LIKPROOF INDIA P. LTD, MUMBAI V. ADDL CIT WD (2), MUMBAI

ITA 986/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3513 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: MIHIR SHAH
• Keywords: Capital asset; Business income; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 986 /MUM/2013 ( / ASSESSMENT YEAR : 2008-09) LIKPROOF INDIA PRIVATE LTD., CECIL COURT, 2 ND FLOOR, M. BHUSAN ROAD, NEXT TO REGAL CINEMA, COLABA, MUMBAI 400 001. / V. ADDL. COMMISSIONER OF INCOME TAX WARD 1(2), AAYAKAR BHAWAN, M K MARG, CHURCHGATE, MUMBAI-400 020 ./ PAN : AAACL1873B ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE COMPANY BY SHRI MIHIR SHAH REVENUE BY : SHRI A. RAMACHANDRAN / DATE OF HEARING : 07-06-2016 / DATE OF PRONOUNCEMENT : 17-08-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 986/MUM/2013, IS DIRECTED AGAINST APPELLATE ORDER D ATED 28 TH DECEMBER, 2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- 2, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2008-09, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 21 ST DECEMBER, 2010 PASSED BY THE LEARNED ASSESSING OFF ICER (HEREINAFTER CALLED THE AO) U/S 143 (3) OF THE IN COME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 986/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE C OMPANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READS AS UNDER:- 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN EXCHANGE FLU CTUATION LOSS OF RS. 15,66,857/- ARISING ON REVALUATION OF OUTSTA NDING LOANS ON THE BALANCE SHEET DATE ON THE GROUND THAT SAME IS C APITAL LOSS AND IS NOT ALLOWED AS DEDUCTION UNDER THE INCOME TA X ACT,1961. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE MADE OUGHT TO BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN WATERPROOFING, RESTORATION AND CIVIL CONTRACT WORKS FOR VARIOUS CLIENTS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT , FROM THE PROFIT AND LOSS ACCOUN T OF THE ASSESSEE COMPANY , THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAS DEB ITED AN AMOUNT OF RS.12,90,079/ - AS FOREIGN EXCHANGE LOSS (NET) UNDE R THE HEAD 'ADMINISTRATIVE AND SELLING EXPENSES'. THE ASSESSEE COMPANY WAS REQ UIRED TO EXPLAIN BY THE AO THAT HOW FOREIGN EXCHANGE LOSS IN RESPECT OF LO AN TO SUBSIDIARY COMPANY IS ALLOWABLE AS REVENUE EXPENSES. THE ASSESSEE COMPANY IN REPLY SUBMITTED THAT IT HAD GRANTED INTEREST BEARING TRADE ADVANCE/ LOAN TO ITS FOREIGN ASSOCIATED ENTER PRISE (AE) IN THE NORMAL COURSE OF ITS BUSINESS. THE ASSESSEE COMPANY SUBMIT TED THAT IT HAS A TRADING INTEREST IN ITS FOREIGN AE AND HENCE THE LOAN RECEI VABLE FROM ITS FOREIGN AE IS A TRADE INVESTMENT. THE ASSESSEE COMPANY SUBMITTED T HAT IT HAS EARNED INTEREST OF RS. 43.10 LAKHS ON LOAN TO FOREIGN AE W HICH HAS BEEN OFFERED FOR TAX IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE EXCHANGE LOSS OF RS. ITA 986/MUM/2013 3 L5.66 LAKHS WAS ARISEN CONSEQUENT TO REVALUATION/RE STATEMENT OF SUCH FOREIGN CURRENCY LOAN AS AT THE YEAR END ON 31-03-2008. SUC H EXPENDITURE BEING REVENUE IN NATURE IS ALLOWABLE U/S 37(1) OF THE ACT . THE ASSESSEE COMPANY SUBMITTED THAT IT IS CONSISTENTLY FOLLOWING MERCANT ILE SYSTEM OF ACCOUNTING AND IN ACCORDANCE WITH THIS METHOD OF ACCOUNTING , THE ASSESSEE COMPANY IS REQUIRED TO VALUE ALL THE TRADING ASSETS AND LIABIL ITY OF FOREIGN CURRENCY AS ON THE VALUATION DATE. THE EXCHANGE GAIN/LOSS ARISING DUE TO VALUATION OF SUCH ITEMS IS REQUIRED TO BE DEBITED/ CREDITED TO THE PR OFIT & LOSS ACCOUNT. THE ASSESSEE COMPANY RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA (P) LTD., (2 009)312 ITR 254(SC) AND SUBMITTED THAT ANY LOSS ARISING ON CONVERSION OF FO REIGN CURRENCY LIABILITY AT THE YEAR END IS ALLOWABLE AS REVENUE LOSS . THE ASS ESSEE COMPANY HAS A TRADING INTEREST IN ITS FOREIGN AE AND HENCE THE LO AN RECEIVABLE FROM ITS FOREIGN AE IS A TRADE INVESTMENT. THE ASSESSEE COMP ANY SUBMITTED THAT THE FOREIGN EXCHANGE LOSS ACCOUNTED FOR IN THE PROFIT & LOSS A/C IS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE COMPANY AND HENCE, ALLOWABLE U/S 37(1) OF THE ACT. THE A.O. OBSERVED FROM THE COPY OF FOREIGN EXCHANGE LOSS LEDGER ACCOUNT FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 14 3(3) READ WITH SECTION 143(2) OF THE ACT THAT THE ASSESSEE COMPANY HAD DEB ITED FOREIGN EXCHANGE LOSS OF RS. 15,66,857/- ON ACCOUNT OF FLUCTUATION I N EXCHANGE RATE IN RESPECT OF VALUE OF LOAN ADVANCED TO ITS ASSOCIATE CONCERN M/S LIKPROOF CONSTRUCTION LLC. THE VALUATION OF FOREIGN CURRENCY LOAN TO ASSO CIATE CONCERN AS PER BALANCE SHEET DATE ON 31 ST MARCH, 2008 AND CORRESPONDING FOREIGN EXCHANGE LOSS IS ONLY A NOTIONAL LOSS. THERE WAS NO SETTLEME NT OF THE LOAN AS ON 31 ST MARCH, 2008. AS PER SECTION 43A OF THE ACT AMENDED W.E.F. IST APRIL, 2003, ANY ADJUSTMENT TO THE COST ON ACCOUNT OF FOREIGN EX CHANGE VALUATION IS ALLOWABLE ONLY ON SETTLEMENT/PAYMENT OF THE LIABILI TIES DENOMINATED IN FOREIGN CURRENCY. THE A.O. HELD THAT IN THE INSTANT CASE T HE FOREIGN EXCHANGE LOSS IS ITA 986/MUM/2013 4 COMPUTED AS NOTIONAL LOSS AND FURTHER MORE THE LOSS IS NOT ON ACCOUNT OF ANY TRADING LIABILITY BUT IT IS RELATED TO LOANS ADVANC ED TO FOREIGN AE. HENCE, THE CLAIM OF NOTIONAL LOSS IN RESPECT OF THE LOANS TO S UBSIDIARY CONCERN WAS NOT ALLOWABLE AS REVENUE EXPENDITURE. THE A.O. DISTINGU ISHED THE CASE LAW CITED BY THE ASSESSEE COMPANY IN THE CASE OF CIT V. WOOD WARD GOVERNOR INDIA (P) LTD.(SUPRA) AS IN THAT CASE THE OUTSTANDING LIABILI TY RELATED TO ON ACCOUNT OF IMPORT OF RAW MATERIALS WHICH IS CERTAINLY A TRADIN G LIABILITY. HENCE, THE A.O. DISALLOWED THE CLAIM OF FOREIGN EXCHANGE LOSS AMOU NTING TO RS. 15,66,857/- CLAIMED BY THE ASSESSEE COMPANY AS NOT ALLOWABLE AS PER SECTION 43A OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE A SSESSEE COMPANY VIDE ASSESSMENT ORDER DATED 21.12.2010 PASSED BY THE AO U/S 143(3) OF THE ACT . 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21.12.20 10 PASSED BY THE A.O. U/S. 143(3) OF THE ACT , THE ASSESSEE COMPANY FILE D ITS FIRST APPEAL BEFORE THE LD. CIT(A). 6. BEFORE THE LD. CIT(A) , THE ASSESSEE COMPANY SUB MITTED THAT IT HAD IN THE NORMAL COURSE OF ITS BUSINESS GRANTED INTEREST BEARING TRADE ADVANCE/LOANS TO ITS FOREIGN AE AS THE ASSESSEE COM PANY HAS TRADING INTEREST IN THE SAID FOREIGN AE AND HENCE THE LOAN RECEIVABL E FROM ITS FOREIGN AE IS A TRADING ASSET. THE ASSESSEE COMPANY SUBMITTED THAT IT HAS EARNED INTEREST OF RS.43.10 LACS ON LOAN TO THE SAID FOREIGN AE AND HA S OFFERED IT FOR TAXATION AS BUSINESS INCOME IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE AO HAS ACCEPTED THE INTEREST INCOME AS BUSINESS INCOME. TH E ASSESSEE COMPANY HAD INCURRED EXCHANGE LOSS OF RS.15.66 LACS ON REVALUAT ION/RESTATEMENT OF OUTSTANDING FOREIGN CURRENCY LOAN RECEIVABLE AS ON 31 ST MARCH, 2008 FROM ITS FOREIGN AE. THE REVALUATION OF FOREIGN CURRENCY ASS ETS AS ON THE BALANCE SHEET DATE WAS MADE IN ACCORDANCE WITH THE CONSISTENT ACC OUNTING METHOD FOLLOWED BY THE ASSESSEE COMPANY, HENCE, THE EXCHANGE LOSS O F RS.15.66 LACS ARISING CONSEQUENT UPON THE REVALUATION/RESTATEMENT OF SUC H LOAN AS AT THE YEAREND ITA 986/MUM/2013 5 SHOULD BE ALLOWED AS EXPENSE U/S 37(1) OF THE ACT. THE AO HAD DISALLOWED THE SAID CLAIM OF FOREIGN EXCHANGE LOSS ON THE GROUND T HAT AS PER PROVISO TO SECTION 43A OF THE ACT ANY ADJUSTMENT TO THE COST O N ACCOUNT OF FOREIGN EXCHANGE IS ALLOWABLE ONLY ON SETTLEMENT/PAYMENT OF THE LIABILITIES AND THE LOSS IS ONLY A NOTIONAL LOSS AND THE LOSS IS NOT ON ACCOUNT OF ANY TRADING LIABILITY BUT IT IS RELATED TO LOAN LIABILITY. THE ASSESSEE COMPANY SUBMITTED THAT PROVISO TO SECT ION 43A OF THE ACT IS NOT APPLICABLE IN THE INSTANT CASE AS THERE IS NO LIABI LITY INCURRED BY THE ASSESSEE COMPANY FOR ACQUISITION OF ANY ASSET FOR WHICH LIAB ILITY IS INCURRED FOR ACQUISITION OF ASSET FROM A COUNTRY OUTSIDE INDIA C ONSEQUENT TO CHANGE IN FOREIGN EXCHANGE RATE DURING ANY PREVIOUS YEAR AFTE R ACQUISITION OF SUCH ASSET. RATHER THE ASSESSEE COMPANY HAS GIVEN LOAN T O ITS FOREIGN AE AND NOT BORROWED ANY SUM FROM ITS FOREIGN AE, HENCE, THE PR OVISIONS OF SECTION 43A OF THE ACT IS NOT APPLICABLE. THE ASSESSEE COMPANY RE LIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V.WOODWORD GOVERNOR INDIA PRIVATE LIMITED (SUPRA) . IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT THE AO HAS NOT DISPUTED THAT THE LOAN GRANTED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IS NOT A TRADING ASSET . THE ASSESSEE COMPANY HAS G RANTED LOAN TO ITS FOREIGN AE WHICH IS ENGAGED IN THE SIMILAR BUSINESS AS THAT OF THE ASSESSEE COMPANY AND HENCE IT WAS PLEADED THAT FOREIGN EXCHANGE LOSS OF RS.15.66 LACS INCURRED BY THE ASSESSEE COMPANY ON ACCOUNT OF RESTATEMENT/R EVALUATION OF SUCH LOAN AS ON 31-03-2008 DUE TO FLUCTUATION OF FOREIGN EXCH ANGE RATES BE ALLOWED U/S 37(1) OF THE ACT AS IT IS LAID OUT AND EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE COMPANY. THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSE SSEE COMPANY AND OBSERVED THAT THE ASSESSEE COMPANY HAD ADVANCED MONEY TO IT' S FOREIGN AE. THE ASSESSEE COMPANY COULD NOT PROVE THAT THE MONEY IS ADVANCED FOR ANY TRADING PURPOSES. THE LD. CIT(A) HELD THAT THE ASSESSEE COM PANY HAD ADVANCED ITA 986/MUM/2013 6 MONEY TO IT'S FOREIGN AE AS A LOAN AND ANY LOAN GIV EN TO A PERSON FOR EARNING INTEREST INCOME HAS TO BE CONSIDERED AS CAPITAL ASS ET. THE LD. CIT(A) HELD THAT THE LOAN GRANTED TO THE FOREIGN AE IS A CAPITAL ASS ET AND ANY IMPAIRMENT WITH REGARD TO MONEY ADVANCED IS NOT ALLOWABLE AS DEDU CTION U/S 37(1) OF THE ACT , VIDE APPELLATE ORDERS DATED 28.12.2012 PASSED BY THE LEARNED CIT(A). 7. AGGRIEVED BY THE APPELLATE ORDERS DATED 28.12.20 12 PASSED BY THE LD. CIT(A), THE ASSESSEE COMPANY FILED SECOND APPEAL BE FORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMITT ED THAT THE ASSESSEE COMPANY HAS INCURRED FOREIGN EXCHANGE LOSS ON LOANS DENOMINATED IN FOREIGN CURRENCY GRANTED TO ITS FOREIGN AE IN EMIRATES OF D UBAI IN UAE ON ACCOUNT OF RESTATEMENT/REVALUATION OF LOAN AS ON THE DATE OF B ALANCE SHEET OWING TO ADVERSE FLUCTUATION IN FOREIGN EXCHANGE RATES . IT IS A LOSS ON REVALUATION/RESTATEMENT OF OUTSTANDING LOAN DENOMIN ATED IN FOREIGN CURRENCY RECEIVABLE FROM THE FOREIGN AE. THE ASSESSEE COMPA NY IS ENGAGED IN WATERPROOFING, RESTORATION AND CIVIL CONTRACT WORKS . THE ASSESSEE COMPANY HAS INCORPORATED A SUBSIDIARY COMPANY IN EMIRATES O F DUBAI IN UAE NAMELY LIKPROOF CONSTRUCTION LLC . THE ASSESSEE COMPANY H AS GRANTED LOAN TO ITS FOREIGN AE FOR SOME BUSINESS NEEDS WHICH IS IN THE NATURE OF TRADE ADVANCE AND THE SAID LOANS ARE DENOMINATED IN FOREIGN CURRE NCY. THE LD. COUNSEL RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA (P.) LTD., (2009) 312 ITR 2 54(SC) AND SUBMITTED THAT THE DECISION OF THIS CASE IS APPLICABLE TO ASS ESSEE COMPANYS CASE. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF THE TRIB UNAL IN THE CASE OF M/S ETP INTERNATIONAL PRIVATE LIMITED V. ITO IN ITA NO. 650 6/MUM/2011 FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDERS DATED 29 TH AUGUST, 2012. HE SUBMITTED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE COM PANY ON THESE LOANS DENOMINATED IN FOREIGN CURRENCY ARE DULY INCLUDED A S BUSINESS INCOME IN RETURN OF INCOME FILED WITH THE REVENUE AND DUE TAX ES HAVE BEEN PAID. ITA 986/MUM/2013 7 9. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDERS OF AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON BY BOTH THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS INCORPO RATED AN ASSOCIATED COMPANY (AE) IN UAE IN EMIRATES OF DUBAI NAMELY LIK PROOF CONSTRUCTION LLC FOR UNDERTAKING CONSTRUCTION WORK. MEMORANDUM AND ARTICLE OF ASSOCIATION OF SAID FOREIGN AE I.E. UAE COMPANY LIKPROOF CONST RUCTION LLC FILED BY THE ASSESSEE COMPANY IS PLACED IN THE FILE. THE ASSESS EE COMPANY HAS GRANTED LOANS DENOMINATED IN FOREIGN CURRENCY TO THE SAID F OREIGN AE AND ALSO CHARGED INTEREST FROM THE FOREIGN AE OF WHICH INTER EST INCOME IS OFFERED FOR TAXATION AS BUSINESS INCOME WHICH IS ACCEPTED BY RE VENUE. THE ASSESSEE COMPANY HAS ADVANCED THE LOAN DENOMINATED IN FOREI GN CURRENCY TO SAID FOREIGN AE AND THE FOREIGN EXCHANGE LOSS AMOUNTING TO RS. 15.66 LACS WAS DEBITED TO ITS P&L ACCOUNT WHICH AROSE ON ACCOUNT O F ADVERSE FLUCTUATION IN FOREIGN EXCHANGE RATES AS ON 31-03-2008 CALCULATED ON THE OUTSTANDING VALUE OF THE SAID LOANS DENOMINATED IN FOREIGN CURRENCY ADVANCED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE AS ON 31-03-2008. WE HAV E OBSERVED THAT THE ASSESSEE COMPANY IS NOT ABLE TO BRING ON RECORD COG ENT MATERIAL/EVIDENCES IN SUPPORT OF ITS CLAIM THAT BUSINESS/TRADE ADVANCES/L OANS WERE EXTENDED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE WHICH HAS BE EN IN-FACT ACTUALLY UTILIZED BY ITS FOREIGN AE FOR BUSINESS PURPOSES .T HE COPIES OF FINANCIAL STATEMENTS OF THE SAID FOREIGN AE OR ANY OTHER COGE NT MATERIAL/EVIDENCES 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 TOW ARDS BUSINESS PURPOSES BY ITS FOREIGN AE WHILE CONSISTENT FINDING OF FACT IS RECORDED BY AUTHORITIES BELOW THAT THE ASSESSEE COMPANY IS NOT ABLE TO DEMO NSTRATE AND PROVE ITS ITA 986/MUM/2013 8 CONTENTIONS THAT THE SAID INTEREST BEARING LOANS/AD VANCES DENOMINATED IN FOREIGN CURRENCY WERE GRANTED BY THE ASSESSEE COMPA NY TO ITS FOREIGN AE IN UAE FOR BUSINESS PURPOSES AND ITS ACTUAL UTILIZATIO N BY ITS FOREIGN AE IN UAE FOR BUSINESS PURPOSES. NO SUCH EVIDENCES HAS BEEN P LACED BEFORE US BY THE ASSESSSEE COMPANY TO SUPPORT ITS CONTENTION OF HAVI NG ADVANCES LOANS DENOMINATED IN FOREIGN CURRENCY TO ITS FOREIGN AE I N UAE FOR BUSINESS/TRADE PURPOSES AND ITS FURTHER ACTUAL UTILIZATION BY ITS FOREIGN AE IN UAE FOR BUSINESS PURPOSES. THE PRIMARY ONUS WAS ON THE ASSE SSEE COMPANY TO HAVE LED COGENT EVIDENCES TO SUBSTANTIATE ITS PLEA OF GR ANT OF SAID LOANS TO ITS FOREIGN AE FOR PURPOSES OF TRADE/BUSINESS AND ITS A CTUAL UTILIZATION BY FOREIGN AE FOR BUSINESS PURPOSES, WHICH THE ASSESSEE COMPAN Y EXCEPT FOR MAKING BALD STATEMENT COULD NOT LED COGENT EVIDENCES TO S UBSTANTIATE ITS ABOVE STATED CONTENTIONS. THE ASSESSEE COMPANY ON THE OT HER 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-FA CT GRANTED ON CAPITAL FIELD RATHER THAN BEING TRADING/BUSINESS ADVANCES. IN OUR CONSIDERED VIEW, THIS NOTIONAL LOSS WHICH ARISES OWING TO ADVERSE FLUCTUA TION IN FOREIGN CURRENCY RATES AS ON 31-03-2008 WHICH LED TO RESTATEMENT / R EVALUATION OF INTEREST BEARING LOANS DENOMINATED IN FOREIGN CURRENCY EXTEN DED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IN UAE AND WHICH COULD NO T BE PROVED BY THE ASSESSEE COMPANY TO HAVE BEEN EXTENDED FOR TRADE/BU SINESS PURPOSES , THE PRESUMPTION SHALL ARISE THAT LOAN IS ON CAPITAL FIE LD UNTIL THE SAME IS REBUTTED BY THE ASSESSEE COMPANY AND HENCE THE SAID NOTIONAL LOSS ARISING ON RESTATEMENT/REVALUATION OF FOREIGN CURRENCY LOAN S AS ON THE DATE OF BALANCE SHEET AS ON 31-03-2008 DUE TO ADVERSE FOREI GN EXCHANGE FLUCTUATIONS CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT WHILE COMPUTING INCOME OF THE ASSESSEE CHARGEABLE TO TAX UNDER THE ACT. TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF WOODWORD GOVERNOR INDI A PRIVATE LIMITED(SUPRA) AND DECISION OF MUMBAI TRIBUNAL IN ETP INTERNATIONAL PRIVATE LIMITED(SUPRA) RELIED UPON BY THE ASSESSEE COMPANY ARE OF NO HELP TO THE ITA 986/MUM/2013 9 ASSESSEE COMPANY. THE HONBLE SUPREME COURT IN WOOD WORD GOVERNOR INDIA PRIVATE LIMITED(SUPRA) HELD THAT LOSSES ON ACCOUNT OF FLUCTUATION OF FOREIGN EXCHANGE RATES OWING TO REINSTATEMENT OF LIABILITY ARISEN FOR STOCK-IN-TRADE WERE HELD TO BE ALLOWABLE U/S 37(1) OF THE ACT , WH ILE 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 ACQUISITION OF CAPITAL ASSET IS TO BE ADJUSTED ON P AYMENT OF FOREIGN EXCHANGE LIABILITY AND NOT TO BE ADJUSTED ON NOTIONAL BASIS MERELY ON FLUCTUATION OF FOREIGN EXCHANGE RATES ON THE DATE OF BALANCE SHEET . SIMILARLY, IN ETP INTERNATIONAL PRIVATE LIMITED( SUPRA) , THE TRIBUNA L RECORDED A FINDING OF FACT THAT THE MONEY WAS ADVANCED BY TAX-PAYER FOR BUSINE SS PURPOSES WHICH HAS BEEN USED BY FOREIGN AE FOR THE PURPOSES OF BUSINES S AND HENCE RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F S A BUILDERS V. CIT( 288) ITR 1(SC) SUCH LOSSES WERE ALLOWED BY THE MUMBAI TR IBUNAL BASED ON THE FACTS OF THE CASE, WHILE IN THE INSTANT CASE THE AS SESSEE COMPANY IS NOT ABLE TO DEMONSTRATE THAT THE LOANS/ADVANCES GRANTED BY THE ASSESSEE COMPANY TO ITS FOREIGN AE IN EMIRATES OF DUBAI IN UAE WAS IN THE N ATURE OF TRADE/BUSINESS ADVANCES FOR THE PURPOSES OF BUSINESS OF THE ASSESS EE COMPANY WHICH HAS BEEN IN-FACT ACTUALLY UTILIZED BY ITS FOREIGN AE FO R ITS BUSINESS PURPOSES. HENCE KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUM STANCES OF THE CASE AS SET OUT ABOVE , WE DISMISS THE APPEAL FILED BY THE ASSE SSEE COMPANY . WE ORDER ACCORDINGLY. ITA 986/MUM/2013 10 11. IN THE RESULT, ASSESSEE COMPANYS APPEAL IN ITA NO 986/MUM/2013 FOR THE ASSESSMENT YEAR 2008-09 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH AUGUST , 2016. # $% &' 17-08-2016 ( ) SD/- SD/- (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 17-08-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI