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2016 (5) TMI 978 - AT - Income TaxTreatment of Foreign Exchange Fluctuation Gain - revenue or capital gain - Held that - The foreign exchange fluctuation gain to the extent it relates to foreign currency loans utilised for purchase of indigenous plant and machinery in the assessee s wind power units did not attract the provision of section 43A of the Act. Section 43A of the Act only makes a reference to acquisition of asset from a country outside India and in consequence of the change in the rate of exchange after the acquisition there is an increase of reduction in the liability of the assessee as expressed in Indian currency at the time of making payment and compared to the liability existing at the time of acquisition of the asset. The section is not attracted where the asset is not acquired from a country outside India. This aspect has been considered and accepted by the Hon ble Ahmedabad Bench in the decision referred to by the ld. Counsel for the assessee. Besides the above as is clear from the chart given in the earlier part of the order such gain or loss has been consistently neither offered to tax nor claimed as deduction by the assessee while computing the total income. In the light of the facts and circumstances stated above, we are of the view that the claim made by the Assessee deserves to be accepted. AO is directed to exclude the foreign exchange fluctuation gain to the extent of ₹ 5,79,10,209/- from the total income of the assessee as it is a capital receipt not chargeable to tax. Disallowance of Net Present Value (NPV) - Held that - As decided in assessee s own case this issue has been considered by this Co-ordinate Bench decision to held that NPV paid by assessee is held to be revenue expenditure, thus liable u/s 37(1) of the Act. Disallowance u/s 14A - Held that - Computation of 1% of exempt income as disallowance u/s.14A of the Act was proper
Issues Involved:
1. Treatment of Foreign Exchange Fluctuation Gain as Capital Receipt. 2. Deduction of Demand Raised by Railway Authorities towards Wharfage/Stacking Charges. 3. Deletion of Disallowance of 'Net Present Value' (NPV) as Revenue Expenditure. 4. Disallowance under Section 14A of the Income Tax Act. Detailed Analysis: 1. Treatment of Foreign Exchange Fluctuation Gain as Capital Receipt: - Background: The assessee argued that a portion of the foreign exchange fluctuation gain, specifically ?5,79,10,208/-, should be treated as a capital receipt because it pertained to a foreign currency loan used for purchasing indigenous machinery for its wind power unit. - CIT(A) Decision: The CIT(A) dismissed the claim, citing the Supreme Court decision in Goetze (India) Ltd., which mandates that claims not made in the original return must be filed through a revised return. - Tribunal's Decision: The Tribunal found that the CIT(A) should have entertained the claim based on the Supreme Court's decision in NTPC Ltd., which allows new points of law to be raised at the appellate stage. The Tribunal also noted the consistent past treatment of similar gains by the assessee and ruled that the foreign exchange fluctuation gain should be excluded from the total income as it is a capital receipt not chargeable to tax. 2. Deduction of Demand Raised by Railway Authorities towards Wharfage/Stacking Charges: - Background: The assessee sought to claim a deduction for a demand of ?100,14,22,200/- raised by the Railway authorities for wharfage/stacking charges. - CIT(A) Decision: The CIT(A) did not admit this additional ground of appeal as it was not part of the original assessment order. - Tribunal's Decision: The Tribunal dismissed the ground, agreeing with the CIT(A) that the necessary facts were not on record and thus could not entertain the claim. 3. Deletion of Disallowance of 'Net Present Value' (NPV) as Revenue Expenditure: - Background: The assessee paid ?7,11,50,400/- towards NPV to continue mining operations on forest land, claiming it as a revenue expenditure. - CIT(A) Decision: The CIT(A) allowed the deduction, treating the expenditure as revenue in nature. - Tribunal's Decision: The Tribunal upheld the CIT(A)’s decision, referencing similar cases where such payments were deemed necessary for business operations and thus allowable as revenue expenditure. The Tribunal emphasized that the payment did not result in the acquisition of a tangible asset and was a statutory requirement for continuing business operations. 4. Disallowance under Section 14A of the Income Tax Act: - Background: The AO disallowed ?5,94,14,773/- under Section 14A, which pertains to expenses incurred in earning exempt income. - CIT(A) Decision: The CIT(A) reduced the disallowance to 1% of the exempt income, amounting to ?3,99,203/-, noting that Rule 8D was not applicable for the assessment year in question. - Tribunal's Decision: The Tribunal upheld the CIT(A)’s decision, citing consistent rulings by the Kolkata Bench and the Calcutta High Court that 1% of the exempt income is a reasonable estimate for disallowance under Section 14A for years prior to the applicability of Rule 8D. Conclusion: - The assessee's appeal was partly allowed, specifically concerning the treatment of foreign exchange fluctuation gain as a capital receipt. - The revenue's appeal was dismissed, confirming the CIT(A)'s decisions on the NPV payment and the disallowance under Section 14A.
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