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TMI Blog2016 (5) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... er offered to tax nor claimed as deduction by the assessee while computing the total income. In the light of the facts and circumstances stated above, we are of the view that the claim made by the Assessee deserves to be accepted. AO is directed to exclude the foreign exchange fluctuation gain to the extent of ₹ 5,79,10,209/- from the total income of the assessee as it is a capital receipt not chargeable to tax. Disallowance of 'Net Present Value' (NPV) - Held that:- As decided in assessee's own case this issue has been considered by this Co-ordinate Bench decision to held that NPV paid by assessee is held to be revenue expenditure, thus liable u/s 37(1) of the Act. Disallowance u/s 14A - Held that:- Computation of 1% of exempt income as disallowance u/s.14A of the Act was proper - ITA No. 352/Kol/2011, ITA No. 589/Kol/2011 - - - Dated:- 20-5-2016 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Assessee: Shri D. S. Damle, FCA For the Department : Shri Rajat Subhra Biswas, CIT(DR) ORDER Per N. V. Vasudevan, JM ITA No.352/Kol/2011 is an appeal by the Assessee while ITA No.589/Kol/2011 is an appeal by the Revenue. Both these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable total income. The details in this regard have been given by the assessee as follows :- TREATMENT OF EXCHANGE FLUCTUATION GAIN/LOSS- WIND POWER UNITS A.Y. Amount in Rs. Gain / (Loss) Treatment 2007-08 57,910,208 Claimed as capital receipt before the CIT(A). Claim not allowed. Appeal pending before ITA T 2008-09 19,65,08,245 Claimed as capital receipt in the Computation of Total Income. The claim allowed in the order u/s 143(3) as well as in the Order u/s 1471143(3) 2009-10 (41,33,87,127) Added back in the Computation of Total Income being capital loss. Assessed as such i.e. loss disallowed in the order u/s 143(3) 2010-11 13,84,44,458 Claimed as capital receipt in the Computation of Total Income. The claim allowed in the order u/s 143(3) 2011-12 (50,94,002) Added back in the Computation of Total Income being capital loss. Assessed as such i.e. loss disallowed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon ble Supreme Court in the case of Goetze (India) Ltd. Vs CIT 284 ITR 323 (SC) wherein the Hon ble Supreme Court held that after filing the return of income, an assessee can make further new claim only by filing a revised return of income in time. The CIT(A) therefore held that the claim made by the assessee in this regard cannot be entertained. 8. Aggrieved by the order of CIT(A) the assessee has raised ground Nos 2 and 3 before the Tribunal. 9. We have heard the submissions of the ld. Counsel for the assessee and the learned DR. The ld. Counsel for the assessee brought to our notice that the Hon ble Supreme Court in the case of Goetze (India) Ltd vs CIT (supra) held that the AO cannot entertain any claim by an Assessee which is not made in a return of income, without filing a revised return of income. In the aforesaid decision, the Hon ble Supreme Court also made reference to the decision of the Hon ble Supreme Court in the case of NTPC Ltd. 229 ITR 383 (SC), wherein it was laid down that it was open to the assessee to raise any point of law even before the appellate tribunal. The ld counsel further brought to our notice that the Hon ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal rather than remand the issue to the CIT(A) for fresh consideration. In this regard the ld. Counsel for the assessee placed reliance on the decision of the Hon ble Mumbai High Court in the case of Kansai Nerolac Paints Ltd. 364 ITR 634(Bom) wherein the Hon ble Bombay High Court held that the Tribunal was not prevented in any manner and in law from considering purely legal issue for the first time especially when this legal issue went to the root of the matter. The Hon ble court held that the Tribunal in such a situation should answer the issue and ought not to remand the issue to the AO. The ld. Counsel further drew our attention to the decision of the Hon ble ITAT Ahmedebad A Bench in the case of ACIT vs GHCL Limited vide ITA Nos.830 2508/Ahd/2008 order dated 30.09.2015 wherein identical question whether foreign exchange fluctuation gain on foreign currency loan availed for purchase of indigenous machinery had to be excluded from the total income as capital receipt not chargeable to tax, had come up for consideration The question before the Hon ble Ahmedabad Bench also dealt with the question regarding the applicability of the provisions of Section 43A of the Act, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justments will have to be done when asset is brought from India, as there is no provision similar to provision of Sec. 43A. Once the asset is purchased and actual cost is determined, any subsequent change in value of loan cannot alter the cost of asset as held by Hon ble Supreme Court in case of CIT V. Tata Iron and Steel Co. Ltd. (1998) 231 ITR 285, wherein it was held that at the time of repayment of loan, when there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid, this was not a factor, which could alter the cost incurred by the assessee for purchase of the asset. The assessee might have raised the funds to purchase the asset by borrowing but what the assessee had paid for it was the price of the asset. The manner or mode of repayment of the loan had nothing to do with the cost of an asset acquired by the assessee for the purchase of his business. Of course the decision of SC in TISCO 231 ITR 285 (SC) is subject to provisions of Sec. 43A. But when the asset is purchased from India and not from abroad, the provisions of section 43A cannot be applied. It cannot be also said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reliance on the order of CIT(A). 13. We have given a very careful consideration to the rival submissions. The foreign exchange fluctuation gain to the extent it relates to foreign currency loans utilised for purchase of indigenous plant and machinery in the assessee s wind power units did not attract the provision of section 43A of the Act. Section 43A of the Act only makes a reference to acquisition of asset from a country outside India and in consequence of the change in the rate of exchange after the acquisition there is an increase of reduction in the liability of the assessee as expressed in Indian currency at the time of making payment and compared to the liability existing at the time of acquisition of the asset. The section is not attracted where the asset is not acquired from a country outside India. This aspect has been considered and accepted by the Hon ble Ahmedabad Bench in the decision referred to by the ld. Counsel for the assessee. Besides the above as is clear from the chart given in the earlier part of the order such gain or loss has been consistently neither offered to tax nor claimed as deduction by the assessee while computing the total income. In the lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;Net Present Value' (NPV) of~7,11,50,400/-, although it is capital in nature and hence cannot be allowed u/s.37(1) of the LT. Act, 1961, more so as the Hon'ble Supreme Court has held that the compensation paid by the mine owners to the forest department for use of forest land for mining are the fees / compensation for earlier years during which they have taken out 'ores' from 'Mother Earth . 19. In the course of assessment proceedings, AO noticed that the assessee had claimed deduction of a sum of ₹ 7,11,50,400/- towards Net Present Value of broken area (NPV). The nature of this payment was that the assessee, as we have already seen, is engaged in the business of mining of ore. The assessee for continuation of mining on forest areas/land had been required to pay ₹ 7,11,50,400/- towards Net Present Value of Broken Area(NPV). The said payment had been made to the Divisional Forest Officer in pursuance of the Forest (Conservation) Act, 1980 and as per Demand Notice dated 24.11.05 from the Divisional Forest Officer and as per Order dated 14-16.02.2005 issued by Ministry of Environment Forests (F. C. Division), Government of India. For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee major conditions so laid down was to see as to whether (a) the benefit of the expenditure incurred is for several years or for one year; (b) whether the expenditure is nonrecurring outlay or recurring outlay; (c) whether it is lump sum payment or periodic payment. According to the AO the expenditure in question satisfied all the conditions for being treated as a capital expenditure. He therefore disallowed the claim of assessee for deduction for the aforesaid sum as revenue expenditure. 22. On appeal by the assessee CIT(A) held that the expenditure was revenue expenditure and had to be allowed as deduction. 23. Aggrieved by the order of CIT(A) the Revenue has preferred the present ground of appeal before the Tribunal. 24. At the time of hearing the learned counsel for the assessee brought to our notice a decision of the Hon ble ITAT, Kolkata Bench in the case of ACIT vs M/s. Ghanashyam Mishra in ITA No.122/Kol/2009 and ITA No.1521/Kol/2009 for A.Y.2005-06 and 2006-07 order dated 27.01.2014 wherein in respect of an identical payment made by an assessee engaged in the business of mining this Tribunal had allowed the deduction holding that the same as revenue expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hifting of Railway Track was incurred by the assessee for the smooth operation of their business. 24.1. The Tribunal on the above issue held as follows :- 4. Ld. counsel for the assessee further stated that issue is covered in favour of assessee by the Tribunal s decision of Co-ordinate Bench in the case of ACIT v. Rungta Sons (P) Ltd. in ITA No.933/Kol/2009 dated 05-08-2011, wherein the issue is discussed in para-12 to 15 as under:- 12, The question before us is as to whether the payment being NPV made by the assessee for obtaining forest clearance for mining on the forest area / land under the Forest (Conservation) Act, 1980 is allowable as rev expenditure or not. It is relevant to state that Hon ble Apex Court in the case of T.N. Godavaram Thirumalpad (supra) has observed that forests are vital components to sustain life support system on the earth. Therefore, thee is an absolute need to take all precautionary measures when forest lands are sought to be directed for non-forest use. Hon ble Apex Court stated that when forest land is used / diverted for non-forest purposes and there is consequential loss of benefits accruing from the forests, the User Agency of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not acquire any capital asset. 13. We observe that by making this payment of NPV, no tangible asset come into existence. Further the said payment is a pre-condition to enable the assessee to carry on its mining activities and as such it is not a voluntary one That payment was made on the basis of direction given by the Divisional Forest Officer working in the Ministry of Environment and Forests, Government of India. Since the said payment of NPV being a statutory requirement and has to be paid by the assessee to continue to carry on its mining activities, we are of the considered view that the said payment is wholly and exclusively for the purpose of carrying on its business. Hence, incurring of such expenses should be considered as having direct nexus with the business activities of the assessee. By making this payment of NPV, the assessee has not got any fresh right to mining, but the said payment has been made to overcome any restriction or obstruction or disability that has arisen in continuing of mining business. We are of the considered view that since it is a one-time payment, it could not be considered as capital in nature. Hon ble Apex Court has held in Empire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions had been made on the basis of Office order, the same was rightly accounted for in the concerned yea o accruing of the liability and it was held that the same was allowable as business expenditure under section 37(1) of the Act. Special Bench, ITAT, Kolkata in Peerless Securities Limited vs- Joint Commissioner of Income Tax [93 TTJ 325 (SB)] held that if the advantage consists of merely in facilitating the assessee s trading operations or enabling the management and conduct of assessee s business to be carried on more efficiently or more profitability while leaving the fixed capital untouched, expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Ahmedabad Bench, ITAT in Joint Commissioner of Income Tax vs.- Dewerson Industries Limited [2005 TIOL 236 (AHD.)] held that payments of similar nature to Ministry of Forest and Environment, Government of Gujarat were allowable as business expenditure. ITAT, Mumbai Bench in Industrial development Bank of India vs.- Deputy Commissioner of Income Tax [91 ITD 34] held that expenditure by assessee in accordance with statutory guidelines is allowable business expenditure. Hon ble Calcutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, Ld. CIT(A)-VJ, Kolkata has erred in law as well as on facts of the case by deleting the disallowance u/s.14A of Rs.,94,14,773/- and computing disallowance u/s.14A at ₹ 3,99,203/-, @1% of exempt income i.e., ₹ 3,99,20,387/- without any basis and logic, which is more so as in the case of CIT vs. Hero Cycles, November 4, 2009 (P H) it was held that even if the funds are merged in common kitty, the disallowance u/s.l4A is justified and in the case of Godrej Boyce Manufacturing Co. Ltd. Certain principles have been laid down to compute disallowance u/s.14A. 26. The assessee earned dividend income of ₹ 3,99,20,387/- The AO invoked the provision of section 14A with Rule 8DD(2)(ii) and (iii) of the Rules and disallowed a sum of ₹ 5,94,14,773/- as expenditure incurred to earn exempt dividend income. 27. On appeal by the assessee the CIT(A) held that Rule 8D of the Rules is not applicable for A.Y. prior to A.Y.2008-09 as held by the Hon ble Bombay High Court in the case of Godrej Boyce and Manufacturing Co. Ltd. Vs DCIT (2010)328 ITR 81 (Bom) and further held that in respect of A.Y. prior to A.Y.2008-09, disallowance u/s 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o1l2007- AY. 2004-05) Order dated 27.04.2007. 2. CHNHS Association vs. ACIT(ITA No.74/KoI/2008-AY.2004-05) Order Dated 19.02.2008. 3. I.T.O. vs. M/s S.P.S. Securities (P) Ltd. (ITA NO.123/KoI/2010- AY.2000-01 Order dated 19.08.2010 He further pointed out that the Hon ble Calcutta High Court in the case of CIT Vs. M/S.R.R.Sen Brothers Pvt.Ltd. in GA No.3019 of 2012 in ITA No.243 of 2012 dated 4.1.2013 held that computation of 1% of exempt income as disallowance u/s.14A of the Act was proper. The learned DR relied on the order of the CIT(A) and submitted that the disallowance in any case has to be 1% of the exempt income. 29. We have given a very careful consideration to the rival submissions and we are of the view that in the light of the decisions referred to by the ld. Counsel for the assessee the order of CIT(A) is just and proper and calls for no interference. Accordingly ground no.2 raised by the revenue is dismissed. 30. In the result the appeal of the revenue is dismissed. 31. In the result the appeal of the assessee is partly allowed while the appeal of the revenue is dismissed. Order pronounced in the Court on 20.05.2016. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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