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2020 (1) TMI 288 - AT - Income TaxRevision u/s 263 - disallowances made towards expenditure related to issue of NCD, disallowances of foreign exchange loss, while computing book profit u/s 115JB deduction for provision for leave encashment and disallowances of expenditure related to foreign currency convertible notes - HELD THAT - CIT(LTU) has adopted another view and review the assessment order passed by the Ld. AO by holding that any expenditure for raising the loan to finance the expansion of the business and such expenditure is allowable only by way of amortization in terms of section 35D. Similarly, in respect of disallowances of foreign exchange loss, while computing book profit u/s 115JB, although, the Ld. AO has accepted explanation furnished by the assessee but, the Ld. CIT(LTU) has adopted different view by holding that the exchange loss is to be treated as diminish in the value of investments attributable to foreign exchange and that the foreign exchange is contingent in the nature . Fact remains that the issue of foreign exchange loss has been elaborately discussed by the Hon ble Supreme Court, in the case of Woodward Governor vs. CIT 2009 (4) TMI 4 - SUPREME COURT , where it was held that loss suffered by the assessee, in respect of revenue liability on account of exchange difference as on the date of the balance sheet is an item of expenditure allowable u/s 37(1) of the Act, in the year of accrual. The assessee has explained the above facts and also support its arguments with the help of the decisions of Hon ble Supreme Court in the above case. AO after considering relevant facts has accepted the claim of the assessee. But, the Ld. CIT(LTU) was of the view that the Ld. AO has not carried out required enquiries to be carried out in accordance with law, without bringing on record how enquiries carried out by the Ld.AO is insufficient or inadequate. Deduction for provision for leave encashment - assessee has claimed deduction for said provision on the basis of decision of Hon ble Kolkata High Court, in the case of Exide Industries Limited Vs CIT 2007 (6) TMI 175 - CALCUTTA HIGH COURT and this fact has been brought to the notice of the Ld.AO. Pursuant to the above, Ld. AO has allowed the deduction for the same, after considering one of the possible views. Subsequently, the Ld.CIT(LTU) adopted another view in 263 proceedings on the basis of Hon ble Supreme court decision in its first interim order, dated 08/09/2008, in case of Exide Industries Limited. However, it is pertinent to note that the stay given by the Hon ble Supreme Court was interim stay till further order and thereafter, the Hon ble Supreme court has passed a subsequent interim order, dated 08/09/2008, wherein it has laid down condition for claiming deduction for provision for leave encashment and thereby stay initial granted by Hon ble Supreme Court, vide first interim order get vacated. The Hon ble Supreme Court, further held that the assesee can claim deduction by paying tax as if, section 43B(f) is on statue book. But, at the same time, it would not be entitled to make a claim in its return of income. The assesee on the basis of said findings of the courts has made a claim and same has been accepted by the Ld. AO. Therefore, we are of the considered view that the ld.CIT(LTU) was incorrect in coming to the conclusion that the Ld. AO has erroneously allowed deduction for provision for leave encashment. Disallowances of expenditure related to foreign currency convertible notes, the assessee has made all the disclosure in the statutory documents, including in the return of income and notes thereto given in statement of total income. Further, the assesee has specifically drawn attention of the Ld.AO to the aforesaid claim of the expenditure by way of notes to computation of income, wherein it has been explained that said expenditure was incurred on discharge of loan liability and it was written off against securities premium account in the books of accounts in accordance with the provision of section 78 and 79 of the Companies Act, 1956 and for the purpose of income tax, these expenses incurred in connection with discharge of loan liability have been claimed as deduction. All these facts were brought to the notice of the Ld.AO. Pursuant to, the Ld. AO has allowed deduction for the same by accepting the claim of the assesee. CIT(LTU) has made the disallowances by holding that said expenses is incurred to discharge loan liability and accordingly, capital in nature, but, the Ld. AO was not examined these aspects before allowing the claim, without bring on record, how the view taken by the Ld. AO is incorrect. Therefore, we are of the considered view that on this count also, the assumption of jurisdiction by the Ld.CIT(LTU) is incorrect. Assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. Therefore, we set aside order passed by the Ld. CIT(LTU) u/s 263 of the I.T.Act, 1961 and restored assessment order passed by the Ld. AO u/s 143(3) r.w.s. 144C(13) - Decided in favour of assessee.
Issues Involved:
1. Validity of proceedings under Section 263. 2. Disallowance of expenditure related to the issue of Non-Convertible Debentures (NCD). 3. Addition of foreign exchange loss while computing book profits under Section 115JB. 4. Disallowance of provision for leave encashment under Section 43B. 5. Disallowance of expenditure related to the discharge of Foreign Currency Convertible Notes (FCCN). Issue-wise Detailed Analysis: 1. Validity of Proceedings under Section 263: The assessee challenged the validity of the proceedings under Section 263, arguing that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. The assessee contended that the AO had taken one of the permissible views and had conducted sufficient inquiries and verification of facts and documents. The Tribunal agreed with the assessee, stating that the CIT cannot assume jurisdiction under Section 263 if the two conditions (i.e., the order being erroneous and prejudicial to the interest of revenue) are not satisfied. The Tribunal cited the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, emphasizing that merely because the assessment order is erroneous does not justify the CIT's interference unless it is also prejudicial to the revenue. 2. Disallowance of Expenditure Related to the Issue of Non-Convertible Debentures (NCD): The CIT directed the AO to treat the expenditure incurred on the issue of NCDs as capital in nature and covered by Section 35D, allowing only 1/5th of the expenditure. The assessee argued that the expenditure was incurred for obtaining a loan for business purposes and should be allowable under Section 37(1). The Tribunal noted that the AO had called for specific inquiries and was satisfied with the explanations provided by the assessee. The Tribunal held that the CIT's view was merely a different interpretation and did not justify the revision under Section 263. 3. Addition of Foreign Exchange Loss While Computing Book Profits under Section 115JB: The CIT treated the foreign exchange loss as contingent and in the nature of diminution in the value of investments. The assessee argued that the foreign exchange loss was a legitimate expenditure allowable under Section 37(1), as supported by the Supreme Court's decision in CIT vs. Woodward Governor India P. Ltd. The Tribunal agreed with the assessee, stating that the AO had accepted the explanation after due consideration, and the CIT's different view did not warrant revision under Section 263. 4. Disallowance of Provision for Leave Encashment under Section 43B: The CIT disallowed the provision for leave encashment, citing the Supreme Court's interim stay in the Exide Industries case. The assessee argued that the AO had allowed the deduction based on the Kolkata High Court's decision in Exide Industries Ltd. vs. CIT. The Tribunal noted that the Supreme Court's interim stay was later modified, allowing the deduction subject to certain conditions. The Tribunal held that the AO's decision was based on one of the possible views and did not justify the revision under Section 263. 5. Disallowance of Expenditure Related to the Discharge of Foreign Currency Convertible Notes (FCCN): The CIT treated the expenditure related to FCCN as capital in nature. The assessee argued that the expenditure was incurred for discharging a loan liability and should be allowable under Section 37(1). The Tribunal found that the AO had accepted the claim after considering the relevant facts and explanations provided by the assessee. The Tribunal held that the CIT's different view did not justify the revision under Section 263. Conclusion: The Tribunal concluded that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. Therefore, the Tribunal set aside the order passed by the CIT under Section 263 and restored the assessment order passed by the AO under Section 143(3) read with Section 144C(13). The appeal filed by the assessee was allowed.
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