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TMI Blog2021 (3) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee by the decision of the coordinate bench of this Kolkata Tribunal, B Bench in the case of M/s. Mcleod Russel India Ltd. Vs. DCIT [ 2019 (5) TMI 541 - ITAT KOLKATA ]. As the ld. CIT(A) has applied the proposition of law laid down by this Tribunal on this issue , we find no infirmity in the order of the Ld. CIT(A). - Hon ble Shri J. Sudhakar Reddy, AM and Hon ble Shri A. T. Varkey, JM For the Appellant/Department : Shri Dhrubajyoti Ray, JCIT, Ld.DR For the Respondent/Assessee : Shri Akkal Dudhwewala, FCA Ms, Anchal Gupta, FCA, Ld.ARs ORDER Shri J.Sudhakar Reddy, AM The appeal filed by the revenue and corresponding cross objection filed by the assessee both are directed against the order of the Learned Commissioner of Income-tax (Appeals), 7, Kolkata dated 20-05-2019 for the assessment year 2012-13 passed u/s. 250 of the Income-tax Act, 1961 ( hereinafter, referred to as the ct ) 2. There was a delay of 103 days in filing this Revenue s appeal. After perusing the petition for condonation of delay, we are convinced that the Revenue was prevented by sufficient cause from filing this appeal in time before this Tribunal. Thus, we condone the delay and admit this appeal. 3. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is noted that the appellant had obtained a loan facility from the DEG Bank, Germany. In terms of the loan agreement, the appellant along with interest was also required to pay monitoring fees to the Bank towards servicing of loan, maintaining record of payments, collecting and making escrow payments, passing principal and interest payments details etc. According to the appellant the monitoring fees paid to the Bank was in the character of 'interest' as defined in the Incometax Act, 1961 as well as the DTAA between India and Germany and therefore in terms of the specific Article 11 (3)(b) it was the appellant's case that both the interest as well as monitoring fees paid to the DEG Bank was exempt from tax in India. The AO however was not fully agreeable with the claim of the appellant. Although the AO agreed that 'interest' paid to DEG Bank was exempt from tax in India but according to him the monitoring fees paid pursuant to the loan agreement was not akin to 'interest' and was therefore subject to withholding tax u/s 195 of the Act. The AO therefore held that the appellant was an 'assesseeindefault' for not deducting tax on the monitoring fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees paid to Bank pursuant to the loan agreement is in the nature of the service charges and such other charges as defined in section 2(28A) of the Act and therefore qualify as 'interest' under Section 2(28A) of the Act. This view finds support from the decisions of the Hon'ble ITAT, Pune in the cases of Shimla Automobiles (P) Ltd. Vs. ITO (1641TD 9) Chintamani Hatcheries (P) Ltd. Vs. DCIT (751TD 116). 4.5 Now I proceed to examine the definition of interest as defined under Article under Article 11 of the Double Taxation Avoidance Agreement between India Germany which reads as follows:The term Interest as used in this Article means income from debtclaims of every kind, whether or not secured by mortgage and whether or not is carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article 4.6. It is noted that the term 'interest' is defined so as to mean income from debtclaim of any kind. Meaning there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A) of loss on Interest Rate Hedging Contract . The Ld. CIT(A) discussed this issue vide paras 5.2 to 5.8 at pages 11 to 13 of his order, which as follows:- 5.2 I have considered the submission of the AR of the appellant in the backdrop of the assessment order as well the relevant material on record. From the Profit Loss Account the AO noted that the appellant had claimed loss of ₹ 5, 11,03,987/from interest rate hedging contract. The AO held that such loss was not allowable under Section 43A or Section 37(1) and therefore disallowed the same. The AO disallowed net sum of ₹ 2,26,10,487/after netting off the loss of Rs..5,11,03,987/against the reversal of earlier year's loss of ₹ 2,84,93,000/which was similarly disallowed in AY 2011-12. From the impugned order I find that the AO's order is cryptic. The AO did not discuss the background facts leading to MTM loss which the appellant accounted in its books but simply disallowed it by holding that 'loss' cannot be equated with 'expenditure'. 5.3. From the facts on record it is noted that the appellant had entered into an interest swap derivative with State Bank of India with a view to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was a revenue item. This Proposition finds support from the decision of the Hon'ble ITAT, Kolkata in the case of DCIT Vs. Mcleod Russell India Ltd. (ITA Nos. 114 115/Ko1/2016) dated 03.05.2019 wherein it was held that the MTM loss incurred on currency interest rate arrangements with Bank was nonspeculative in nature and deductible from the profits of the business. 5.6. As far as the AO's contention that 'loss' cannot be equated with 'expenditure' u/s 37(1) is concerned, I find merit in the AR's contention that the appellant never claimed the sum of ₹ 5, 11,03,987/by way of expenditure u/s 37(1) of the Act and therefore the reasoning given by the AO to make the impugned disallowance has no legs to stand on. From the audited accounts I find that the sum of ₹ 5, 11,03,987/was debited by way of loss on the interest rate derivative and such loss being incidental to the business of the appellant was allowable as deduction in terms of Section 28 of the Act. 5.7 Even with regard to Section 43A, it is noted that the AO was unable to make out a case as to how Section 43A was applicable in the present case. I find that it is not a case that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med depreciation on opening WDV. The Ld. CIT(A) rejected the same by holding as under:- 6.2 I have carefully considered the submissions of the AR of the appellant against the relevant material on record. It is noted that the appellant had incurred expenditure on software in the earlier AY 2011-12 which was claimed as revenue item of expenditure deductible from business profits. The AO who framed the assessment order u/s. 143(3) for AY 2011-12 disallowed the said expenditure and treated it to be capital in nature. The appellant contested on the issue before the appropriate appellate authority which I find is still pending for disposal. In the meantime, however, the appellant has raised a fresh claim before the AO as well as before me that since the software expenditure has been treated as capital expenditure in AY 2011-12, then corresponding depreciation thereon @ 25% on the closing WDV for AY 2011-12 should be allowed for this AY 2012-13. I am however, constrained not to entertain the alternative claim of the appellant for the simple reason that it has not accepted the Department s stand in the matter for the earlier year and conversely claiming depreciation which only goes to show ..... X X X X Extracts X X X X X X X X Extracts X X X X
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