PIRAMAL GLASS LTD, MUMBAI V. PR CIT -7, MUMBAI

ITA 3194/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9130 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Assessee Lawyers: HARDIK NIRMAL ARS
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Capital receipt; Revenue expenditure
• Section: 143(3); 142(1); 115JB; 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3194/MUM/2016 ASSESSMENT YEAR: 2009 - 10 PIRAMAL GLASS LTD. (EARLIER KNOWN AS GUJARAT GLASS LIMITED) PIRAMAL TOWER, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI - 400013. VS. PR. COMMISSIONER OF INCOME TAX - 7, MUMBAI PAN NO. AABCG0093R APPELLANT RESPONDENT ASSESSEE BY : MR. S.E. DASTUR, SENIOR ADVOCATE MS. PRIYANKA JAIN & MR. HARDIK NIRMAL, ARS REVENUE BY : MR. A. MOHAN, CI T - DR DATE OF HEARING : 19 /09/2018 DATE OF PRONOUNCEMENT : 14/12/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 200 9 - 10 . THE APPEAL IS DIRECTED AGAINST THE ORDER U/S 263 OF THE INCOME TAX ACT 1961, (THE ACT) PASSED BY THE PR. COMMISSIONER OF INCOME TAX - 7 , MUMBAI [IN SHORT P R. CIT ] . PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 2 2. THE GROUNDS OF APPEAL READ AS UNDER: GROUND I - INVOKING PROVISIONS OF_SECTION 263 OF THE ACT 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, T HE LEARNED PR. CIT ERRED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT AND REVISING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 7(1), MUMBAI ( THE AO') U/S, 143(3) OF THE ACT DATED MAY 28, 2013 ('THE ORDER) ON THE ALLEGED GROUND THAT T HE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2. SHE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: (A) BOTH THE PRE - REQUISITES I.E. THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE ARE NECESSARY TO INVOKE THE PRO VISIONS OF SECTION 263 OF TH E AC T AND IF ANY ONE CONDITION IS NOT SATISFIED, SECTION 263 OF THE ACT CANNOT BE INVOKED; (B) IF THE AO HAS TAKEN A VIEW IN ACCORDANCE WITH JUDICIAL PRONOUNCEMENTS THOUGH NOT DISCUSSED EXPLICITLY IN THE ORDER, YET SUCH ORDER CANNOT BE REVISED U/S. 263 OF THE ACT. 3. THE APPELLANT PRAYS THAT IT BE HELD THAT THE ASSESSMENT ORDER PASSED BY THE AO IS NOT ERRONEOUS AND ACCORDINGLY THE ACTION OF THE PR. CIT IN INVOKING PRO VISIONS OF SECTION 263 OF THE AC T AND REVISING ASSESSMENT ORDER BE HELD AB - INITIO AND/ OR OTHE RWISE VOID AND BAD - IN - L AW. WITHOUT PREJUDICE TO GROUND I : GROUND II YEAR - END UNREALISED GAIN ON REVALUATION OF OUTSTANDING LOAN TO SUBSIDIARY COMPANIES AMOUNTING TO RS. 4 ,87,60, 355: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PR. CIT ERRED IN DIRECTING THE AO T O MODIFY THE ORDER AFTER MAKING AN ENQUIRY AS T O WHETHER THE OUTSTANDING AMOUNTS DUE FROM SUBSIDIARY COMPANIES INCLUDES AMOUNT DUE FROM SUBSIDIARIES TOWARDS TECHNICAL FEES AND THEREBY REVENUE IN NATURE. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 3 2. SHE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: (A) THE LARGE OUTSTANDING AMOUNTS DUE FROM SUBSIDIARY COMPANIES TOWARDS TECHNICAL FEE S AND UNREALIZED GAIN TO WARDS LOAN TO SUBSIDIAR Y COMPANIES WERE COMPLETELY DIFFERENT THINGS AND HAD NO CORRELATION; (B) SINCE THE UNREALIZED GAIN PERTAINED TO LOANS GIVEN TO SUBSIDIARY COMPANIES, THE SAID R ECEIPT WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TA X . 3. THE APPELLANT THEREFORE PRAYS THAT THE DIRECTION OF THE PR. CIT IN THIS REGARDS SHOULD BE QUASHED. WITHOUT PREJUDICE TO GROUND I : GROUND III - NET REALISED FOREIGN EXCHANGE LOSS_AMOUNTING TO RS.36,12,00,652 TOWARDS FORWARD COVER FOR TRADE DEBTORS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. THE PR. CI T ERRED IN DIRECTING THE AO TO MODIFY THE ORDER AFTER MAKING AN ENQUIRY WHETHER FORWARD COVER IS FOR REVENUE ITEMS AND WHETHER THE SAME IS TO COVER OUTST ANDING DEBTORS. 2 SHE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE LOSSES HAD ARISEN ONLY ON ACCOUNT OF ACTUAL SETTLEMENT OF FORWARD CONTRACTS FOR TRADE DEBTORS AND HENCE AN ALLOWABLE EXPENDITURE U/S. 37(1) OF THE ACT. 3 THE APPELLANT THEREFORE PRAYS THAT THE DIRECTIO N OF THE PR . CIT IN THIS REGARDS SHOULD BE QUASHED. WITHOUT PREJUDICE TO GROUND I : GROUND IV - NET REALISED AND UNREALISED FOREIGN EXCHANGE GAI N AMOUNTING TO RS.56,97,725 TOWARDS TRADE DEBTORS, CREDITORS AND PACKING CREDIT: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PR. CIT ERRED IN DIRECTING THE AO TO MODIFY THE ORDER FOR VERIFYING THE ALLOWABILITY OR OTHERWISE OF THE ABOVE AMOUNTS. 2. SHE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE LOSS/ GAIN ARISING ACTUALLY ON SETTLEMENT OR MARK - TO - MARKET AS AT THE YEAR END, IF FOR REVENUE ITEMS ARE ALLOWABLE AS LOSS OR TAXABLE RESPECTIVELY, PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 4 3. THE APPELLANT THEREFORE PRAYS THAT THE DIRECTION OF THE PT . CIT IN THIS REGARD SHOULD BE QUASHED. WITHOUT PREJUDICE TO GROUND I: GROUND V - EXCESS ADDITION TO PLANT & MACHINERY AMOUNTING TO RS.7,26,51,208/ - : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PR. CIT ERRED IN DIRECTING THE AO TO MODIFY THE ORDER MAKING AN ENQUIRY WHETHER GAIN/LOSS RELATED TO FIXED ASSETS AND W HETHER THE SAME WAS REALIZED OR NOT. (A) SHE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE APPELLANT ADDED TO THE COST OF VARIOUS ASSETS, THE ACTUAL LOSS ARISING AT THE TIME OF REPAYMENT OF LOAN TAKEN FOR ACQUISITION OF FIXED ASSETS WHICH WAS IN AC CORDANCE WITH SECTION 43A OF THE ACT. THE APPELLANT THEREFORE PRAYS THAT THE DIRECTION OF THE P R. CIT IN THIS REGARD SHOULD BE QUASHED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 29.09.2009 DECLARING LOSS OF RS.61,00,41,624/ - . THE ASSESSING OFFICER (AO) ARRIVED AT A LOSS OF RS.41,01,46,146/ - VIDE ORD ER U/S 143(3) R.W.S. 144C(13) DATED 28.05.2013. THEREAFTER, THE PR. CIT ISSUED A SHOW CAUSE NOTICE DATED 29.01.2016 ASKING THE ASSESSEE TO EXPLAIN THE FOLLOWING OMISSIONS AND COMMISSIONS WHICH RENDER THE ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE: (I) PERUSAL O F SCHEDULE 5 ATTACHED WITH THE BALANCE S HEET SHOWS ADDITION MADE TO PLANT AND MACHINERY WAS RS.32,68,10,000/ - WHEREAS SCHEDULE 1 OF FORM NO. 3CD SHOWS THAT THE TOTAL ADDITION MADE TO PLANT AND MACHINERY WAS RS.39,94,61,208/ - . THUS, AN ASSES ADDITION IN PLANT PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 5 AND MACHINERY AMOUNTING TO RS.7,26,51,208/ - HAS BEEN INCORRECTLY SHOWN BY THE ASSESSEE LEADING TO EXCESS CLAIM OF DEPRECIATION AND EXCESS CARRY FORWARD OF PLANT AND MACHINERY. (II) ON FURTHER PERUSAL OF RECORDS , IT WAS REVEALED THAT THE ASSESSEES CLAIM ON ACCOUNT OF PROVISION FOR EXCHANGE GAIN ON LOAN OF RS.4,87,60,355/ - HAS BEEN ALLOWED. THE OMISSION TO DISALLOW THE SAME HAS RESULTED IN IRREGULAR ALLOWANCE AND THEREBY UNDERSTATEMENT OF INCOME TO THAT EXTENT. (III) ON PERUSAL OF CASE RECORDS, IT WAS REVEALED THAT THERE WAS AN EXCESS DEBIT OF RS.30,67,39,533/ - AGAINST FOREIGN EXCHANGE LOSS DUE TO FLUCTUATION IN FOREIGN CURRENCY RATES. THE OMISSION TO DISALLOW THE SAME HAS RESULTED IN IRREGULAR ALLOWANCE AND THEREBY UNDE R ASSESSMENT OF INCOME TO THAT EXTENT. 3.1 IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE , THE ASSESSEE FILED A REPLY DATED 10.03.2016 WHICH HAS BEEN DISCUSSED BY THE PR. CIT IN THE IMPUGNED ORDER. THE PR. CIT, BEING NOT CONVINCED WITH THE SAID EXPLANATION OF THE ASSESSEE, SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO OBTAIN DETAILS OF THOSE AMOUNTS IN THE LIGHT OF OBSERVATIONS MADE BY HER IN THE IMPUGNED ORDER AND ASCERTAIN THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE , EXAMINE THE FACTS AND ARRIVE AT T HE INCOME IN ACCORDANCE WITH THE PROVISION OF LAW. 4. BEFORE US, THE LD. COUNSELS OF THE ASSESSEE SUBMIT THAT THE ABOVE THREE ASPECTS, ON WHICH THE PR. CIT HAS PASSED THE IMPUGNED ORDER PERTAIN TO FOREIGN EXCHANGE GAIN/LOSS APPEARING IN THE PROFIT AND LOS S PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 6 ACCOUNT. AS PER THE LD. COUNSELS, THE FOLLOWING IS A FACTUAL TABLE EXPLAINING THE AMOUNT CLAIMED AND OTHERWISE ALONG WITH THE PURPOSE OF THE SAME : TABLE 1 SR. NO. PARTICULARS REALIZED/ UNREALIZED GAIN/ (LOSS) AMOUNT (IN RS.) AMOUNT (IN RS.) 1. FOREIGN EXCHANGE ON FORWARD COVER FOR TRADE DEBTORS REALIZED (LOSS) (36,56,22,441) (36,12,00,652) GAIN 44,21,789 2. YEAR - END REVALUATION ON O/S LOAN GIVEN T O SUBSIDIARY COMPANIES UNREALIZED (LOSS) (78,72,645) 4,87,60,355 GAIN 5,66,33,000 3(A). FOREIGN EXCHANGE ON REPAYMENT OF IMPORT TRADE CREDITORS REALIZED (LOSS) (1,86,36,821) (77,96,538) GAIN 1,08,40,283 3(B). YEAR - END REVALUATION OF FOREIGN EXCHANGE ON IMPORT TRADE CREDITORS UNREALIZED (LOSS) (10,01,321) (6,39,313) GAIN 3,62,008 4(A). FOREIGN EXCHANGE ON EXPORT TRADE DEBTORS REALIZED (LOSS) (10,32,03,761) 8,46,83,492 GAIN 18,78,87,223 4(B). YEAR - END REVALUATION OF FOREIGN EXCHANGE ON EXPORT TRADE DEBTORS UNREALIZED (LOSS) (3,07,29,070) 9,90,39,131 PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 7 GAIN 12,97,68,201 5(A). FOREIGN EXCHANGE ON FOREIGN CURRENCY LOAN TAKEN FOR PURCHASE OF FIXED ASSETS REALIZED (LOSS) (10,03,90,740) (7,26,54,215) GAIN 2,77,36,525 UNREALIZED (LOSS) 5(B). YEAR - END REVALUATION OF FOREIGN EXCHANGE ON FOREIGN CURRENCY LOAN TAKEN FOR PURCHASE OF FIXED ASSETS (17,97,79,415) (16,53,46,251) GAIN 1,44,33,164 6(A). FOREIGN EXCHANGE FOR RE PAYMENT OF PACKING CREDIT LOAN REALIZED (LOSS) (17,35,57,382) (16,69,40,807) GAIN 66.16,575 6(B). YEAR - END REVALUATION OF FOREIGN EXCHANGE ON O/S PACKING CREDIT LOAN UNREALIZED (LOSS) (5,18,57,011) (26,48,240) GAIN 4,92,08,771 DEBITED TO PROFIT & LOSS ACCOUNT TOWARDS NET FOREIGN EXCHANGE LOSS ( 54,47,43,038) IT IS SUBMITTED BY THE LD. COUNSELS THAT VIDE LETTER DATED 03.01.2013, THE FOLLOWING DOCUMENTS WERE PROVIDED TO THE AO: (I) COMPUTATION OF TOTAL INCOME AND BOOK PROFITS U/S 115JB OF THE ACT; (II) AUDITED ACCOUNTS FOR THE YEAR ENDED 31.03.2009; (III) TAX AUDIT REPORT U/S 44AB OF THE ACT. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 8 THE LD. COUNSELS FURTHER SUBMIT THAT AMOUNTS STATED AT SR. NO. 5(A) AND 5(B) OF THE ABOVE TABLE TOTALLING TO RS.23,80,00,467/ - HAVE BEEN DISALLOWED BY THE ASSESSEE SUO MOTU IN THE COMPUTATION OF INCOME. ALSO THE AMOUNTS S TATED AT SR. NO. 2 OF THE TABLE ABOVE OF RS.4,87,60,355/ - HAS BEEN REDUCED BY THE ASSESSEE FROM ITS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION. 4.1 REGARDING THE ISSUE OF EXCESS ADDITIONS TO PLANT AND MACHINERY AMOUNTING TO RS.7 ,26,51,208/ - LEADING TO EXCESS CLAIM OF DEPRECIATION AS OBSERVED BY THE PR. CIT, I T IS STATED IT IS STATED BY THE LD. COUNSELS THAT SINCE THE AMOUNT WAS A LOSS, IT WAS ADDED TO THE COST OF VARIOUS ASSETS FOR WHICH LOAN WAS TAKEN AND PAYMENT WAS MADE. THE SAID TREATMENT WAS GIVEN IN ACCORDANCE WITH SECTION 43A OF THE ACT. IT IS FURTHER STATED THAT SINCE THE ABOVE AMOUNT PERTAINED TO NET REALIZED FOREIGN EXCHANGE LOSS AND SINCE IT WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE ADDED BACK THE SAME TO THE NET PROFIT IN THE COMPUTATION OF I NCOME I.E. DID NOT CLAIM THE SAID LOSS AS A REVENUE EXPENDITURE AND CAPITALIZED THE SA ME WHILE CALCULATING THE AMOUNT OF DEPRECIATION ALLOWABLE AS PER THE ACT. FURTHER, SINCE THE TAX AUDIT REPORT IN FORM 3CD DID NOT PROVIDE FOR ANY SPECIFIC PLACE TO MENTION THE SAID AMOUNT, THE ASSESSEE INCLUDED IT AS PART OF ITS ADDITIONS DURING THE YEAR A ND CLAIMED DEPRECIATION THEREON IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962. IT IS STATED BY THE LD. COUNSELS THAT ONLY AFTER THE VERIFICATION OF ALL THE ABOVE ASPECTS THAT THE AO HAS ACCEPTED THE ASSESSEES CLAIM. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 9 4. 2 REGARDING THE ISSUE OF PROVISION FOR EXCHANGE GAIN ON LOAN AMOUNTING TO RS.4,87,60,355/ - , THE LD. COUNSEL S SUBMIT THAT THE ABOVE AMOUNT REPRESENTS THE UNREALIZED FOREIGN EXCHANGE GAIN ON YEAR END REVALUATION OF WORKING CAPITAL LOAN GIVEN TO SUBSIDIARY CO MPANIES. RELYING ON THE DECISION IN SUTLEJ COTTON MILLS LTD. V. CIT 116 ITR 1 (SC), IT IS STATED THAT IF THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET, THEN THE GAIN OR LOSS ON SUCH CAPITAL ASSET WOULD BE OF A CAPITAL NATURE. SINCE THE FOREIGN CURRENCY I S HELD IN THE FORM OF A LOAN GIVEN TO SUBSIDIARY COMPANIES, THE RESULTING FOREIGN CURRENCY GAIN OUGHT TO BE CONSIDER ED AS CAPITAL IN NATURE AS DONE BY THE ASSESSEE. IT IS CLARIFIED BY THE LD. COUNSEL S THAT SINCE THE IMPUGNED AMOUNT WAS DEBITED TO THE PROFI T AND LOSS AMOUNT AND SINCE IT WAS A CAPITAL RECEIPT, THE ASSESSEE, IN ITS COMPUTATION OF INCOME REDUCED THE SAME FROM ITS BUSINESS INCOME. THUS IT IS STATED THAT NO FAULT CAN BE FOUND IN THE TREATMENT GIVEN BY THE ASSESSEE AS WELL AS THE ASSESSMENT ORDER U/S 143(3) PASSED BY THE AO. 4.3 REGARDING THE ISSUE OF EXCESS DEBIT OF RS.30,67,39,533/ - TOWARDS FOREIGN EXCHANGE LOSS DUE TO FLUCTUATION IN CURRENCY, THE LD. COUNSELS SUBMIT THAT FROM THE TABLE - 1 GIVEN ABOVE, THE AMOUNT IN QUESTION CAN BE ARRIVED AT A S FOLLOWS: TABLE 2 SR. NO. PARTICULARS AMOUNT (IN RS.) 1. DEBITED TO PROFIT & LOSS ACCOUNT TOWARDS NET FOREIGN EXCHANGE LOSS 54,47,43,038 2. LESS: (A) AMOUNTS STATED AT SR. NO. 5(A) - TOWARDS NET REALIZED FOREIGN EXCHANGE LOSS TOWARDS PURCHASE OF FIXED ASSETS (7,26,54,215) PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 10 (B) AMOUNTS EXCHANGE LOSS TOWARDS PURCHASE OF FIXED ASSETS (16,53,46,251) BALANCE 30,67,42,572 THE LD. COUNSEL S SUBMIT THAT OUT OF THE ABOVE BALANCE AMOUNT, AN AMOUNT OF RS.4,87,60,355/ - STATED AT SR. NO. 2 OF TABLE - 1 HAS ALREADY BEEN CONSIDERED. THE BALANCE AMOUNT OF RS.25,79,82,217/ - CAN BE BROADLY CLASSIFIED INTO TWO BROAD CATEGORIES AS REALIZED GAIN/LOSS AND UNREALIZED GAIN/LOSS. IT IS STATED THAT AS FAR AS THE NET REALIZED FOREIGN EXCHANGE LOSS STATED AT SR. NO. 1 OF TABLE - 1 TOWARDS FORWARD COVER FOR NET TRADE DEBTORS AMOUNTING TO RS.36,12,00,652/ - IS CONCERNED, THE SAME IS ALLOWABLE AS PER THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BADRIDAS GAURIDU (P.) LTD. 261 ITR 256 AND CIT V. VISHINDAS HOLARAM 229 TAXMAN 30 (BOM). REGARDING THE BALANCE AMOUNT OF RS.9,75,20,710/ - , IT IS STATED THAT THE SAME IS TOWARDS NET FOREIGN EXCHANGE LO SS [AMOUNT STATED THAT SR. NO. 3(A), 3(B), 4(A), 4(B), 6(A) AND 6(B)] OF TABLE - 1 CONSISTING OF REALIZED AND UNREALIZED FOREIGN EXCHANGE GAIN/LOSS TOWARDS TRADE CREDITORS, TRADE DEBTORS (WITHOUT FORWARD COVERED) AND PACKING CREDIT. IT IS STATED THAT THE SA ME OUGHT TO BE ALLOWABLE AS REVENUE EXPENDITURE AS PER THE DECISION OF THE HONBLE SUPREME COURT IN CIT V. WOODWARD GOVERNOR INDIA (P.) LTD . 312 ITR 254. 4.4 THE LD. COUNSELS FINALLY SUBMIT THAT IN ORDER TO INVOKE THE PROVISION OF SECTION 263 OF THE ACT, T HE ORDER PASSED BY THE AO MUST BE PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 11 ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN RESPECT OF THE THREE ISSUES RAISED BY THE PR. CIT , THE LD. COUNSELS REFERRED TO AND FILE D A COPY OF THE DECISION IN THE CASE OF PR. CIT V. SEAGRAM MANUFACTURING (P.) LTD . (2017) 78 TAXMANN.COM 293 (DELHI), CIT V. ELGI RUBBER PRODUCTS LTD . (1996) 219 ITR 109 (MADRAS), CIT V. FRIENDS & FRIENDS SHIPPING (P.) LTD. (2013) 35 TAXMANN.COM 553 (GUJARAT), CIT V. BADRIDAS GAURIDU (P.) LTD . (2004) 134 TAXMAN 376 (BOMBAY), C IT V. VISHINDAS HOLARAM (2014) 50 TAXMANN.COM 337 (BOMBAY), CIT V. WOODWARD GOVERNOR INDIA (P.) LTD. (2009) 179 TAXMAN 326 (SC). IN RESPECT OF THE VALIDITY OF THE PROCEEDINGS U/S 263, THE LD. COUNSELS REFERRED TO AND FILED A COPY OF THE DECISION IN JEWEL INDIA LTD. V. ACIT (2010) 325 ITR 92 (BOMBAY), PR. CIT V. DELHI AIRPORT METRO EXPRESS PVT. LTD. (ITA NO. 705/2017) DATED 05.09.2017 OF DELHI HIGH COURT, CIT V. GABRIEL INDIA LTD. (1993) 203 ITR 108 (BOM BAY ), CWT V. SMT. G. CHELLAMMAL (1999) 240 ITR 606 (M AD RAS ) , CIT V. O.P. SETH (1993) 201 ITR 635 (DELHI), GARDEN SILK MILLS LTD. V. CIT (1996) 221 ITR 861 (GUJARAT), CIT V. LEISURE WEAR EXPORTS LTD. (2012) 341 ITR 166 (DELHI), M/S INDUS BEST HOSPITALITY & REALTORS PVT. LTD. V. PR. CIT (ITA NO. 3125/MUM/2017 FOR AY 2012 - 13) OF ITAT I BENCH MUMBAI AND M/S AMIRA PURE FOODS PVT. LTD. V. PR. CIT (SA NO. 451/DEL/2017 & ITA NO. 3205/DEL/2017 FOR AY 2014 - 15) OF ITAT A BENCH, NEW DELHI. THUS THE LD. COUNSELS SUBMIT THAT THE ASSESSMENT ORDER PASSED BY THE AO IS N EITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, THE ORDER PASSED BY THE PR. CIT U/S 263 OF THE ACT SHOULD BE QUASHED. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 12 5. PER CONTRA THE LD. DR SUBMITS THAT VIDE ORDER U/S 263 DATED 23.03.2016, THE PR. CIT HAS ONLY DIRECTED THE AO TO OBTAIN THE DETAILS REGARDING (I) AN EXCESS ADDITION IN PLANT AND MACHINERY AMOUNTING TO RS.7,26,51,208/ - , (II) DEDUCTING PROVISION FOR EXCHANGE GAIN ON LOAN OF RS.4,87,60,355/ - FROM T HE COMPUTATION OF INCOME AND (III) EXCESS DEBIT OF RS.30,67,39,533/ - AGAINST FOREIGN EXCHANGE LOSS DUE TO FLUCTUATION IN FOREIGN CURRENCY RATES. THE LD. DR SUBMITS THAT THE PR. CIT HAS ONLY DIRECTED THE AO TO OBTAIN THE DETAILS ON THE ABOVE AMOUNTS AND T HEREAFTER ASCERTAIN THE CORRECTNESS OF THE CLAIM, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS IT IS STATED BY HIM THAT THE PR. CIT HAS NOT GONE INTO THE MERIT OF THE CASE AND ONLY THE ORDER OF THE AO HAS BEEN SET ASIDE. IT IS STATED BY HIM THAT THERE IS NO IMAGINARY FIGURE IN THE IMPUGNED ORDER AS ALLEGED BY THE LD. COUNSELS OF THE ASSESSEE. THE LD. DR THUS SUBMITS THAT THE ORDER PASSED BY THE PR. CIT BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVAN T MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. FIRSTLY, WE DEAL WITH AN EXCESS ADDITION IN PLANT AND MACHINERY AMOUNTING TO RS.7,26,54,215/ - . WE FIND THAT THE AMOUNT OF RS. (7,26,54,215/ - ) STATED AT SR. NO. 5(A) AND RS.(16,53,46,251 / - ) AT SR. NO. 5(B) IN THE TABLE - 1 HEREINABOVE TOTALLING TO RS.23,80,00,467/ - HAVE BEEN DISALLOWED BY THE ASSESSEE SUO MOTU IN THE COMPUTATION OF INCOME AVAILABLE. IT IS FOUND THAT AS STATED IN THE SAID TABLE AT SR. NO. 5(A), THE PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 13 AMOUNT IN QUESTION PERTA INS TO THE REALIZED FOREIGN EXCHANGE LOSS ON REPAYMENT OF LOAN UTILIZED TOWARDS PURCHASE OF FIXED ASSETS. SINCE THE NET AMOUNT WAS A LOSS, THE AMOUNT WAS ADDED TO THE COST OF VARIOUS ASSETS FOR WHICH LOAN WAS TAKEN AND PAYMENT WAS MADE. THE ASSESSEE IN THE PRESENT CASE HAS GIVEN THE SAID TREATMENT IN ACCORDANCE WITH SECTION 43A OF THE ACT. WE FIND THAT THE TREATMENT GIVEN BY THE ASSESSEE OF THE ABOVE AMOUNT IS AS PER THE PROVISIONS OF THE ACT. SECONDLY, WE DECIDE ON THE ISSUE OF PROVISION FOR EXCHANGE GAI N ON LOAN AMOUNTING TO RS.4,87,60,355/ - . THIS AMOUNT REPRESENTS THE UNREALIZED FOREIGN EXCHANGE GAIN ON YEAR END REVALUATION OF WORKING CAPITAL LOAN GIVEN TO SUBSIDIARY COMPANIES. AS PER THE DECISION IN SUTLEJ COTTON MILLS LTD . (SUPRA), IF THE FOREIGN CURR ENCY IS HELD AS A CAPITAL ASSET, THEN THE GAIN OR LOSS ON SUCH CAPITAL ASSET WOULD BE OF A CAPITAL NATURE. SINCE THE FOREIGN CURRENCY IS HELD IN THE FORM OF A LOAN GIVE TO SUBSIDIARY COMPANIES, THE RESULTING FOREIGN CURRENCY GAIN OUGHT TO BE CONSIDERED AS CAPITAL IN NATURE AS DONE BY THE ASSESSEE IN THE PRESENT CASE. SINCE THE IMPUGNED AMOUNT WAS DEBITED TO THE PROFIT AND LOSS AMOUNT AND SINCE THE AMOUNT WAS A CAPITAL RECEIPT, THE ASSESSEE HAS RIGHTLY REDUCED THE SAME IN ITS COMPUTATION OF I NCOME FROM ITS B USINESS INCOME. THIRDLY, WE COME TO THE ISSUE OF EXCESS DEBIT OF RS.30,67,39,533/ - TOWARDS FOREIGN EXCHANGE LOSS DUE TO FLUCTUATION IN CURRENCY. AS STATED EARLIER AN AMOUNT OF RS.4,87,60,355/ - HAS ALREADY BEEN CONSIDERED. THE BALANCE AMOUNT OF RS.25,79,82 ,217/ - CAN BE BROADLY CLASSIFIED INTO TWO BROAD CATEGORIES AS REALIZED GAIN/LOSS AND UNREALIZED GAIN/LOSS. AS REGARDS THE NET REALIZED FOREIGN EXCHANGE LOSS STATED AT SR. NO. 1 OF PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 14 TABLE - 1 TOWARDS FORWARD COVER FOR NET TRADE DEBTORS AMOUNTING TO RS.36,12, 00,652/ - IS CONCERNED, THE LD. COUNSELS OF THE ASSESSEE HAVE RIGHTLY PLACED RE LIANCE ON THE DECISION IN BADRIDAS GAURIDU (P.) LTD. (SUPRA). ALSO THE ASSESSEE HAS RIGHTLY CLAIMED THE BALANCE AMOUNT OF RS.9,75,20,710/ - AS NET FOREIGN EXCHANGE LOSS [AMOUNTS S TATED AT SR. NO. 3(A), 3(B), 4(A), 4(B), 6(A) AND 6(B) OF TABLE - 1 ]. IN WOODWARD G OVERNOR INDIA (P.) LTD. (SUPRA), IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT DIFFERENCE IN THE RATE OF DOLLAR VIS - A - VIS THE INDIAN RUPEE WOULD NEED TO BE CONSIDERED FOR REPORTING PURPOSES IN THE LIGHT OF AS - 11 REQUIREMENTS AND THAT ANY DIFFERENCE, GAIN OR LOSS, ARISING ON CONVERSION OF THE LIABILITY AT CLOSING RATE SHOULD BE RECOGNIZED IN THE PROFIT & LOSS ACCOUNT FOR THE REPORTING PERIOD. THUS, THE LOSS SO RECOGNISED IN THE PROFIT & LOSS ACCOUNT OUGHT TO BE ALLOWED AS AN ADMISSIBLE DEDUCTION U/S 37(1) OF THE ACT AS WELL. WE FIND THAT THE RATIO LAID DOWN IN THE ABOVE DECISION SQUARELY APPLIES TO THE CLAIM OF THE ASSESSEE IN RESPECT OF BALANCE AMOUNT OF RS.9,75,20,710/ - WHICH IS IN THE SHAPE OF NET FOREIGN EXCHANGE LOSS. IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 (SC), IT IS HELD BY THE HONBLE SUPREME COURT THAT THE COMMISSIONER HAS TO BE SATISFIED WITH THE TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THE CONDITIONS IS ABSENT, IF THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 15 IN THE INSTANT CASE, IN RESPONSE TO THE NOTICE U/S 142(1) AND 143(2) DATED 05.05.2011, THE ASSESSEE - COM PANY HAD FILED BEFORE THE AO THE DETAILS VIDE LETTER DATED 03.01.2013 AND 17.01.2013. ALSO THE ASSESSEE HAD FILED BEFORE THE TRANSFER PRICING OFFICER THE DETAILS VIDE LETTER DATED 18.02.2013. IN THE CASE OF GABRIEL INDIA LTD. (SUPRA), IT IS HELD BY THE HON BLE BOMBAY HIGH COURT THAT THE ITOS ORDER COULD NOT BE HELD TO THE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION. EXAMINED ON THE TOUCHSTONE OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. (SUPRA), WE FIND THAT THE ASSESSMENT ORDER PASSED BY THE AO IN THE INSTANT CASE IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST S OF THE REVENUE. ACCORDINGLY, WE SET ASIDE THE ORDER U/S 263 PASSED BY THE PR. CIT. 7. IN THE RESULT, THE APPEAL IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2018 SD/ - SD/ - (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 14/12/2018 RAHUL SHARMA, SR. P.S. PIRAMAL GLASS LTD. ITA NO. 3194/MUM/2016 16 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI