Grapecity India Pvt. Ltd., New Delhi V. DCIT, Circle- 10(2), New Delhi

ITA 4227/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8143 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 27-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Capital asset; Transfer pricing; Capital receipt
• Section: 115JB; 13; 22

Judgement Text

1 ITA NO. 4227/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 4227/DEL/20 17 (A.Y 2012-13) (THROUGH VIDEO CON FERENCING) GRAPECITY INDIA PVT. LTD. E-326, NIRMAN VIHAR, NEW DELHI AABCG6585G (APPELLANT) VS DCIT CIRCLE 10(2) NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 02/05/2017 PASSED BY CIT(A)-18 NEW DELHI FOR ASSESSMENT YEAR 2 012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING ADDITION OF RS. 2,39,030/- TO T HE INCOME OF THE ASSESSEE, ON ACCOUNT OF BUSINESS & PROMOTION EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 41,90,480/- TO THE INCOME OF THE ASSESSEE, ON ACCOUNT OF FLUCTUATION LOSS ARISING ON LOAN TAKEN IN FOREIGN CURRENCY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS FAILED IN ADJUDICATING THE PENALTY PROCEEDINGS INIT IATED BY THE LD. AO UNDER APPELLANT BY SH. RAJAT JAIN, CA & SH. ASHISH MENDIRALLA, CA RESPONDENT BY SH. MAHESH THAKUR, SR. DR DATE OF HEARING 22.03.2021 DATE OF PRONOUNCEMENT 22.03.2021 2 ITA NO. 4227/DEL/2017 SECTION 271(1 )(C) OF THE INCOME TAX ACT.1961. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNI NG SOFTWARE DEVELOPMENT AND OTHER SERVICES AND SALE OF COMPUTER SOFTWARE DO CUMENTS AND CARGO OF DOMESTIC AND INTERNATIONAL DESTINATIONS. THE ASSESS EE FILED ORIGINAL RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING SET OF F OF LOSSES INCOME U/S 115JB AT RS. 42,17,343/- ON 27/12/2013. THE ASSESSING OF FICER MADE ADDITION OF DISALLOWANCE OF RATES AND TAXES AT RS. 2,50,742/-, DISALLOWANCE OF BUSINESS AND PROMOTION EXPENSES AT RS.8,02,005/- AND ADDITIO N ON ACCOUNT OF DISALLOWANCE OF FLUCTUATION LOSS IN RESPECT OF LOAN TAKEN IN FOREIGN CURRENCY AT RS. 41,90,480/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT GROUND NO. 1 IS NOT PR ESSED. HENCE, GROUND NO. 1 IS DISMISSED. 6. AS REGARDS GROUND NO. 2, RELATING TO ADDITION OF RS.41,90,480/- ON ACCOUNT OF FLUCTUATION LOSS, THE LD. AR SUBMITTED T HAT THE ASSESSEE HAS CLAIMED FLUCTUATION LOSS ON TWO LOANS AT RS. 41,90,480/- AS THE SAME IS TAKEN IN CONNECTION WITH PURCHASE OF CAPITAL ASSETS. THE ASS ESSEE HAS TAKEN INTEREST FREE LOAN FROM ASSOCIATED ENTERPRISES I.E. BIOTECH INTERNATIONAL INC., BRITISH WEST INDIES FOR OBTAINING LOAN FROM USD 12,00,000/- (ACTUALLY COMPANY HAS TAKEN A LOAN OF $ 11.2 LAKH). THE PURPOSE OF THE L OAN WAS TO CONSTRUCT OFFICE BUILDING INCLUDING SOFTWARE R & D CENTRE, MARKETING CENTRE & TRADING CENTRE ETC. AT NOIDA UP INDIA AND PURCHASE OF PLANT AND MA CHINERY OFFICE EQUIPMENT, FURNITURE, COMPUTERS AND OTHER ASSETS AS WELL AS TO MEET WORKING CAPITAL REQUIREMENTS. THE ASSESSEE DURING THE ASSESSMENT P ROCEEDINGS FILED A DETAILED CHART OF LOAN WHICH ARE REPRODUCED AS UNDER:- 3 ITA NO. 4227/DEL/2017 CHART-1 DETAILS OF UNSECURED LOAN AS APPEARING IN THE BOOKS OF THE ASSESSEE COMPANY AS ON 31/3/2021 NAME & ADDRESS OF LENDOR PA N AMOUNT O/S AS ON 1/4/2011 AMOUNT ACCEPTED DURING THE YEAR AMOUNT REPAID DIFF IN FOREX CLOSING BALANCE AS ON 31.03.2012 TOTAL LOAN AMOUNT IN RS. INTEREST PAID BIOTECH INTERNATIONAL INC. THE HALLMARK BUILDING, SUITE, 227, OLD AIRPORT, BRITISH WEST INDIES NA 3,99,57,120 - 1,56,57,600 - 41,90,480 2,84,90,000 7,15,75,900 - CHART-2 DETAILS OF EXCHANGE FLUCTUATION AND ITS T REATMENT I RESPECT OF LOAN TAKEN FROM M/S. BIOTECH INTERNATIONAL INC. WHICH WA S WAIVED OFF I.E. $11,20,000. S. NO. A.Y FLUCTUATION LOSS/GAIN TREATMENT OF THE SAME 1 2004 - 05 - 1,961,000 P &L 2 2005 - 06 - 112,737 P &L 3 2006 - 07 946,400 P &L 4 2007 - 08 - 1,276,800 CREDITED TO FIXED ASSETS 5 2008 - 09 - 3,752,000 CREDITED TO FIXED ASSETS 6 2009 - 10 11,872,000 P &L 7 2010 - 11 - 6,518,400 P &L 8 2011 - 12 217,280 P &L 9 2012 - 13 - 4,190,480 P &L TOTAL - 47,75,737 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IS TREATING LOAN IN ASSESSMENT YEAR 2004-05 TO 2012-13 AS BUSINESS LOAN AND ACCORDINGLY CLAIMED FLUCTUATION LOSS IN THE PROFIT AND LOSS ACC OUNT AS BUSINESS LOSS. FOR 4 ITA NO. 4227/DEL/2017 ASSESSMENT YEAR 2007-08 & 2008-09, THE ASSESSEE TRE ATED THESE LOAN AMOUNTS IS CAPITAL RECEIPT AND CREDITED FLUCTUATION LOSS IN THE FIXED ASSETS AND EVIDENT FROM THE CHART NOTED ABOVE. THEREFORE, THE LD. AR SUBMITTED THAT SECTION 43A IS NOT APPLICABLE AS THE PRE-CONDITIONS OF THE SAID SECTION ARE NOT FULFILLED IN ASSESSEES CASE. THEREFORE, THE LD. AR SUBMITTED T HAT THE FLUCTUATION LOSS SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER A S WELL AS BY THE CIT(A). 7. THE LD. DR SUBMITTED THAT SINCE THE ASSESSEE COM PANY ITSELF TREATED THIS LOAN AMOUNT AS CAPITAL LOAN AND IN SOME OTHER YEARS AS BUSINESS LOAN AND CLAIMED EXCESS DEPRECATION ON THE ASSETS WITHOUT RE DUCING THE WDV WITH THE AMOUNT OF FLUCTUATION LOSS, THE ASSESSING OFFICER H AS RIGHTLY DISALLOWED FLUCTUATION LOSS AT RS.41,90,480/-. THUS, ADDING TH E SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. DR RELIED UPON THE ORDER O F THE CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE ITSELF CATEGORICALLY TREATING THIS LOAN AS BUSINESS LOAN AS PER ITS OWN CONVENIENCE AND IN 2007-08 & 2008-09 TR EATING THE FLUCTUATION LOSS IN THE FIXED ASSETS. THE ASSESSEE IS NOT FOLL OWING THE PROPER METHOD FRO TREATING THE SAME AS BUSINESS LOAN OR EITHER THAT O F CAPITAL LOAN. THE ASSESSING OFFICER HAS RIGHTLY MADE AN ADDITION. FU RTHER, THE CIT (A) HAS ALSO CONSIDERED THIS ASPECT AND GIVEN A CATEGORICAL FIND ING THAT SECTION 43A PERMITS CAPITALIZATION OF REALIZED FOREIGN EXCHANGE FLUCTUA TION LOSS ON LIABILITY INCURRED FOR ACQUISITION OF ASSETS OUTSIDE INDIA. BUT IN TH E PRESENT CASE, THE ASSETS ARE ACQUIRED IN INDIA, THE ASSESSEE IS AN INDIAN COMPAN Y AND HAS TAKEN A LOSS ON THE LOAN WHICH WAS TAKEN FROM FOREIGN AE. BESIDES T HIS, FROM THE ACCOUNTING PERSPECTIVE, PARA 46A OF ACCOUNTING STANDARD 11 TH E EFFECTS OF FOREIGN EXCHANGE RATES PERMITS CAPITALIZATION OF EXCHANGE DIFFERENCE ON FOREIGN BORROWINGS TO THE COST OF THE DEPRECIABLE ASSETS IR RESPECTIVE OF ASSET BEING ACQUIRED IN INDIA OR OUTSIDE INDIA. THE CIT(A) RIGH TLY RELIED UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN CASE OF TUBE INVES TMENT OF INDIA LTD. VS. JCIT (2014) 45 TAXMANN.COM 78 (MADRAS) WHEREIN IT I S HELD THAT IN TERMS OF 5 ITA NO. 4227/DEL/2017 APPROVAL OF RBI, WHEN ASSESSEE UTILIZED FOREIGN LOA N FOR PURCHASE OF CAPITAL EQUIPMENT, LOSS INCURRED ON SAID LOAN DUE TO FLUCTU ATION IN FOREIGN EXCHANGE RATE HAS TO BE REGARDED AS CAPITAL IN NATURE AND CO ULD NOT BE ALLOWED AS DEDUCTION. THUS, THE CIT(A) HAS RIGHTLY DISMISSED T HE CLAIM OF THE ASSESSEE. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 2 IS DISMISSED. 9. AS REGARDS GROUND NO. 3, THE SAME IS RELATED TO PENALTY, HENCE NOT ADJUDICATED UPON HEREIN. 10. IN RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN PRESENCE OF B OTH THE PARTIES ON THIS 22 ND DAY OF MARCH, 2021 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 22/03/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 6 ITA NO. 4227/DEL/2017