2017 (10) TMI 936 - AT - Income Tax

Loss due to exchange fluctuation on foreign currency working capital loan - Held that - The issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Woodward Governor India Pvt. Ltd.(2009 (4) TMI 4 - SUPREME COURT) and also by the decision of ITAT in assessee s own case for AY 2005-06 - Decided against revenue Assessee s tax liability in respect of capital gain on sale of property by applying tax rate prescribed u/s. 112 - Held that - We find that the property in question was admittedly a depreciable asset and therefore came within the ambit of Section 50 of the Income Tax Act, 1961 when the sale proceeds exceeded the opening WDV of the building block. At the same we also note that the property in question was acquired by the assessee in March 1956 and therefore its character was long term in nature. Sec. 50 is the special provision for computation of capital gain in case of depreciable assets and the deeming provision of sec. 50 is only for the purpose of section 48 & 49 relatable to computation of taxable gain and not for other purposes. Since the capital asset in question was held for a period exceeding three years, it was in the nature of long term capital asset and, therefore, gain realized on transfer of long term capital asset is qualified for concessional tax rate provided in Section 112 of the Act - Decided against revenue Deduction on account of amortization of upfront fees - Held that - CIT(A) has deleted the disallowance by observing that in the past assessments also the assessee s claim for pro-rata deduction was consistently allowed and assessee s such claim was in conformity with the decision of Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs CIT (1997 (4) TMI 5 - SUPREME Court ). Since the issue is identical with the issue raised in AY 2005-06, which is squarely covered in favour of the assessee and the Ld. DR could not controvert the aforesaid finding of the Tribunal by producing any material before us and there is no change in law or facts, we respectfully following the aforesaid order of the Tribunal, cited supra, dismiss this ground of appeal of the revenue

Summary

Issues Involved:
1. Disallowance of foreign exchange fluctuation loss.
2. Computation of deemed short-term capital gain on the sale of depreciable assets.
3. Deduction for amortization of upfront fees.

Detailed Analysis:

1. Disallowance of Foreign Exchange Fluctuation Loss:
The primary issue revolves around the disallowance of a foreign exchange fluctuation loss of ?534.58 lakh arising from the restatement of a foreign currency working capital loan. The Assessing Officer (AO) disallowed the loss, considering it notional or contingent in nature, referencing judgments from the Hon'ble Punjab & Haryana High Court and the Hon'ble Gujarat High Court. However, the Ld. CIT(A) allowed the loss, emphasizing the consistent accounting practice of the assessee and the Supreme Court’s decision in the case of Oil & Natural Gas Corporation Limited Vs CIT, which recognized such losses as allowable revenue expenditure. The ITAT upheld the CIT(A)’s decision, noting that the issue was covered by the Supreme Court’s ruling in the case of Woodward Governor India Pvt. Ltd. and the Tribunal’s decision in the assessee’s own case for AY 2005-06. Thus, the ground of appeal by the revenue was dismissed.

2. Computation of Deemed Short-Term Capital Gain:
The second issue pertains to the computation of deemed short-term capital gain on the sale of a residential property held as a depreciable asset. The AO taxed the gain at the maximum marginal rate, while the assessee contended for a concessional tax rate under Section 112 of the Income Tax Act, citing the Bombay High Court’s judgment in CIT Vs ACE Builders Pvt Ltd. The Ld. CIT(A) agreed with the assessee, noting that the property, although depreciable, was held for more than three years, making it a long-term capital asset eligible for the concessional tax rate. The ITAT upheld this view, referencing similar decisions by the Mumbai Benches of ITAT in the cases of Smita Conductors Ltd. Vs DCIT and Poddar Brothers & Investment Pvt. Ltd. Vs DCIT. The Tribunal found no material contradictions from the revenue and upheld the CIT(A)’s order, dismissing the revenue’s appeal on this ground.

3. Deduction for Amortization of Upfront Fees:
The third issue involves the deduction of ?406.58 lakh on account of amortization of upfront fees paid to ICICI Bank for converting a Rupee Loan into a Foreign Currency Loan. The AO disallowed the claim, arguing that the fees were not debited to the P&L Account but claimed in the reserve account. The Ld. CIT(A) allowed the deduction, referencing past assessments where similar claims were accepted and aligning with the Supreme Court’s decision in Madras Industrial Investment Corporation Limited Vs CIT. The ITAT upheld the CIT(A)’s decision, noting that the issue was identical to the one in AY 2005-06, which was resolved in favor of the assessee by the Tribunal. The revenue’s appeal on this ground was thus dismissed.

Conclusion:
The appeal of the revenue was dismissed in its entirety, with the ITAT upholding the CIT(A)’s decisions on all grounds. The judgments were based on consistent accounting practices, relevant judicial precedents, and the specific facts of the case. The order was pronounced in the open court on 18th October 2017.