TMI Blog2021 (12) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... change fluctuation loss could have been capitalized only till the acquisition of capital asset, i.e., acquisition of shares in this case. In the instant case, admittedly the shares were acquired in the financial year ended 31.03.2012 and therefore, the capitalization of the foreign exchange fluctuation loss could, at the most, be relevant for the financial year 2011-12 relevant to assessment year 2012-13 and there is no occasion to treat any part of the interest or for that matter exchange rate fluctuation gain or loss to treat the same as in the capital field during the year under consideration. It is an undisputed fact that for the assessment year 2012-13, 2013-14 and 2016-17, the assessee declared loss on account of foreign exchange fluctuation which was accepted by the Assessing Officer; whereas for the assessment year 2015-16, there was a gain to the tune of ₹ 4.65 crores, which the assessee offered to tax. Having accepted the same for two assessment years earlier and two years subsequent to the current assessment year, it is not open for the Revenue to take an altogether different stand for the current year and the Revenue is expected to follow the rule of consistenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 20,000/-, ld. CIT(A) held that no disallowance u/s. 40A(3) was called for. There is no material contrary to this finding of the ld. CIT(A) and there is no reason for us to take a different view from the view taken by the ld. CIT(A). We, therefore, confirm the same. Consequently, this ground of Revenue s appeal is dismissed. - ITA No. 6028/Del/2018 And ITA No. 6471/Del/2018 - - - Dated:- 8-12-2021 - Shri Prashant Maharishi, Accountant Member And Shri K. Narasimha Chary, Judicial Member For the Assessee : Sh. Pradeep Dinodia, FCA For the Respondent : Sh. B.S. Anant, Sr. DR ORDER PER K. NARASIMHA CHARY, J.M. Aggrieved by the order dated 05.07.2018 passed by the learned Commissioner of Income Tax (Appeals)-9, New Delhi ( Ld. CIT(A) ) for the assessment year 2014-15 in the case of Viney Corporation Ltd., ( the assessee ), both the assessee and the Revenue preferred these appeals. 2. Brief facts of the case are that the assessee is engaged in the manufacturing of auto components and has been a leading supplier to major OEMs and Tier-1 in wheelers, passenger vehicles and commercial vehicles segments in India. For the assessment year 2014-15, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT vs. Jagatjit Industries Limited, 337 ITR 21 (Del). Learned CIT(A) agreed with the view expressed by the Assessing Officer and upheld this addition. 6. Arguments of the ld. AR are two-fold. Firstly, according to him this expense is allowable u/s. 37 of the Act because the borrowing was for the business purpose to have control over Vimercati SPA in order to expand their business, as has been held by Hon ble Supreme Court in the case of SA Builders vs. CIT, 288 ITR 1 (SC). Second contention of the ld. AR is that the borrowing was for the financial year 2011-12 relevant for the assessment year 2012-13 and in the assessment years 2012-13, 2013-14, 2015-16 and 2016-17, the gain or loss on account of foreign exchange fluctuation was accepted by the department. So, to have the regard to the rule of consistency, ld. Assessing Officer should have allowed the same. 7. Learned DR while placing reliance on the orders of the authorities below submitted that the assessee purchased a capital asset and therefore, the expense falls within the domain of capital expenditure and therefore, the same cannot be treated as revenue expenditure. He places reliance on the decision of jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of all foreign currency transactions, including those relating to- (i) monetary items and non-monetary items; (ii) translation of financial statements of foreign operations; (iii) forward exchange contracts; (iv) foreign currency translation reserves. 10. The assessee submits that the loan is always a monetary item both as per Accounting Standard-11 and as per provisions of ICDS VI issued in pursuance to section 145(2) of the Act. It is also submitted that the utilization of loans does not affect the nature of monetary items of obtaining loan in foreign currency and also repayable in foreign currency. Mere fact that the loan was contracted for the purpose of purchasing the share capital of Vimercati SPA does not alter the nature of this item. According to the ld. AR, there is no nexus between the foreign currency loan and its repayment and its repayment with the holding of shares of foreign entity. 11. He further submits that the assessee has been maintaining its books of account on mercantile basis as per accounting standard which was duly notified by the National Advisory Committee for Accounting Standards in terms of section 211(3C) of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from the Government, the cost of the asset will be the pr ice paid by the assessee for acquiring 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 o f repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for (he 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. It is, therefore, clear that so long as the method of repayment does not impact the cost of the asset, which would enhance the benefit in revenue field, we find it difficult to hold that such an expense is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii). In so far as the disallowance u/r. 8D(2)(iii) is concerned, both the assessee and the Assessing Officer reached the same amount of ₹ 1,65,703/-. Assessee is, therefore, aggrieved against the Assessing Officer adding a sum of ₹ 9,29,235/- while making disallowance u/r. 8D(2)(ii). According to the assessee they have their own funds far exceeding the investments and therefore, there cannot be any occasion to disallow the interest component u/d. 8D(2)(ii). 17. Learned CIT(A), as a matter of fact, returned a finding that no fresh investment was made during the year in shares which resulted in exempt income; that investment in share holding was continued from earlier years; and that no interest bearing fund borrowed was utilized for the purchase of shares. Ld. CIT(A), however, tripped into error by saying that since the disallowance u/s. 14A of the Act cannot be more than the dividend income claimed exempt and on that premise, he confirmed the disallowance of ₹ 2,07,715/- instead of deleting the entire amount of ₹ 9,29,235/-. 18. On a perusal of record, we find that no borrowed fund on which interest was paid was utilized for purchase of shares, inasmu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced during the F.Y 2012-13 wherein outstanding loan balance was ₹ 6.02 crores and the outstanding loan balance as on 31.03.2017 is ₹ 4.42 crores. It means there has been reduction in the loan amount so given to M/s Vimercati SPA Italy. A facts as per submission of the appellant is that investment and other loan transaction with Vimercati SPA, Italy was in furtherance of its business activity in as much as the overseas entity happened to be in the line of its business and acquisition of controlling power by investment in that concern has helped the appellant company to further its business interest in overseas market. 20. Inasmuch as the assessee was having interest free fund in the shape of share capital, reserves and surplus of ₹ 39.57 crores, 68.31 crores and 92.61 crores as on 31.03.2012, 31.03.2013 and 31.03.2014 respectively, he drew a presumption that the loans advanced to its subsidiary was out of its own funds and therefore, the question of assessee utilizing the borrowed funds at interest to give benefit to its subsidiary by giving loans at lower rate, does not arise. Learned CIT(A) relied on the order of SA Builders (supra) and also on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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