2023 (8) TMI 1071 - AT - Income Tax

Revision u/s 263 - assessee had borrowed funds for construction of its hotel building and acquiring other fixed assets - As per CIT since the amount was borrowed in foreign currency for acquisition of certain capital assets, AO wrongly granted deduction in respect of such foreign exchange loss - HELD THAT - The assessee is engaged in the business of running hotels at Pune and Nagpur. Certain amount of loan was taken in foreign currency for capital purposes. Loss on foreign exchange fluctuation in respect of such loan was claimed as deduction. The same could not have been allowed as deduction in terms of the judgment of Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT AO, without conducting any enquiry on this issue, finalized the assessment u/s. 143(3) and eventually allowed the deduction. In view of the fact that such foreign exchange fluctuation loss is not deductible as it pertains to loans taken for capital purposes, the AO by allowing deduction for this sum, passed an erroneous order which was prejudicial to the interest of the Revenue. In our considered opinion, no exception can be taken to the view canvassed by the ld. Pr.CIT in this regard. Decided against assessee.

Summary

Issues:
The judgment involves a challenge against an order passed by the Principal Commissioner of Income Tax under section 263 of the Income-tax Act, 1961 related to the assessment year 2012-13.

Summary:
The assessee had borrowed funds in foreign currency for construction and acquisition of fixed assets, claiming a deduction for foreign exchange loss in the profit and loss account. The Principal Commissioner found the deduction erroneous based on the Supreme Court judgment in CIT Vs. Woodward Governor India Pvt. Ltd. The Assessing Officer allowed the deduction without proper inquiry, leading to an order prejudicial to the Revenue's interest. The Tribunal upheld the Principal Commissioner's decision, dismissing the appeal.

Detailed Judgment:
The appeal pertains to an order passed by the Principal Commissioner of Income Tax under section 263 of the Income-tax Act, 1961 for the assessment year 2012-13. The Principal Commissioner observed that the assessee had borrowed funds in foreign currency for construction and acquisition of fixed assets, claiming a deduction for foreign exchange loss of Rs. 6,23,43,841 in the profit and loss account. The Principal Commissioner deemed the deduction erroneous as it related to loans taken for capital purposes, citing the judgment in CIT Vs. Woodward Governor India Pvt. Ltd.(2009) 312 ITR 254 (SC).

Upon review, the Tribunal found that the Assessing Officer had allowed the deduction without conducting a proper inquiry into the matter. The Tribunal concurred with the Principal Commissioner's view that the foreign exchange fluctuation loss on loans for capital purposes is not deductible. Consequently, the Tribunal upheld the decision of the Principal Commissioner, deeming the Assessing Officer's order prejudicial to the Revenue's interest.

Therefore, the Tribunal dismissed the appeal, affirming the Principal Commissioner's directive to reexamine the eligibility of the deduction claim for foreign exchange loss. The judgment was pronounced in the Open Court on 22nd August, 2023.