2020 (2) TMI 1535 - AT - Income Tax

Rectification u/s 254 - disallowance of contribution to the Mahindra Academy u/s 40A(9) - HELD THAT - The issue of contribution to Mahindra Academy had been referred back to AO by Hon lTAT in AY 2006-07 - CIT (A) has allowed the appeal on this issue for AY 2006-07 and 2007-08 in Appeal - The mistake that is apparent from the record is that the Honourable Tribunal has inadvertently adjudicated this issue by following the order for A.Y. 2008-09 instead of with reference to the last operative orders viz. order in A.Y. 2000-01 and the decision of learned CIT(A) for A.Y. 2007-08 (accepted by the Department) . Upon careful consideration and hearing both the parties in our considered opinion mistake apparent from record has crept in the order of the tribunal in as much as latest order of the tribunal on the issue has not been considered. Accordingly the concerned ground of appeal is recalled for fresh adjudication. Disallowance of difference in exchange loss claimed as revenue expenditure - departmental representative submitted that ITAT in its order has found that the decision of honourable Supreme Court in the case of Sutlej cotton Mills 1978 (9) TMI 1 - SUPREME COURT is directly applicable on the facts of the case - HELD THAT - Upon careful consideration we find that ITAT has elaborately discussed the issue. It had found that the decision of honourable Supreme Court in Sutlej Cotton Mills (supra) is directly applicable on the facts of the case. Furthermore as detailed in the submission of the learned departmental representative above the other aspects raised in the miscellaneous application call for a review of the order of the ITAT in the garb of rectification of mistake apparent from record under section 254(2) of the IT Act. The submission in the Miscellaneous Application that some related issues have remained to be adjudicated are in fact aimed at getting the review of the order. This is not permissible. These issues are not arising out of the grounds of appeal before the Tribunal. Accordingly the Miscellaneous application for this issue stands dismissed.

Summary

Issues Involved:
1. Disallowance of contribution to Mahindra Academy under section 40A(9) of the Income Tax Act.
2. Deduction for difference in exchange of ? 251.63 crores claimed by the assessee.

Issue 1: Disallowance of Contribution to Mahindra Academy under Section 40A(9)
The assessee sought rectification of a mistake apparent from the record concerning the disallowance of contributions to Mahindra Academy under section 40A(9) of the Income Tax Act. The submission highlighted that the disallowance of ? 2,59,650 and ? 12,00,000 was for the benefit of the appellant's employees and local residents, and thus, should not be disallowed under section 40A(9). The Tribunal had previously remitted similar issues to the Assessing Officer (AO) for fresh consideration in earlier assessment years.

Upon reviewing the records and hearing both parties, the Tribunal acknowledged that a mistake had occurred as the latest order of the Tribunal on the issue had not been considered. Therefore, the Tribunal recalled the concerned ground of appeal for fresh adjudication.

Issue 2: Deduction for Difference in Exchange of ? 251.63 Crores
The second issue involved the disallowance of a deduction for the difference in exchange of ? 251.63 crores claimed by the assessee. The assessee argued that the difference in exchange should be allowed as a revenue deduction and that there was no requirement to capitalize the difference in exchange related to capital assets. Alternatively, the assessee contended that if the difference was capitalized, depreciation should be allowed.

The Tribunal noted that the AO had disallowed the expenditure, treating it as a contingent liability and stating that loans taken for fixed assets should be capitalized. The DRP upheld the AO's disallowance, noting that the assessee had not provided specific details correlating foreign exchange losses to individual capital assets.

The Tribunal referred to the Supreme Court decision in Satlej Cotton Mills Ltd. vs. CIT, which held that foreign exchange gains or losses related to capital assets should be adjusted with the cost of the capital asset, while those related to revenue accounts should be treated as revenue expenses. The Tribunal found that the AO's action was correct and that the assessee's claim for treating all foreign exchange fluctuations as revenue expenses was not sustainable.

The assessee, through a miscellaneous application, argued that the Tribunal had not considered the decision of the Chennai Tribunal in the case of Hyundai Motor India Ltd., which distinguished the Supreme Court decision in Satlej Cotton Mills. The assessee also raised additional related issues, including the allowability of depreciation without furnishing details of individual assets and the treatment of foreign exchange gains on ICDs.

The Tribunal, however, found that the issues raised in the miscellaneous application were not arising out of the grounds of appeal or the original order of the ITAT. The Tribunal emphasized that the decision of the Supreme Court in Satlej Cotton Mills took precedence and dismissed the miscellaneous application, stating that it was an attempt to seek a review of the order under the guise of rectification.

Conclusion
The Tribunal partially allowed the miscellaneous application concerning the disallowance of contributions to Mahindra Academy by recalling the ground for fresh adjudication. However, it dismissed the application regarding the deduction for the difference in exchange, upholding the original decision and emphasizing the precedence of the Supreme Court's ruling in Satlej Cotton Mills. The order was pronounced on 21.2.2020.