2023 (7) TMI 342 - AT - Income Tax

Forex unrealized loss on account of Foreign Exchange - allowable deduction or not? - gain on Foreign Exchange fluctuation is taxable - assessee submitted that the transactions entered into foreign currency are required to be reported in Indian Rupees following the accounting treatment prescribed in the Accounting Standard-11 of ICAI and loss arising on account of difference in the Foreign Exchange rates prevailing on the date of transaction and the closing rate on the date of balance sheet (when the transaction is settled for the subsequent year) on account of restatement of outstanding loss for Revenue transactions on the balance sheet date is Revenue loss eligible for deduction u/s 37(1) as relying on Woodward Governor India Pvt. case 2009 (4) TMI 4 - SUPREME COURT - HELD THAT - We feel it appropriate to restore the issue to the file of the AO for examining the issue afresh taking into consideration all the facts and contentions of the assessee and to decide the issue in accordance with law after providing adequate opportunity of being heard to the assessee. Addition in respect of supplemental lease rent u/s 40(a)(i) - exemption u/s 10(15A) of the Act would not apply to supplemental rent/maintenance reserve - assessee contended that maintenance reserve is in the nature of supplemental rent paid by the assessee on monthly basis in addition to the basic lease rental for the aircraft and is part of lease rent - HELD THAT - Tribunal 2023 (1) TMI 652 - ITAT DELHI decided the issue in favour of the assessee holding that supplemental rent/maintenance reserve would be exempt from tax in the hands of lesser in India as per Section 10(15A) of the Act and hence, no disallowance u/s 40(a)(ia) can be made. Special Bench of the Delhi Tribunal in the case of Inter Globe Aviation Ltd. (Indigo) 2021 (9) TMI 1400 - ITAT DELHI considered the lease rental pursuant to agreements executed after 01.04.2007 and its chargeability to tax in the hands of lesser under Article 12 of DTAA between India and Ireland and the Special Bench held that supplementary rent paid for lease agreements executed after 01.04.2007 are not chargeable to tax in India. Decided in favour of assessee. Disallowance on account of interest paid on late deposit of service tax and VAT u/s 37(1) - CIT(Appeals) deleted the disallowance - HELD THAT - We observe that the disallowance was deleted on appreciation of facts and the evidences on record and also applying the decision of Sri Radha Krishna Shipping Ltd. 2019 (10) TMI 836 - ITAT MUMBAI wherein it has been held that interest on account of delay in payment of service tax is allowable as deduction u/s 37(1) of the Act - Decided in favour of assessee.

Summary

Issues Involved:

1. Foreign Exchange Loss Deduction
2. Book Profit Assessment under Section 115JB
3. Disallowance of Supplemental Lease Rent under Section 40(a)(i)
4. Disallowance of Interest on Late Deposit of Service Tax and VAT under Section 37(1)

Summary:

Foreign Exchange Loss Deduction:
The primary issue in the assessee's appeal for AY 2011-12 was whether the Ld. CIT(A) erred in sustaining the action of the Assessing Officer (AO) in denying the Forex unrealized loss of Rs. 11,72,81,379/- as not allowable deduction while taxing the gain on Foreign Exchange fluctuation of Rs. 82,56,666/-. The AO treated the unrealized Foreign Exchange loss as a capital account and notional loss, thus not allowable as a deduction, but taxed the gain on Foreign Exchange fluctuation. The Tribunal restored the issue to the AO for fresh examination, considering all facts and contentions of the assessee, in accordance with the law.

Book Profit Assessment under Section 115JB:
Grounds related to book profit assessment under Section 115JB of the Act were dismissed as not pressed by the assessee.

Disallowance of Supplemental Lease Rent under Section 40(a)(i):
The Revenue's appeal for AY 2011-12 questioned the deletion of the addition of Rs. 168,72,51,723/- made by the AO under Section 40(a)(i) for supplemental lease rent. The AO had disallowed the supplemental rent, treating it as royalty and maintenance reserve, and held it liable for TDS. The Ld. CIT(A) deleted the disallowance, following the Tribunal's decision in the assessee's own case for earlier years and the Special Bench decision in the case of Inter Globe Aviation Ltd. (Indigo) vs. Addl. CIT, holding that supplemental rent is not taxable as royalty and is exempt under Section 10(15A) of the Act. The Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's grounds.

Disallowance of Interest on Late Deposit of Service Tax and VAT under Section 37(1):
The Revenue's appeal for AY 2012-13 included a ground against the deletion of disallowance of Rs. 76,52,276/- on account of interest paid on late deposit of service tax and VAT. The AO had disallowed the interest, not accepting it as compensatory. The Ld. CIT(A) deleted the disallowance, substantiating that the interest was compensatory in nature and allowable under Section 37(1). The Tribunal upheld the Ld. CIT(A)'s order, rejecting the Revenue's ground.

Conclusion:
The Tribunal restored certain issues to the AO for fresh examination, upheld the Ld. CIT(A)'s deletion of disallowances related to supplemental lease rent and interest on late deposit of service tax and VAT, and dismissed the Revenue's appeals for the assessment years 2011-12, 2012-13, 2015-16, and 2016-17. The appeals of the assessee for AY 2011-12, 2012-13, 2015-16, and 2016-17 were allowed for statistical purposes.