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2023 (5) TMI 29 - AT - Income TaxRe-statement foreign exchange gain - interest received on FDR - Addition on account of foreign-exchange gain realized on re-statement of the outstanding loan liability at the year end - AO noticed that assessee had reduced the income on account of foreign exchange profit on restatement of ECB loan - CIT-A deleted the addition - HELD THAT - We find that CIT(A) while deciding the issue in favour of the assessee has also noted the fact that in A.Y. 2014-15, when the re-statement of foreign currency loan at the year-end had resulted into loss and the same was disallowed by the assessee in the return of income, it was accepted by the AO as a notional loss but however in A.Ys. 2012- 13 2013-14, AO is treating the same loss arising out of the restatement of the same loan as taxable income and thus there is an inconsistency in the approach of AO in the treatment in 2 different years. CIT(A) has further given a finding that provision of Section 43A 43AA are not applicable to the facts of the case of the assessee, as the ECB loan obtained by the assessee was for the purpose of setting up of a plant and the ECB loans acquired by the assessee have been utilized for the purpose of acquisition of capital assets in India. Interest earned from fixed deposits on unutilized ECB loans is concerned, we find that CIT(A) after relying on the various decisions cited in his order has given a finding that the payment of interest and the earning of interest was inextricably linked to each other and the same was required to netted off and therefore, assessee had rightly capitalized the interest. Hon ble Delhi High Court in the case of PCIT vs. Triumph Realty Pvt. Ltd. 2022 (4) TMI 1233 - DELHI HIGH COURT has held that the interest earned from fixed deposits on unutilized foreign exchange borrowing loan during the year is a capital receipt. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A) nor has placed any contrary binding decisions in its support. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Addition on account of salary paid to the employees - as held by AO to be capital in nature - AO concluded that four employees were assigned the job at plant which was under construction and name of those employees and salary paid - HELD THAT - As before CIT(A), assessee had inter alia submitted that the work for construction of new plant was entrusted to Shimizu Corporation India Pvt. Ltd. on turn-key basis and none of the employees were directly involved in the construction of plant. AR had further submitted that the employee s salary which has been disallowed by the AO were engaged in the regular basis activities of trading and manufacturing of petrochemical products and had no direct nexus in the construction of new plant. Before us, Revenue has not placed any material on record to point out any fallacy in the findings of CIT(A) nor placed any material on record to point out that the submissions made by Learned AR before the Tribunal or before the CIT(A) were incorrect. In such a situation, we find no reason to interfere with the order of CIT(A) on this issue and thus the ground of Revenue is dismissed. Cross objection of assessee - assessee had erroneously offered a sum as income although the same ought to have been capitalized as the loan was obtained and utilized for capital purpose and installing plant - HELD THAT - Any ground legal contention or even a claim would be permissible for the first time before the appellate authority or the Tribunal when the facts of such ground are already on record. In the present case, the contention of AR that the facts necessary to examine the ground, the assessee s contention is already on record has not been demonstrated by Revenue to be not correct. As per case of Mitesh Impex 2014 (4) TMI 484 - GUJARAT HIGH COURT we hold that CIT(A) has not justified in not adjudicating the ground raised by the assessee before him for the first time. We therefore restore the issue back to the file of CIT(A) and direct him to decide the issue in accordance with law and after giving reasonable opportunity of hearing.Thus the ground of assessee is allowed for statistical purposes.
Issues Involved:
1. Deletion of addition on account of foreign-exchange gain. 2. Deletion of addition on account of interest received on FDR. 3. Deletion of addition on account of salary paid to employees. 4. Cross objections by the assessee regarding the treatment of interest on fixed deposits as capital receipts. Summary: Issue 1: Deletion of Addition on Account of Foreign-Exchange Gain Assessee had reduced income by Rs.6,31,06,600/- due to foreign exchange profit on restatement of ECB loan, claiming it as capital in nature. AO disagreed, treating it as revenue income. CIT(A) ruled in favor of the assessee, noting that the ECB loans were used for capital asset acquisition and that Section 43A was not applicable. CIT(A) also highlighted the inconsistency in AO's treatment across different years. The Tribunal upheld CIT(A)'s decision, finding no reason to interfere. Issue 2: Deletion of Addition on Account of Interest Received on FDRAssessee had received interest on FDRs and capitalized a portion while crediting the rest to the Profit and Loss account. AO added Rs.38,03,898/- to income, disagreeing with the netting off of interest. CIT(A) deleted the addition, citing that the interest earned and paid were inextricably linked and should be netted off, relying on the case of Indian Oil Panipat Power Consortium vs. ITO. The Tribunal found no reason to interfere with CIT(A)'s decision. Issue 3: Deletion of Addition on Account of Salary Paid to EmployeesAO capitalized Rs.73,03,534/- paid as salaries to employees involved in plant construction. Assessee argued that employees were not directly involved in construction. CIT(A) deleted the addition, agreeing with the assessee. The Tribunal upheld CIT(A)'s decision, finding no material to contradict the assessee's claims. Cross Objections by the Assessee:Assessee argued that interest on fixed deposits should be treated as capital receipts. CIT(A) dismissed the ground as it was raised for the first time without a revised return. The Tribunal, referencing higher court rulings, held that appellate authorities can entertain new grounds or legal contentions. The issue was remitted back to CIT(A) for reconsideration. Conclusion:Both appeals by the Revenue were dismissed, and the cross objections by the assessee were allowed for statistical purposes, with directions for reconsideration by CIT(A). Order Pronounced:Order pronounced in the open court on 27.04.2023.
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