MAHINDRA & MAHIDRA LTD, MUMBAI V. DCIT CIR 2(2)(2), MUMBAI

MA 47/MUM/2021

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3231 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2013-2014
• Appeal Filed On: 18-02-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH SAUND
• Assessee Lawyers: H P MAHAJANI
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , J MUMBAI BEFORE : SHRI MAHAVIR SINGH, VP & SHRI M.BALAGANESH, AM M A NO. 47/MUM/2021 (ARISING OUT OF 7382/MUM/2017 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. MAHINDRA & MAHINDRA LTD., CORPORATE TAXATION P .K. KURNE CHOWK WORLI, MUMBAI - 400 018 VS. DCIT CIR. 2(2)(2) AAYAKAR BHAWAN M.K.ROAD, MUMBAI - 400 020 PAN/GIR NO. AAACM0325E (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI H.P. MAHAJANI REVENUE BY SHRI GURBINDER SINGH SAUND DATE OF HEARING 11 / 0 6 /202 1 DATE OF PRONOUNCEMENT 11 / 06 /202 1 / O R D E R PER M.BALAGANESH (AM): BY THE VIRTUE OF THIS MISCELLANEOUS APPLICATION, ASSESSEE SEEKS TO RECALL THE ORDER PASSED BY THIS TRIBUNAL ON 19/06/2020 FOR THE A.Y.2013 - 14. THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS IN ITS MISCELLANEOUS APPLICATION WHICH ARE REPRODUCED AS UNDER: - 1. APPEAL BY THE ASSESSEE BEARING ITA NO. 7382/MUM/2017 WAS DISPOSED OF BY THE HONORABLE TRIBUNAL, BY ITS ORDER DATED 19/06/2020 (COPY ANNEXED) WHICH WAS SERVED ON THE APPLICANT ON 13/10/2020. 2. INASMUCH AS, IN THE OPINION OF THE APPLICANT - ASSESSEE THE SAID ORDER SUFFERS FROM CERTAIN MISTAKES THAT ARE APPARENT FROM THE RECORD. THE APPLICANT - ASSESSEE HEREBY PRAYS FOR RECTIFICATION THEREOF. M A NO . 47/MUM/2021 M/S. MAHINDRA AND MAHINDRA LIMITED 2 3. ITA NO FOR ASSESSEE 'S APPEAL FOR AY 1999 - 2000 ON PAGE 9 (PARA 2.3 (C) (II)) HAS BEEN WRONGLY STATED AS ITA NO 2344/MUM/200E INSTEAD OF ITA NO 2344/MUM/2009. 4. GROUND NO. 10 OF THE ASSESSEE'S APPEAL DEALT WITH DEDUCTION OF DIFFERENCE IN EXCHANGE LOSS. GROUND NO. 10 FROM CO NCISE GROUNDS OF APPEAL FILED IS REPRODUCED BELOW FOR READY REFERENCE: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP / DCIT ERRED IN NOT ALLOWING DEDUCTION FOR DIFFERENCE IN EXCHANGE OF RS. 119,37,27,592/ - AS CLAIMED BY TH E APPELLANT. THE CLAIM OF THE APPELLANT BE ALLOWED WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED DCIT/DRP / DCIT OUGHT TO HAVE ALLOWED DEPRECIATION ON SUCH DIFFERENCE IN EXCHANGE IN SO FAR AS IT RELATED TO FIXED ASSETS. THE CLAIM OF THE APPELLANT BE ALLOWED . ' 5. IN THE NOTE ON ISSUES IN APPEAL (HEREINAFTER REFERRED TO AS THE SYNOPSIS) SUBMITTED TO THE HONORABLE TRIBUNAL DURING THE COURSE OF THE HEARING, THE APPELLANT HAS MADE THE BELOW SUBMISSIONS - 'SUBMISS1ONS IN AY 2009 - 10 THERE IS NO ADJUDICATION BY THE ITAT OF THE ISSUE OF TREATMENT OF FOREIGN EXCHANGE GAIN /LOSS ADJUSTED TO FCMITD. THE APPELLANT SUBMITS THAT SINCE SUCH LOSS IS NOT RELATED TO ACQUIRING FIXED ASSETS, THE SAME SHOULD BE ALLOWED AS A DEDUCTIBLE EXPENDITURE. IN ANY EVENT, THE PROCESS OF CAPITALIZATION OF SUCH EXCHANGE LOSS SHOULD END WITH THE ACQUISITION OF OVERSEAS INVESTMENTS UTILIZING FOREIGN CURRENCY LOANS. EXCHANGE LOSS FOR THE PERIOD AFTER ACQUISITION OF INVESTMENTS SHOULD THEREFORE BE ALLOWED AS REVENUE EXPENDITURE FOREIGN CURRE NCY LOAN UTILISED FOR WORKING CAPITAL PURPOSES WOULD CLEARLY BE ON REVENUE ACCOUNT EVEN AS PER THE DECISION OF THE SC IN THE CASE OF SUTLEJ COTTON MILLS LTD (SUPRA)' 6. THE HONORABLE TRIBUNAL IN ITS ORDER (PARA 12.13, PAGE NO. 31) HAS DECIDED THE GROUND. THE RELEVANT PARA OF THE DECISION IS AS FOLLOWS: '12.13 (A) FOREIGN CURRENCY LOANS UTILIZED FOR ACQUIRING FIXED ASSETS AND OVERSEAS INVESTMENT IS TO BE CAPITALIZED AND CORRESPONDINGLY DEPRECIATION NEED TO GRANTED TO THE ASSESSEE. IN THIS, THE EXCHANGE LO SS PERTAINING TO THE PERIOD TILL THE ASSET WAS PUT TO USE SHOULD ALONE BE CAPITALIZED AND THEREAFTER THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. M A NO . 47/MUM/2021 M/S. MAHINDRA AND MAHINDRA LIMITED 3 (B) FOREIGN EXCHANGE LOSS ATTRIBUTABLE TO OTHER MONETARY ITEMS DEBITED TO FCMITDA AS PER AS 11 OF ICAI SHOULD BE ALLOWED AS REVENUE EXPENDITURE.' 7. IT IS RESPECTFULLY SUBMITTED THAT THERE IS AN INADVERTENT MIX - UP BETWEEN FIXED ASSETS AND OVERSEAS INVESTMENTS THOUGH THE DECISION/DIRECTION OF THE HON'BLE TRIBUNAL STATED THEREIN, APPLIES TO BOTH, THOUGH WI TH SLIGHT FACTUAL MODIFICATION; IN THE FIRST SENTENCE OF THAT PARA, UNDOUBTEDLY, EXCHANGE DIFFERENCE ON FOREIGN CURRENCY LOANS TAKEN FOR ACQUIRING FIXED ASSETS AND OVERSEAS INVESTMENT HAS BEEN CORRECTLY HELD TO BE CAPITAL IN NATURE. THE DIRECTION TO GRA NT DEPRECIATION ON SUCH EXCHANGE DIFFERENCE IN THE LATER PART OF THAT SENTENCE IS NOT RELEVANT IN THE CONTEXT OF OVERSEAS INVESTMENTS. IN THE SECOND SENTENCE ALSO, REFERENCE TO PERIOD OF CAPITALIZATION - PUT TO USE - IS ALSO NOT RELEVANT IN THE CONTEXT OF OVERSEAS INVESTMENTS. IN THE CONTEXT OF OVERSEAS INVESTMENT PERIOD OF CAPITALIZATION SHOULD BE TILL THE DATE OF ACQUISITION OF THE INVESTMENTS. THE CLOSING DIRECTION THAT 'THEREAFTER THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE - IS CORRECT FOR BOTH FIXED ASSETS AND OVERSEAS INVESTMENTS ONLY THAT THE RELEVANT START POINT FOR THIS TREATMENT WOULD BE, IN THE CASE OF FIXED ASSETS, DATE PUT TO USE AND IN THE CASE OF OVERSEAS INVESTMENTS, FROM DATE OF ACQUISITION. 8. IN THE CIRCUMSTANCES, WE WOULD REQU EST YOUR HONORS TO PLEASE MODIFY YOUR DIRECTIONS IN PARA 12.13. LEST THERE BE CONFUSION WHILE GIVING EFFECT TO YOUR HONOR'S ORDER. WE PRAY THAT THIS MISCELLANEOUS APPLICATION BE CONSIDERED SYMPATHETICALLY AND PASS SUCH ORDER THEREON AS YOUR HONORS DEEM FIT AFTER GIVING THE APPLICANT A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. FOR THIS ACT OF KINDNESS WE SHALL EVER REMAIN GRATEFUL TO YOUR HONORS. 2. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE MISTAKE POINT ED OUT BY THE ASSESSEE IN PARA 3 OF ITS MISCELLANEOUS APPLICATION IS ONLY A TYPOGRAPHICAL ERROR AND ACCORDINGLY OUR ORDER REQUIRES TO BE MODIFIED. ACCORDINGLY, THE ITA NUMBER MENTIONED IN PARA 2.3(C)(II) FOR A.Y.1999 - 2000 IN PAGE 9 OF OUR ORDER SHOULD BE R EAD AS ITA NO.2344/MUM/2009 (PAGE3 - 5, PARA 2). M A NO . 47/MUM/2021 M/S. MAHINDRA AND MAHINDRA LIMITED 4 3. WITH REGARD TO THE ISSUE RAISED BY THE ASSESSEE IN RESPECT OF ADJUDICATION OF GROUND NO.10 IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN PARA 12.13 IN PAGE 30 & 31 OF ITS ORDER HAD RECORDED AS UNDER: - 12.13 . THE ANOTHER RELATED ISSUE INVOLVED IN THIS REGARD IS WHAT IS THE PERIOD FOR WHICH SUCH LOSS SHOULD BE CAPITALISED. IN THIS REGARD, THE LD. AR ARGUED THAT UNDER THE INCOME TAX ACT, ANY ITEM THAT IS ADDED TO THE FIXED ASSET NEED TO BE CAPITALISED TILL THE ASSET IS PUT TO USE. THIS IS SUPPORTED BY EXPLANATION 8 TO SECTION 43(1) AND PROVISO TO SECTION 36(1)(III) OF THE ACT. ANY COST INCURRED BEYOND THAT PERIOD SHOULD BE CHARGED OFF AS REVENUE EXPENDITURE. ACCORDINGLY, HE ARGUED THAT IRRESPECTIVE OF THE ACCOU NTING TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS, THE EXCHANGE LOSS COULD BE ADDED TO THE COST OF FIXED ASSETS ONLY TILL SUCH TIME, THE ASSETS WERE NOT PUT TO USE. THEREAFTER, SUCH EXCHANGE LOSS SHOULD BE ALLOWED AS REVENUE EXPENDITURE. WE FIND THAT THIS LINE OF ARGUMENT WAS NOT TAKEN UP BY THE ASSESSEE FOR A.Y.2009 - 10 WHILE ADDRESSING THIS ISSUE BEFORE THE TRIBUNAL FOR A.Y.2009 - 10. ACCORDINGLY, THERE WAS NO OCCASION FOR THIS TRIBUNAL TO ADJUDICATE THIS ASPECT OF THE ISSUE. THE LD AR SUBMITTED THAT THIS E XCHANGE LOSS THAT IS DEBITED TO FCMITA IS NOT RELATED TO ACQUIRE FIXED ASSETS AND HENCE, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE LD. AR FURTHER STATED THAT, IN ANY EVENT, THE PROCESS OF CAPITALISATION OF SUCH EXCHANGE LOSS SHOULD END WITH TH E COMMENCEMENT OF OVERSEAS INVESTMENTS UTILIZING FOREIGN CURRENCY LOANS. EXCHANGE LOSS FOR THE PERIOD AFTER ACQUISITION OF INVESTMENTS AND THEREFORE, BE ALLOWED AS REVENUE EXPENDITURE ACCORDING TO THE LD. AR. WE FIND THAT THE DECISION TAKEN BY THIS TRIBUNA L IN A.Y.2009 - 10 MAY NOT BE FULLY APPLICABLE TO THE FACTS OF THE INSTANT CASE AND WE HOLD THAT THE SAID DECISION WOULD HOLD GOOD WITH SOME MODIFICATIONS AS SUGGESTED BELOW BASED ON FACTUAL DEVELOPMENTS THAT HAD HAPPENED LATER: - ( A ) FOREIGN CURRENCY LOANS UTIL ISED FOR ACQUIRING FIXED ASSETS AND OVERSEAS INVESTMENTS IS TO BE CAPITALISED AND CORRESPONDINGLY DEPRECIATION NEED TO BE GRANTED TO THE ASSESSEE. IN THIS, THE EXCHANGE LOSS PERTAINING TO THE PERIOD TILL THE ASSET WAS PUT TO USE SHOULD ALONE BE CAPITALISED AND THEREAFTER, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. ( B ) FOREIGN EXCHANGE LOSS ATTRIBUTABLE TO OTHER MONETARY ITEMS DEBITED TO FCMITA AS PER AS 11 OF ICAI SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 4. FROM THE ABOVE OBSERVATION OF THIS TRIBUNAL IT COULD BE SEEN THAT THIS TRIBUNAL HAD INDEED MIXED UP THE TREATMENT OF FOREIGN EXCHANGE LOSS TO BE GIVEN FOR FIXED ASSETS AND OVERSEAS INVESTMENTS. THE AFORESAID PARAGRAPH IN PAGE 31 OF THE ORIGINAL TRIBUNAL ORDER SHOULD BE MODIFIED AS UNDER: - M A NO . 47/MUM/2021 M/S. MAHINDRA AND MAHINDRA LIMITED 5 A) FOREIG N CURRENCY LOSS UTILIZED FOR ACQUIRING FIXED ASSETS IS TO BE CAPITALIZED AND CORRESPONDINGLY DEPRECIATION NEED TO BE GRANTED TO THE ASSESSEE. IN THIS EXCHANGE LOSS PERTAINING TO THE PERIOD TILL THE ASSET WAS PUT TO USE SHOULD ALONE BE CAPITALIZED AND THERE AFTER, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. B) FOREIGN EXCHANGE LOSS ATTRIBUTABLE TO OTHER MONETARY ITEMS DEBITED TO FCMITA AS PER AS - 11 OF ICA I SHOULD BE ALLOWED AS REVENUE EXPENDITURE. C) FOREIGN CURRENCY LOANS UTILIZED FOR ACQUIRING OVER SEAS INVESTMENTS AND THE EXCHANGE LOSS THEREON IS REQUIRED TO BE CAPITALIZED AND SUCH PERIOD OF CAPITALIZATION SHOULD BE TILL THE DATE OF ACQUISITION OF THE INVESTMENTS AND THEREAFTER THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 5. WHEN THE AFORESAI D MISTAKES WERE POINTED OUT TO THE LD. DR, THE LD. DR FAIRLY AGREED WITH THE ARGUMENTS OF THE LD.AR. ACCORDINGLY, THE AFORESAID MODIFICATIONS ARE MADE IN THE ORDER DATED 19/06/2020 IN ITA NO.7382/MUM/2018 FOR A.Y.2013 - 14. THE ORIGINAL TRIBUNAL ORDER DATED 19/06/2020 SHOULD BE READ ALONGWITH THIS MODIFIED ORDER. 6. IN THE RESULT, THE MISCELLANEOUS APPLICATION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 11 /0 6 /2021 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( MAHAVIR SINGH ) SD/ - ( M.BALAGANESH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED 11 / 0 6 / 202 1 KARUNA , SR.PS M A NO . 47/MUM/2021 M/S. MAHINDRA AND MAHINDRA LIMITED 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//