M/s. Classic Citi Investments Private Limited, Pune V. The Income Tax Officer, Ward-1(3), Pune

ITA 434/PUN/2023

AI Insights

The appeals by M/s. Classic Citi Investments Pvt. Ltd. pertain to the assessment years 2012-13 and 2015-16, challenging the orders from the National Faceless Appeal Centre (NFAC) which upheld the disallowance of a foreign exchange loss and depreciation. The primary issues involved were the treatment of a foreign exchange loss of Rs. 6,23,43,841 as a notional loss not allowable as revenue expenditure, and the disallowance of depreciation. The Tribunal noted procedural lapses in communication between the assessee's tax consultant and the assessee, which led to non-compliance during the AO's proceedings. Consequently, the Tribunal decided to remand both issues back to the AO for a fresh assessment, allowing the assessee to present their case anew.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138085 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-09-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 16-04-2023
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Principle of natural justice; Revenue expenditure; Set aside
• Section: 263; 143(3); 37(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE „A‟ BENCHES :: PUNE BEFORE SHRI R.S. SYAL, HON. VICE-PRESIDENT & SHRI PARTHA SARATHI CHAUDHURY, HON. JUDICIAL MEMBER ITA Nos.433 & 434/PUN/2023 (A.Y. 2012-13 & 2015-16) M/s. Classic Citi Investments Pvt. Ltd., 36/3B, The Westin Hotel, Koregaon Park, Annexe Mundhwa Road, Ghorpadi, Pune-411 001. PAN: AABCC 7550 P vs DCIT, Circle-1(1), Pune Appellant Respondent Assessee by : Shri Sanket M. Joshi, CA Revenue by : Shri Keyur Patel, CIT-DR & Shri Ramnath P. Murkunde, DR Date of hearing : 04/09/2023 Date of pronouncement : 12/09/2023 O R D E R Per PARTHA SARATHI CHAUDHURY, JM: These appeals preferred by the assessee emanate from separate orders of National Faceless Appeal Centre [NFAC], Delhi, both dated 07.03.2023 for A.Y.2012-13 & 2015-16 as per the grounds of appeal on record. 2. At the time of hearing, both the parties conceded that the facts and circumstances and issues involved in these appeals are identical and similar. Having heard the submissions of the parties, both these matters were heard together and disposed of vide this consolidated order. ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 2 ITA No.433/PUN/2023 (A.Y. 2012-13) 3. At the outset, ld.AR submitted that broadly there are two issues involved in this appeal for adjudication i.e. (i) foreign exchange loss; and (ii) depreciation. 4. Brief facts of this case are that assessee is engaged in the business of hotel and hospitality industry, filed its return of income declaring a loss of (-) Rs.22,26,25,382/-. In the scrutiny assessment u/sec.143(3), loss was assessed at Rs.20,19,06,320/-. Subsequently an order u/sec.154 was passed and the income was assessed at loss (-) Rs. 20,18,88,120/- after making disallowance u/sec. 40(a) of the Act. The assessment was subjected to revisionary proceedings u/sec. 263 of the Act by the Principal Commissioner of Income Tax (for short, „PCIT‟), who passed the order u/sec. 263 holding that assessment order dated 27/03/2015 is considered as erroneous in so far as it is prejudicial to the interest of revenue for deduction claimed on account of notional exchange loss of Rs. 6,23,43,841/-. On considering the submissions filed by the assessee, the PCIT held that exchange loss of Rs. 6,23,43,841/- was a notional loss and was not allowable as revenue expenditure and was wrongly allowed as deduction. Therefore, PCIT directed the Assessing Officer (AO) to pass order afresh after proper examination of the facts. The assessee being aggrieved by the order u/sec. 263, had filed an appeal before ITAT, Pune. The AO passed consequential order u/sec. 143(3) r.w.s. 263 of ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 3 the Act on 30/06/2017 making addition of Rs. 6,23,43,841/- to the total income of the assessee. 5. Being aggrieved with the consequential order passed by the AO, the assessee preferred appeal before the NFAC, who after considering the assessment order and the submissions of the assessee held as follows:- “5. The appellant contended that the ld.AO erred in disallowing exchange fluctuation loss of Rs.62343841 on the ground that it was not a revenue expenditure The appellant pleads Your Honor to kindly direct the ld.A0 to delete the disallowance of Rs.6,23,43,841/- u/s 37 of the Income Tax Act 1961. In support the appellant submitted that section 43A of the Income Tax Act is only relating to the foreign exchange rate fluctuation in respect of assets acquired from a country outside India by using foreign currency loans which is not applicable to the indigenous assets acquired out of foreign currency loans. As stated earlier, the appellant had borrowed Term Loan in foreign currency for construction of hotel The Westin, Pune, India and acquisition of assets in India. Ld AO had merely stated that substantial part of the assets of the appellant was imported from outside India. However, the Ld AO had not had not identified the assets imported for which Term Loan borrowed in foreign currency was utilized, if any. On perusal of the records available it is observed that the Assessing Officer disallowed loss of Rs.6,43,43,841/- u/s 37(1) of the Act due to restatement of foreign exchange loan for acquisition of capital assets as capital loss and the appellant claimed as revenue expenditure. The appellant has nothing to explain in support of its claim and non-compliance with the notice issued u/s 143(2) of the IT Act on 04.04.2017 proves the appellant intention is mala fide. The onus to prove the claim made lies on the appellant and nothing was submitted to prove his claim. It is find that the Assessing Officer has justified in disallowing the capital loss claimed at Rs. 6,43,43,841/- u/s 37(1) of the Act, no need to interfere. Hence, the appeal on this ground is dismissed. 6. In the result, the appeal is dismissed.” ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 4 6. At the time of hearing, ld.AR for the assessee submitted that in this issue of foreign exchange loss, if a loan is taken for acquiring asset outside India, then deduction will not be allowed, but if the loan is taken for acquiring of indigenous assets i.e. acquiring of asset in India, then deduction should be allowed. Ld.AR further submitted by placing an affidavit on record that once the order under 263 was passed and the proceedings for consequential order before the AO started, and such notices were issued to the concerned tax consultant of the assessee, the said tax consultant has not communicated the hearing notice to the assessee because of which, there was non- compliance before the AO while he had passed the consequential order. Ld.AR vide affidavit prayed for one final opportunity to represent their case on merits before the AO, since the lapse on the part of the assessee was bonafide and not intentional. Ld.AR also submitted that the issue of depreciation has been remanded to the file of the AO by the decision of this Tribunal in assessee‟s own case in ITA Nos.354 to 357/PUN/2023 order dated 24/05/2023 and since the issue of foreign exchange loss pertains to the hotel expenses and is establishment cost, so the depreciation issue whether it is allowed or not will also have a bearing on the issue of foreign exchange loss. Therefore, the matter may be remanded to the file of the AO. 7. Ld.DR did not raise any objection, if the matter is remanded to the file of the AO. ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 5 8. We have considered the facts and circumstances of the case and have heard the submissions of the parties and also given considerable thought to the judicial decisions placed on record. We have also considered the contents of the affidavit submitted by the assessee. The facts and issues have already been enumerated in the foregoing paras of this order. As per the affidavit filed, there is a prayer by the assessee for representing their case on merits before the AO and to the said prayer, ld.DR has raised no objection. We are of the considered view, in the interest of justice, one final opportunity should be given to the assessee to represent their case on merits before the AO on the issue of foreign exchange loss and the assessee shall place the relevant documents/evidences. Accordingly, the AO shall adjudicate as per law complying with the principles of natural justice. In view thereof, we set aside the order of NFAC and remand the matter to the file of the AO. We order accordingly. The grounds raised in this appeal stands allowed for statistical purposes. 9. In the result, appeal of the assessee in ITA No.433/PUN/2023 is allowed for statistical purposes. ITA No.434/PUN/2023 (A.Y. 2015-16) 10 We observe that the only issue contested in this appeal is the disallowance of depreciation. That, while adjudicating appeal of the assessee in ITA No.433/PUN/2023 (supra) it has been brought to the notice of this Bench that this Tribunal in assessee‟s own case vide ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 6 order dated 24/05/2023 (supra) has restored the issue of determination of depreciation for A.Ys. 2010-11, 2012-13, 2013-14 & 2014-15 to the file of the AO. The present year before us is the A.Y. 2015-16, therefore in the interest of justice and for the sake of completeness and consistency, it is just and proper to remand this issue of depreciation disallowance for this year also to the file of the AO. Therefore, we set aside the order of NFAC and remand the matter to the file of AO for adjudication as per law complying with the principles of natural justice. Similarly, the ground on foreign exchange loss for this year also is remanded to the file of the AO as per our decision taken in assessee‟s own case in ITA No.433/PUN/2023 (supra). 11. In the result, appeal of the assessee in ITA No.434/PUN/2023 is allowed for statistical purposes. 12. In the combined result, both the appeals of the assessee are allowed for statistical purposes. Order pronounced in open Court on 12 th September, 2023. Sd/- Sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE-PRESIDENT JUDICIAL MEMBER Dated : 12 th September, 2023 vr/- ITA No.433 & 434/PUN/2023 M/s. Classic Citi Investments P. Ltd. 7 Copy to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT concerned. 4. The DR, ITAT, “A” Bench Pune. 5. Guard File. By Order // TRUE COPY // Senior Private Secretary ITAT, Pune.