ORIENTAL AROMATICS LTD,MUMBI, MUMBAI V. DCIT CC 1(2)(2), MUMBAI , MUMBAI

ITA 6331/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7096 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2014-2015
• Appeal Filed On: 03-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Earning of tax free income; Source of fund; Wholly owned subsidiary; Capital receipt
• Section: 143(3); 14A; 10B; 201; 13

Judgement Text

ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI „J‟ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President), and Amarjit Singh(Judicial Member)] ITA No. 6331/Mum/2019 Assessment year 2014-15 Oriental Aromatics Limited ............................Appellant 2 nd floor, Jehangir Building 133, M G Road, Fort, Mumbai 400 001 [PAN: AAACO4618F] Vs. Deputy Commissioner of Income Tax Circle 1(2)(2) Mumbai ........................Respondent Appearances by Vispi Patel and Suresh Dhoot for the appellant Ajit Kumar for the respondent Dates of the hearings : 13/12/2021 Date of pronouncement : 10/03/2022 OR D ER Per Pramod Kumar, VP: 1. By way of this appeal, the assessee appellant has challenged the correctness of the order dated 30 th August 2019 passe by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2014- 15. 2. The first issue requiring our adjudication, in this case, is whether on the facts and in the circumstances of the case,the learned CIT(A) was justified in upholding the arm‟s length price adjustment of Rs 43,39,397 can be made in respect of an interest-free loan to an associated enterprise and if so whether such an adjustment can exceed an arm‟s length price adjustment based on the LIBOR simpliciter. Grounds of appeal nos. 1 to 6 deal with these issues, and are reproduced below for ready reference: 1. The learned Commissioner of Income Tax (Appeals) -57, Mumbai ["CIT(A)"] erred in fact and in law in confirming the action of the learned Deputy Commissioner of Income Tax-Circle3(1)(2), Mumbai [“the TPO”] and the teamed Deputy Commissioner of Income Tax-Circle 1(2)(2), Mumbai (the AO") in determining the Arm's Length Price of a transaction that has never been entered into by the Appellant and consequently making an addition of Rs. 43,39,397 as interest on loan. ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 2 of 11 2. The learned C1T(A) erred in fact and in law confirming the action of the learned TPO and the learned AO in making an upward adjustment of Rs. 43,39,397/- by wrongly considering an investment in the subsidiary by way of a loan as a financing transaction, and consequently charging interest on the said loan arrangement. 3. The learned CIT(A) erred in fact and in law confirming the action of the learned TPO and learned AO by not appreciating the fact that the advance was interest free and hence, there existed no basis of charge u/s. 4 of the Income Tax Act, 1961 ("the Act") and consequently no income arises as per section 92(1) of the Act. 4. The learned C1T(A) erred in fact and in law confirming the action of the learned TPO and learned AO by not appreciating the fact that the provisions of Chapter-X of the Act are not applicable in the case of the Appellant. 5. The learned CIT(A) erred in fact and in law confirming the action of the learned TPO and learned AO is considering CUP Method as the most appropriate method for applying rates of interest in pure finance transaction as comparable cases. 6. Without prejudice to above, the learned CIT(A) erred in fact and in law confirming the action of the learned TPO and learned AO in considering CUP method without applying an adjustment as per Rule 10B of the Income Tax Rules, 1962 (“the Rules”). 3. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us has a wholly-owned subsidiary of Oriental Aromatics Inc USA and is engaged in the business of manufacturing and sale of perfumery compounds, fragrances and flavours. In one of the earlier previous years, as far back as in the financial year 2005-06, the assessee had granted an interest-free loan to its overseas subsidiary. The Transfer Pricing Officer noted that an arm‟s length price adjustment is required to be made in respect of this interest-free loan, and, accordingly, based on the Bloomberg data on US Dollar denominated loans, as this transaction was, the Transfer Pricing Officer recommended an ALP adjustment of Rs 79,51,087. It was in this backdrop that the Assessing Officer made the ALP adjustment of Rs 79,51,087. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A), in his brief order, confirmed the action of the Assessing Officer in principle but scaled it down to Rs 43,39,397 on the basis of the following reasoning: Ground No. 1 to 7: In ground no. 1 to 7 the assessee has challenged the action of the AO in making in upward TP adjustment amounting to Rs. 79,51,087/- in respect of the interest free loan given in earlier years. During the course of appellate proceedings the appellant submitted that the identical issue was involved in AY 2013-14 where Learned Dispute Resolution Panel- 2 Mumbai (DRP) has upheld the transfer pricing adjustment in respect of interest free loan, however, the Panel directed the AO to apply interest rate of LIBOR + 3% as ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 3 of 11 Ann's Length Price (ALP) for the loan borrowed by the Associated Enterprise. I have gone through the DRP order I find that since the facts of the case this year is similar to earlier year respectfully following honourable DRP direction in AY 2013-14 the AO is directed to apply interest rate of LIBOR +3% at Arm's Length Price. This ground of appeal is Partly Allowed. 4. The assessee is aggrieved and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. As regards the first set of plea, i.e. against the loan in question being treated as quasi capital and the plea for non-benchmarking the same alongside the normal commercial borrowings, we find that the issue is covered against the assessee by a coordinate bench decision in the case of Soma Textile & Industries Ltd Vs ACIT [ (2015) 59 taxmann.com 152 (Ahd)], wherein, speaking through one of us (i.e. the Vice President), the coordinate bench had inter alia observed as follows: .........The question, however, arises as to what are the connotations of expression 'quasi capital' in the context of the transfer pricing legislation. 6. Hon'ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd. v. Dy. CIT [2015] 56 taxmann.com 417 , has begun by quoting the thought- provoking words of Justice Felix Frankfurter to the effect that "A phrase begins life as a literary expression; its felicity leads to its lazy repetition; and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas". The reference so made to the words of Justice Frankfurter was in the context of the concept of "super profits" but it is equally valid in the context of the concept of "quasi capital" also. As in the case of the super-profits, to quote the words of Their Lordships, "many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a "lazy repetition") of this reasoning, without an independent analysis of the provisions of the Act and the rules", the same seems to be the position with regard to "quasi capital". There are several decisions of this Tribunal, including in the cases of Perot Systems TSI (India) Ltd. (supra ), Micro Inks Ltd (supra ), Four Soft (P.) Ltd. v. Dy. CIT [2014] 149 ITD 732/44 taxmann.com 479 (Hyd.), Prithvi Information Solutions (P.) Ltd. v. Asstt. CIT [2014] 49 taxmann.com 176 (Hyd.), which refer to the concept of 'quasi capital' but none of these decisions throws any light on what constitutes 'quasi capital' in the context of transfer pricing and its relevance in ascertainment of the arm's length price of a transaction. Lest we may also end up contributing to, as Hon'ble Delhi High Court put it, "rote repetition of this reasoning without an independent analysis of the provisions of the Act and the Rules", let us take briefly deal with the connotations of 'quasi capital', and its relevance, under the transfer pricing regulations. ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 4 of 11 7. The relevance of 'quasi capital', so far as ALP determination under the transfer pricing regulation is concerned, is from the point of view of comparability of a borrowing transaction between the associated enterprises. 8. It is only elementary that when it comes to comparing the borrowing transaction between the associated enterprises, under the Comparable Uncontrolled Price (i.e. CUP) method, what is to be compared is a materially similar transaction, and the adjustments are to be made for the significant variations between the actual transaction with the AE and the transaction it is being compared with. Under Rule 10B(1)(a), as a first step, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified, and then such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market. Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor , for example, a non- refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi capital, are treated differently than the normal loan transactions. 9. The expression 'quasi capital', in our humble understanding, is relevant from the point of view of highlighting that a quasi-capital loan or advance is not a routine loan transaction simplictor . The substantive reward for such a loan transaction is not interest but opportunity to own capital. As a corollary to this position, in the cases of quasi capital loans or advances, the comparison of the quasi capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the coordinate benches, wherein references have been made to the advances being in the nature of 'quasi capital', these cases referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm's length price of such transactions was concerned. The reward for time value of money in these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced. 10. Learned counsel wants to take the concept of 'quasi capital' to a different level now. His contention is that whenever it can be said that the loan transaction is in the nature of quasi capital, its arm's length price should be 'nil' rate of interest, and to decide what is 'quasi capital', he refers to the academic literature on the issue. Learned counsel has taken pains to explain that the grant of loan was intended to be a long term investment in the subsidiary which has a crucial ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 5 of 11 role to play in its business plans. He submits that the arm's length price of this quasi capital investment by the assessee in Soma Textiles FZE should be treated at 'nil'. 11. We are unable to see any merits in his line of reasoning. As the learned counsel himself accepts, on a conceptual note, several types of debts, particularly long term unsecured debts, and revenue participation investments could be termed as 'quasi capital'. So far as arm's length price of such transactions are concerned, this cannot be 'nil' because, under the comparable uncontrolled price method, such other transactions between the independent enterprises cannot be at 'nil' consideration either. Nobody would advance loan, in arm's length situation, at a nil rate of interest. The comparable uncontrolled price of quasi capital loan, unless it is only for a transitory period and the de facto reward for this value of money is the opportunity for capital investment or such other benefit, cannot be nil. As for the intent of the assessee to treat this loan as investment, nothing turns on it either. Whether assessee wanted to treat this loan as an investment or not does not matter so far as determination of arm's length price of this loan is concerned; what really matters is whether such a loan transaction would have taken place, in an arm's length situation, without any interest being charged in respect of the same. As for the contention regarding crucial role being played by, or visualized for, this AE, there is no material on record to demonstrate the same or to justify that even in an arm's length situation, a zero interest rate loan would have been justified to such an entity. A lot of emphasis has also been placed on the fact that the loan was out of the GDR funds, and, for this reason, the interest free loan was justified. We are unable to see any logic in this explanation either. Even when the loan is given out of the GDR funds held abroad, the arm's length price of the loan is to be ascertained. The source of funds is immaterial in the present context. We have also noted that the assessee has not offered any assistance on the quantum of ALP adjustment in respect of this loan transaction, and that in the subsequent assessment years, the assessee himself has accepted ALP adjustment by adopting the LIBOR + 2% interest rate. In this view of the matter, no interference is warranted on the quantum of the ALP adjustment either. In view of these discussions, we confirm the stand of the authorities below on this issue and decline to interfere in the matter. 7. Learned counsel‟s armoury, however, is not exhausted. He then invites our attention to a co-ordinate bench decision in the assessee‟s own case for the immediately preceding assessment year and vide order dated 27 th July 2020, which, inter alia, holds as follows: 6. In grounds of appeal No. 4 to 6, the assessee has assailed TP adjustment of Rs.77,22,054/- on account of interest on loans advanced to AE. The assesse has purportedly advanced interest free loans to its AE. The TPO in order to benchmark the loan transaction at arm's length applied LIBOR +3% rate of interest. The contention of the assesse is that only LIBOR rate should be applied without any mark-up. We find that the Hon'ble Bombay High Court in the case of CIT vs TATA Autocomp Systems Ltd. (supra) has upheld the order of Tribunal in determining ALP of loans advanced to overseas AE at ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 6 of 11 EURIBOR/LIBOR rates without any mark-up. We further observe that in the immediately preceding assessment years, the TPO had made similar adjustments qua interest on loans advanced to AE. The Co-ordinate Bench directed the TPO to apply LIBOR rates to benchmark Arm's Length Price (ALP) of International Loan Transaction. Thus, in the light of the aforementioned judgment of the Hon'ble Jurisdictional High Court and the order of Tribunal in the assessee's own case, we direct the TPO to apply LIBOR rate to benchmark the transactions of loan advanced to AE during the relevant period. The grounds of appeal No.4 to 6 are partly allowed, accordingly. 8. While learned counsel urges us to follow the stand so taken by the coordinate bench, and quite understandably so, we do not think it would be permissible to do so in the light of law laid down by Hon‟ble jurisdictional High Court. We find that in coming to this conclusion, the coordinate bench has stated that it is following Hon‟ble jurisdictional High Court decision in the case of CIT Vs Tata Autocomp Systems Ltd [(2015) 56 taxmann.com 206 (Bom)], and it will therefore be useful to look at what Their Lordships have actually held. The entire operative portion of the said order is as follows: 7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law. 9. Clearly, therefore, all that Their Lordships have held that since the Tribunal decisions in the cases of VVF Ltd (supra)[reported as VVF Ltd Vs DCIT- TS 84 ITAT 2010] and DCIT Vs Tech Mahindra Limited (supra)[reported as (2011) 12 taxmann.com132(Mum) and as (2011) 46 SOT 141 (Mum)] were accepted by the revenue authorities, it cannot be open to the revenue authorities to challenge the same decision in other cases. Both of these decisions were incidentally authored by one of us (i.e. the Vice President) and an important common thread in both of these decisions is that there has been a mark up on the Euro and USD denominated LIBOR, rather than LIBOR simpliciter. In Tech Mahindra case(supra), for example, it is specifically stated, in paragraph 7, that “We have adopted the same approach by taking into account the commercial principles and practices with regard to a US Dollar denominated extended credit for arriving at the benchmark rate, andtake LIBOR as ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 7 of 11 the base. Accordingly, the LIBOR (US Dollar) has to be a benchmark for US Dollar transactions - rather than the rate of interest on domestic borrowings, even which is lower than the interest rate of 10 per cent taken as ALP by the TPO, or, for that purpose, rate of interest on any other currency loans. Having said that, we may also reiterate that as we hold so, we are not giving any decision on whether the ALP adjustment can be made, on the basis of LIBOR plus mark up, in respect of extended credit because we are dealing with a very limited issue in this appeal which does not require adjudication on the broader question as to whether an extended credit period can anyway be compared with a loan, much less a loan in some other currency which will have distinct lending rates depending on the peculiarities relating that currency, since it does not involve the lending period commitment as a loan necessarily involves. Be that as it may,the CIT(A) cannot thus be said to be in error in adopting the US Dollars LIBOR rate, with mark-up which is not in dispute for its being too low, as a basis for ALP adjustment- as long as he can be said to be justified in upholding the ALP adjustment.” Similarly, in VVF‟s case(supra), which is also reported as VVF Ltd Vs DCIT- TS 84 ITAT 2010, it was specifically noted by the coordinate bench, again in paragraph 7, that “We have noted that as was also noted by the Transfer Pricing Officer himself at page 3 of his order the assessee has borrowed foreign currency loans in US Dollars and for the purposes of investing in subsidiaries abroad, from ICICI Bank at the rate of LIBOR + 3%”and proceed to accept the same,at LIBOR + 3% as an Internal CUP, by observing that “In such a situation, and for the reasons we have discussed earlier, internal CUP is more reliable”. 10. In view of the above discussions, what has been approved by Hon‟ble High Court is that the LIBOR based arm‟s length price cannot be challenged by the revenue authorities, and this decision is certainly not a proposition for holding that LIBOR simpliciter is to accepted as the arm‟s length rate. In any event, the LIBOR, or for that purpose any interbank rate, cannot be treated as an arm‟s length interest, except for inter-banking transactions. As we hold so, at the cost of stating the obvious, we must bear in mind the fact that LIBOR, by definition, is London inter-banking offer rate at which essentially banks lend to each other, and the interest rate for end consumers is certain points above this inter-banking rate. If banks borrow at x rate, even simply meeting the basic costs of administrating the business, the rate at which they give loans, has to be x plus something. In the transfer pricing benchmarking, when we ascertain arm‟s length price of a loan transaction, we have to ascertain the interest rate at which normal borrowing and lending transactions have to take place, and these rates are admittedly certain points above the inter-bank offer rate- unless, of course, the transactions are between the banking institutions. That is the reason the benchmarking of loan transactions is on the basis of inter-bank offer rate, plus certain basis points above that. The critical question, however, is how many points above the inter-bank rate is the typical arm‟s length rate, and that is what a benchmarking analysis should essentially focus on, apart from examining which inter-bank offer rate should be adopted, i.e. Indian inter-bank rate reflected by the RBI rate, LIBOR rate for US Dollar-denominated loans or some other inter-bank offer rate dealing with a particular currency such as Euro etc. The point in dispute in the cases referred to by Hon‟ble jurisdictional High Court were the cases where the dispute was confined to which inter-bank offer rate should be adopted, and not the spread or the bps above that. The coordinate bench thus clear in error, and inadvertent error at that, in understanding the impact of this decision, and, in any event, there was no decision on merits or on first principles by the coordinate bench.The understanding of the coordinate bench, quite clearly, is per incuriam, and as is the settled legal position, the per incuriam decisions cease to be binding judicial precedents. The authority, if needed, is contained in the oft- ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 8 of 11 quotedAndhra Pradesh Full bench decision in the case of CIT Vs BR Constructions [(1993) 202 ITR 222 (AP-FB)]. We, therefore, decline to be persuaded by the coordinate bench‟s understanding about the decision of the Hon‟ble jurisdictional High Court. No other judicial precedent in support of the proposition that an inter-bank rate could be accepted as an arm‟s length price forbenchmarking a commercial loan transaction was cited before us. 11. In all fairness, however, whether 300 bps above the LIBOR rate is an arm‟s length price for interest on the transaction in question is still an open issue for adjudication. There are no specific findings on this aspect. We, therefore, remit this limited aspect of the matter for fresh adjudication by the learned CIT(A) and direct the assessee to place all the material and arguments in support of adopting an arm‟s length interestrate lower than 300 bps above the LIBOR, if so advised, before the CIT(A). In taking his call, learned CIT(A) has to adjudicate the matter on the merits of the case rather than being simply guided by the observations of the DRP in the immediately preceding assessment year. While doing so, he will give a due and reasonable opportunity of hearing to the assessee, and decide the matter by way of a speaking order in accordance with the law. Ordered, accordingly. 12. Ground nos. 1 to 6 are thus allowed for statistical purposes in the terms indicated above. 13. In the second set of grievances, i.e. ground nos. 7 to 10, the assessee has raised the following grievances: 7. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in invoking the provision of Section 14A of the Income Tax Act, 1961, (“the Act”) read with rule 8D of the Rules and thereby making disallowance amounting to Rs. 22,84,847/-. 8. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in making disallowance u/s 14A r.w.r 8D of the Rules despite the fact that the Appellant was having surplus interest free funds for making the investment. 9. The learned C1T(A) erred in fact and in law confirming the action of the learned AO in invoking provisions of section I4A of the Act read with rule 8D, without recording any satisfaction as to the correctness of the claim of the Appellant having regard to the accounts of the Appellant. 10. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in making disallowance u/s 14A of the Act on the basis of assumptions and presumptions. 14. So far as this issue is concerned, learned representatives fairly agree, that in accordance with the decision of the coordinate bench in the assessee‟s own case for the immediately preceding assessment year, the disallowance under section 14A must remain confined to the tax-exempt income. We order accordingly, and remit the matter to the file of the Assessing Officer for this limited purpose. The observations made in the coordinate bench decision (supra) will apply mutatis mutandis to this assessment year as well. ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 9 of 11 15. Ground nos. 7 to 10 are thus allowed for statistical purposes in the limited terms indicated above. 16. In the third set of grievances, i.e. grounds of appeal nos 11 to 15, the assessee has raised the following grievances: 11. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in making an addition of Rs.5,29,00,730/- to the total income of the Appellant by treating exchange fluctuation gain from investment in subsidiary as revenue receipt instead of capital in nature. 12. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in treating the exchange fluctuation difference on investment made in subsidiary company by way of loan as working capital loan and thereby treating the difference as revenue receipt instead of capital receipt. 13. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in treating the foreign exchange gain arising on the repayment of the loan as revenue in nature without appreciating the fact that the loan was in the nature of investment in subsidiary and not working capital loan. 14. The learned CIT(A) erred in fact and in law confirming the action of the learned AO in making the addition based on assumptions and presumptions. 15. The learned CIT(A) erred in fact and in law confirming the action of the learned AO without appreciating the facts in proper perspective. 17. So far as this aspect of the matter is concerned, the relevant material facts are as follows. The assessee had granted interest free loans to its overseas associated enterprise from time to time. The Assessing Officer noted that the loans were in revenue account as these loans were given to the overseas associated enterprise for „expanding assessee‟s footprints in the overseas market and to develop more products in the marketplace‟. The purpose was thus, according to the learned Assessing Officer, „increase in its revenue‟. On these transactions, the assessee gained an amount of Rs 5,29,00,730 on account of exchange fluctuation. The Assessing Officer was of the view that these receipts are of revenue nature, and, accordingly, brought the same to tax. Aggrieved, the assessee carried the matter in appeal but without any success. Learned CIT(A), while upholding the stand of the Assessing Officer, observed as follows: Ground No. 13 to 16: The appellant has challenged the action of the AO is treating foreign exchange fluctuation difference on repayment of loan given to subsidiary as a revenue receipt instead of capital receipt and consequently making an addition of Rs. 5,29,00,730/-. The appellant submitted that Oriental Aromatics Inc. (OAI) is a 100% wholly owned subsidiary company of the Appellant and is exactly in the same business as that of the Appellant: It had made investment in its wholly owned subsidiary by way of funding, with a view to expand the Appellant's footprints in the overseas market and to develop more products in the market place. The AO has also accepted that the loan given for ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 10 of 11 expansion. The amount of loan which was due was repaid by OAl during the year under consideration and on account of such repayment the foreign exchange gain of Rs. 5,29,00,730/-. Since the loan was given was capital in nature and accordingly the consequent foreign exchange gain was a capital receipt in the hands of the Appellant. However the AO relied on the Pune Tribunal ruling in the case of Cooper Corporation Pvt. Ltd. (ITA 886/PN/2014 treated the foreign exchange gain as revenue receipt and made addition of Rs. 5,29,00,730/- to the total income of the appellant. It is submitted that Pune Tribunal ruling is not applicable to the facts of the appellant as the loan given to Foreign Subsidiary company on long term basis cannot be equated with the facts of Cooper Corporation. The appellant has gone my attention to the decision of Hon'ble Supreme Court in the case of CIT vs. Ponni sugars & Chemical Ltd. where the Hon'ble court held that where subsidy is received for repayment of term loan taken for existing units such subsidy would be capital in nature. Kind attention was invited Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. vs. CIT (1979) 116 ITR 1(SC) wherein it was held that profit arising to an assessee on account of appreciation or depreciation in value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be capital profit or loss if foreign currency is held by assessee as capital asset or as a fixed capital. The assessee also relied on the decision of CIT vs. Sandoz (I) [1994] 206 ITR 599 (Bombay) where the Apex Court decision Sutlej Cotton Mills Ltd. vs. CIT under the decision of ACIT vs. EleconEngg. Co. Ltd. [2010] 189 Taxmann 83 (SC) were cited. However this case was with concern to section 43A Income Tax Act. I have gone through the submission of the appellant and also gone through the Assessment order, the Assessing officer has contended that the loan given by the assessee was given in different periods i.e. 2005-06, 2006-07, 2007-08 and 201 1-12 which was returned to the assessee during the year under consideration. A loan which was given to the subsidiary was held that the assessee to increase its turnover by way of capturing market place products thus resulting in increase its revenue. The Assessing officer in the opinion that the Hon‟ble ITAT Pune Bench in the case of Cooper Corporation Pvt. Ltd. vs. DCIT ITA 886/PN/2014 held that the assessce is entitled to claim foreign exchange fluctuation loss on outstanding foreign currency loss as business expenditure under the IT Act. Conversely applying the same ratio as in the decision cited above the gain would arise on foreign exchange fluctuation needs to be brought to tax in the hands of assessee company which in this case of Rs. 5,29,00,730-/ hence as per the provision of the section 28(iv) which taxes the value of any benefit or prerequisite whether convertible into money or not arising from business or exercise of profession and hence the Assessing Officer has added this amount. I have gone through the appellant submission and also Assessing Officer contention as per the appellant contention the loan was given to the specific purpose of the expansion and it was in the nature of capital investment and not in revenue account. However the appellant has not elaborated the nature of expansion in its submission. It has not submitted any details of the utilization of the loan by the subsidiary hence it is not clear whether it was for capital purpose or revenue purpose. Hence I am inclined to agree with the Assessing Officer the said foreign exchange fluctuation should be taxed as revenue in nature. Hence ITA No. 6331/Mum/2019 Assessment year 2014-15 Page 11 of 11 the contention of the appellant is not accepted and this ground of appeal is dismissed. 18. The assessee is not satisfied and is in appeal before us. 19. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 20. We find that all along it has been a case of the assessee, as, for example, evident from his submissions dated 26 th June 2017 before the Assessing Officer (pages 42 onwards of the paper book filed before us), that “the subsidiary(to which monies have been lent)is akin to a division of the company and is funded with specific business objective (i.e. to carry on business abroad) and not with the objective of earning interest income”and that “such investment/funding by the assessee to its AE is a transaction which is intrinsically carried out for a strategic purpose (of expanding business) and not for earning any interest income”. Clearly, therefore, de hors the nomenclature of the transaction, even going by the version of the assessee, the transaction is clearly in the revenue field, integral to its carrying on the business as such, and it has rightly been treated as a revenue income. All the judicial precedents cited before us proceed on the basis that the transaction in question, because of being a loan transaction, is in the capital field, but then candidly admitted facts belie that fundamental assumption. In view of this uncontroverted factual position, we uphold the action of the authorities below and decline to interfere in the matter. 21. Ground nos. 11 to 15 are thus dismissed. No other issues are pressed before us. 22. In the result, the appeal is partly allowed for statistical purposes. Pronounced in the open court today on the 10 th day of March, 2022. Sd/- Sd/- Amarjit Singh Pramod Kumar (Judicial Member) (Vice President) Mumbai, dated the 10 th day of March, 2022 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order True Copy Assistant Registrar/ Sr PS Income Tax Appellate Tribunal Mumbai benches, Mumbai