ADVANI HOTELS & RESORTS (INDIA) LTD, MUMBAI V. ITO WD 3(1)(1), MUMBAI

ITA 631/MUM/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3379 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Capital asset; Depreciation; Tax effect; Capital receipt
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.630/M/2009 ASSESSMENT YEAR: 2004-05 ITA NO.631/M/2009 ASSESSMENT YEAR: 2005-06 ITA NO.2536/M/2013 ASSESSMENT YEAR: 2009-10 M/S. ADVANI HOTELS & RESORTS (INDIA) LTD., 18A & 18B, JOLLY MAKER CHAMBERS II, NARIMAN POINT, MUMBAI 400 021 PAN: AAACR 6389Q VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE -3(1), 6 TH FLOOR, ROOM NO.607 AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO.3101/M/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE -3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400020 VS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD., JOLLY MAKER -II, 18A & 18B, 225, NARIMAN POINT, MUMBAI 400 021 PAN: AAACR 6389Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PRAKASH JOTWANI, A.R. REVENUE BY : SHRI A.B. KOLI, D.R. DATE OF HEARING : 25.08.2016 DATE OF PRONOUNCEMENT : 31.08.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED THREE APPEALS BY THE ASSESSEE AND ONE CROSS APPEAL BY THE REVENUE HAVE BEEN PREFERRED AGAINST THE ORDE RS OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEARS 2004-05, 2005-06 & 2009-10. SINCE ALL THE FOUR APPEALS WERE ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 2 HEARD TOGETHER AND HENCE THE SAME ARE BEING DISPOSE D OF BY THIS COMMON ORDER. 2. WE TAKE UP ASSESSEES APPEAL BEARING ITA NO.630/ M/2009 FOR A.Y. 2004-05 AS LEAD CASE. ITA NO.630/M/2009 FOR A.Y. 2004-05 3. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) {{CIT(A)}] ERR ED IN CONFIRMING THE DISALLOWANCE OF RS.16,91,710/- MADE BY THE ASSESSIN G OFFICER UNDER SECTION 36(1)(VA) IN RESPECT OF EMPLOYEES CONTRIBUT IONS TO PROVIDENT FUND AND ESIC ACTUALLY PAID BY THE APPELLANT, THOUG H DELAYED. 2. (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. OF TAXIN G AS REVENUE RECEIPT AN AMOUNT OF RS.1,00,07,200/- BEING NOTIONAL GAIN DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATES IN RESPECT OF FOREIGN CURREN CY LOANS, WHICH WERE UTILIZED FOR CAPITAL PURPOSE AND WHICH GAIN WAS CLA IMED BY THE APPELLANT AS CAPITAL RECEIPT NOT LIABLE TO TAX. (B) THE LD. CIT(A) ERRED IN FAILING TO APPRECIATE T HAT THE AFORESAID FOREIGN EXCHANGE FLUCTUATION GAIN WAS ON CAPITAL ACCOUNT AN D NOT RELATABLE TO ANY CIRCULATING CAPITAL AND AS SUCH HE OUGHT TO HAV E HELD IT TO BE CAPITAL RECEIPT NOT LIABLE TO TAX. (C) WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) ERRED IN NOT DIRECTING THE A.O. TO ALLOW DEPRECIATION ON FIXED ASSETS WITH OUT REDUCING THE AFORESAID FOREIGN EXCHANGE FLUCTUATION GAIN ADJUSTE D BY THE APPELLANT UNDER SECTION 43A OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,29,839 /- MADE BY THE A.O. IN RESPECT OF EXPENSES INCURRED AND RELATABLE TO TH E PREVIOUS YEAR ENDED 31.3.2004 BUT ACCOUNTED IN SUBSEQUENT YEAR. YOUR APPELLANT CRAVES LEAVE TO ADD TO ALTER, AMEND OR DELETE THE ABOVE GROUND OF APPEAL, WHICH ARE INDEPENDENT AND WITHOUT PREJUD ICE TO EACH OTHER, ON OR BEFORE THE DATE OF HEARING. GROUND NO.1: 4. THE ASSESSEE THROUGH THIS GROUND HAS AGITATED TH E ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.16,91,7 10/- MADE BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) UNDER SECTION 36(1)(VA) OF ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 3 THE ACT IN RESPECT OF EMPLOYEES CONTRIBUTION PROVID ENT FUND AND ESIC ON ACCOUNT OF DELAYED PAYMENT. THE AO HAD MADE THE DI SALLOWANCE OBSERVING THAT THE CONTRIBUTION TO THE ABOVE STATED FUNDS WAS PAID BY THE ASSESSEE AFTER THE DUE DATE AS SPECIFIED IN EXPLANATION TO SECTION 36(1)(VA) OF THE ACT. 5. THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE. 6. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS RELI ED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. A LOM EXTRUSIONS LTD. REPORTED IN 185 TAXMAN 416 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT THE EFFECT OF DELETION OF SECOND PROVISO TO SECTION 43B OF FINANCE ACT, 2003 IS RETROSPECTIVE THEREFORE, THE ASSESSEE WOULD BE ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION IF THE AMOUNT OF CONTRIBUTION TO EMPLOYEES PROVIDENT FUND IS DEPOSITED ON OR BEFORE THE DUE DATE OF FILI NG OF RETURN FOR THE RELEVANT ASSESSMENT YEAR. 7. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF T HE AO TO EXAMINE WHETHER THE CONTRIBUTION WAS MADE BY THE ASSESSEE TO THE EM PLOYEES PROVIDENT FUND AND ESIC ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR AND IF IT IS FOUND SO, THE N NOT TO MAKE ANY DISALLOWANCE IN THE LIGHT OF THE DECISION OF THE HO NBLE SUPREME COURT. GROUND NO.2 8. WITH THIS GROUND, THE ASSESSEE HAS AGITATED THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TAXING THE NO TIONAL GAIN DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATES IN RESPECT OF FOREIGN CURRENCY LOANS WHICH WERE UTILIZED FOR PURCHASE OF CAPITAL ASSETS HOLDIN G THE SAME AS REVENUE RECEIPT AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAME BEING A CAPITAL RECEIPT WAS NOT LIABLE TO TAX. THE LD. A.R. OF THE ASSESSEE HA S BROUGHT OUR ATTENTION TO VARIOUS DOCUMENTS ON THE FILE TO DEMONSTRATE THAT T HE ASSESSEE HAD SET UP A FIVE STAR RESORT AND A FLIGHT CATERING UNIT AT GOA IN EA RLIER YEARS. IT HAD BORROWED ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 4 FIXED TERM LOANS INCLUDING UNDER PROJECT FINANCING SCHEMES FROM VARIOUS LENDERS FOR FINANCING THE COST OF THESE BUSINESS UN ITS. THESE LOANS WERE ALSO UTILIZED FOR IMPORTING PLANT & MACHINERY, FURNITURE & FIXTURES AND OTHER EQUIPMENTS, WHICH WERE INSTALLED IN THE HOTEL UNIT AND FLIGHT KITCHEN UNIT. IN RESPECT OF FOREIGN CURRENCY LOAN, INCLUDED IN ABOVE , WHICH WAS UTILIZED FOR IMPORTING FIXED ASSETS, THE ASSESSEE HAS BEEN ADJUS TING THE LOSS OR GAIN ARISING OUT OF FOREIGN EXCHANGE RATES FLUCTUATION AS PER TH E PROVISIONS OF SECTION 43A OF THE I.T. ACT. AS THE ABOVE EXISTING LOANS WERE HIGH INTEREST BEARING LOANS, THE ASSESSEE UNDER ITS CAPITAL RE-STRUCTURING PLAN, NEGOTIATED FOR AN EXTERNAL COMMERCIAL BORROWING IN FOREIGN EXCHANGE AND BORROW ED RS.20,28,68,000/- FROM BANK OF BARODA, LONDON BRANCH IN THE PREVIOUS YEAR ENDED 31.3.2004 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . THE NEW ECB LOAN WAS DISBURSED TO THE ASSESSEE BY WAY OF DIRECT PAYMENT BY THE NEW LENDER TO THE OLD LENDERS IN FULL AND FINAL SETTLEMENT OF THEIR RESPE CTIVE DUES. THUS, THE NEW FOREIGN CURRENCY LOAN WAS FULLY UTILIZED TO REPAY T HE EXISTING HIGH COST FIXED TERM LOANS, WHICH WERE ALSO UTILIZED FOR IMPORT OF PLANT & MACHINERY ETC. IN EARLIER YEARS. 9. THESE FACTS NARRATED ABOVE HAVE NOT BEEN DISPUTE D BY THE REVENUE AUTHORITY. THE AO DISALLOWED THE CLAIM OF THE ASSE SSEE AND TAXED THE NOTIONAL GAIN ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE TREATING THE SAID GAIN AS REVENUE RECEIPT ON THE GROUND THAT THE NEW LOAN TAK EN BY THE ASSESSEE WAS NOT UTILIZED FOR THE PURCHASE OF AN ASSET BUT FOR REPAY MENT OF EARLIER LOAN. 10. THE LD. CIT(A) ALSO CONFIRMED THE ABOVE FINDING OF THE AO. 11. THE LD. A.R. OF THE ASSESSEE, BEFORE US, HAS DE MONSTRATED FROM THE VARIOUS DOCUMENTS ON THE FILE THAT IT WAS NOT A CAS E OF TAKING OF NEW LOAN FOR ANY OTHER PURPOSE BUT IT WAS JUST A CASE OF SHIFTIN G OF THE LOAN LIABILITY. SINCE THE ASSESSEE HAD TO PAY THE LOAN AND INTEREST LIABI LITIES TO VARIOUS BANKS/FINANCIAL INSTITUTIONS AND A PROPOSAL HAD COM E FROM THE BANK OF BARODA ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 5 TO CONSOLIDATE ALL THE LOANS OF THE ASSESSEE IN ONE BANK WHICH WAS CONVENIENT TO THE ASSESSEE. HENCE ALL THE OLD LOANS WHICH WER E RELATABLE TO ACQUISITION OF FIXED ASSETS REGARDING WHICH THE ASSESSEE HAD ALREA DY BEEN ADJUSTING THE LOSS OR GAIN ARISING OUT OF THE FOREIGN EXCHANGE RATES FLUC TUATION AS PER THE PROVISIONS OF SECTION 43A OF THE ACT WERE TAKEN OVER BY THE BA NK OF BARODA. THE LD. A.R. HAS ALSO DEMONSTRATED THAT THE ASSETS WHICH WE RE ALREADY PLEDGED AS PRIMARY SECURITY WITH THE OLD BANKS WERE ACCORDINGL Y TAKEN OVER BY THE NEW BANK. THE PRESENT LOAN WAS NOT TAKEN FOR ANY OTHER PURPOSE BUT FOR THE REPAYMENT OF THE OLD LOAN WHICH WAS ADMITTEDLY USED FOR THE PURPOSE OF PURCHASE OF CAPITAL ASSETS. AFTER CONSIDERING THE ABOVE SUBMISSIONS AND GOING THROUGH THE UNDISPUTED FACT THAT THE NEW LOAN WAS T AKEN FOR REPAYMENT OF OLD LOAN WHICH, IN FACT, WAS PAID BY THE NEW BANK I.E. BANK OF BARODA DIRECTLY TO THE OLD BANKS/FINANCERS OF THE ASSESSEE, IT CAN BE WELL OBSERVED THAT IT WAS NOT A CASE OF TAKING OF A NEW LOAN FOR ANY OTHER PURPOSE BUT IT WAS A SIMPLE CASE OF SHIFTING OF THE LOAN FROM THE ONE BANK TO OTHER. T HE ASSESSEE IS THUS ENTITLED TO THE BENEFITS/ADJUSTMENTS OF THE CORRESPONDING LOSSE S AND GAINS AS PER THE PROVISIONS OF SECTION 43A OF THE ACT. WE ACCORDING LY ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE. SO FAR AS THE ALTERNATE CONTENTIONS OF THE ASSESSEE FOR DIRECTING THE AO TO ALLOW DEPRECIATION ON FIXED ASSETS WITHOUT REDUCING THE AFORESAID FOREIGN EXCHANGE FLUCTUATION GAIN ADJUSTED BY THE ASSESSEE UNDER SECTION 43A OF THE ACT IS CONCERNED, THE SAID ISSUE HAS BECOME INFRUCT UOUS AS WE HAVE ALREADY DECIDED THE MAIN ISSUE OF ADJUSTMENT OF GAIN TOWARD S THE COST OF ASSET IN FAVOUR OF THE ASSESSEE. 12. THE LD. A.R. OF THE ASSESSEE HAS STATED AT BAR THAT HE DOES NOT PRESS GROUND NO.3 OF THE APPEAL. THUS, THE GROUND NO.3 O F THE APPEAL IS DISMISSED AS NOT PRESSED. 13. THIS APPEAL OF THE ASSESSEE IS THUS TREATED AS PARTLY ALLOWED. ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 6 ITA NO.631/M/2009 FOR A.Y. 2005-06 (ASSESSEES APPE AL) GROUND NOS.1 & 2 14. THE ASSESSEE, IN THIS APPEAL HAS TAKEN SIX GROU NDS OF APPEAL. GROUND NOS.1 & 2 ARE RELATING TO THE DISALLOWANCE ON ACCOU NT OF DELAYED PAYMENT IN RESPECT OF EMPLOYEES CONTRIBUTION TO ESIC UNDER SEC TION 36(1)(VA) OF THE ACT. THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY US WHILE DECIDING GROUND NO.1 OF THE ASSESSEES APPEAL FOR A.Y. 2004-05. THIS ISSUE IS ACCORDINGLY RESTORED TO THE FILE OF THE AO FOR VERIFICATION AS PER OUR DIRE CTIONS GIVEN ABOVE. GROUND NO.3 15. GROUND NO.3 IS IDENTICAL TO THAT OF GROUND NO.2 TAKEN IN ASSESSEES APPEAL FOR A.Y. 2004-05 REGARDING THE ADJUSTMENTS O F NOTIONAL GAIN/LOSS ON FOREIGN EXCHANGE UNDER SECTION 43A OF THE ACT. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NOS.4 & 5 16. GROUND NOS.4 & 5 ARE RELATING TO DISALLOWANCE M ADE BY THE AO UNDER SECTION 40(A)(IA) OF THE ACT. THE LD. A.R. OF THE ASSESSEE HAS STATED AT BAR THAT HE DOES NOT PRESS GROUND NOS.4 & 5 OF THE ASSESSEE S APPEAL. GROUND NOS.4 & 5 OF THE ASSESSEES APPEAL ARE THEREFORE DISMISSED AS NOT PRESSED. ITA NO.2536/M/2013 FOR A.Y. 2009-10 (ASSESSEES APP EAL) 17. THE SOLE ISSUE TAKEN BY THE ASSESSEE IN THIS AP PEAL IS REGARDING THE ACTION OF THE AO IN REJECTING THE CLAIM OF THE ASSESSEE TR EATING THE NOTIONAL LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS REVENUE LOSS. THE ASSESSEE DURING THE YEAR HAD CLAIMED THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IN RESPECT OF LOAN WHICH WAS USED FOR THE PURPOSE OF C APITAL ASSET AS REVENUE LOSS WHICH CLAIM WAS CONSISTENT WITH THE DEPARTMENTS ST AND IN EARLIER YEARS. HOWEVER, SURPRISINGLY FOR THE YEAR UNDER CONSIDERAT ION, THE AO TREATED THE SAID LOSS AS CAPITAL LOSS IN COMPLETE CONTRADICTION TO H IS EARLIER STAND. HOWEVER, AS OBSERVED ABOVE WHILE ADJUDICATING THE ISSUE FOR THE EARLIER YEARS, WE HAVE ALREADY ALLOWED THE CLAIM OF THE ASSESSEE TO CLAIM ADJUSTMENTS OF NOTIONAL ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 7 LOSS/GAIN AS PER THE PROVISIONS OF SECTION 43A OF T HE ACT. WE, THEREFORE, DISMISS THIS APPEAL OF THE ASSESSEE WITH THE DIRECT ION THAT THE ASSESSEE WILL BE ELIGIBLE TO CLAIM THE ADJUSTMENTS UNDER SECTION 43A OF THE ACT IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE WHILE DECIDING THE ASSE SSEES APPEAL FOR A.Y. 2004-05. ITA NO.3101/M/2013 FOR A.Y. 2009-10 (REVENUES APPE AL) 18. THIS CROSS APPEAL HAS BEEN PREFERRED BY THE REV ENUE AGAINST THE ORDER OF THE LD. CIT(A) DATED 16.01.2013. 19. AT THE OUTSET, THE LD. D.R. HAS SUBMITTED THAT THE TAX EFFECT IN THIS APPEAL OF THE IS LESS THAN RS.10 LAKHS. HE, THEREFORE, HA S STATED THAT THE CBDT CIRCULAR NO.21/2015 IS APPLICABLE TO THIS APPEAL AND HENCE, THIS APPEAL IS NOT MAINTAINABLE/NOT PRESSED IN TERMS OF THE SAID CBDT CIRCULAR NO.21/2015 DATED 10/12/2015. 20. THE REVENUES APPEAL IS THEREFORE DISMISSED. 21. IN THE RESULT, SUBJECT OUR OBSERVATIONS MADE AB OVE, THE ASSESSEES APPEALS FOR A.Y. 2004-05 AND 2005-06 ARE PARTLY ALL OWED WHEREAS ASSESSEES APPEAL AS WELL AS REVENUES CROSS APPEAL FOR A.Y. 2 009-10 IS TREATED AS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2016. SD/- SD/- (B.R. BASKARAN) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.08.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI ITA NO.2536/M/2013 & ORS. M/S. ADVANI HOTELS & RESORTS (INDIA) LTD. 8 THE DR CONCERNED BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.