DCIT, New Delhi V. M/s Climate Systems Pvt. Ltd., New Delhi

ITA 5243/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5468 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-02-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 25-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHA KUMAR
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B, NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5243/DEL./2010 (ASSESSMENT YEAR: 2003-04) DCIT, CIRCLE 3 (1), VS. M/S. CLIMATE SYSTEM PVT. LTD., NEW DELHI. JEEVAN PRAKASH BUILDING, 11 TH FLOOR, 25, K.G. MARG, NEW DELHI 110 001. ( PAN : AAACC1074D) (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. RAKESH GUPTA, ADVOCATE, SHRI ASHWANI TANEJA, ADVOCATE AND SHRI SOMIL AGARWAL, CA REVENUE BY : SMT. SUDHA KUMAR, CIT DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF LD. CIT (APPEALS)-V, NEW DELHI DATED 10.09.2010 FOR ASSESSM ENT YEAR 2003-04. THE GROUND OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N DELETING ADDITION OF RS.4998072/- MADE ON ACCOUNT OF DISALLO WANCE OF FOREIGN EXCHANGE LOSS AS: A) HON'BLE SUPREME COURT IN THE CASE OF DWARKADAS K ESARDEO MORARKA VS CIT 441 ITR 529 AND IN JOINT FAMILY OF U DAYAN ITA NO.5243/DEL/2010 2 CHINUBHAI VS. CIT 63 ITR 416 HAS DECIDED THAT EACH YEAR'S ASSESSMENT IS SEPARATE FROM THAT OF EARLIER YEARS, THEREFORE, THE TAXING AUTHORITIES ARE NOT BOUND TO FOLLOW THE DECI SION TAKEN IN EARLIER YEARS. B) WITH REGARD TO SECTION 43A OF THE I.T.ACT, THE A SSESSEE HAS HIMSELF ADMITTED THAT THE LOAN WAS TAKEN FOR ACQUIS ITION OF CAPITAL ASSETS AND THEREFORE THE SAME SHOULD HAVE BEEN CAPI TALIZED AS PER THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F SUTLEJ COTTON MILLS VS. CIT 116 ITR 1. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND( S) OF APPE AL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. IN THIS CASE, THE ASSESSMENT WAS COMPLETED U/S 1 43(3) OF THE INCOME-TAX ACT, 1961 ON 30.01.2006. THE CIT (A) INVOKED THE P ROVISIONS OF SECTION 263 OF THE ACT AND MADE AN ORDER WHEREIN THE ORIGINAL A SSESSMENT WAS SET ASIDE TO THE ASSESSING OFFICER TO EXAMINE AND VERIFY THE NAT URE OF THE EXPENDITURE RELATING TO CURRENCY FLUCTUATION ON SHORT TERM LOA N. THE ASSESSING OFFICER MADE THE ADDITION OF RS.49,98,072/-. THE CIT (A) H AS DELETED THE ADDITION BY OBSERVING AS UNDER :- 10. I HAVE GONE THROUGH THE FACTS OF THE CASE AND SUBMISSION OF THE APPELLANT AND ALSO TO THE REMAND REPORT AND REJ OINDER THEREOF. I HAVE ALSO PERUSED THE ACCOUNTS OF THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION AND ADDITIONAL DOCUMENTS FILED IN COU RSE OF APPELLATE PROCEEDINGS. I AM INCLINED TO ACCEPT THE ADDITIONAL DOCUMENTS FILED BY THE APPELLANT AS THE SAME COPIES OF THE ORIGINAL DOCUMENTS AND NO PREJUDICE CAUSE TO DEPARTMENT ON A CCEPTING THE SAME AND IS ALSO IN THE INTEREST OF JUSTICE TO DISP OSE OF PRESENT APPEAL ON MERITS OF FACTS. MY FINDINGS OF THE FACTS OF THE CASE ARE AS UNDER:- ITA NO.5243/DEL/2010 3 - THE FCNR(B) LOAN HAS BEEN TAKEN ON JAN.27, 2000 (FY1999-00) AND THE SAID AMOUNT IS UTILISED FOR REP AYMENT OF 15% UNSECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES (DEBENTURES) FOR RS.100,000,000/-. THIS FACT IS EVI DENCED BY THE BANK STATEMENT OF BANK OF AMERICA FILED WITH SUBMIS SION. - IT IS ALSO ACCEPTED THAT FOREIGN CURRENCY FLUCTUA TION LOSS ON SHORT TERM LOAN AMOUNTING TO RS.49,98,072/- IS A N ACTUAL EXPENDITURE INCURRED DURING THE YEAR ON THE PURCHAS E OF FORWARD CONTACTS FOR REPAYMENT OF FCNR(B) LOAN AND NOT NOTI ONAL OR CONTINGENT AS STATED BY THE LD. AO. - IT IS ALSO ADMITTED THAT BY THIS FCNR(B) LOAN, NO FIXED ASSETS HAS BEEN ACQUIRED IN FOREIGN CURRENCY BY THE APPELLANT IN EARLIER YEARS OR IN THIS YEAR. THIS FACT IS ALSO SU PPORTED BY THE AUDITED ACCOUNTS OF EARLIER YEAR AND THIS YEAR. - IT IS EVIDENT FROM THE EXTRACT OF BALANCE SHEET T HAT THE DEBENTURES HAVE BEEN REPAID AND NEW LOANS ARE RAISE D AT LOWER FINANCE COST. THE APPELLANT IS ABLE TO REDUCE THE C OST OF FINANCING BY RS.6,967,717/-. IT IS ALSO CLEAR FROM THE SUBMIS SION MADE BEFORE ME. - IN RESPECT OF THE APPLICABILITY OF SECTION 43A OF THE ACT, THE LD. AO IS WRONG IN APPLYING THE PROVISIONS OF THE S ECTION 43A IN THE PRESENT CASE, AS FROM THE FACT IT IS CLEARLY EV IDENT THAT NO ASSETS WERE ACQUIRED BY THE ASSESSEE BY RAISING THE FCNR(B ) LOAN BY MAKING THE PAYMENT IN FOREIGN CURRENCY ON ACQUISITI ON OF CAPITAL ASSETS OUT OF THE BORROWINGS OF FCNR(B) LOAN AS SUC H AMOUNT IS UTILISED FOR REPAYMENT OF DEBENTURES. - THE SUBMISSION OF THE ASSESSEE THAT INITIAL RUPEE LOAN IS BORROWED FOR ACQUISITION OF FIXED ASSETS HAS BEEN W ITHDRAWN BY THE APPELLANT IN THE LIGHT OF THE FACTS DISCUSSED A BOVE, HENCE THE THEORY THAT FCNR(B) LOAN HAS INDIRECTLY UTILISED FO R PURCHASING THE FIXED ASSETS IN FOREIGN CURRENCY COULD NOT BE A PPLIED ON PRESENT FACTS, ESPECIALLY IN THE LIGHT OF THE FACT THAT THE APPELLANT IS FOLLOWING IS AS-11 AND THE ACCOUNTS ARE AUDITED WHE REIN IT HAS BEEN STATED THAT THE EXCHANGE DIFFERENCE ARISING ON SETTLEMENT OF TRANSACTION, EXCEPT THOSE RELATING TO FIXED ASSETS, ARE ONLY RECOGNISED AS INCOME OR EXPENSE IN THE YEAR IN WHIC H THEY ARISE. ITA NO.5243/DEL/2010 4 11. THUS, THE SOLE PURPOSE OF RAISING OF FCNR(B) LO AN IN FY 1999-2000 WOULD ONLY BE TERMED AS SWAPPING OF DEBEN TURE LOAN TO FCNR(B) LOAN TO REDUCE THE REVENUE EXPENDITURE O F THE APPELLANT AS THE PAYMENT ON INTEREST ON DEBENTURE I S AN REVENUE EXPENDITURE EVEN IF THE AMOUNT OF SUCH DEBENTURE IS UTILISED FOR ACQUISITION OF FIXED ASSETS. THE ISSUE ALSO NEEDS E XAMINATION FROM ANOTHER ANGLE. IN CASE THE APPELLANT HAS NOT REPAID THE DEBENTURE, THE WHOLE INTEREST OF RS.1,500,000/- WOULD BE ALLOW ED AS A DEDUCTIBLE EXPENDITURE. HOWEVER, SINCE THE ASSESSEE HAS PAID THE DEBENTURE BY OBTAINING ANOTHER LOAN, THE REDUCED CO ST OF THAT LOAN OF RS.4,998,072/- WOULD NOT BE ALLOWED AS A DEDUCTI BLE EXPENDITURE. THIS WOULD RESULT INTO ABSURD SITUATIO N I.E. THE HIGHER INTEREST ON DEBENTURE IS AN ALLOWABLE EXPENDITURE W HEREAS EXPENDITURE INCURRED TO ARRANGE FINANCE FOR THE RED EMPTION WOULD NOT BE ALLOWED. 12. FURTHER, THE ISSUE OF ALLOWABILITY OF FOREIGN E XCHANGE LOSS HAS BEEN NO MORE RES-INTEGRA IN VIEW OF THE DECISIO N OF THE APEX COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD. 312 ITR 254 WHEREIN IT HAS HELD THAT EXCHANGE FLUCT UATION ARISING ON REVENUE ACCOUNT TRANSACTION SHOULD BE ALLOWED AS DEDUCTIBLE EXPENDITURE. IN VIEW OF THE ABOVE SUPREME COURT DEC ISION, THE EXPENDITURE IN QUESTION IS AN ALLOWABLE EXPENDITURE AND GROUND OF THE LD. AO THAT THE DEPARTMENT HAD PREFERRED AN APP EAL IN HON'BLE SUPREME COURT AGAINST THAT THE ORDER OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR, 291 ITR 451 IN THE ASSESSMENT ORDER WOULD NOT HOLD GOOD AFTER THE DECISION OF THE APEX COURT WHEREIN THE DECISION OF THE HON'BLE DELH I HIGH COURT HAS BEEN UPHELD. 13. I AM ALSO CONVINCED WITH THE SUBMISSION OF THE APPELLANT THAT NO DISALLOWANCE HAS BEEN DONE FOR THE SUBJECT EXPENDITURE IN THE EARLIER YEARS AS WELL AS THE SUBSEQUENT YEARS, EVEN WHEN THE DETAILED SCRUTINY ASSESSMENT HAS BEEN DONE UNDER SE CTION 143(3) OF THE ACT. RELIANCE PLACED ON THE DECISION OF HON' BLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT 193 ITR 32 1 IS CORRECT. IT HAS BEEN HELD THAT WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ITA NO.5243/DEL/2010 5 ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ON E YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALL OWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE C HANGED IN A SUBSEQUENT YEAR. ' THUS, IN THE ABOVE FACTS AND CIRCUMSTANCES AND IN L EGAL POSITIONS THE SUBJECT EXPENDITURE ARE REVENUE EXPEN DITURE ALLOWABLE IN THE YEAR UNDER CONSIDERATION. HENCE, T HE ABOVE GROUNDS 3 & 3.1 OF APPEAL ARE ALLOWED. 3. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE F IND THAT THE ASSESSEE HAS TAKEN FCNR (B) LOAN FROM BANKS ON 27.01.2000 AND TH E SAME WAS UTILIZED FOR REPAYMENT OF 15% UNSECURED REDEEMABLE NON-CONVERTIB LE DEBENTURES OF RS.10 CRORES. THIS AMOUNT OF RS.49,98,072/- WAS AN ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURCHASE OF FORWAR D CONTRACTS FOR REPAYMENT OF FCNR (B) LOAN, THEREFORE, IT WAS NOT A NOTIONAL OR CONTINGENT BUT ACTUAL EXPENDITURE. FURTHER, WE FIND THAT BY TAKING FCNR (B) LOAN, THE ASSESSEE HAS NOT ACQUIRED ANY FIXED ASSET IN FOREIGN CURRENCY EI THER IN EARLIER YEARS OR IN THE CURRENT YEARS. BY TAKING THIS LOAN, THE ASSESSEE H AS REPAID THE DEBENTURES AND THIS LOAN WAS RAISED ON ACCOUNT OF LOW COST. THE P ROVISIONS OF SECTION 43A OF THE ACT COULD NOT APPLY TO THE FACTS OF THE CASE AS THE PROVISIONS CAN BE INVOKED ONLY WHEN ASSETS ARE ACQUIRED BY RAISING THE FCNR ( B) LOAN BY TAKING THE PAYMENT IN FOREIGN CURRENCY ON ACQUISITION OF CAPIT AL ASSETS ON ACCOUNT OF THESE BORROWINGS. IN THIS CASE, THE AMOUNT HAS BEEN UTIL IZED FOR REPAYMENT OF ITA NO.5243/DEL/2010 6 DEBENTURES. THE PURPOSE OF LOAN WAS TO SWAP THE CO STLIER LOAN WITH THE CHEAPER LOAN. WE ALSO NOTE THAT RELIANCE OF LD. DR ON THE CASES OF MICROSOFT CORPORATION (INDIA) P. LTD. VS. DCIT (2011) 008 I TR (TRIB) 0058 AND ROLLS ROYCE INDUSTRIAL POWER LTD. VS. ACIT (2010) 006 I TR (TRIB) 0722 IS OF NO HELP TO THE REVENUE AS FACTS BEING AT VARIANCE IN T HESE CASES. FURTHER, WE WOULD ALSO KIKE TO MENTION THAT SIMILAR EXPENDITURE HAS B EEN ALLOWED IN THE PRECEDING AND SUCCEEDING YEARS. WE FIND NO MERITS IN THE REV ENUES APPEAL WHEN A CONSISTENT VIEW HAS BEEN TAKEN IN FAVOUR OF THE ASS ESSEE ON THE QUESTION RAISED IN THIS YEAR. THEREFORE, WE FIND NO MERITS IN THE APPEAL OF THE REVENUE AND SAME STANDS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF FEBRUARY, 2014. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 21 ST DAY OF FEBRUARY, 2014 TS ITA NO.5243/DEL/2010 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-V, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.