Mohini Alexander Rep. by GPA holder Dr.Kalpana Alexander, Hyderabad, Hyderabad V. ACIT, Circle-6(1), Hyderabad, Hyderabad

ITA 462/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2558 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 10-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Depreciation
• Section: 143(3); 142(1)

Judgement Text

ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.462/HYD/2017 (ASSESSMENT YEAR: 2013-14) MS. MOHINI ALEXANDER (THROUGH GPA HOLDER DR. KALPANA ALEXANDER) HYDERABAD PAN: AERPA 6813 J VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI B. SATYANARAYANA MURTY FOR REVENUE : SMT. SUMAN MALIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAIN ST THE ORDER OF THE CIT (A)-6, HYDERABAD, DATED 16.1.2 017. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX, IN SO FAR AS IT IS AGAINST THE APPELLANT, IS CONTRARY TO THE FACTS OF THE CASE AND PROVISIONS OF LAW. 2. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN SUSTAINING THE TAXING OF INTEREST OF RS.22,21,519/- AS INTEREST ON FIXED DEPOSITS WHEN THE APPELLANT DID NOT ULTIMATELY EARN ANY INTEREST ON ACCOUNT OF THE LOSS ON FOREIGN EXCHANGE FLUCTUATION. DATE OF HEARING : 31.07.2017 DATE OF PRONOUNCEMENT : 29.09.2017 ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 2 OF 6 3. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE SEEN THAT THE AMOUNTS SENT BY THE APPELLANT WAS MEANT FOR MAKING FIXED DEPOSITS FOR INTEREST AND THEREFORE, THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE SEEN THAT THE APPELLANT DID NOT EARN ANY INTEREST EVEN BECAUSE THERE IS ULTIMATELY LOSS INCURRED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. 4. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN HOLDING THAT THE LOSS WAS INCURRED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2014- 15 AND THEREFORE, IT IS NOT ALLOWABLE AGAINST INCOME FOR THE ASSESSMENT YEAR 2013-14. 5. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE SEEN THAT INTEREST IS NOTHING BUT INCREASE IN THE VALUE OF THE DEPOSIT WITH REFERENCE TO A PERIOD OF THE DEPOSIT AND THAT THE APPELLANT DID NOT EARN ANY INTEREST AS THERE IS NO INCREASE IN THE AMOUNT ORIGINALLY INVESTED WITH REFERENCE TO THE MATURITY VALUE. 6. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THERE IS A DIRECT NEXUS BETWEEN THE LOSS ON FOREIGN EXCHANGE AND THE INTEREST ON FIXED DEPOSITS AS THE APPELLANT HAD INVESTED FOREIGN EXCHANGE FOR MAKING THE FIXED DEPOSITS AND DID NOT EARN BY WAY OF ANY INCREASE IN THE FOREIGN EXCHANGE AFTER THE DEPOSIT PERIOD. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN HOLDING THAT THE LOSS INCURRED B Y THE APPELLANT IN FOREIGN EXCHANGE IS ON CAPITAL ACCOUNT. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE LOSS INCURRED IS DIRECTLY CONNECTED TO THE INTEREST AND THEREFORE SHOULD HAVE BEEN ALLOWED AS A DEDUCTION AS A LOSS ON REVENUE ACCOUNT. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS SUBMITTED THAT THE ORDER OF THE LOWER AUTHORITIES BE SET ASIDE OR MODIFIED AS MAY BE DEEMED FIT. ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 3 OF 6 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, FILED HER RETURN OF INCOME FOR THE A.Y 2 013-14 ON 30.09.2013 DECLARING TOTAL INCOME OF RS.21,73,220. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O NOTICED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS.22,21,519 ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATION. VIDE NOTICE DATED 18. 11.2015 U/S 142(1) OF THE ACT, THE ASSESSEE WAS REQUESTED TO SH OW CAUSE AS TO WHY THE SAID LOSS SHOULD NOT BE DISALLOWED. IN RESP ONSE TO THE SAME, THE ASSESSEE FILED A DETAILED NOTE SUBMITTING THAT SHE SENT $515,565 IN AUGUST, 2011 FOR INVESTMENT IN FIXED DEP OSITS WITH STATE BANK OF HYDERABAD, PUNJAGUTTA BRANCH, HYDERAB AD. OUT OF THIS, AN AMOUNT OF $ 80,000 WAS USED FOR PAYMENTS T OWARDS HER FLAT AT WOOD APARTMENTS, SOMAJIGUDA, HYDERABAD AND THE BALANCE AVAILABLE FOR INVESTMENT WAS $425,565 ONLY WHICH WA S INVESTED IN A FIXED DEPOSIT IN THE SBH, PUNJAGUTTA BRANCH, HYDER ABAD. IT WAS SUBMITTED THAT SHE RECEIVED INTEREST OF RS.13,8 2,648 FOR FINANCIAL YEAR 2011-12 RELEVANT TO ASSESSMENT YEAR A.Y 2012-13 AND RS.22,21,519 FOR FINANCIAL YEAR 2012-13 RELEVAN T TO A.Y 2013- 14. IT IS SUBMITTED THAT AFTER TAKING INTO ACCOUNT INTEREST FOR TWO YEARS, THE AMOUNT WAS REPATRIATED TO USA TO HER ACC OUNT AFTER CONVERSION INTO DOLLARS WHICH CAME TO $400,000 ONLY AND THEREFORE, SHE LOST $25,565 ON ACCOUNT OF FOREX FLU CTUATION. THUS, ACCORDING TO HER, EVEN AFTER TAKING INTO A/C, THE I NTEREST EARNED DURING THE YEARS RELEVANT A.YS 2012-13 & 2013-14, TH ERE IS A LOSS WHICH IS DIRECTLY CONNECTED WITH HER FDS AND INTERES T INCOME THEREON AND THEREFORE, THE INTEREST FOR THE A.Y 2013 -14 WAS DECLARED AT NIL THOUGH THE ASSESSEE HAS OFFERED T O TAX THE INTEREST INCOME OF RS.13,82,648 FOR THE A.Y 2012-13. THE AO HOWEVER, HELD THAT THE SAME IS NOT ALLOWABLE AS THE ASSESSEE HAS ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 4 OF 6 NOT INCURRED ANY EXPENDITURE TO EARN INTEREST INCOM E AND THE LOSS OF FOREX FLUCTUATION IS IN NO WAY CONNECTED TO THE EARNING OF INTEREST INCOME DURING THE RELEVANT A.Y. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A), WHO DISMISSED THE SAME BY UPHOLDING THE FI NDINGS OF THE AO AND FURTHER HOLDING THAT THE LOSS, IN QUESTION, WAS A CAPITAL LOSS AND THEREFORE, IS NOT ELIGIBLE FOR BEING SET O FF AGAINST ANY INCOME. FOR COMING TO THIS CONCLUSION, THE CIT (A) R ELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F SUTLEJ COTTON MILLS LTD VS. CIT (1979) 116 ITR 1 (S.C). TH E CIT (A) ALSO HELD THAT THE INTEREST INCOME AGAINST WHICH THE ASS ESSEE IS SEEKING SET OFF OF LOSS ON ACCOUNT OF FOREX FLUCTUA TION, IS FOR THE A.Y 2013-14 WHEREAS THE LOSS HAS BEEN INCURRED DURIN G THE A.Y 2014-15 AND THEREFORE, SUCH LOSS CANNOT BE SET OFF AGAINST THE INCOME ACCRUED TO HER IN THE A.Y 2013-14 AS THERE IS NO LEGAL SANCTION FOR THIS. AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE ASSESSEE HAD MADE FIXED DEPOSITS ON WHICH THE ASSESSEE HAS EARNED INTEREST INCOME AND THE ASSESSEE HAS ALS O INCURRED LOSS ON ACCOUNT OF FOREX FLUCTUATION ON THE DATE ON WHICH THE ASSESSEE HAS WITHDRAWN/CANCELLED ALL THE FIXED DEPO SITS. THEREFORE, ACCORDING TO HIM, THERE IS A CLEAR NEXUS BETWEEN THE INTEREST INCOME EARNED BY THE ASSESSEE AND THE FORE X LOSS WHICH HAS TO BE SET OFF AGAINST EACH OTHER. HE HAS TRIED TO DEMONSTRATE AS TO HOW THE ASSESSEE HAS INCURRED LOSS IN DOLLARS . IN SUPPORT OF ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 5 OF 6 HIS CONTENTION THAT FOREX LOSS CAN BE ALLOWED, HE R ELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F MISS DHUN DADABHOY KAPADIA VS. CIT (63 ITR 651). 5. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE INTEREST ON FIXED DEPOS ITS IS TAXABLE ON ACCRUAL BASIS AND ACCORDINGLY THE ASSESSEE HAS OFFE RED INTEREST INCOME OF RS.13,82,648 FOR THE A.Y 2012-13 AND ALSO RS.5,34,662 FOR THE A.Y 2014-15 I.E. THE YEAR OF WITHDRAWAL OF T HE FIXED DEPOSIT. IT IS ONLY FOR THE A.Y 2013-14, THAT THE AS SESSEE IS SEEKING SET OFF OF THE FOREX LOSS FROM THE INTEREST INCOME. THE FOREX LOSS, IF ANY, HAS ARISEN ON ACCOUNT OF THE WITHDRAW AL OF THE FIXED DEPOSIT IN AUGUST, 2013 I.E. DURING THE FINANCIAL Y EAR 2013-14, WHICH IS RELEVANT FOR THE A.Y 2014-15. THEREFORE, AS RIGHTLY POINTED OUT BY THE LEARNED CIT (A), THE LOSS, IF AN Y, FOR THE A.Y 2014-15 CANNOT BE SET OFF AGAINST THE INTEREST INCO ME OF THE A.Y 2013-14. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MISS DHUN DADABHOY KAPADIA VS. CIT AS RELIED UPO N BY THE LEARNED COUNSEL FOR THE ASSESSEE, DOES NOT COME TO THE RESCUE OF THE ASSESSEE, AS IN THAT CASE, THE ISSUE WAS OF COM PUTATION OF CAPITAL GAIN AND THE LOSS/DEPRECIATION IN THE VALUE OF OLD SHARES AS A RESULT OF ISSUANCE OF NEW SHARES WAS HELD TO B E ALLOWABLE ON COMMERCIAL PRINCIPLES FOR THE PURPOSE OF COMPUTATIO N OF CAPITAL GAIN. BOTH THE DEPRECIATION OF THE OLD SHARES AND T HE RENUNCIATION OF THE NEW SHARES HAD TAKEN PLACE IN THE SAME FINAN CIAL YEAR AND ITA NO 462 OF 2017 MOHINI ALEXANDER HYDERABAD PAGE 6 OF 6 THE ISSUE WAS OF COMPUTATION OF CAPITAL GAIN WHEREA S IN THE CASE BEFORE US, THE INTEREST INCOME IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES WHEREAS THE LOSS IS ON ACCOUNT OF FOREX FLUCTUATION OF FIXED ASSET WHICH IS A CAPITAL LOSS. THERE IS NO PROVISION UNDER WHICH THE CAPITAL LOSS CAN BE SET O FF AGAINST THE INTEREST INCOME OR FROM ANY OTHER SOURCE EXCEPT THE LONG TERM CAPITAL GAIN. IN VIEW OF THE SAME, WE ARE NOT INCLI NED TO INTERFERE WITH THE ORDER OF THE CIT (A). 7. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 29 TH SEPTEMBER, 2017. VINODAN/SPS COPY TO: 1 VENUGOPAL & CHENOY, CAS, 4-1-889/16/2, TILAK ROAD , HYDERABAD 500001 2 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), HYDERABAD 3 CWT (A)-6, HYDERABAD 4 PR.CIT 6 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER