2019 (6) TMI 1434 - AT - Income Tax

Addition u/s 43A - Disallowing Foreign Exchange Loss by treating it to be of capital nature - HELD THAT - It is an undisputed fact that assessee had obtained a loan from a holding company. It is also a fact that the loan was utilized for acquisition of capital assets in India and was not utilized for acquisition of capital asset from outside India. We find that Sec.43A of the Act becomes applicable when the assets are acquired from a country outside India and does not apply to acquisition of indigenous assets. Similar view was taken by the Coordinate Bench of the Tribunal in the case of Cooper Corporation Pvt. Ltd. Vs. DCIT 2016 (5) TMI 809 - ITAT PUNE . In the present case since assets were acquired in India we are of the view that provisions of Sec.43A of the Act are not applicable in the present facts. We therefore set aside the invocation of Sec.43-A of the Act. Thus the grounds of the assessee are allowed.

Summary

Issues:
- Disallowance of Foreign Exchange Loss under Sec.43A of the Income Tax Act, 1961 for A.Ys. 2012-13 and 2013-14.

Analysis:
1. The appeals by the assessee stemmed from orders of the Commissioner of Income Tax (Appeals) for A.Ys. 2012-13 and 2013-14. Both parties agreed that the facts and issues were identical for both appeals, allowing the appeals to be heard together.

2. The primary issue revolved around the disallowance of Foreign Exchange Loss amounting to ?25,28,675 by treating it as capital in nature under Sec.43A of the Act. The Assessing Officer (AO) disallowed the amount, considering it as capital expenditure for the purchase of capital equipment. The Commissioner upheld this decision, citing lack of clarity in the law for the relevant period. The AO's reliance on judicial decisions, particularly the Madras High Court ruling, supported treating the loss as capital expenditure due to RBI approval for capital asset purchase.

3. The assessee contended that Sec.43A applied only to assets acquired from outside India, not indigenous assets like those acquired in India. The Pune Tribunal's decision in Cooper Corporation Pvt. Ltd. Vs. DCIT supported this view. Consequently, the Tribunal set aside the invocation of Sec.43A, allowing the assessee's grounds.

4. As the facts and issues for A.Y. 2013-14 mirrored those of A.Y. 2012-13, the Tribunal allowed the grounds for both years. Therefore, the appeals for both A.Ys. were allowed, overturning the previous decisions disallowing the Foreign Exchange Loss.

5. The Tribunal pronounced the order on June 7, 2019, allowing both appeals by the assessee.