT TIME WHEN TH E FOREIGN EXCHANGE IS NOT FAVOURABLE TO IND IAN RUPEES. THIS REFUND RESULTED INTO LOSS IN TERMS OF INR. THAT IS HOW THE ASSESSEE HAD TO FOOT THE LOSSES. FURTHER, ON RECEIPT OF THE REFUND FROM TURKEY BY 20 TH NOVEMBER, 2011, THE LOAN TAKEN FROM THE LAXMI C O - OPERATIVE BANK LTD. WAS SQUARED UP. THE BANK CHARGE D INTEREST FROM MAY, 2011 TO SIX MONTHS ON THE LOAN TAKEN BY THE ASSESSEE WHICH IS SOURCE FOR SUCH PAYMENT TO THE TURKEYS SUPPLIER IN FOREIGN EXCHANGE. THE INTEREST AMOUNT FOR THIS PERIOD OF RS.30,00, 000/ - WAS CLAIMED AS ALLOWABLE EXPENDITURE. THE ASSESSEE CLAIMED THESE TWO AMOUNTS ARE FOREIGN EXCHANGE ON ONE SIDE ON THE INTEREST INCOME PAID TO THE BANK ON THE OTHER AS THE ALLOWABLE BUSINESS EXPENDITURE OF THE ASSESSEE. THE ASSESSING OFFICER DID NOT ALLOW THE SAME BY HOLDING THAT THE SAME FOREIGN EXCHANGE IS OF CAPITAL IN NATURE. PER CONTRA , T HE ASSESSEE SUBMITTED THAT THESE AMOUNTS CONSTITUTE REVENUE EXPENDITURE. CONSIDERING THE FACT THAT THE CAPITAL TRANSACTION FOR IMPORT OF MACHINERY DID NOT MATE RIALIZE , T HE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ITA NO. 2662 /PUN /201 7 - 3 - 4 . AGGRIEVED WITH THE SAME, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE GROUNDS EXTRACTED ABOVE. 5 . BEFORE US, LD. COUNSEL FOR THE ASSESSEE NARRATED THE ABOVE FACTS O F THE CASE AND SUBMITTED THAT THE AMOUNT OF RS. 2,04,793/ - (RS.80,890/ - + RS.1,23,903/ - ) IS AN ALLOWABLE EXPENDITURE AS THIS AMOUNTS ARE INCURRED IN CONNECTION WITH THE TRANSACTION OF IMPORT OF MACHINERY. IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS INCL UDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF VASSANTRAM MEHTA & CO. (P.) LTD. VS. JCIT REPORTED IN 63 TAXMANN.COM 102. THIS CASE IS RELEVANT FOR RATIO THAT IN CASE WHERE THE ASSESSEE FORFEITED THE ADVANCES PAID IN CONNECTION WITH THE PRE - SHIPMENT PACKING CREDIT FACILITY, THE SAME CONSTITUTES ALLOWABLE AS BUSINESS EXPENDITURE, NO DISALLOWANCE U/S 36(1)(III) OF INTEREST PAID BY THE ASSESSEE ON AMOUNT RECEIVED IS CALLED FOR. FURTHER, THIS CASE IS RELEVANT FOR ANOTHER LEGAL PROPOSITION THAT WHETHER LOSS ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION REPORTED BY THE ASSESSEE IN CONNECTION WITH CANCELLATION OF A CONTRACT CONSTITUTES AN ALLOWABLE EXPENDITURE. HE ALSO RELIED ON ANOTHER DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SAOKA R DEVELOPERS PVT. LTD. VS. ITO VIDE ITA NO.1561/PN/2005, ORDER DATED 30.06.2008. FOR THE PROPOSITION IN FAVOUR OF THE ASSESSEE, HE ALSO RELIED ON ANOTHER DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ANJANI KUMAR CO. LTD. REPORTED IN 259 ITR 0114. LD. COUNSEL MENTIONED THAT IRRECOVERABLE ADVANCE PAYMENT MADE BY ASSESSEE FOR ACQUISITION OF A CAPITAL ASSET WHICH DID NOT MATERIALIZE IS ALLOWABLE AS BUSINESS LOSS . FURTHER, LD. COUNSEL FILED A WRITTEN SUBMISSION EXPLAINING THE ABOVE FACTS. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAGRAPHS OF THE WRITTEN SUBMISSION ARE EXTRACTED HEREUNDER : - ITA NO. 2662 /PUN /201 7 - 4 - THE ACTION OF LEARNED ASSESSING OFFICER IS NOT IN CONSENSUS WITH LEGAL PRINCIPLES IN THIS REGARDS. IT IS ADMITTED FACT THAT ASSESSEE HAS BOOKED A MACHINERY WITH FOREIGN SUPPLIER AND PAID CERTAIN AMOUNTS, DUE TO THE QUALITY ISSUE IT HAS CANCELLED THE ORDER AND AMOUNTS HAS BEEN REFUNDED THEREFORE ASSESSEE HAS NOT INCURRED ANY CAPITAL EXPENDITURE ON ASSET WHICH WILL GIVE HIM ANY ENDURING BENEFIT WHICH IS PRE - REQUISITE FOR SHOWING ANY CAPITAL ASSET. RATHER THE AMOUNT WHICH WAS INCURRED BY ASSESSEE ARE CLEAR REVENUE EXPENDITURE OR AT BASE IT CAN BE CALLED AS BUSINESS LOSS AS THE RELATABLE CAPITAL ASSET NEVER CAME INTO EXISTENCE. IN VIEW OF THIS FACT IT I S MOST HUMBLY SUBMITTED THAT THE ACTION OF LEARNED ASSESSING OFFICER IS INCORRECT ON FACTS AS WELL AS IN LAW RATER SINCE NO CAPITAL CAME INTO EXISTENCE SUCH IRRECOVERABLE EXPENDITURE ARE IN THE NATURE OF BUSINESS LOSS. THIS PROPOSITION IS SUPPORTED BY FOL LOWING JUDICIARY PROPOSITION. 1. DECISION HONBLE RAJASTHAN HIGH COURT IN CASE CIT VS. ANJANI KUMAR CO. LTD. (2003) 259 ITR 0114 WHEREIN IT IS CONCLUDE THAT (COPY ENCLOSED AS ANNEXURE NO.1). IRRECOVERABLE ADVANCE PAYMENT MADE BY ASSESSEE FOR ACQUISITION O F A CAPITAL ASSET WHICH DID NOT MATERIALIZE WAS ALLOWABLE AS BUSINESS LOSS. 2. DECISION OF HONBLE ITAT, PUNE IN CASE OF SAOKAR DEVELOPMENTS PVT. LTD. VS. ITO IN ITA NO.1561/PN/2005 WHEREIN IT IS CONCLUDE THAT (COPY ENCLOSED AS ANNEXURE NO.2). ENCLOSED AS ANNEXURE NO.2). WE HEREBY HOLD THAT THE ASSESSEE WAS ALREADY IN THE BUSINESS OF DEVELOPMENT AND IN THE COURSE OF THE SAID BUSINESS SUFFERED THE IMPUGNED LOSS. WE HEREBY DIRECT TO ALLOW THE CLAIM OF THE LOSS. RESULTANTLY, THE GROUND RAISED IS ALLOWED. APPEAL ALLOWED. 6 . ON THE OTHER HAND, LD. DR FOR THE REVENUE HEAVILY RELIED ON THE ORDER S OF THE ASSESSING OFFICER AND THE CIT(A). 7 . I HEARD BOTH THE SIDES ON THE ISSUE OF ALLOWING OF SUM OF RS.2,04,793/ - FOREX LOSS AND INTEREST EXPENDITURE AND ALSO CONSIDERED THE WRITTEN SUBMIS SION FILED BY THE ASSESSEE AS WELL AS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. I FIND THERE ARE TWO LIMBS OF THIS ISSUE, (I) RELATING TO THE ALLOWABILITY OF FOREIGN EXCHANGE LOSS AND (II) RELATING TO THE INTEREST PAID TO THE FINANCIAL INST ITUTION WHO GRANTED LOAN FOR IMPORT OF MACHINERY, WHICH IS STAND CANCELLED DUE TO SOME TECHNICAL REASONS. ON PERUSAL OF THE ABOVE DECISIONS, I FIND BOTH THE LIMBS OF THIS ISSUE ARE ITA NO. 2662 /PUN /201 7 - 5 - COVERED IN FAVOUR OF THE ASSESSEE BY THE SAID DECISIONS . CONSIDERING THE LEGAL PROPOSITION, WHICH IS ALREADY MENTIONED IN THE PRECEDING PARAGRAPHS, THE ISSUE RAISED IN THE GROUND OF APPEAL BY THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 20 TH D AY OF NOVEMBER , 2018 . SD/ - ( D. KARUNAKARA RAO ) / ACCOUNTANT MEMBER / PUNE ; DATED : 20 TH NOVEMBER , 2018 . SUJEET / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 2. / THE RESPONDENT; 3. THE CIT(A) - 7 , PUNE ; 4. THE CHIEF CIT, PUNE ; 5. , , - / DR SMC , ITAT, PUNE; 6. / GUARD FILE . // TRUE COPY // / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE