9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (1) TMI 415 - AT - Income TaxDisallowance of foreign exchange loss on restatement of Export Earners Foreign Currency (EEFC) account - CIT(A)/ AO treating the foreign exchange loss on account of restatement of EEFC account as capital in nature - CIT(A) by relying on section 43A of the I.T. Act as amended by Finance Act, 2002 held that the loss on account of fluctuation in foreign exchange can be adjusted at the time of making payment but not on notional basis - HELD THAT - Section 43A of the I.T. Act applies where an assessee acquires an asset in a previous year. The EEFC account was maintained by the assessee to facilitate regular business operation and not for acquiring any asset. Since the transaction in EEFC account undertaken during the year are trading in nature in order to facilitate the regular business operation of the assessee-company, we hold that the AO has erred in making an addition to the income returned and the CIT(A) was not justified in sustaining the same. Therefore, we delete the addition. It is ordered accordingly. TDS u/s 194I - Disallowance u/s 40(a)(ia) - whether the assessee had claimed depreciation on the leased asset and if so, add back the same to the total income? - HELD THAT - Lessee shall reimburse all the cost to the lessor for replacing, missing components and repairing of non working components. From reading of the agreement between the assessee and First Leasing, it is clear that the actual owner of the leased asset is the lessor and First Leasing, the lessor, is entitled to claim depreciation The assessee-company has merely taken the assets on lease from the owner and it is accordingly eligible to claim actual rental expenses in the return of income. In the case of Rajshree Roadways v. Union of India 2003 (3) TMI 50 - RAJASTHAN HIGH COURT had held that the lessor being the owner of the trucks, would be eligible for the benefit of depreciation. Further, it was held by the Hon'ble Court that the lessee having not the right to transfer or alienate the vehicle to other parties in any form, the lease rent paid by the assessee in that case (lessee) would be revenue expenditure. In the case of Banashankari Medical Oncology Research Centre Ltd. 2008 (8) TMI 346 - KARNATAKA HIGH COURT had held that when equipments are not owned by the assessee, hire charges paid for leasing of the equipment is a revenue expenditure and is to be allowed as a deduction. As regards the CIT(A)'s directions to the A.O. to verify whether there was TDS made by the assessee while making payment for lease rentals and adding back the depreciation claim, the directions are to protect the interest of revenue. Therefore, the order of the CIT(A) is in accordance with law and we uphold the same.
Issues Involved:
1. Disallowance of foreign exchange loss on restatement of Export Earners Foreign Currency (EEFC) account. 2. Treatment of finance lease rentals and related TDS compliance. Issue-wise Detailed Analysis: 1. Disallowance of Foreign Exchange Loss on Restatement of EEFC Account: Facts and Arguments: The assessee, a private limited company engaged in e-business applications, filed a return for the assessment year 2012-2013. The Assessing Officer (A.O.) disallowed a foreign exchange loss of ?79,27,497, treating it as capital in nature and notional. The CIT(A) upheld this disallowance, referencing section 43A of the I.T. Act which allows for adjustments only at the time of payment and not on a notional basis. Tribunal's Analysis: The Tribunal noted that the restatement of the EEFC account was in line with the foreign exchange management regulation 2015 and accounting standard -11, which mandates reporting foreign currency monetary items using the closing rate at each balance sheet date. The Tribunal emphasized that the transactions in the EEFC account were trading in nature, facilitating regular business operations, and thus the foreign exchange loss was not notional or contingent. Legal Precedents: The Tribunal referenced the Supreme Court's decision in Oil and Natural Gas Corporation Limited v CIT, which allowed for the deduction of foreign exchange losses under the mercantile system of accounting, even if the liability was not discharged in the year the fluctuation occurred. Additionally, the ITAT Ahmedabad's decision in DCIT v. Shree Swati Texdyes Private Limited supported the view that foreign exchange losses related to EEFC accounts should be accounted for in computing business profits and losses. Conclusion: The Tribunal held that the A.O. erred in making the addition of ?79,27,497 and that the CIT(A) was not justified in sustaining it. The addition was deleted, allowing the assessee's appeal on this ground. 2. Treatment of Finance Lease Rentals and Related TDS Compliance: Facts and Arguments: The assessee paid ?2,36,70,370 towards equipment leasing, including a principal repayment of ?1,77,95,992. The A.O. treated the principal repayment as capital expenditure and added it back to the income. The CIT(A) directed the A.O. to verify TDS compliance under section 194-I and to disallow any amount paid without TDS. Additionally, the CIT(A) instructed the A.O. to check if the assessee claimed depreciation on the leased asset and to disallow such depreciation if claimed. Tribunal's Analysis: The Tribunal examined the lease agreement, noting that the lessor retained ownership of the assets, and the assessee could not capitalize the assets in its books. The Tribunal cited the Rajasthan High Court's decision in Rajshree Roadways v. Union of India and the Karnataka High Court's decision in Banashankari Medical & Oncology Research Centre Ltd. v. JCIT, both of which supported treating lease rentals as revenue expenditure when the lessee does not own the assets. Conclusion: The Tribunal upheld the CIT(A)'s order, affirming that the lease rentals were revenue in nature and deductible. The directions to verify TDS compliance and depreciation claims were deemed appropriate to protect revenue interests. The Revenue's appeal was dismissed. Final Order: The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed. The order was pronounced on January 4, 2022.
|
