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TMI Blog2014 (1) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... ange fluctuation – Held that:- Profit and loss arising on exchange fluctuation in respect of loan taken will constitute capital or revenue expenditure depending on the purpose for which the loan has been utilized – Following ONGC Vs CIT [2010 (3) TMI 81 - SUPREME COURT] - loss on exchange fluctuation in respect of loans acquired for revenue purpose is an allowable deduction – matter remitted back to the AO – Decided in favour of Assessee. Exclusion of Annual Maintenance Charges u/s 80IB of the Act – Held that:- The decision of the AO and the CIT(A) upheld - AMC is a separate stream of income and is not connected to the main activities of manufacture and sale of goods by the assessee - This service is rendered after the sale of goods has been completed - The AMC services can be provided independent of the sales also – thus, providing Annual maintenance Services cannot be considered as connected in the first degree with the activity of manufacture and sale of goods - Section 80IB is available only for profit derived from business of manufacture of goods and therefore it is not applicable to income derived from any ancillary activities/ services – Thus, AMC charges should be exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as expenditure met on any project. (e) As cost of the projects is not specified, it is difficult to determine the cap specified in Section 35D(3). 4. The assessee has claimed that in the alternative, the entire expenditure should be allowed under Section 37, if the claim under Section 35D is not allowed. The AO rejected both the contentions and disallowed the sum of Rs.63,32,210/- being 1/5th of the total expenditure of Rs.3,16,63,058/- incurred by the Assessee on issue of FCCB claimed by the assessee. 5. Aggrieved, the assessee has come up on appeal before CIT(A). Before CIT(A), the assessee submitted that offering Circular known as prospectus in India clearly specified that the FCCB was raised to fund the cost of expansion. Reimbursement of expenses incurred for wind power project and modernization of the company s facilities. It is also observed that capital is not raised against setting up or expansion of any specific undertaking, investment in infrastructure or amounts lying in bank cannot be treated as expenditure met on any project. As the cost of the project is not specified, it is difficult to determine the cap specified in Section 35D(3). The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because in the accounts the assessee has set off all these expenditure against the share premium or assessee has not debited any amount in its profit and loss will not prevent the assessee to claim expenditure which is otherwise allowable under the Incometax Act. 10. We find that even if Section 35D is applicable to the instant case, expenditure on issue of debentures which is otherwise allowable u/s 37, will be allowable in full and the expenditure need not be amortised. The Calcutta High Court in CIT Vs East India Hotel reported in 252 ITR 860 and the Delhi High Court in the case of CIT Vs Thirani Chemicals Ltd reported in 290 ITR 196 (Del) have held that expenditure on issue of bonds allowable under Section 37 by applying the ratio of the Supreme Court in the case of India Cements Ltd reported in 60 ITR 52, even in cases where debentures were issued for funding expansion of an undertaking and hence the expenditure attracted provisions of sec 35D. In these decisions they have referred to clarification issued by the Board in its Circular No.56 dated 19.03.1971 wherein they have clarified that provisions for amortization is not intended to supersede any other provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in loan liability on account of exchange fluctuation. As this matter has not been looked into, we remit the matter back to the file of AO to verify the purpose for which these loans were utilized and accordingly treat the loss on foreign exchange as capital or revenue as the case may in line with the decisions of the Apex Court in the case of ONGC Limited Vs - 322 ITR 180 and Woodward Governor India Limited reported in 312 ITR 254. Therefore this issue of the Assessee s appeal is treated as allowed for statistical purpose. 16. Ground No. 4 is regarding exclusion of Annual maintenance Charges of Rs.20,28,125/ received by the Assessee, in computing relief under Section 80IB. The assessee had supplied CDMA Phones to BSNL and the annual maintenance charges is part and parcel of the purchase order entered into by the BSNL. 17. It is the contention of the assessee that Annual maintenance Charges are inextricably connected with the manufacture and sale of CMDA Phones and should be considered as part of the income entitled to relief under Section 80IB. The AO and the CIT(A) has held that AMC is a separate stream of income and is not connected to the main activities of manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance u/s.14A is treated as allowed for statistical purposes. 22. In the result, the Appeal of the Assessee being ITA No. 99/Hyd/2012 is Partly allowed for statistical purposes. ITA No.1435/Hyd/2012 for AY 2009-10 23. Ground No. 1 is general in nature. 24. Ground No. 2 regarding sustaining addition of Rs. 63,32,610/- being amortization of expenses u/s 35DF of the IT Act, 1961 in relation to expenditure incurred of FCCB bonds, has not been pressed by the learned counsel at the time of hearing before us, therefore, this ground is dismissed as not pressed. 25. Ground no. 3 is directed against the action of the CIT(A) in confirming the disallowance u/s 14A of the Act at Rs. 39,42,577/-. 26. Similar issue has been decided by us in ITA No. 99/Hyd/2012 vide paras 19 to 21 wherein we have set aside the issue to the file of the Assessing Officer for fresh consideration. Respectfully following the conclusions drawn therein, we remit this issue also to the file of the Assessing Officer with identical directions. 27. In the result, this appeal being ITA No. 1435/Hyd/2012 is partly allowed for statistical purposes. 28. To sum up both the appeals under consideration are part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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