Egger Pumps India Pvt Ltd., Coimbatore V. ITO, Coimbatore

ITA 477/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6268 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JICIT D R
• Assessee Lawyers: B RAMANA KUMAR
• Keywords: Capital asset; Business income; Business expenditure; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 37(1); 28

Judgement Text

, D/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL D/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.477 /MDS./2017 ( ASSESSMENT YEAR : 2012-13) M/S.EGGER PUMPS INDIA PVT. LTD ., S.F.NO.206,KANNAMPALAYAM POST, SULUR VIA COIMBATORE 641 402. VS. THE INCOME TAX OFFICER, CORPORATE WARD-I, COIMBATORE. PAN AABCE 4448 C ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.B.RAMANA KUMAR, ADVOCATE / RESPONDENT BY : MR.B.SAGADEVAN, JICIT, D.R ! ' / DATE OF HEARING : 11.07.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 01.09.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-1, COIMBA TORE DATED 25.11.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO. 477/MDS/2017 2 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR A DJUDICATION. 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)CIT (A) IS CONTRARY TO THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND IS OPPOSED TO THE PRINCIPAL OF EQUITY, NATURAL JUSTICE AND FAI R PLAY. 2. FOR THAT THE CIT(A) ERRED IN DISALLOWING THE REV ENUE EXPENDITURE ON FOREIGN EXCHANGE FLUCTUATIONS DEBITED IN THE PROFIT AND LOS S ACCOUNT. 3. FOR THAT THE CIT(A) FAILED TO APPRECIATE THAT TH E EXPENSE DISALLOWED FOR NOT BEING A REVENUE EXPENDITURE, SHOWED ALL THE CHARACT ERISTICS AS A REVENUE EXPENDITURE, AS CONSISTENTLY FOLLOWED IN THE PREVIO US YEARS. 4. FOR THAT THE CIT(A) FAILED TO APPRECIATE THAT TH E ADDITION IS AGAINST THE PRINCIPLES LAID IN THE ACCOUNTING STANDARD 16 ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN TREATING THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE. 5. FOR THAT THE CIT(A) DID NOT TAKE INTO CONSIDERAT ION THE SUBMISSIONS MADE BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD CHARGED TO THE P&L A/C A SUM OF ` 31,12,150/- UNDER THE HEAD FOREIGN EXCHANGE FLUCTUATION. IT WAS STATED THAT THE FOREI GN EXCHANGE LOSS CLAIMED ON ACCOUNT OF DIFFERENCE IN FOREIGN EXCHANG E RATE ARISES PRIMARILY DUE TO THE RESTATEMENT OF THE EXTERNAL C OMMERCIAL ITA NO. 477/MDS/2017 3 BORROWING (ECB) LOAN FROM THE PARENT COMPANY ON 2 1.09.2011 JUST PRIOR TO THE CONVERSION OF THE LOAN INTO EQUITY SHA RES. IT WAS OBSERVED THAT THE PARENT EMILE EGGER & CIE SA, SWITZERLAND H AD ADVANCED THE MONEY DURING THE PERIOD I.E. BETWEEN FEBRUARY AND N OVEMBER, 2006. THE TOTAL REMITTANCE AMOUNTING TO ` 3,24,982.65 EUROS WAS SAID TO BE EXTERNAL COMMERCIAL BORROWING IN THE FIRCS OF THE B ANKER M/S.KOTAK MAHINDRA BANK. THE TOTAL INWARD REMITTANCES AMOUNTI NG TO ` 1,78,84,580/- IN INDIAN RUPEES. THE LOAN REMAINS O UTSTANDING HAS REMAINED STATIC RIGHT THROUGH THE BALANCE SHEETS OF THE EARLIER YEARS AND NO INTEREST WAS CHARGED ON THE RESTATEMENT OF L OAN AT ` 2,15,79,998/-, WHICH WAS CONVERTED FULLY INTO 1739 EQUITY SHARES OF FACE VALUE OF ` 10,000/- WITH PREMIUM OF ` 2,409/- PER SHARE. THOUGH THE LD. ASSESSING OFFICER WANTED TO DISALLOW THE EN TIRE AMOUNT OF ` 31,12,150/- AND IT WAS CLARIFIED BY THE ASSESSEE T HAT ONLY ` 11,69,999/- WAS DEBITED TO THE P&L A/C ON THIS REST ATEMENT OF THE LIABILITY AND THE SAME WAS DISALLOWED BY THE AO ON THE REASON THAT AMOUNT WAS RECEIVED BY THE ASSESSEE AT THE TIME OF PRE- COMMENCEMENT OF BUSINESS TO FUND THE FACTORY BUILD ING AND IN THE PURCHASE OF INDIGENOUS PLANT AND MACHINERY. ACCORDI NGLY, THE LD. ITA NO. 477/MDS/2017 4 ASSESSING OFFICER WAS OF THE OPINION THAT THE PAREN T COMPANY ADVANCED THE MONEY TO THE ASSESSEE TO INFUSE THE CA PITAL TO THE ASSESSEE COMPANY SO AS TO PURCHASE THE CAPITAL ASSE T AND IT IS A LOSS ON RESTATEMENT OF THE LOAN WAS CONSIDERED AS A CAPI TAL NATURE AND A SUM OF ` 11,69,999/- WAS DISALLOWED. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) ENDORSED THE VIEW OF THE LD. ASSESSING OFFICER. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT THE ASSESSEE O BTAINED ECB LOAN IN FOREIGN CURRENCY AND IT WAS RESTATED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IT WAS FURTHER CONTENDED THAT AS PER AS-11, THE OUTSTANDING FOREIGN CURRENCY LOAN IS REQUIRED TO BE TRANSLATED INTO INDIAN RUPEES BY APPLYING THE FOREIGN EXCHANGE RATE AS ON THE CLOSING DATE OF THE REPORTING PERIOD AND THE NET EX CHANGE DIFFERENCE RESULTING ON SUCH TRANSLATION IS REQUIRED TO BE REC OGNIZED AS INCOME OR EXPENSE FOR THE RESPECTIVE FINANCIAL PERIOD. OVE RRIDING THE PROVISIONS OF THE SECTION 43A OF THE ACT HAS NO APP LICATION IN THE ITA NO. 477/MDS/2017 5 INSTANT CASE SINCE ASSETS WERE NOT ACQUIRED FROM A COUNTRY OUTSIDE INDIA. SUCH LOANS SO CONVERTED ARE FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE LOSS INCURRED DUE TO FLUCTUATION IN THE RATE WAS CORRECTLY CLAIMED AS BUSINESS LOSS IN THE COURSE OF CARRYING OF THE BUSINESS OF ASSESSEE. ACCORDING TO HIM, THE AO WRONGLY PRESUME D THAT INCREASE IN LIABILITY FOR REPAYMENT OF FOREIGN CURRENCY LOAN WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE, STILL THE LOAN WAS O BTAINED FOR ACQUIRING THE CAPITAL ASSET. HE FURTHER DREW OUR ATTENTION TO AS-16 ISSUED BY ICAI TO HIGHLIGHT THE CAUSE AND EFFECT OF THE FOREX LOSS AND ABSORPTION OF INTEREST ON BORROWING COST. HE SUBMIT TED THAT IT WAS CLEARLY STATED THEREIN THAT IN A SITUATION WHERE IN TEREST ON ECB AND FOREX FLUCTUATION ON ECB ARE CONSIDERED IN TANDEM, THE UNABSORBED INTEREST, MEANING THE DIFFERENCE BETWEEN NORMAL IN TEREST AND THE ECB INTEREST, IF ANY, AT ONE HAND, AND THE FOREIGN EXCHANGE LOSS ON THE OTHER, SHALL BE ABSORBED AS INTEREST ON BORROWI NG. ACCORDING TO HIM, AS PER AS-16, NO CAPITIALIZATION IS REQUIRED OF THE INTEREST AFTER COMMENCEMENT OF THE BUSINESS AND HENCE NO CAPITIALI ZATION IS WARRANTED AT NO POINT OF TIME. THE ECB IS RESTATED IN IMMEDIATE TWO YEARS PRIOR TO THE YEAR IN CONTENTION AND ALL MANDA TORY AS HAVE BEEN ITA NO. 477/MDS/2017 6 FOLLOWED AND STATED SO. THE LD.A.R RELIED ON THE FO LLOWING CASE LAWS IN FAVOUR OF ASSESSEE. 1. IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX & ORS. VS. NITREX CHEMICALS INDIA LTD. & ORS IN (2016) 96 CCH 0285 DEL.HC WHEREIN HELD THAT:- THE ECB LOAN/ADVANCE WAS AN OLD ONE AND TREATMENT OF THE FOREIGN EXCHANGE FLUCTUATION ESPECIALLY IN CASE OF INCREASE FOR ALL THE PREVIOUS YEARS WAS TAKEN TO BE ON THE REVENUE SIDE, HENCE IT IS IMPLIED THAT THE REVENUE ACCEPTED THAT THE FOREIGN EXCHANGE AMOUNTS AMOUNTED TO INCOME AND PROCEEDED TO DEAL WITH IT AS SUCH. 2. IN THE CASE OF COOPER CORPORATION (P.) LTD. VS. DCIT REPORTED IN 159 ITD 165 (ITAT PUNE TRIBUNAL) WHEREIN HELD THAT: - IN ABSENCE OF APPLICABILITY OF SECTION 43A TO FACT S OF CASE AND IN ABSENCE OF ANY OTHER PROVISION OF IT ACT DEALING WI TH ISSUE, CLAIM OF EXCHANGE FLUCTUATION LOSS IN REVENUE ACCOUNT BY ASS ESSEE IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACT ICES AND MANDATORY ACCOUNTING STANDARDS NOTIFIED BY ICAI AND ALSO IN CONFORMITY WITH CBDT NOTIFICATION COULD NOT BE FAUL TED. 5. ON THE OTHER HAND, LD.D.R PLACED RELIANCE ON TH E ORDER OF THE MUMBAI TRIBUNAL IN THE CASE OF LIKPROOF INDIA(P.) LTD. VS. ACIT REPORTED IN (2016) 74 TAXMANN.COM 229 (MUM.TRIB.). ITA NO. 477/MDS/2017 7 6. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE BEFORE ME IS WHETHER THE LOSS O N ACCOUNT OF RESTATEMENT OF ECB WAS ON REVENUE ACCOUNT OR CAPITA L ONE, WHICH IS REQUIRED TO BE TESTED IN THE LIGHT OF GENERALLY ACC EPTED PRINCIPLE. THE SUPREME IN THE CASE OF ACIT VS. ELECON ENGINEERING CO. LTD. IN (2010) 322 ITR 20 (SC) WHEREIN HELD THAT:- REVERSING THE DECISION OF THE HIGH COURT, PROCEEDI NG ON THE BASIS THAT THE PURPOSE OF THE LOAN TAKEN BY THE ASS ESSEE WAS TO FINANCE THE PURCHASE OF PLANT AND MACHINERY, AND ON THE FACTS OF THIS CASE, THAT IT COULD NOT BE SAID THAT THE ROLLOVER CHARGES HAD NOTHING TO DO WITH THE FLUCTUATION IN T HE RATE OF FOREIGN EXCHANGE. SINCE THE COURT WAS CONCERNED WIT H CAPITALISATION OF FOREIGN EXCHANGE DIFFERENCE IN RE SPECT OF ACQUISITION OF FIXED ASSETS FROM ABROAD, ROLLOVER C HARGES RELATING THERETO HAD TO BE DEBITED/CREDITED TO THE ASSET IN RESPECT OF WHICH LIABILITY WAS INCURRED. ROLLOVER P REMIUM CHARGES WERE NOT ALLOWABLE UNDER SECTION 36(1)(III) . EXPLANATION 3 TO SECTION 43A , AS IT STOOD PRIOR TO ITS AMENDMENT IN 2002, WOULD APPLY TO SUCH ROLL OVER CH ARGES. 6.1 FURTHER IN THE CASE OF C.I.TVS. CLAIMATE SYSTE MS P LTD. 90CCH 40(DEL.) WHEREIN IT WAS HELD AS FOLLOWS:- 8. DECISION OF THE DELHI HIGH COURT IN WOODWARD GO VERNOR INDIA PVT. LTD. (SUPRA) HAS BEEN AFFIRMED BY THE SUPREME COURT IN D ECISION REPORTED AS ITA NO. 477/MDS/2017 8 COMMISSIONER OF INCOME TAX, DELHI VS. WOODWARD GOVE RNOR INDIA PVT. LTD. [2009] 312 ITR 254. IT HAS BEEN, INTER ALIA, HELD T HAT THE EXPRESSION EXPENDITURE IN SECTION 37(1) OF THE ACT CONNOTES WHAT IS PAID OUT AND WHAT HAS GONE IRRETRIEVABLY. BUT THE WORD EXPENDITURE USED IN C ONTEXT OF SECTION 37(1) WOULD ALSO COVER ,,LOSS? EVEN THOUGH THE SAID AMOUNT HAD NOT GONE OUT FROM THE POCKET OF THE ASSESSEE. THE SAID PROVISION WAS A RESIDUARY PROVISION EXTENDING THE ALLOWANCE TO ITEMS OF BUSINESS EXPENDITURE, NOT COV ERED BY SECTION 30 TO 36 OF THE ACT. REFERENCE WAS MADE TO SECTION 28 AND 29 RE AD WITH SECTION 145(1) OF THE ACT, AND IT WAS OBSERVED THAT ACCOUNTS MAINTAIN ED IN THE NORMAL COURSE OF BUSINESS SHOULD BE TAKEN AS CORRECT UNLESS THERE WE RE STRONG AND SUFFICIENT REASONS FOR THEIR UNRELIABILITY. THUS, THE PROFITS AND GAINS? OF THE PREVIOUS YEAR WERE REQUIRED TO BE COMPUTED WITH REGARD TO THE REL EVANT ACCOUNTING STANDARDS. THE REFERENCE ALSO MADE TO ACCOUNTING STANDARD-11, WHICH DEALS WITH THE EFFECTS OF FOREIGN EXCHANGE FLUCTUATIONS, AND IT WAS ACCORD INGLY OBSERVED AS UNDER: 21. IN CONCLUSION, WE MAY STATE THAT IN ORDER TO F IND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO ACCO UNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS MERCANTILE S YSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIAB ILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED AND BRINGS INTO CREDIT WHAT I S DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHE R THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE W AS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AN D TO THE GAINS THAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CO NSISTENT ANC DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES A ND GAINS; (V) WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKING ENTRIES I N THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED A CCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXAT ION. ITA NO. 477/MDS/2017 9 THEREAFTER, REFERENCE WAS MADE TO SECTION 43A OF TH E ACT, BOTH AS THE PROVISION STOOD PRIOR TO 01.04.2003 AND THEREAFTER. HOWEVER, WE NEED NOT TO GO FURTHER INTO THE SAID ISSUE AS THE SUPREME COURT IN WOODWARD GOV ERNOR INDIA PVT. LTD. (SUPRA) HAD DEALT WITH THE UNAMENDED SECTION 43A OF THE ACT. 6.2 FURTHER IN THE CASE OF METTLER TOLEDO INDIA (P .) LTD.VS. ITO REPORTED IN [2013] 56 SOT 498 (ITAT[MUM]) WHEREIN I T WAS HELD AS FOLLOWS:- 13. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALL OWABILITY OF LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IN RESPE CT OF FOREIGN CURRENCY LOAN TAKEN BY THE ASSESSEE. THE ASSESSEE H AD BEEN RESTATING FOREIGN EXCHANGE LOAN LIABILITY ON THE BA LANCE-SHEET DATE WHICH RESULTED INTO LOSS WHICH HAS BEEN CLAIMED AS DEDUCTION. THE LOSS/GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIO N ON RESTATEMENT OF THE LOAN LIABILITY ON THE BALANCE-SH EET DATE IS REQUIRED TO BE TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME IF THE LOAN IS ON REVENUE ACCOUNT OR IS A WORKING CAPITAL LOAN. LOSS IS ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A (P.) LTD. (SUPRA). THE LOAN IN THIS CASE HAD BEEN TAKEN AS WO RKING CAPITAL LOAN AS IS CLEAR FROM THE LOAN AGREEMENT WHEREIN TH E PURPOSE OF THE LOAN IS CLEARLY MENTIONED TO USE IT AS A WORKIN G CAPITAL TO FINANCE THE ACTIVITIES OF THE COMPANY. AS HELD BY T HE HON'BLE SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS LT D. V. CIT [1979] 116 ITR 1, FOREIGN CURRENCY FLUCTUATION LOSS IS ALL OWABLE AS DEDUCTION IF THE FOREIGN CURRENCY IS HELD ON REVENU E ACCOUNT OR AS TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMP LOYED IN THE ITA NO. 477/MDS/2017 10 BUSINESS. AS REGARDS THE YEAR OF ALLOWABILITY, THE CLAIM HAS TO BE ALLOWED ON THE BASIS OF RESTATEMENT OF THE LIABILIT Y ON THE BALANCE- SHEET DATE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA). THUS THE CLAIM OF THE ASSESSEE IS ALLOWABLE. IN CASE THERE IS GAIN IN A Y EAR AND THE ASSESSEE HAS NOT OFFERED IT TO TAX, THE REVENUE IS FREE TO TAKE ACTION UNDER LAW. IN THESE YEARS, ADMITTEDLY THERE IS LOSS WHICH IS ALLOWABLE AS DEDUCTION. WE, THEREFORE, SET ASIDE TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND ALLOW THE CLAIM OF THE ASSESSEE. 6.3 FURTHER SUTLEJ COTTON MILLS LTD. IN (1979) 116 ITR 1(SC) WHEREIN HELD THAT: LOSS ON DEVALUATION OF CURRENCY IS A TRADING LOSS IF IT IS A LOSS ARISING TO ASSESSEE ON CONVERSION OF FOREIGN CURREN CY INTO ANOTHER CURRENCY HELD AS PART OF CIRCULATING CAPITAL. 6.4 FURTHER IN THE CASE OF LIKPROOF INDIA (P.) LTD . VS. ACIT IN 74 TAXMANN.COM 229(MUM.TRIB.) 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RE LIED UPON BY BOTH THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS INCORPORATED AN ASSOCIATED COMPANY (AE) IN UAE IN EMIRATES OF DU BAI NAMELY LIKPROOF CONSTRUCTION LLC FOR UNDERTAKING CONSTRUCT ION WORK. MEMORANDUM AND ARTICLE OF ASSOCIATION OF SAID FOREI GN AE I.E. UAE COMPANY LIKPROOF CONSTRUCTION LLC FILED BY THE ASSE SSEE COMPANY IS PLACED IN THE FILE. THE ASSESSEE COMPANY HAS GRANTE D LOANS ITA NO. 477/MDS/2017 11 DENOMINATED IN FOREIGN CURRENCY TO THE SAID FOREIGN AE AND ALSO CHARGED INTEREST FROM THE FOREIGN AE OF WHICH INTEREST INCO ME IS OFFERED FOR TAXATION AS BUSINESS INCOME WHICH IS ACCEPTED BY RE VENUE. THE ASSESSEE COMPANY HAS ADVANCED THE LOAN DENOMINATED IN FOREIGN CURRENCY TO SAID FOREIGN AE AND THE FOREIGN EXCHANG E LOSS AMOUNTING TO RS. 15.66 LACS WAS DEBITED TO ITS P&L ACCOUNT WHICH AROSE ON ACCOUNT OF ADVERSE FLUCTUATION IN FOREIGN EXCHANGE RATES AS ON 31-03-2008 CALCULATED ON THE OUTSTANDING VALUE OF THE SAID LOA NS DENOMINATED IN FOREIGN CURRENCY ADVANCED BY THE ASSESSEE COMPANY T O ITS FOREIGN AE AS ON 31-03-2008. WE HAVE OBSERVED THAT THE ASSESSE E COMPANY IS NOT ABLE TO BRING ON RECORD COGENT MATERIAL/EVIDENCES I N SUPPORT OF ITS CLAIM THAT BUSINESS/TRADE ADVANCES/LOANS WERE EXTENDED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE WHICH HAS BEEN IN-FACT AC TUALLY UTILIZED BY ITS FOREIGN AE FOR BUSINESS PURPOSES .THE COPIES OF FIN ANCIAL STATEMENTS OF THE SAID FOREIGN AE OR ANY OTHER COGENT MATERIAL/EV IDENCES ARE NOT PLACED ON RECORDS TO PROVE AND DEMONSTRATE THAT THE ASSESSEE COMPANY EXTENDED TRADE/BUSINESS ADVANCES TO ITS FOREIGN AE IN EMIRATES OF DUBAI IN UAE AND THE SAME WERE IN-FACT ACTUALLY UTILIZED TOWARDS BUSINESS PURPOSES BY ITS FOREIGN AE WHILE CONSISTENT FINDING OF FACT IS RECORDED BY AUTHORITIES BELOW THAT THE ASSESSEE COMPANY IS NOT ABLE TO DEMONSTRATE AND PROVE ITS CONTENTIONS THAT THE SAID INTEREST BE ARING LOANS/ADVANCES DENOMINATED IN FOREIGN CURRENCY WERE GRANTED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IN UAE FOR BUSINESS PURPOSES AND ITS ACTUAL UTILIZATION BY ITS FOREIGN AE IN UAE FOR BUSINESS PURPOSES. NO SUCH EVIDENCES HAS BEEN PLACED BEFORE US BY THE ASSESSEE COMPANY TO SU PPORT ITS CONTENTION OF HAVING ADVANCES LOANS DENOMINATED IN FOREIGN CURRENCY TO ITS FOREIGN AE IN UAE FOR BUSINESS/TRADE PURPOSES A ND ITS FURTHER ACTUAL UTILIZATION BY ITS FOREIGN AE IN UAE FOR BUSINESS P URPOSES. THE PRIMARY ONUS WAS ON THE ASSESSEE COMPANY TO HAVE LED COGENT EVIDENCES TO ITA NO. 477/MDS/2017 12 SUBSTANTIATE ITS PLEA OF GRANT OF SAID LOANS TO ITS FOREIGN AE FOR PURPOSES OF TRADE/BUSINESS AND ITS ACTUAL UTILIZATION BY FOR EIGN AE FOR BUSINESS PURPOSES, WHICH THE ASSESSE COMPANY EXCEPT FOR MAKI NG BALD STATEMENT COULD NOT LED COGENT EVIDENCES TO SUBSTANTIATE ITS ABOVE STATED CONTENTIONS. THE ASSESSEE COMPANY ON THE OTHER HAND IS CHARGING INTEREST ON THESE LOANS GRANTED TO FOREIGN AE AND P RESUMPTION WILL ARISE UNLESS REBUTTED THAT THAT THE SAID LOANS ARE IN-FAC T GRANTED ON CAPITAL FIELD RATHER THAN BEING TRADING/BUSINESS ADVANCES. IN OUR CONSIDERED VIEW, THIS NOTIONAL LOSS WHICH ARISES OWING TO ADVERSE FL UCTUATION IN FOREIGN CURRENCY RATES AS ON 31-03-2008 WHICH LED TO RESTAT EMENT/REVALUATION OF INTEREST BEARING LOANS DENOMINATED IN FOREIGN CURRE NCY EXTENDED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IN UAE AND WHICH COULD NOT BE PROVED BY THE ASSESSEE COMPANY TO HAVE BEEN EXTENDE D FOR TRADE/BUSINESS PURPOSES, THE PRESUMPTION ALL ARISE THAT LOAN IS ON CAPITAL FIELD UNTIL THE SAME IS REBUTTED BY THE ASSESSEE CO MPANY AND HENCE THE SAID NOTIONAL LOSS ARISING ON RESTATEMENT/REVALUATI ON OF FOREIGN CURRENCY LOANS AS ON THE DATE OF BALANCE SHEET AS ON 31-03-2 008 DUE TO ADVERSE FOREIGN EXCHANGE FLUCTUATIONS CANNOT BE ALLOWED AS DEDUCTION U/S. 3 7(1) OF THE ACT WHILE COMPUTING INCOME OF THE ASSESSEE C HARGEABLE TO TAX UNDER THE ACT. THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA) AND DECIS ION OF MUMBAI TRIBUNAL IN ETP INTERNATIONAL (P.) LTD. (SUPRA) REL IED UPON BY THE ASSESSEE COMPANY ARE OF NO HELP TO THE ASSESSEE COM PANY. THE HONBLE SUPREME COURT IN WOODWARD GOVERNOR INDIA (P .) LTD. (SUPRA) HELD THAT LOSSES ON ACCOUNT OF FLUCTUATION OF FOREI GN EXCHANGE RATES OWING TO REINSTATEMENT OF LIABILITY ARISEN FOR STOC K-IN-TRADE WERE HELD TO BE ALLOWABLE U/S. 37(1) OF THE ACT, WHILE FOR POST AMENDMENT TO SECTION 43A OF THE ACT W.E.F 01-04-2003 BY FINANCE ACT 2002 , THE ADJUSTMENT TO COST OF CAPITAL ASSET ACQUIRED OUT OF BORROWINGS IN FOREIGN CURRENCY FOR ITA NO. 477/MDS/2017 13 ACQUISITION OF CAPITAL ASSET IS TO BE ADJUSTED ON P AYMENT OF FOREIGN EXCHANGE LIABILITY AND NOT TO BE ADJUSTED ON NOTION AL BASIS MERELY ON FLUCTUATION OF FOREIGN EXCHANGE RATES ON THE DATE O F BALANCE SHEET. SIMILARLY, IN ETP INTERNATIONAL (P.) LTD. (SUPRA), THE TRIBUNAL RECORDED A FINDING OF FACT THAT THE MONEY WAS ADVANCED BY TAX- PAYER FOR BUSINESS PURPOSES WHICH HAS BEEN USED BY FOREIGN AE FOR THE PURPOSES OF BUSINESS AND HENCE RELYING ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. V. CIT (APPEALS) 12007 1 288 ITR 1/158 TAXNIAN 74 SUCH LOSSES WERE ALLOWED BY THE MUMBAI T RIBUNAL BASED ON THE FACTS OF THE CASE, WHILE IN THE INSTANT CASE TH E ASSESSEE COMPANY IS NOT ABLE TO DEMONSTRATE THAT THE LOANS/ADVANCES GRA NTED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IN EMIRATES OF D UBAI IN UAE WAS IN THE NATURE OF TRADE/BUSINESS ADVANCES FOR THE PURPO SES OF BUSINESS OF THE ASSESSEE COMPANY WHICH HAS BEEN IN-FACT ACTUALL Y UTILIZED BY ITS FOREIGN AE FOR ITS BUSINESS PURPOSES. HENCE KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AS SET OUT ABOV E, WE DISMISS THE APPEAL FILED BY THE ASSESSEE COMPANY. WE ORDER ACCO RDINGLY. 7. IN THE PRESENT CASE, IT IS NOTED THAT THE LOAN HAS BEEN GIVEN BY THE PARENT COMPANY FOR THE PURPOSE OF ACQUISITION O F CAPITAL ASSET AND CORRESPONDINGLY THE LOAN IS IN THE CAPITAL FIELD AN D THE LOSS ARISING ON ACCOUNT OF RESTATEMENT OF THE LIABILITY, WHICH IS I N THE CAPITAL FIELD TO BE CONSIDERED AS CAPITAL NATURE AND IT IS A CAPITAL LO SS CANNOT BE CONSIDERED AS DEDUCTION WHILE COMPUTING THE INCOME OF ASSESSEE AS ITA NO. 477/MDS/2017 14 A BUSINESS EXPENDITURE. THE GROUND RAISED BY THE AS SESSEE IS REJECTED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01 ST SEPTEMBER , 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 01 ST SEPTEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF