TMI Blog2021 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee cannot be treated as capital in nature and added back to cost of assets. Thus we are of the considered view that there is no error in the findings recorded by the learned CIT(A) that in absence of applicability of section 43A of the Act, loss claimed by the assessee on account of exchange fluctuation loss on ECB loan availed for acquisition of indigenous assets revenue in nature deductible u/s.37(1) of the Act cannot be considered as capital in nature and added back to the cost of assets. Hence, we are inclined to uphold the findings of the learned CIT(A) and reject the grounds taken by the Revenue for both the assessment years. Admission of additional claim made by the assessee - Disallowance of deduction against interest expenses which was voluntarily added in the statement of total income - HELD THAT:- The failure to advert to claim in original return or revised return cannot denude the appellate authorities of their power to consider their claim, if the relevant materials available on record and the claim is otherwise tenable in law. The learned CIT(A) after considering case of M/s. Goetz (India) Ltd Vs. CIT [ 2006 (3) TMI 75 - SUPREME COURT] and the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the claim and allow the interest expenses of ₹ 1,61,42,938/- which was voluntarily offered by the assessee in its original return income. 2.1 Whether the facts and circumstances of the case, the CIT(A) erred in ignoring the decision of Supreme Court in the case of Goetze (lndia)Ltd. wherein the claim of the assesse is not allowable even though the assesse had ample time to rectify the mistake by tiling a revised return as per the provisions of the Act. That the order of CIT(A) be vacated and that of the AO be restored. For these and other grounds that may be adduced at the time of hearing. it is prayed that the Order of the learned Commissioner of Income Tax (Appears) be set aside and that of the Assessing Officer be restored. 3. Brief facts of the case are that assessee company is engaged in the business of manufacture of phosphatic fertilizers like Di ammonium phosphate chemicals like aluminum fluoride filed its return of income for the assessment year 2012-13 on 29.11.2012 declaring total income of ₹ 16,83,96,000/-. During the year under consideration, the assessee has acquired phosphatic business as a going concern on slump sale basis u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of M/s.Hyundai Motor Company Ltd. Vs. DCIT reported in (2017) 81 Taxmann.com 5. The assessee has also challenged rejection of claim made towards deduction of interest paid on forex loan amounting to ₹ 1,61,42,938/- in light of decision of the Hon ble Supreme Court in the case of Goetz (India) Ltd.(supra) and argued that restriction imposed by the Hon ble Supreme Court on the Assessing Officer is not applicable to the appellate authorities and the appellate authority can admit any new claim made by the assesse, if the facts regarding said claim are already on record. 5. The learned CIT(A), after considering relevant submissions of the assessee and by following the decision of Hon ble Supreme Court in the case of CIT vs. Tata Iron Steel Co.Ltd. (supra) and CIT vs. Woodward Governor India P.Ltd. reported in (2009) 312 ITR 254 held that in the absence of applicability of section 43A of the Act to the foreign exchange loss arising out of foreign currency loans for acquisition of indigenous assets, the claim of exchange fluctuation loss in revenue account by assessee is in accordance with generally accepted accounting practices and mandatory accounting standards not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Ltd. (supra) shall not applicable to the facts of the present case and accordingly, admitted the additional claim made by the assessee by filing revised total income and directed the Assessing Officer to verify the claim in accordance with law. The relevant findings of the learned CIT(A) are as under:- 16. I have considered carefully the observation of the assessing officer and the contention o the appellant on this issue. As rightly pointed out by the appellant that the request made for deduction of interest expenses inadvertently added with the memo of income amounting to ₹ 1,61,42,938/- do not constitute a fresh claim. The jurisdictional Tribunal in the case of R. Natarajan vs ACIT (2012) 19 taxmann.com 182 (Chennai) (TM) has said that the decision of Honble Supreme Court in the case of Goetze (India) Ltd shall apply to a case where a fresh claim is made for relief exemption but not in the case whore assessee notifies the AO of a mistake of offering a particular income to tax twice. Hence, bringing to the notice of the AO about a mistake during the assessment proceeding should not be considered as a fresh claim, as the income is already offered to tax and is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing, submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in the case of M/s.Hyundai Motor Company Ltd. Vs. DCIT (supra), where the Tribunal by following the decision of the Hon ble Supreme Court in the case of CIT vs. Tata Iron Steel Co.Ltd. (supra) and CIT vs. Woodward Governor India P.Ltd. (supra) has held that in the absence of applicability of section 43A of the Act, loss claimed by the assessee on account of restatement of ECB loan obtained for purchase of assets in India cannot be treated as capital in nature and further cannot be disallowed u/s.37(1) of the Act. 8. The learned DR, on the other hand, fairly admitted that the issue is covered in favour of the assesse, however, strongly supporting order of the Assessing Officer argued that liability towards forex loss on ECB loan claimed by the assessee is a contingent liability, which was not ascertained at the end of the financial year and hence, the same cannot be allowed as revenue in nature. 9. We have heard both parties, perused materials available on record and gone through the orders of the authorities below. The issue of disallowance of expenditure on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, particularly when no repayment was made during the year. The transaction even then will be capital in nature. Hence, we reject this objection. 72. The Assessing Officer thus proceeded to make the disallowance of ₹ 49,63,29,426 aggrieved by which the assessee is in appeal before us. 73. 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. 74. We find that the issue in appeal is squarely covered by a coordinate bench decision in the case of Cooper Corporation Pvt Ltd Vs DCIT [(2016) 159 ITD 165 (Pune)], wherein the coordinate bench, in a very well reasoned and analytical order, has, inter alia, observed as follows: 10. . The central issue involved in the present case is whether provision for loss in the hands of assessee on account of restatement of outstanding foreign currency loans necessitated by fluctuation in foreign exchange would be allowable as business loss or a loss of capital nature in the facts narrated above. While as per the revenue, the increased liability due to exchange fluctuation correspond with carrying costs of the fixed assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see being a company is required to compulsorily follow mercantile system of accounting. S. 211 of the Companies Act, 1956 also, in terms, mandates that accounting standards as applicable is required to be followed while drawing statement of affairs. S. 145 of the Income Tax Act,1961 similarly casts obligation to compute business income either by cash or mercantile system of accounting. Thus, in view of the various provisions of the Companies Act and Income Tax Act, it was mandatory to draw accounts as per AS 11. Thus, in our considered view, the loss recognized on account of foreign exchange fluctuation as per notified accounting standard AS 11 is an accrued and subsisting liability and not merely a contingent or a hypothetical liability. A legal liability also exists against the assessee due to fluctuation and loss arising therefrom. Actual payment of loss is an irrelevant consideration to ascertain the point of accrual of liability. As a corollary, the revenue has committed error in holding the liability as notional or contingent. 10.4 Copious reference has been made to S. 43A by Assessee as well as revenue. Thus, it would be pertinent to examine the issue on the touchstone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment A bare reading of the aforesaid provision of Section 43A, which opens with a non-obstante and overriding clause, would show that it comes into play only when the assets are acquired from a country outside India and does not apply to acquisition of indigenous assets. Another notable feature is that S. 43A provides for making corresponding adjustments to the costs of assets only in relation to exchange gains/ losses arising at the time of making payment. It therefore deals with realised exchange gain/ loss. The treatment of unrealised exchange gain/ loss is not covered under the scope of S. 43A of the Act. It is thus apparent that special provision of S. 43A has no application to the facts of the case. Therefore, the issue whether, the loss is on revenue account or a capital one is required to be tested in the light of generally accepted accounting principles, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring the asset. In the instant case, the allegation is that at the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. In our judgment, this is not a factor which can alter the cost incurred by the assessee for purchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment, the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals are dismissed. There will be no order as to costs. Thus, it is evident the variation in the loan amount has no bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison with acquisition of assets out of said loan amount borrowed. Actual cost of the corresponding fixed asset acquired earlier by utilizing the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh or mercantile system of accounting. Sub-section (2) thereof authorizes the Central Government to notify accounting standards to be followed for determination of business income. Section 211 of the Companies Act also similarly casts a duty on a company to give a true and fair view of the profit and loss of the company for the financial year. It also requires the company to adhere the accounting standards for preparation of profit in the Profit Loss Account and the Balance Sheet. A conjoint reading of section 145 of the Act and section 211 of the Companies Act leaves no room for doubt that the Assessee is obliged to follow the accounting standards prescribed to determine business income under the head business or profession . We notice that the Hon ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has observed that AS-11 is mandatory in nature. In the light of observations made in Woodward Governor India (P) Ltd. (supra), we are of the view that loss arising on foreign exchange fluctuation loss has been rightly accounted for as a revenue expense in the Profit Loss account in accordance with accounting fiat of AS-11. 10.9 We find that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by revenue considerations towards saving interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. 75. We are in considered agreement with the views so expressed by the coordinate bench. Respectfully following the same, we uphold the grievance of the assessee and delete this disallowance of Rs . 49,63,29,426/-. 10. In this view of the matter and by respectfully following the decision of co-ordinate Bench in the case of M/s.Hyundai Motor Company Ltd. Vs. DCIT (supra), which in turn followed the decision of M/s. Cooper Corporation Vs. CIT and also by following the decision of Hon ble Supreme Court in the case of CIT vs. Tata Iron Steel Co.Ltd. (supra), we are of the considered view that there is no error in the findings recorded by the learned CIT(A) that in absence of applicability of section 43A of the Act, loss claimed by the assessee on account of exchange fluctuation loss on ECB loan availed for acquisition of indigenous assets revenue in nature deductible u/s.37(1) of the Act cannot be considered as capital in nature and added back to the cost of assets. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly directed the Assessing Officer to verify the claim of the assessee in accordance with law and the said finding cannot be faulted. 14. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. There is no dispute with regard to the fact that Assessing Officer is not empowered to admit any fresh claim unless such claim is made by filing revised return of income as per the provisions of the Act, as held by the Hon ble Supreme Court in the case of M/s. Goetz (India) Ltd Vs. CIT (supra). But, restriction imposed by the Hon ble Supreme Court in the said case is not on the appellate authorities and appellate authorities are empowered to admit any fresh claim made by the assessee, if facts relating to such claims are already on record. Further, the Hon'ble High Court of Madras in the case of CIT vs Abhinitha Foundation Pvt Ltd (2017) 396 ITR 251 (MID) has held that if a claim made by the assessee does not form part of original return, it could still be considered if the relevant material was available on record either by the appellate authorities by themselves or on remand to the Assessing Officer. The failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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