INNOVATIVE TYRES & TUBES LTD., MUMBAI V. D.C.I.T. CIRCLE 8(2), MUMBAI

ITA 7640/MUM/2011

• Counselvise Citation: 764019914 RSA 2011
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUM BAI . . , , BEFORE SHRI R. C. SHARMA, AM AND SHRI SANJAY GARG, JM ./ I.T.A. NO. 7640/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) INNOVATIVE TYRES & TUBES LTD. 5/105, NITYANAND NAGAR IV, SWAMI NITYANAND MARG, ANDHERI EAST, MUMBAI-400 069 / VS. DY. CIT - 8(2), 2 ND FLOOR, AAYKAR BHAVAN, CHURCHGATE, MUMBAI-400 020 ./ ./PAN/GIR NO. AAACI 1236 R ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ! $ % / APPELLANT BY : SHRI NISHIT GANDHI '#! $ % / RESPONDENT BY : SHRI O. P. SINGH & '( $ ) * / DATE OF HEARING : 07.01.2014 +,-. $ ) * / DATE OF PRONOUNCEMENT : 10.01.2014 / O R D E R PER R. C. SHARMA, A. M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER BY THE LD. CIT(A)-17, MUMBAI DATED 30.08.2011, IN THE MATTER OF ORDER PAS SED U/S.143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR (A.Y.) 2008-09. 2. THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF LO SS IN FOREIGN EXCHANGE AMOUNTING TO RS.14,83,125/-. 2 ITA NO. 7640/MUM/2011 (A.Y. 2008-09) INNOVATIVE TYRES & TUBES LTD. VS. DY. CIT 3. RIVAL CONTENTIONS HAVING HEARD AND PERUSED THE M ATERIAL PLACED ON RECORD. FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAS MADE A P ROVISION OF RS.14,83,125/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF FOREIGN EXCHA NGE LOSS. THE A.O. DISALLOWED THE SAME BY OBSERVING THAT THE UNUTILIZED FOREIGN EXCHA NGE LOSS IS NEITHER AN ACCRUED LOSS NOR AN ACTUAL LOSS. BY THE IMPUGNED ORDER THE LD. CIT(A ) CONFIRMED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATIONS: 3.1 I HAVE PERUSED FACTS IN THE CASE AND POSITION OF LAW. IN THE LEDGER ACCOUNT THE PROVISIONS OF RS.14,83,125/- HAS BEEN CREATED W ITH THE FOLLOWING NARRATION. EXCHANGE RATE DIFFERENCE- DEBTORS BEING JV PASSED FOR PROVISION OF EXCHANGE RATE DIFFERENCE ON US $ LOAN TAKEN FROM ST ATE BANK OF INDIA FOR 17,50,000/- US $ @ 39.2625 AT THE TIME OF LOAN TAKE N AND US $ RATE AS ON 31 ST MARCH, 08 @ 40.11. IT IS, THEREFORE, CLEAR THAT THE LOSS HAS BEEN WORK ED OUT ON THE PRINCIPLE LOAN TAKEN FOR PURCHASE OF CAPITAL EQUIPMENTS. SECTION 43A PRO VIDES FOR CAPITALIZATION OF ANY INCREASE IN THE LIABILITY ON ACCOUNT OF EXCHANGE RA TE FLUCTUATION, WHERE THE CURRENCY LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF IMPORT OF PLANT AND MACHINERY. HOWEVER, THERE IS NO SUCH PROVISION WHERE THE CAPIT AL ASSET HAS BEEN PURCHASED DOMESTICALLY WITH THE HELP OF FOREIGN CURRENCY LOAN S. NEVERTHELESS, BY NO STRETCH OF IMAGINATION, CAN THE INCREASE IN LIABILITY ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATIONS ON THE PRINCIPLE AMOUNT, BE ALLOWED AS A REVENUE EXPENDITURE. IN THE CASE OF WOODWARD GOVERNOR PVT. LTD., CITED SUPRA, T HE FLUCTUATION LOSS AROSE WITH RESPECT TO LOAN TAKEN FOR REVENUE PURPOSES. THEREFO RE THE DECISION OF THE SUPREME COURT IS DISTINGUISHABLE ON FACTS. IN THE INSTANT C ASE, THERE IS NO DISPUTE ON THE FACT THAT THE LOAN HAS BEEN TAKEN FOR CAPITAL PURPOSE. H ENCE, ANY INCREASE IN THE LIABILITY, WITH REGARD TO THE PRINCIPAL AMOUNT, WOU LD BE A CAPITAL LIABILITY. IN THE CIRCUMSTANCES, THE AO HAS RIGHTLY DISALLOWED THE FO REIGN EXCHANGE FLUCTUATION LOSS. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED . 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT THE LOSS HAS BEEN WORKED OUT IN RESPECT OF PRINCIPAL LOAN TA KEN FOR PURCHASE OF CAPITAL EQUIPMENTS. THUS, THE LOSS WAS NOT ON REVENUE ACCOUNT, THE SAME CANNOT BE ALLOWED WHILE COMPUTING THE BUSINESS PROFITS. THUS THE LOWER AUTHORITIES WE RE JUSTIFIED IN DECLINING SUCH LOSS AS REVENUE EXPENSES. HOWEVER, SUCH LOSS IS REQUIRED TO BE CAPITALIZED ON WHICH THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION. WE, THEREFORE, M ODIFY THE ORDER OF THE LOWER AUTHORITIES 3 ITA NO. 7640/MUM/2011 (A.Y. 2008-09) INNOVATIVE TYRES & TUBES LTD. VS. DY. CIT AND DIRECT THE A.O. TO ALLOW CAPITALIZATION OF HIGH ER AMOUNT PAID ON PURCHASE OF CAPITAL EQUIPMENTS AND ALLOW TO DEPRECIATION ELIGIBLE ON SU CH ASSETS AS PER INCOME TAX RULES AT REVISED HIGHER COST. WE DIRECT ACCORDINGLY. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 10, 2 014 SD/- SD/- (SANJAY GARG) (R. C. SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & / MUMBAI; 0' DATED : 10.01.2014 (.'../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. & 1) ( ) / THE CIT(A) 4. & 1) / CIT - CONCERNED 5. 4(5 ')'67 , * 67. , & / / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , & / / ITAT, MUMBAI