DCIT CORPORATE CIRCLE-2(1), CHENNAI V. Greenstar Fertilizers Ltd., CHENNAI

ITA 34/CHNY/2020

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9783 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K HEMALATHA; B RAMAKRISHNAN FCA
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Commercial expediency; Revised return; Revenue expenditure; Set aside
• Section: 37(1); 251; 13; 22; 145; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NOS.34 & 35 /CHNY/2020 ( / ASSESSMENT YEARS: 2012-13 & 2013-14) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(1), ROOM NO.511, WANAPARTHY BLOCK CHENNAI - 600 0 34. VS M/S. GREEN STAR FERTILIZERS LTD, NO.8, SPIC HOUSE, MOUNT ROAD, GUINDY, CHENNAI-600 032. PAN: AADCG 9451D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SURESH PERIASAMY, JCIT /RESPONDENT BY : MR. B.RAMAKRISHNAN,FCA & MS.K.HEMALATHA, CA /DATE OF HEARING : 08.12.2020 /DATE OF PRONOUNCEMENT : 31.12.2020 / O R D E R PER G.MANJUNATHA, AM: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST COMMON ORDER OF THE LEARNED CIT(APPEALS)-5, CHENNAI DATED 31.10.2019 AND PERTAIN TO ASSESSMENT YEARS 2012-13 AND 2013-14. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMO N, FOR THE SAKE OF CONVENIENCE, THEY WERE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS MORE OR LESS RAISED COMMON GR OUNDS OF APPEAL FOR THE SAID ASSESSMENT YEARS, THEREFORE, F OR THE SAKE OF 2 ITA NOS. 34 & 35/CHNY/2020 BREVITY, GROUNDS OF APPEAL FILED FOR THE ASSESSMENT YEAR 2012-13 IN ITA NO.34/CHNY/2020 ARE REPRODUCED AS UNDER:- THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 1. WHETHER THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,19,97,490/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF FOR EIGN EXCHANGE FLUCTUATION UNDER THE HEAD FINANCE COST. 1.1 WHETHER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CLT(A) FAILED TO APPRECIATE THE FACT THAT SINCE THE ECB LO AN WAS TAKEN BY THE ASSESSEE FOR ACQUISITION OF INDIGENOUS ASSETS, FOREIGN EXCHANGE FLUCTUATIONS LOSS ON THE SAME IS NOT ALLOWABLE AS I T IS NOT REVENUE IN NATURE. 1.2 WHETHER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THERE IS NO PROV ISION TO ADJUST AGAINST THE COST OF ASSET AND TO CLAIM THE FLUCTUAT ION LOSS ON PURCHASE OF INDIGENOUS ASSETS U/S 37 OF THE ACT. 2. WHETHER THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN DIRECTING THE AO TO VERIFY THE CLAIM AND A LLOW THE INTEREST EXPENSES OF RS.1,61,42,938/- WHICH WAS VOLUNTARILY OFFERED BY THE ASSESSEE IN ITS ORIGINAL RETURN INCOME. 2.1 WHETHER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) ERRED IN IGNORING THE DECISION OF SUPREME COURT IN THE CASE OF GOETZE (LNDIA)LTD. WHEREIN THE CLAIM OF THE ASSESSE IS NOT ALLOWABLE EVEN THOUGH THE ASSESSE HAD AMPLE TIME TO RECTIFY T HE MISTAKE BY TILING A REVISED RETURN AS PER THE PROVISIONS OF TH E ACT. THAT THE ORDER OF CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING. IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEARS) BE SET ASIDE AND THAT OF THE A SSESSING OFFICER BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PHOSPHATIC FERT ILIZERS LIKE DI AMMONIUM PHOSPHATE & CHEMICALS LIKE ALUMINUM FLUOR IDE FILED ITS 3 ITA NOS. 34 & 35/CHNY/2020 RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 29.11.2012 DECLARING TOTAL INCOME OF ` 16,83,96,000/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ACQUIRED PHOSPHATIC BUSINESS AS A GOING CONCERN ON SLUMP SALE BASIS U/S.50B OF THE A CT VIDE BUSINESS TRANSFER AGREEMENT DATED 19.10.2011 FROM M/S.SOUTHERN PETROCHEMICAL INDUSTRIES CORPORATION LTD. FOR THIS PURPOSE, THE ASSESSEE OBTAINED ECB LOAN IN FOREIGN CURRENCY AMOU NTING TO USD 15 MILLION (INR 74.53 CRORES) VIDE AGREEMENT DATE D 14.10.2011 FROM AM INTERNATIONAL HOLDING PTE LTD, SINGAPORE. THE ASSESSEE HAS RESTATED ITS LIABILITY TOWARDS ECB LOAN AS ON 31.03.2012 AND LOSS ON RESTATEMENT OF LIABILITY HAS BEEN DEBITED T O PROFIT & LOSS ACCOUNT AMOUNTING TO ` 2,19,97,490/- AS REVENUE IN NATURE AND CLAIMED DEDUCTION U/S.37(1) OF THE ACT. THE CASE WA S TAKEN UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER WAS OF THE OPINION THAT FOREX LOS S ON ACCOUNT OF RESTATEMENT OF ECB LOAN AS ON 31.03.2012 IS CAPITA L IN NATURE AND THE SAME CANNOT BE DEDUCTIBLE U/S. 37(1) OF THE ACT AND ACCORDINGLY, DISALLOWED LOSS CLAIMED TOWARDS ECB L OAN AND ADDED BACK TO THE TOTAL INCOME. SIMILARLY, THE ASSESSEE H AS MADE A CLAIM OF DEDUCTION TOWARDS INTEREST PAID ON FOREX LOAN A MOUNTING TO ` 1,61,42,938/- ON THE GROUND THAT SAME HAS BEEN INA DVERTENTLY 4 ITA NOS. 34 & 35/CHNY/2020 ADDED TO TOTAL INCOME, WHILE FILING REGULAR RETUR N OF INCOME. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E REGARDING DEDUCTION FOR INTEREST PAID ON FOREX LOAN ON THE GROUND THAT ASSESSEE HAS MADE FRESH CLAIM OF EXPENDITURE WITHOU T FILING REVISED RETURN AND HENCE, THE CLAIM MADE BY THE ASSESSEE F OR DEDUCTION OF INTEREST EXPENDITURE CANNOT BE ALLOWED. WHILE DOI NG SO, THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD., REPORTED IN 157 TAXMAN.COM 1 (SC). 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A) . BEF ORE THE LEARNED CIT(A), THE ASSESSEE HAS FILED DETAILED WRITTEN SUB MISSIONS WHICH HAS BEEN REPRODUCED AT PARA 8 ON PAGE 8 TO 11 OF L EARNED CIT(A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE A SSESSEE BEFORE THE LEARNED CIT(A) WAS THAT FOREX LOSS ON ECB LOAN TAKEN FOR PURCHASE OF ASSET IN INDIA IS NOT COVERED BY THE PR OVISIONS OF SECTION 43A OF THE ACT AND CONSEQUENTLY, THE SAME CANNOT B E TREATED AS CAPITAL IN NATURE AND ADDED BACK TO THE COST OF T HE ASSET. THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF CIT VS. TATA IRON & STEEL CO.LTD., (19 98) 231 ITR 285 5 ITA NOS. 34 & 35/CHNY/2020 (SC) AND THE DECISION OF ITAT., CHENNAI IN THE CA SE OF M/S.HYUNDAI MOTOR COMPANY LTD. VS. DCIT REPORTED IN (2017) 81 TAXMANN.COM 5. THE ASSESSEE HAS ALSO CHALLENGED REJ ECTION OF CLAIM MADE TOWARDS DEDUCTION OF INTEREST PAID ON FOREX LOAN AMOUNTING TO ` 1,61,42,938/- IN LIGHT OF DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD.(SU PRA) AND ARGUED THAT RESTRICTION IMPOSED BY THE HONBLE SUPREME COURT ON THE ASSESSING OFFICER IS NOT APPLICABLE TO THE APPELLAT E AUTHORITIES AND THE APPELLATE AUTHORITY CAN ADMIT ANY NEW CLAIM MA DE BY THE ASSESSE, IF THE FACTS REGARDING SAID CLAIM ARE AL READY ON RECORD. 5. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. TATA IRON & STEEL C O.LTD. (SUPRA) AND CIT VS. WOODWARD GOVERNOR INDIA P.LTD. REPORTED IN (2009) 312 ITR 254 HELD THAT IN THE ABSENCE OF APPLICABILITY O F SECTION 43A OF THE ACT TO THE FOREIGN EXCHANGE LOSS ARISING OUT OF FOREIGN CURRENCY LOANS FOR ACQUISITION OF INDIGENOUS ASSETS, THE CL AIM OF EXCHANGE FLUCTUATION LOSS IN REVENUE ACCOUNT BY ASSESSEE IS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES AND MANDATORY ACCOUNTING STANDARDS NOTIFIED BY ICAI AND ALSO IN CONFORMITY WITH 6 ITA NOS. 34 & 35/CHNY/2020 CBDT NOTIFICATION CANNOT BE FAULTED. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 12. THAT SAID IN THE ABOVE REFERRED JUDGMENT OF JUR ISDICTIONAL TRIBUNAL IN THE CASE MOTOR INDIA LTD (2017) 81 TAXM AN.COM 5 (CHENNAI-TRIB) WHICH FOLLOWED THE JUDGMENT OF THE CO-ORDINATE BENCH IN THE CASE OF COOPER CORPORATION PVT LTD IN THE BACKGROUND OF THE JUDGMENTS OF APEX COURT IN CIT VS TATA IRON AND STEEL GO- LTD (1998)22 ITR 285 AND CIT VS WOODW ORD GOVERNOR INDIA PA LTD 312 ITR 254(SC), IT IS CONCLU DED THAT IN THE ABSENCE OF APPLICABILITY OF SECTION 43A OF THE IT ACT 1961 TO THE FOREIGN EXCHANGE LOSS ARISN9 OUT OF FOREIGN CUR RENCY LOANS FOR ACQUISITION OF INDIGENOUS ASSETS AND IN THE ABS ENCE OF ANY OTHER PROVISION OF THE INCOME TAX ACT DEALING WITH THE ISSUE, CLAIM OF EXCHANGE FLUCTUATION LOSS IN REVENUE ACCOU NT BY THE ASSESSEE IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING PRACTICES AND MANDATORY ACCOUNTING STANDARDS NOTIFI ED BY THE ICAI AND ALSO IN CONFORMITY WITH CBDT NOTIFICATION CANNOT BE FAULTED. IT IS FURTHER RULED THAT THE LOSS BEING ON REVENUE ACCOUNT IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE IT ACT 1961, THIS JUDGMENT IS FOLLOWED BY THE JURISDICTIONAL TRIBUNAL IN THE CASE OF DCIT VS HYUNDAI MOTOR INDIA LTD IN ITS ORDER DATED 27.04.2017. THE FACTS OF THE APPELLANT BEING SIMILAR TO THE FAC TS OF THE ABOVE CITED CASES. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF HYUNDAI MOTO R INDIA LTD, I DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF FOREIGN EXCHANGE LOSS ARISEN OUT OF EXTERNAL COMMERCIAL BOR ROWINGS FOR ACQUISITION OF INDIGENOUS ASSETS AT RS.2,19,97,400/ - FOR THE A.Y 2012-13 AND RS.5,54,38,500/- FOR THE A.Y 2013-14 AS REVENUE EXPENDITURE ALLOWABLE U/S 37(1) OF THE IT ACT 1961. THE ADDITIONS MADE ON THIS COUNT STANDS DELETED IN THE RESPECTIVE ASSESSMENT YEARS. THE GROUNDS TAKEN ARE ALLOWED. 6. AS REGARDS ADDITIONAL CLAIM MADE TOWARDS DEDUC TION OF INTEREST EXPENSES ON FOREX LOAN, THE LEARNED CIT(A) NOTED THAT REQUEST MADE FOR DEDUCTION OF INTEREST EXPENSES I NADVERTENTLY ADDED WITH MEMO OF INCOME DO NOT CONSTITUTE A FRE SH CLAIM AND WHAT IS CLAIMED BY THE ASSESSEE IS NOTIFIED MISTAK E OF OFFERING 7 ITA NOS. 34 & 35/CHNY/2020 PARTICULAR INCOME TO TAX, EVEN THOUGH SAID INCOME I S NOT TAXABLE TO TAX AND HENCE, RESTRICTION IMPOSED BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. (SUPRA) SHALL NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE AND ACCORDINGLY, ADMITTED THE ADDITIONAL CLAIM MADE BY THE ASSESSEE BY FILING REVISED TOTAL INCOME AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM IN ACCORDANCE WITH LAW. THE RELEVANT FINDINGS OF THE LEARNED CIT(A) ARE AS UNDER:- 16. I HAVE CONSIDERED CAREFULLY THE OBSERVATION OF THE ASSESSING OFFICER AND THE CONTENTION O THE APPELLANT ON THIS ISSUE. AS RIGHTLY POINTED OUT BY THE APPELLANT THAT THE REQUEST MADE FOR DEDUCTION OF INTEREST EXPENSES INADVERTENTLY ADDED WITH THE M EMO OF INCOME AMOUNTING TO RS.1,61,42,938/- DO NOT CONSTITUTE A F RESH CLAIM. THE JURISDICTIONAL TRIBUNAL IN THE CASE OF R. NATARAJAN VS ACIT (2012) 19 TAXMANN.COM 182 (CHENNAI) (TM) HAS SAID THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD SHALL APPLY TO A CASE WHERE A FRESH CLAIM IS MADE FOR REL IEF EXEMPTION BUT NOT IN THE CASE WHORE ASSESSEE NOTIFIES THE AO OF A MISTAKE OF OFFERING A PARTICULAR INCOME TO TAX TWICE. HENCE, B RINGING TO THE NOTICE OF THE AO ABOUT A MISTAKE DURING THE ASSESSM ENT PROCEEDING SHOULD NOT BE CONSIDERED AS A FRESH CLAI M, AS THE INCOME IS ALREADY OFFERED TO TAX AND IS NOT SUBJECT TO TAX FOR THE AV IN THE FIRST PLACE. IT IS HELD THAT THE APPELLATE A UTHORITIES ARE EMPOWERED TO RECTIFY THE MISTAKE APPARENT FROM RECO RD. IT IS FURTHER HELD THAT THERE IS NO PROVISION IN THE ACT TO TAX THE INCOME MORE THAN ONCE. THE PARTICULAR INCOME CAN BE ASSESS ED ONLY FOR ONCE FOR A PARTICULAR AY. THE JURISDICTIONAL TRIBUN AL HAS ALSO OBSERVED THAT IT IS SETTLED PRINCIPLE OF JURISPRUDE NCE THAT DELIVERY OF JUSTICE SHOULD NOT BE FETTERED BY TECHNICALITIES. W HERE THERE IS GLARING INSTANCE OF INJUSTICE WRIT LARGE ON THE FAC T OF THE RECORDS IT IS THE BOUNDEN DUTY OF THE APPELLATE AUTHORITIES TO ST AND BY THE SIDE OF JUSTICE TO READDRESS THE GRIEVANCE OF A HAPLESS ASSESSEE. 17. ALSO. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS ABHINITHA FOUNDATION PVT LTD (2017) 396 ITR 251 (MI D) DATED 06.06.2017 HAS RULED THAT IF A CLAIM MADE BY THE AS SESSEE DOES NOT FORM PART OF THE ORIGINAL RETURN, IT COULD STIL L BE CONSIDERED IF THE RELEVANT MATERIAL WAS AVAILABLE ON RECORD, EITHER B Y THE APPELLATE AUTHORITIES BY THEMSELVES OR ON REMAND BY THE ASSES SING OFFICER . THE FAILURE TO ADVERT TO THE CLAIM IN THE ORIGINAL RETURN OR THE 8 ITA NOS. 34 & 35/CHNY/2020 REVISED RETURN CANNOT DENUDE THE APPELLATE AUTHORIT IES OF THEIR POWER TO CONSIDER THE CLAIM, IF THE RELEVANT MATERI ALS AVAILABLE ON RECORD, AND THE CLAIM IS OTHERWISE TENABLE IN LAW. THE APPELLANT HAS ALSO RELIED ON THE RULINGS OF SEVERAL TRIBUNALS AND COURTS TO BUTTRESS HIS POINT THAT THE SAME INCOME CANNOT BE T AXED TWICE AND THE DEDUCTION ASKED FOR IS NOT ANY EXEMPTION OR AN Y OTHER CONCESSION. 18. RELYING ON THE JUDGMENTS O JURISDICTIONAL TRIBU NAL AND JURISDICTIONAL HIGH COURT REFERRED TO IN ABOVE. L AM OF THE CONSIDERED VIEW THAT THE CLAIM OF DEDUCTION OF INTE REST EXPENSES INADVERTENTLY ADDED WITH THE MEMO OF INCOME TO ME T UNE OF ` 1,61,42,938/- FOR THE ASSESSMENT YEAR 2012-13 DO NO T CONSTITUTE ANY FRESH CLAIM IN TERMS OF THE JUDGEMENT OF GOETZE (INDIA) LTD. ACCORDINGLY I DIRECT THE ASSESSING OFFICER TO VERIF Y THE CLAIM MADE FOR ASSESSMENT YEAR 2012-13 AND IF FOUND CORRECT, A LLOW DEDUCTION IN ACCORDANCE WITH LAW. GROUND TAKEN IS ALLOWED FO R STATISTICAL PURPOSE. 7. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.1 TO 1.2 OF REVENUE APPEAL IS DISALLOWANCE OF E XPENDITURE ON FOREIGN EXCHANGE FLUCTUATION LOSS INCURRED FOR ACQU ISITION OF DOMESTIC ASSET. THE LEARNED AR FOR THE ASSESSEE, A T THE TIME OF HEARING, SUBMITTED THAT THIS ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT., CHENNAI IN T HE CASE OF M/S.HYUNDAI MOTOR COMPANY LTD. VS. DCIT (SUPRA), WH ERE THE TRIBUNAL BY FOLLOWING THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. TATA IRON & STEEL CO.LTD. (SUP RA) AND CIT VS. WOODWARD GOVERNOR INDIA P.LTD. (SUPRA) HAS HELD TH AT IN THE ABSENCE OF APPLICABILITY OF SECTION 43A OF THE ACT , LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF RESTATEMENT OF ECB LOAN OBTAINED FOR 9 ITA NOS. 34 & 35/CHNY/2020 PURCHASE OF ASSETS IN INDIA CANNOT BE TREATED AS CA PITAL IN NATURE AND FURTHER CANNOT BE DISALLOWED U/S.37(1) OF THE ACT. 8. THE LEARNED DR, ON THE OTHER HAND, FAIRLY ADMITT ED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSE, HOWEVER, STRONGLY SUPPORTING ORDER OF THE ASSESSING OFFICER ARGUED T HAT LIABILITY TOWARDS FOREX LOSS ON ECB LOAN CLAIMED BY THE ASSES SEE IS A CONTINGENT LIABILITY, WHICH WAS NOT ASCERTAINED AT THE END OF THE FINANCIAL YEAR AND HENCE, THE SAME CANNOT BE ALLOWE D AS REVENUE IN NATURE. 9. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIALS A VAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW. THE ISSUE OF DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS INCURRED FOR ACQUISITION OF DOMES TIC ASSET IS REVENUE IN NATURE DEDUCTIBLE U/S.37(1) OR NOT HAS BEEN CON SIDERED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S .HYUNDAI MOTOR COMPANY LTD. VS. DCIT (SUPRA), WHERE THE TRIBUNAL CONSIDERING RATIO LAID DOWN BY THE SUPREME COURT IN THE CASES O F CIT VS. TATA IRON & STEEL CO.LTD. (SUPRA) AND CIT VS. WOODWARD GOVERNOR INDIA P.LTD. (SUPRA) HELD THAT IN ABSENCE OF APPLICABILI TY OF SECTION 43A AND IN THE ABSENCE OF ANY OTHER PROVISION OF THE IN COME TAX ACT 10 ITA NOS. 34 & 35/CHNY/2020 DEALING WITH THE ISSUE OF FOREX LOSS, THE CLAIM OF EXCHANGE FLUCTUATION LOSS TAKEN BY THE ASSESSEE CANNOT BE TREATED AS CAP ITAL IN NATURE AND ADDED BACK TO COST OF ASSETS. THE RELEVANT FIND INGS OF THE TRIBUNAL ARE AS UNDER:- 71. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CO NCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS WORKED OUT AN UNREALIZED LOSS OF RS 49 ,63,29,426 ON PURCHASE OF ASSETS IN INDIA WITH THE ECB LOAN OF USD 100 MILLION FROM EXPORT IMPORT BANK OF KOREA. IT WAS CL AIM OF THE ASSESSEE THAT SECTION 43A APPLIED ONLY IN THE CONTE XT OF ASSETS ACQUIRED OUTSIDE INDIA, THIS LOSS MAY BE ALLOWED AS DEDUCTION UNDER SECTION 37(1). IT WAS ALSO POINTED OUT THAT I N THE ASSESSMENT YEARS 2008-09, 2010-11 AND 2011-12, THE INCOME OFFE RED TO TAX, ON THE SAME ACCOUNT, AMOUNTING TO RS 16.01 CRORES, RS 25.69 CRORES AND RS 78.79 CRORES RESPECTIVELY HAS BEEN AC CEPTED. THE ASSESSING OFFICER DID NOT AGREE. HE RELIED UPON HON BLE SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS WOODWARD GOV ERNOR I.T.A. NO. 739 AND 853 /CHNY/2014, 563 AND 614 /CHNY/2015, 842 AND 761/CHNY/16 AND CO 73/CHNY/16 ASSESSMENT YEARS: 200 9-10, 2010-11 AND 2011-12 PAGE 39 OF 55 INDIA PVT LTD [(2 009) 312 TR 254 (SC)] AND HELD THAT THE LOSS DUE TO FALL IN VAL UE OF FOREIGN EXCHANGE CANNOT BE ADJUSTED IN THE VALUE OF ASSET. HE WAS OF THE VIEW THAT THIS IS A NOTIONAL LOSS AND THAT TOO IN C APITAL FIELD. HE DECLINED TO ALLOW THE SAME. AGGRIEVED, ASSESSEE CAR RIED THE MATTER BEFORE THE DRP. IN ITS BRIEF ORDER, THE DRP HELD AS FOLLOW: WE DO NOT FIND ANYTHING WRONG IN AOS RELIANCE ON THE SUPREME COURT DECISION IN WOODWARD GOVERNORS CASE. MERELY RESTATEMENT OF THE FOREIGN CURRENCY LOAN CANNOT BE CONSIDERED A BUSINESS TRANSACTION RESULTING INTO LOSS, PARTICULARLY WHEN NO REPAYMENT WAS MADE DURING THE YEAR. THE TRANSACTION EVEN THEN WIL L BE CAPITAL IN NATURE. HENCE, WE REJECT THIS OBJECTION. 72. THE ASSESSING OFFICER THUS PROCEEDED TO MAKE T HE DISALLOWANCE OF RS 49,63,29,426 AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 73. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 11 ITA NOS. 34 & 35/CHNY/2020 74. WE FIND THAT THE ISSUE IN APPEAL IS SQUARELY CO VERED BY A COORDINATE BENCH DECISION IN THE CASE OF COOPER COR PORATION PVT LTD VS DCIT [(2016) 159 ITD 165 (PUNE)], WHEREIN TH E COORDINATE BENCH, IN A VERY WELL REASONED AND ANALYTICAL ORDER , HAS, INTER ALIA, OBSERVED AS FOLLOWS: 10. . THE CENTRAL ISSUE INVOLVED IN THE PRESENT CA SE IS WHETHER PROVISION FOR LOSS IN THE HANDS OF ASSESSEE ON ACCO UNT OF RESTATEMENT OF OUTSTANDING FOREIGN CURRENCY LOANS N ECESSITATED BY FLUCTUATION IN FOREIGN EXCHANGE WOULD BE ALLOWABLE AS BUSINESS LOSS OR A LOSS OF CAPITAL NATURE IN THE FACTS NARRA TED ABOVE. WHILE AS PER THE REVENUE, THE INCREASED LIABILITY DUE TO EXCHANGE FLUCTUATION CORRESPOND WITH CARRYING COSTS OF THE F IXED ASSETS AND THUS CAPITAL IN NATURE, THE ASSESSEE SEEKS TO SUBMI T THAT THE LOSS IS REVENUE IN NATURE. 10.1 ON CONSIDERATION OF FACTS, IT IS NOTICED THAT CERTAIN LOANS WERE HELD IN INDIAN CURRENCY IN THE EARLIER YEARS. THE A SSESSEE ENTERED INTO AN AGREEMENT WITH THE LENDERS TO CONVERT THE L OANS IN FOREIGN CURRENCY EQUIVALENTS TO TAKE ADVANTAGE OF THE LOWER RATE OF INTEREST RATE APPLICABLE TO LATER. THE ASSESSEE HAS FACTUALL Y DEMONSTRATED THAT THE CONVERSION INTO FOREIGN CURRENCY LOANS HAV E ACTUALLY BENEFITED THE ASSESSEE IN TERMS OF SAVING OF INTERE ST COSTS. WE ALSO NOTICE THAT THERE IS NO DISPUTE ON THE FACT TH AT THE ACQUISITION OF CAPITAL ASSETS / EXPANSION OF PROJECTS ETC. FROM THE TERM LOANS TAKEN ARE ALREADY COMPLETE AND THE ASSETS SO ACQUIR ED HAVE BEEN PUT TO USE. AS A CONSEQUENCE, THE LOSS OCCASIONED F ROM FOREIGN CURRENCY LOANS SO CONVERTED IS A POST FACTO EVENT S UBSEQUENT TO CAPITAL ASSETS HAVING BEEN PUT TO USE. WE SIMULTANE OUSLY NOTICE THAT THERE IS NO ADVERSE FINDING FROM THE REVENUE A BOUT THE CORRECTNESS OR COMPLETENESS OF ACCOUNTS OF ASSESSEE ON THE TOUCHSTONE OF SECTION 145 OF THE ACT. IN OTHER WORD S, THE PROFITS/GAINS FROM THE BUSINESS HAVE BEEN ADMITTEDL Y COMPUTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACT ICES AND GUIDELINES NOTIFIED. 10.2 THE ASSESSEE HAS INTER ALIA APPLIED AS-11 DEA LING WITH EFFECTS OF THE CHANGES IN THE EXCHANGE RATE TO RECO RD THE LOSSES INCURRED OWING TO FLUCTUATION IN THE FOREIGN EXCHAN GE. AS-11 ENJOINS REPORTING OF MONETARY ITEMS DENOMINATED FOR EIGN CURRENCY USING THE CLOSING RATE AT THE END OF THE ACCOUNTING YEAR. IT ALSO REQUIRES THAT ANY DIFFERENCE, LOSS OR GAIN, ARISING FROM SUCH CONVERSION OF THE LIABILITY AT THE CLOSING RATE SHO ULD BE RECOGNIZED IN THE PROFIT & LOSS ACCOUNT FOR THE REPORTING PERI OD. IN THE SAME VAIN, CBDT NOTIFICATION S.O. 892(E) DATED 31-03-201 5 REFERRED TO ALSO INTER ALIA DEALS WITH RECOGNITION OF EXCHANGE DIFFERENCES. THE NOTIFICATION ALSO SETS OUT THAT THE EXCHANGE DIFFER ENCES ARISING ON 12 ITA NOS. 34 & 35/CHNY/2020 FOREIGN CURRENCY TRANSACTIONS HAVE TO BE RECOGNIZED AS INCOME OR BUSINESS EXPENSE IN THE PERIOD IN WHICH THEY ARISE SUBJECT TO EXCEPTION AS SET OUT IN SECTION 43A OR RULE 115 OF THE INCOME TAX RULES, 1962 AS THE CASE MAY BE. 10.3 THE CONTENTION OF THE REVENUE THAT THE LOSS I S ONLY CONTINGENT AND NOTIONAL AND SUBSISTING HAS BEEN EXAMINED. AS P ER SECTION 209 OF THE COMPANIES ACT, 1956, THE ASSESSEE BEING A COMPANY IS REQUIRED TO COMPULSORILY FOLLOW MERCANTILE SYSTE M OF ACCOUNTING. S. 211 OF THE COMPANIES ACT, 1956 ALSO, IN TERMS, M ANDATES THAT ACCOUNTING STANDARDS AS APPLICABLE IS REQUIRED TO B E FOLLOWED WHILE DRAWING STATEMENT OF AFFAIRS. S. 145 OF THE I NCOME TAX ACT,1961 SIMILARLY CASTS OBLIGATION TO COMPUTE BUSI NESS INCOME EITHER BY CASH OR MERCANTILE SYSTEM OF ACCOUNTING. THUS, IN VIEW OF THE VARIOUS PROVISIONS OF THE COMPANIES ACT AND INC OME TAX ACT, IT WAS MANDATORY TO DRAW ACCOUNTS AS PER AS 11. THU S, IN OUR CONSIDERED VIEW, THE LOSS RECOGNIZED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS PER NOTIFIED ACCOUNTING STA NDARD AS 11 IS AN ACCRUED AND SUBSISTING LIABILITY AND NOT MERELY A CONTINGENT OR A HYPOTHETICAL LIABILITY. A LEGAL LIABILITY ALSO EXIS TS AGAINST THE ASSESSEE DUE TO FLUCTUATION AND LOSS ARISING THEREF ROM. ACTUAL PAYMENT OF LOSS IS AN IRRELEVANT CONSIDERATION TO A SCERTAIN THE POINT OF ACCRUAL OF LIABILITY. AS A COROLLARY, THE REVENUE HAS COMMITTED ERROR IN HOLDING THE LIABILITY AS NOTIONA L OR CONTINGENT. 10.4 COPIOUS REFERENCE HAS BEEN MADE TO S. 43A BY A SSESSEE AS WELL AS REVENUE. THUS, IT WOULD BE PERTINENT TO EXA MINE THE ISSUE ON THE TOUCHSTONE OF S. 43A OF THE ACT. SECTION 43A , TO THE EXTENT RELEVANT IN THE CONTEXT, READS AS UNDER: NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET IN AN Y PREVIOUS YEAR FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND, IN CONSEQUENCE OF A CHANGE IN TH E RATE OF EXCHANGE DURING ANY PREVIOUS YEAR AFTER THE ACQUISI TION OF SUCH ASSET, THERE IS AN INCREASE OR REDUCTION IN THE LIA BILITY OF THE ASSESSEE AS EXPRESSED IN INDIAN CURRENCY (AS COMPAR ED TO THE LIABILITY EXISTING AT THE TIME OF ACQUISITION OF TH E ASSET) AT THE TIME OF MAKING PAYMENT (A) TOWARDS THE WHOLE OR A PART OF THE COST OF THE ASSET; OR (B) TOWARDS REPAYMENT OF THE WHOLE OR A PART OF TH E MONEYS BORROWED BY HIM FROM ANY PERSON, DIRECTLY OR INDIRE CTLY, IN ANY FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF AC QUIRING THE ASSET ALONG WITH INTEREST, IF ANY, THE AMOUNT BY WHICH TH E LIABILITY AS AFORESAID IS SO INCREASED OR REDUCED DURING SUCH PR EVIOUS YEAR AND WHICH IS TAKEN INTO ACCOUNT AT THE TIME OF MAKI NG THE PAYMENT, 13 ITA NOS. 34 & 35/CHNY/2020 IRRESPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE, SHALL BE ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED FROM (I) THE ACTUAL COST OF THE ASSET AS DEFINED IN CLA USE (1) OF SECTION 43; OR (II) THE AMOUNT OF EXPENDITURE OF A CAPITAL NATURE REFERRED TO IN CLAUSE (IV) OF SUBSECTION (1) OF SECTION 35; OR (III) THE AMOUNT OF EXPENDITURE OF A CAPITAL NATUR E REFERRED TO IN SECTION 35A; OR (IV) THE AMOUNT OF EXPENDITURE OF A CAPITAL NATURE REFERRED TO IN CLAUSE (IX) OF SUBSECTION (1) OF SECTION 36; OR (V) THE COST OF ACQUISITION OF A CAPITAL ASSET (NOT BEING A CAPITAL ASSET REFERRED TO IN SECTION 50) FOR THE PURPOSES O F SECTION 48, AND THE AMOUNT ARRIVED AT AFTER SUCH ADDITION OR DEDUCT ION SHALL BE TAKEN TO BE THE ACTUAL COST OF THE ASSET OR THE AMO UNT OF EXPENDITURE OF A CAPITAL NATURE OR, AS THE CASE MAY BE, THE COST OF ACQUISITION OF THE CAPITAL ASSET AS AFORESAID: PROVIDED THAT WHERE AN ADDITION TO OR DEDUCTION FR OM THE ACTUAL COST OR EXPENDITURE OR COST OF ACQUISITION HAS BEEN MADE UNDER THIS SECTION, AS IT STOOD IMMEDIATELY BEFORE ITS SU BSTITUTION BY THE FINANCE ACT, 2002, ON ACCOUNT OF AN INCREASE OR RED UCTION IN THE LIABILITY AS AFORESAID, THE AMOUNT TO BE ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED UNDER THIS SECTION FROM THE ACTUAL COST OR EXPENDITURE OR COST OF ACQUISITION AT THE TIME OF M AKING THE PAYMENT SHALL BE SO ADJUSTED THAT THE TOTAL AMOUNT ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED FROM, THE ACTUAL COST OR EXPENDITURE OR COST OF ACQUISITION, IS EQUAL TO THE INCREASE OR REDUCTION IN THE AFORESAID LIABILITY TAKEN INTO ACCOUNT AT THE TIME OF MAKING PAYMENT A BARE READING OF THE AFORESAID PROVISION OF SECTIO N 43A, WHICH OPENS WITH A NON-OBSTANTE AND OVERRIDING CLAUSE, WO ULD SHOW THAT IT COMES INTO PLAY ONLY WHEN THE ASSETS ARE ACQUIRE D FROM A COUNTRY OUTSIDE INDIA AND DOES NOT APPLY TO ACQUISI TION OF INDIGENOUS ASSETS. ANOTHER NOTABLE FEATURE IS THAT S. 43A PROVIDES FOR MAKING CORRESPONDING ADJUSTMENTS TO THE COSTS O F ASSETS ONLY IN RELATION TO EXCHANGE GAINS/ LOSSES ARISING AT TH E TIME OF MAKING PAYMENT. IT THEREFORE DEALS WITH REALISED EXCHANGE GAIN/ LOSS. THE TREATMENT OF UNREALISED EXCHANGE GAIN/ LOSS IS NOT COVERED UNDER THE SCOPE OF S. 43A OF THE ACT. IT IS THUS APPARENT THAT SPECIAL PROVISION OF S. 43A HAS NO APPLICATION TO THE FACTS OF THE CASE. THEREFORE, THE ISSUE WHETHER, THE LOSS IS ON REVENU E ACCOUNT OR A CAPITAL ONE IS REQUIRED TO BE TESTED IN THE LIGHT O F GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, PRONOUNCEMENTS AND GUIDELINES ETC. 14 ITA NOS. 34 & 35/CHNY/2020 10.5 BEFORE WE DELINEATE ON THE ALLOWABILITY OF LOS S BASED ON GENERALLY ACCEPTED ACCOUNTANCY PRINCIPLES, IT MAY B E PERTINENT TO EXAMINE WHETHER THE INCREASED LIABILITY DUE TO FLUC TUATION LOSS CAN BE ADDED TO THE CARRYING COSTS OF CORRESPONDING CAP ITAL ASSETS WITH REFERENCE TO S. 43(1) OF THE ACT. SECTION 43(1) DEF INES THE EXPRESSION ACTUAL COST. AS PER S. 43(1), ACTUAL C OST MEANS ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COSTS AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. SEVERAL EXPLANATIONS HAVE BEEN APPENDED TO S. 43(1). HOWEVER, THE SECTION NOWHERE SPECIFIES THAT ANY GAI N OR LOSS ON FOREIGN CURRENCY LOAN ACQUIRED FOR PURCHASE OF INDI GENOUS ASSETS WILL HAVE TO BE REDUCED OR ADDED TO THE COSTS OF TH E ASSETS. THUS, VIEWED FROM THIS PERSPECTIVE ALSO, SUCH INCREASED L IABILITY CANNOT BE BRACKETED WITH COST OF ACQUISITION OF CAPITAL AS SETS SAVE AND EXCEPT IN TERMS OF OVERRIDING PROVISIONS OF S. 43A OF THE ACT. 10.6 WE ALSO SIMULTANEOUSLY NOTE HERE THAT THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. TATA IRON AND STEEL CO . LTD. (1998) 22 ITR 285 HELD THAT COST OF AN ASSET AND COST OF RAIS ING MONEY FOR PURCHASE OF ASSET ARE TWO DIFFERENT AND INDEPENDENT TRANSACTIONS. THUS, EVENTS SUBSEQUENT TO ACQUISITION OF ASSETS CA NNOT CHANGE PRICE PAID FOR IT. THEREFORE, FLUCTUATIONS IN FOREI GN EXCHANGE RATE WHILE REPAYING INSTALLMENTS OF FOREIGN LOAN RAISED TO ACQUIRE ASSET CANNOT ALTER ACTUAL COST OF ASSETS. THE RELEVANT OP ERATIVE PARA IS REPRODUCED HEREUNDER. COMING TO THE QUESTION RAISED, WE FIND IT DIFFICUL T TO FOLLOW HOW THE MANNER OF REPAYMENT OF LOAN CAN AFFECT THE COST OF THE ASSETS ACQUIRED BY THE ASSESSEE. WHAT IS THE ACTUAL COST MUST DEPEND ON THE AMOUNT P AID BY THE ASSESSEE TO ACQUIRE THE ASSET. THE AMOUNT MAY HAVE BEEN BORROWED BY THE ASSESSEE, BUT EVEN IF THE ASSESSEE DID NOT REPAY THE LOAN IT WILL NOT ALTER THE COST OF THE ASSET. I F THE BORROWER DEFAULTS IN REPAYMENT OF A PART OF THE LOAN, THE CO ST OF THE ASSET WILL NOT CHANGE. WHAT HAS TO BE BORNE IN MIND IS TH AT THE COST OF AN ASSET AND THE COST OF RAISING MONEY FOR PURCHASE OF THE ASSET ARE TWO DIFFERENT AND INDEPENDENT TRANSACTIONS. EVEN IF AN ASSET IS PURCHASED WITH NON-REPAYABLE SUBSIDY RECEIVED FROM THE GOVERNMENT, THE COST OF THE ASSET WILL BE THE PRICE PAID BY THE ASSESSEE FOR ACQUIRING THE ASSET. IN THE INSTANT CA SE, THE ALLEGATION IS THAT AT THE TIME OF REPAYMENT OF LOAN, THERE WAS A FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS A RESULT OF WHICH, THE ASSESSEE HAD TO REPAY A MUCH LESSER AMOUNT THAN HE WOULD HAV E OTHERWISE PAID. IN OUR JUDGMENT, THIS IS NOT A FACTOR WHICH C AN ALTER THE COST INCURRED BY THE ASSESSEE FOR PURCHASE OF THE ASSET. THE ASSESSEE MAY HAVE RAISED THE FUNDS TO PURCHASE THE ASSET BY BORROWING BUT 15 ITA NOS. 34 & 35/CHNY/2020 WHAT THE ASSESSEE HAS PAID FOR IT, IS THE PRICE OF THE ASSET. THAT PRICE CANNOT CHANGE BY ANY EVENT SUBSEQUENT TO THE ACQUISITION OF THE ASSET. IN OUR JUDGMENT, THE MANNER OR MODE OF R EPAYMENT OF THE LOAN HAS NOTHING TO DO WITH THE COST OF AN ASSE T ACQUIRED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS. WE HO LD THAT THE QUESTIONS WERE RIGHTLY ANSWERED BY THE HIGH COURT. THE APPEALS ARE DISMISSED. THERE WILL BE NO ORDER AS TO COSTS. THUS, IT IS EVIDENT THE VARIATION IN THE LOAN AMOUN T HAS NO BEARING ON THE COST OF THE ASSET AS THE LOAN IS A DISTINCT AND INDEPENDENT TRANSACTION AS IN COMPARISON WITH ACQUISITION OF AS SETS OUT OF SAID LOAN AMOUNT BORROWED. ACTUAL COST OF THE CORRESPOND ING FIXED ASSET ACQUIRED EARLIER BY UTILIZING THE AFORESAID L OAN WILL NOT UNDERGO ANY CHANGE OWING TO SUCH FLUCTUATION. 10.7 THE ISSUE IS ALSO TESTED IN THE LIGHT OF PROVI SION OF S. 36(1)(III) GOVERNING DEDUCTION OF INTEREST COSTS ON BORROWALS. AS STATED EARLIER, MANNER OF UTILIZATION OF LOAN AMOUNT HAS N OTHING TO DO WITH ALLOWABILITY OF ANY EXPENDITURE IN CONNECTION WITH LOAN REPAYMENT. BOTH ARE INDEPENDENT AND DISTINCT TRANSACTIONS IN N ATURE. SIMILAR ANALOGY CAN BE DRAWN FROM S. 36(1)(III) OF THE ACT WHICH ALSO REINFORCES THAT UTILIZATION OF LOAN FOR CAPITAL ACC OUNT OR REVENUE ACCOUNT PURPOSE HAS NOTHING TO DO WITH ALLOWABLITY OF CORRESPONDING INTEREST EXPENDITURE. A PROVISO INSER TED THERETO BY FINANCE ACT, 2003, ALSO PROHIBITS CLAIM OF INTEREST EXPENDITURE IN REVENUE ACCOUNT ONLY UPTO THE DATE ON WHICH CAPITAL ASSET IS PUT TO USE. ONCE THE CAPITAL ASSET IS PUT TO USE, THE INTE REST EXPENDITURE ON MONEY BORROWED FOR ACQUISITION OF CAPITAL ASSET IS ALSO TREATED AS REVENUE EXPENDITURE. AS ALSO NOTED, S. 43A SPECI FICALLY AND CATEGORICALLY CALLS FOR ADJUSTMENTS IN COST OF ASSE TS FOR LOSS OR GAIN ARISING OUT OF FOREIGN CURRENCY FLUCTUATIONS IN RES PECT OF FUNDS BORROWED IN FOREIGN CURRENCY FOR ACQUISITION OF FOR EIGN ASSETS. HOWEVER, THE SAME RATIONALE OF A DEEMING PROVISION OF S. 43A CANNOT BE APPLIED TO LOSS OR GAIN ARISING FROM FORE IGN CURRENCY LOSS UTILIZED FOR PURCHASE OF INDIGENOUS ASSETS. NEEDLES S TO SAY, IMPUGNED CURRENCY FLUCTUATION LOSS HAS EMANATED FRO M FOREIGN CURRENCY I LOANS. BESIDES AS-11, THE CLAIM OF EXCHA NGE FLUCTUATION LOSS AS REVENUE ACCOUNT IS ALSO FOUNDED ON THE ARGU MENT THAT THE AFORESAID ACTION WAS TAKEN TO SAVE INTEREST COSTS A ND CONSEQUENTLY TO AUGMENT THE PROFITABILITY OR REDUCE REVENUE LOSSES OF THE ASSESSEE. THE IMPUGNED FLUCTUATION LOSS THER EFORE HAS A DIRECT NEXUS TO THE SAVING IN INTEREST COSTS WITHOU T BRINGING ANY NEW CAPITAL ASSET INTO EXISTENCE. THUS, THE BUSINES S EXIGENCIES ARE IMPLICIT AS WELL EXPLICIT IN THE ACTION OF THE ASSESSEE. THE ARGUMENT THAT THE ACT OF CONVERSION HAS SERVED A HE DGING MECHANISM AGAINST REVENUE RECEIPTS FROM EXPORT ALSO PORTRAYS COMMERCIAL EXPEDIENCY. THUS, WE ARE OF THE OPINION THAT THE PLEA 16 ITA NOS. 34 & 35/CHNY/2020 OF THE ASSESSEE FOR CLAIM OF EXPENDITURE IS ATTRIBU TABLE TO REVENUE ACCOUNT HAS CONSIDERABLE MERITS. 10.8 SECTION 145 OF THE INCOME TAX ACT DEALS WITH M ETHOD OF ACCOUNTING AND STATES THAT BUSINESS INCOME INTER-AL IA HAS TO BE COMPUTED IN ACCORDANCE WITH CASH OR MERCANTILE SYST EM OF ACCOUNTING. SUB-SECTION (2) THEREOF AUTHORIZES THE CENTRAL GOVERNMENT TO NOTIFY ACCOUNTING STANDARDS TO BE FOL LOWED FOR DETERMINATION OF BUSINESS INCOME. SECTION 211 OF TH E COMPANIES ACT ALSO SIMILARLY CASTS A DUTY ON A COMPANY TO GIV E A TRUE AND FAIR VIEW OF THE PROFIT AND LOSS OF THE COMPANY FOR THE FINANCIAL YEAR. IT ALSO REQUIRES THE COMPANY TO ADHERE THE ACCOUNTING STANDARDS FOR PREPARATION OF PROFIT IN THE PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET. A CONJOINT READING OF SECTION 145 OF THE ACT AND SECTION 211 OF THE COMPANIES ACT LEAVES NO ROOM FOR DOUBT THAT THE ASSESSEE IS OBLIGED TO FOLLOW THE ACCOUNTING STANDARDS PRESC RIBED TO DETERMINE BUSINESS INCOME UNDER THE HEAD BUSINESS OR PROFESSION. WE NOTICE THAT THE HONBLE SUPREME COU RT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA) HAS OBS ERVED THAT AS-11 IS MANDATORY IN NATURE. IN THE LIGHT OF OBSER VATIONS MADE IN WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA), WE ARE OF THE VIEW THAT LOSS ARISING ON FOREIGN EXCHANGE FLUCTUATION LOSS H AS BEEN RIGHTLY ACCOUNTED FOR AS A REVENUE EXPENSE IN THE PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH ACCOUNTING FIAT OF AS-11. 10.9 WE FIND THAT THE DECISION IN THE CASE OF SUTL EJ COTTON MILLS LTD. (SUPRA) RELIED UPON BY THE LD. DEPARTMENTAL RE PRESENTATIVE IS OF NO ASSISTANCE TO THE REVENUE. THE HONBLE SUPREM E COURT THEREIN STATED THE PRINCIPLE OF LAW THAT WHERE ANY PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF DEPRECIATION IN FOREIGN CURRENCY HELD BY HIM ON CONVERSION FROM ANOTHER CUR RENCY, SUCH PROFIT AND LOSS WOULD ORDINARY BE TRADING LOSS IF T HE FOREIGN CURRENCY HELD BY THE ASSESSEE ON REVENUE ACCOUNT AS TRADING ASSET OR AS A PART OF CIRCULATING CAPITAL EMBARGO I N BUSINESS. HOWEVER, IF THE FOREIGN CURRENCY IS HELD AS A CAPIT AL ASSET, THE LOSS SHOULD BE CAPITAL IN NATURE. THE AFORESAID PRINCIPL E OF LAW IS REQUIRED TO BE APPLIED TO THE FACTS OF CASE TO DETE RMINE WHETHER THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REV ENUE ACCOUNT OR AS A PART OF CIRCULATING CAPITAL. IN THE PRESENT CASE, FLUCTUATION LOSS INFLICTED UPON THE ASSESSEE BEARS NO NEXUS OR RELATION TO THE ACQUISITION TO THE ASSETS. THE ACTION OF THE ASSESS EE IS TIED UP TO ITS UNDERLYING OBJECTIVE I.E. SAVING IN INTEREST CO STS, HEDGING ITS REVENUE RECEIPTS ETC. WHICH ARE UNDOUBTEDLY ON I.T. A. NO. 739 AND 853 /CHNY/2014, 563 AND 614 /CHNY/2015, 842 AND 761 /CHNY/16 AND CO 73/CHNY/16 ASSESSMENT YEARS: 2009-10, 2010-1 1 AND 2011-12 PAGE 45 OF 55 REVENUE ACCOUNT. THUS, THE LO SS GENERATED IN IMPUGNED ACTION BEARS THE CHARACTER OF REVENUE E XPENDITURE. SIMILARLY, DECISION OF THE APEX COURT IN THE CASE O F TATA IRON AND 17 ITA NOS. 34 & 35/CHNY/2020 STEEL CO. (SUPRA) ALSO WEIGHS IN FAVOUR OF THE ASSE SSEE. WE ALSO NOTE THAT RELIANCE PLACED BY THE CIT(A) ON ELECON E NGINEERING CO. LTD. (SUPRA) IS MISPLACED. THE DECISION CONCERNS AP PLICABILITY OF S. 43A IN THE FACTS OF THAT CASE AND THUS CLEARLY DIST INGUISHABLE. 11. FOR THE AFORESAID REASONS, IN THE ABSENCE OF AP PLICABILITY OF SECTION 43A OF THE ACT TO THE FACTS OF THE CASE AND IN THE ABSENCE OF ANY OTHER PROVISION OF THE INCOME TAX ACT DEALIN G WITH THE ISSUE, CLAIM OF EXCHANGE FLUCTUATION LOSS IN REVENU E ACCOUNT BY THE ASSESSEE IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES AND MANDATORY ACCOUNTING STANDARDS NOTIFI ED BY THE ICAI AND ALSO IN CONFORMITY WITH CBDT NOTIFICATION CANNO T BE FAULTED. NO INCONSISTENCY WITH ANY PROVISION OF ACT OR WITH ANY ACCOUNTING PRACTICES HAS BEEN BROUGHT TO OUR NOTICE. OTHERWISE ALSO, IN THE LIGHT OF FACT THAT THE CONVERSION IN FOREIGN CURREN CY LOANS WHICH LED TO IMPUGNED LOSS, WERE DICTATED BY REVENUE CONSIDER ATIONS TOWARDS SAVING INTEREST COSTS ETC. WE HAVE NO HESIT ATION IN COMING TO THE CONCLUSION THAT LOSS BEING ON REVENUE ACCOUN T IS AN ALLOWABLE EXPENDITURE UNDER S. 37(1) OF THE ACT. 75. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DELETE THI S DISALLOWANCE OF RS . 49,63,29,426/-. 10. IN THIS VIEW OF THE MATTER AND BY RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF M/S.HY UNDAI MOTOR COMPANY LTD. VS. DCIT (SUPRA), WHICH IN TURN FOLLOW ED THE DECISION OF M/S. COOPER CORPORATION VS. CIT AND ALSO BY FOLL OWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. TATA IRON & STEEL CO.LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LEARNED CI T(A) THAT IN ABSENCE OF APPLICABILITY OF SECTION 43A OF THE ACT, LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXCHANGE FLUCTUATION LOS S ON ECB LOAN 18 ITA NOS. 34 & 35/CHNY/2020 AVAILED FOR ACQUISITION OF INDIGENOUS ASSETS REVE NUE IN NATURE DEDUCTIBLE U/S.37(1) OF THE ACT CANNOT BE CONSIDER ED AS CAPITAL IN NATURE AND ADDED BACK TO THE COST OF ASSETS. HENCE , WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LEARNED CIT(A) AND RE JECT THE GROUNDS TAKEN BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS. 11. THE NEXT ISSUE RAISED BY THE REVENUE IN GROU ND NOS.2 TO 2.1 OF THE REVENUE APPEAL IS WITH REGARD TO DISALLOWAN CE OF DEDUCTION AGAINST INTEREST EXPENSES WHICH WAS VOLUNTARILY A DDED IN THE STATEMENT OF TOTAL INCOME. THE FACTS WITH REGARD TO IMPUGNED DISPUTE ARE THAT THE ASSESSEE HAS INADVERTENTLY ADD ED A SUM OF ` 1,61,42,938/- BEING INTEREST EXPENDITURE PAID TOWA RDS FOREIGN CURRENCY LOAN. THE SAID MISTAKE WAS BROUGHT TO TH E NOTICE OF THE ASSESSING OFFICER VIDE LETTER DATED 02.12.2015 DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS AND BY FILING THE REVISED ME MO OF INCOME. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE AS SESSEE BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF M/S. GOETZ (INDIA) LTD VS. CIT (SUPRA) AND HELD THAT IN THE ABSENCE OF REVISED RETURN, THE ASSESSING OFFICER IS NOT EMP OWERED TO ENTERTAIN FRESH CLAIM MADE TOWARDS DEDUCTION OF IN TEREST EXPENDITURE. THE LEARNED CIT(A), ON APPEAL ADMITTED THE ADDITIONAL 19 ITA NOS. 34 & 35/CHNY/2020 CLAIM MADE BY THE ASSESSEE BY FOLLOWING THE DECISIO N OF ITAT., CHENNAI IN THE CASE OF R. NATARAJAN VS ACIT (2012) 19 TAXMANN.COM 182 AND REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND TO DECIDE IN ACCORDANCE WITH LAW. 12. THE LEARNED DR SUBMITTED THAT LEARNED CIT(A ) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE CLAI M AND ALLOW INTEREST EXPENDITURE WHICH WAS VOLUNTARILY OFFERED BY THE AS SESSEE IN ITS ORIGINAL RETURN OF INCOME AS NOT ALLOWABLE DEDUCTI ON. THE LEARNED D.R FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN IGNORING THE DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF M/S. GOETZ (INDIA) LTD VS. CIT (SUPRA), WHERE IT WAS HEL D THAT CLAIM OF ASSESSEE IS NOT ALLOWABLE UNLESS SUCH CLAIM IS MADE BY FILING REVISED RETURN AS PER THE PROVISIONS OF THE ACT. 13. THE LEARNED A.R FOR THE ASSESSEE SUPPORTING T HE ORDER OF THE LEARNED CIT(A) SUBMITTED THAT CLAIM MADE BY THE ASS ESSEE BY FILING REVISED MEMO OF INCOME IS NOT A FRESH CLAIM BECAUS E FACTS WITH REGARD TO IMPUGNED DISALLOWANCE OF INTEREST EXPENDI TURE IN THE MEMO OF INCOME WAS VERY MUCH AVAILABLE WITH THE AS SESSING OFFICER AND FURTHER THE CLAIM OF INTEREST EXPENDIT URE IS ALLOWABLE 20 ITA NOS. 34 & 35/CHNY/2020 DEDUCTION AND HENCE, THE LEARNED CIT(A) HAS AFTER CONSIDERING THE RELEVANT FACTS RIGHTLY DIRECTED THE ASSESSING OFF ICER TO VERIFY THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW AND THE SAID FINDING CANNOT BE FAULTED. 14. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT ASSESSING OFFICER IS NOT EMPOWERED TO ADMIT ANY FRESH CLAIM UNLESS SUCH CLA IM IS MADE BY FILING REVISED RETURN OF INCOME AS PER THE PROVISIO NS OF THE ACT, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF M/S. GOETZ (INDIA) LTD VS. CIT (SUPRA). BUT, RESTRICTION IMPOS ED BY THE HONBLE SUPREME COURT IN THE SAID CASE IS NOT ON THE APPEL LATE AUTHORITIES AND APPELLATE AUTHORITIES ARE EMPOWERED TO ADMIT A NY FRESH CLAIM MADE BY THE ASSESSEE, IF FACTS RELATING TO SUCH CL AIMS ARE ALREADY ON RECORD. FURTHER, THE HON'BLE HIGH COURT OF MADR AS IN THE CASE OF CIT VS ABHINITHA FOUNDATION PVT LTD (2017) 396 ITR 251 (MID) HAS HELD THAT IF A CLAIM MADE BY THE ASSESSEE DOES N OT FORM PART OF ORIGINAL RETURN, IT COULD STILL BE CONSIDERED IF T HE RELEVANT MATERIAL WAS AVAILABLE ON RECORD EITHER BY THE APPELLATE AU THORITIES BY THEMSELVES OR ON REMAND TO THE ASSESSING OFFICER . THE FAILURE TO 21 ITA NOS. 34 & 35/CHNY/2020 ADVERT TO CLAIM IN ORIGINAL RETURN OR REVISED RET URN CANNOT DENUDE THE APPELLATE AUTHORITIES OF THEIR POWER TO CONS IDER THEIR CLAIM, IF THE RELEVANT MATERIALS AVAILABLE ON RECORD AND TH E CLAIM IS OTHERWISE TENABLE IN LAW. THE LEARNED CIT(A) AFTER CONSIDERING RELEVANT FACTS AND FOLLOWING THE DECISION OF HON'BL E SUPREME COURT IN THE CASE OF M/S. GOETZ (INDIA) LTD VS. CIT (SUP RA) AND THE DECISION OF HON'BLE HIGH COURT OF MADRAS IN THE CAS E OF CIT VS ABHINITHA FOUNDATION PVT LTD (SUPRA) HAS RIGHTLY A DMITTED THE ADDITIONAL CLAIM MADE BY THE ASSESSEE REGARDING DED UCTION FOR INTEREST EXPENDITURE ON FOREX LOAN AND REMITTED TH E ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATI ON OF FACTS TO DECIDE IN ACCORDANCE WITH LAW. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS RECORDED BY THE LEARNED CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LEARNED CIT(A) AND REJECT THE GROUNDS TAKEN BY THE REVENUE. 15. IN THE RESULT , THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.35/CHNY/2020 (A.Y:2013-14) 16. THE FACTS AND ISSUES INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE ISSUE WHICH WE HAVE CONSIDERED IN ITA NO.34/ CHNY/2020 FOR THE ASSESSMENT YEAR 2012-13. THE REASONS GIVEN BY U S INSOFAR AS, 22 ITA NOS. 34 & 35/CHNY/2020 THE ISSUE OF FOREX LOSS ON RESTATEMENT ON ECB LOA N IN THE PRECEDING PARAGRAPHS OF ITA NO.34CHNY/2020 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL. THEREFORE, FOR THE SIMILAR REASONS, WE ARE INCLINED TO UPHOLD THE ORDER OF L EARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2020 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) (G.MANJUNATHA ) ' % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER ' /CHENNAI, ( /DATED 31 ST DECEMBER, 2020 DS *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .