2022 (10) TMI 1202 - HC - Income Tax

Foreign Exchange Fluctuation Loss on External Commercial Borrowings (ECB) loans taken by assessee mainly for purpose of purchasing capital goods - disallowing market to Marked Loss (MTM Loss) on foreign currency swaps while computing income u/s. 115JB - deduction claimed u/s. 10B of Income Tax Act while computing income from eligible unit under Chapter IV of Income Tax Act - HELD THAT - It is not disputed by the revenue that as against the order passed under Section 263 the revenue was in appeal before this Court in the case of Principal Commissioner of Income Tax Central-1 Kolkata vs. Himadri Chemicals and Industries Ltd. 2022 (7) TMI 1463 - CALCUTTA HIGH COURT and the same was dismissed by judgment dated 20th July 2022. If that be the position the present appeal cannot be independently pursued by the revenue. Furthermore we note that substantial question of law No.(c) as raised in the appeal was not raised by the revenue in their appeal Supra The revenue cannot pursue this appeal and no interference is called for against the order passed by the learned Tribunal. Appeal dismissed.

Summary

Issues:
1. Delay in filing the appeal
2. Interpretation of provisions under the Income Tax Act, 1961
3. Disallowance of Foreign Exchange Fluctuation Loss on ECB loans
4. Disallowance of Marked to Market Loss on foreign currency swaps
5. Allowance of deduction claimed under section 10B of the Income Tax Act

Delay in filing the appeal:
The High Court considered a delay of 815 days in filing the appeal, attributing a substantial portion of the delay to lockdown restrictions. With the remaining period being less than 50 days, the Court exercised discretion and condoned the delay, allowing the application for condonation of delay.

Interpretation of provisions under the Income Tax Act, 1961:
The appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 challenged an order of the Income Tax Appellate Tribunal related to the assessment year 2012-13. The revenue raised substantial questions of law regarding the treatment of Foreign Exchange Fluctuation Loss on ECB loans, Marked to Market Loss on foreign currency swaps, and the allowance of deduction claimed under section 10B of the Income Tax Act.

Disallowance of Foreign Exchange Fluctuation Loss on ECB loans:
The revenue contended that the Tribunal erred in not considering that the assessee had capitalized Foreign Exchange Fluctuation Loss with capital goods purchased using ECB loans. This issue raised questions about the proper treatment of such losses in the context of capital goods acquisition.

Disallowance of Marked to Market Loss on foreign currency swaps:
Another issue raised was the disallowance of Marked to Market Loss on foreign currency swaps while computing income under section 115JB. The revenue argued that the assessee had already added the MTM Loss to their income under normal provisions of the Income Tax Act, questioning the Tribunal's decision to disallow it.

Allowance of deduction claimed under section 10B of the Income Tax Act:
The revenue also challenged the Tribunal's decision to allow the deduction claimed under section 10B of the Income Tax Act at the stage of computing income from an eligible unit under Chapter IV, rather than at the stage of computing gross total income as per Chapter VI. This issue involved the proper timing and method of claiming deductions under the Act.

Conclusion:
The Court noted that the revenue's appeal could not be pursued independently due to a previous judgment in a related case. Additionally, the substantial question of law not raised in the previous appeal further weakened the revenue's position. Consequently, the appeal was dismissed, and the connected application for stay was closed.