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TMI Blog2023 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, as the ECB loan obtained by the assessee was for the purpose of setting up of a plant and the ECB loans acquired by the assessee have been utilized for the purpose of acquisition of capital assets in India. Interest earned from fixed deposits on unutilized ECB loans is concerned, we find that CIT(A) after relying on the various decisions cited in his order has given a finding that the payment of interest and the earning of interest was inextricably linked to each other and the same was required to netted off and therefore, assessee had rightly capitalized the interest. Hon ble Delhi High Court in the case of PCIT vs. Triumph Realty Pvt. Ltd. [ 2022 (4) TMI 1233 - DELHI HIGH COURT ] has held that the interest earned from fixed deposits on unutilized foreign exchange borrowing loan during the year is a capital receipt. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A) nor has placed any contrary binding decisions in its support. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Addition on account of salary paid to the employees - as held by AO to be capital in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Garg , Sr. D. R. ORDER PER ANIL CHATURVEDI , AM : Both, the appeals filed by the Revenue along with the Cross Objections by assessee, are directed against the order dated 27.08.2018 of the Commissioner of Income Tax (Appeals)-35, New Delhi relating to Assessment Years 2012-13 2013-14. 2. Before us, at the outset, Learned DR submitted that though the appeals filed by the Revenue are for two different assessment years but however the facts are identical in both the appeals and cross objections and therefore he has common arguments to make. Learned AR did not controvert the aforesaid submissions of Learned DR. We therefore for the sake of convenience proceed to dispose of all the appeals by a consolidated order but however proceed with narrating the facts for A.Y. 2012-13. 3. Brief facts of the case as culled out from the material on record are as under:- 4. Assessee is a wholly owned subsidiary of M/s. Idemitsu Kosan Co. Ltd., Japan and is stated to be engaged in the business of trading of petro chemical products including lubricant oil and is also stated to be providing technical assistance in the related areas. Assessee filed its return of income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect or indirect nexus with the construction of the plant, ignoring the facts brought out the AO establishing that the employees were exclusively engaged in work related to construction of the plant and, therefore, salaries paid to such employees would from part of actual cost of the plant and not admissible as revenue expenditure. 4. The appellate crave leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 6. The grounds raised by Revenue in ITA No.7256/Del/2018 for A.Y. 2013-14 reads as under : 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.14,67,94,400/- made on account of foreign-exchange gain realized by the assessee on re-statement of the outstanding loan liability at the year end. 1.a) Whether the Ld CIT(A) has erred in holding that the gain on the re-statement on loan liability at the year was on capital account as the external commercial borrowing was raised for acquisition of fixed assets, not appreciating the fact that the underlying loan amount was no longer held by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der : 1) That the Ld. CIT(A) erred in law and on the facts and circumstance of the assessee's case in not admitting the legal ground claiming that the interest on fixed deposits of Rs. 1,71,01,668/- are capital receipts not liable to tax as the same have direct nexus to the ECB loan raised and used for acquiring fixed capital assets, on wholly erroneous, illegal and untenable ground. 2) That the Cross Objector/assessee may be allowed to raise any other cross objection as may be thought fit at the time of hearing of this appeal. 9. Ground No. 1 2 are interconnected and are considered together. 10. During the course of assessment proceedings and on perusing the computation of income, AO noticed that assessee had reduced the income by an amount of Rs.6,31,06,600/- on account of foreign exchange profit on restatement of ECB loan. The assessee was asked to justify its claim and furnish the necessary details. Assessee submitted that it was engaged in the construction of new manufacturing plant at Maharashtra and for that assessee had taken ECB loan of JPY 143,00,00,000 from its parent company. Assessee inter alia submitted that foreign exchange gain represents th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee carried the matter before CIT(A). CIT(A) after considering the submissions of the assessee, remand the report of the AO and assessee s submissions to the remand report decided the issue in favour of the assessee. While deciding the issue in favour of the assessee, CIT(A) has given a finding that the copy of the agreement for obtaining the ECB loan, RBI approval, the returns filed by the assessee with RBI, all establish that the ECB loans obtained by the assessee were utilized for the purpose of acquisition of capital assets in India. CIT(A) while deciding the issue has also given a finding that the provisions of Section 43A of the Income Tax Act are not applicable to the facts of the case because provisions of section 43A are attracted only when capital assets are acquired from outside India and some liability is incurred on capital account for acquiring such assets from outside India. CIT(A) also noted that in A.Ys. 2012-13 2013-14, AO had treated the amount as taxable whereas in A.Y. 2014-15 when it was a loss on account of reinstatement and assessee had given the similar treatment by offering it as a disallowance in the return of income the same is accepted by AO. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made which according to AO should have been treated by the assessee as taxable income. We find that CIT(A) after considering the submissions of the assessee, the remand report of the AO and assessee s submissions to the remand report by detailed and speaking order has held the re-statement of liability at the yearend to be on capital account as the ECB loans which assessee had received was for the purpose of the setting off a new manufacturing plant at Maharashtra. We find that CIT(A) while deciding the issue in favour of the assessee has also noted the fact that in A.Y. 2014-15 when the re-statement of foreign currency loan at the year-end had resulted into loss and the same was disallowed by the assessee in the return of income, it was accepted by the AO as a notional loss but however in A.Ys. 2012- 13 2013-14, AO is treating the same loss arising out of the restatement of the same loan as taxable income and thus there is an inconsistency in the approach of AO in the treatment in 2 different years. We further find that the CIT(A) has further given a finding that provision of Section 43A 43AA are not applicable to the facts of the case of the assessee, as the ECB loan obtaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order held the aggregate salary of Rs.73,03,834/- to be towards supervising and coordinating the construction activity of the new manufacturing plant which was capital in nature and accordingly disallowed the same. 19. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the assessee, remand report of the AO and the submissions of the assessee to the remand report deleted the addition. Aggrieved by the order of CIT(A), Revenue is now before Tribunal. 20. Before us, Learned DR took us through the findings of AO and supported the order of AO and further submitted that CIT(A) has erred in deciding the issue in favour of the assessee. He thus supporting the order of AO submitted that the order of CIT(A) be set aside. 21. Learned AR on the other hand reiterated the submissions made before lower authorities and further submitted that for the construction of new plant at Patalganga, the contract was given to Shimizu Corporation India Pvt. Ltd. on turn-key basis and none of the employees of the company was directly involved in the construction of the plant. With respect to the four employees which AO has noted to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of appellate proceedings before CIT(A), assessee had taken an additional ground inter alia stating that assessee had erroneously offered a sum of Rs.1,36,61,685/- as income although the same ought to have been capitalized as the loan was obtained and utilized for capital purpose and installing plant. 27. CIT(A) vide para 4.5.3.2 noted that the issue was raised for the first time before him and does not arose from assessment order and the assessee should have revised its income as per law. He noted that since the assessee had not filed revised return of income to claim the income which it seeks to be capital in nature, the plea of the assessee cannot be allowed and accordingly dismissed the ground of assessee. Aggrieved by the order of CIT(A), assessee is now before us. 28. Before us, Learned AR submitted that during the year under consideration, assessee had earned total interest income of Rs.2,00,77,828/- from FDRs that was made out of ECB loans, which was for acquiring capital assets. It was submitted that the interest was required to be treated as capital in nature and reduced from the cost of fixed assets as it was having direct nexus for the purpose of acquiring ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before the appellate authority without resorting to revising the return of income before the Assessing Officer. It is thereafter, held that any ground legal contention or even a claim would be permissible for the first time before the appellate authority or the Tribunal when the facts of such ground are already on record. In the present case, the contention of the Learned AR that the facts necessary to examine the ground, the assessee s contention is already on record has not been demonstrated by Revenue to be not correct. In such a situation, following the aforesaid decision of Hon ble High Court in the case of Mitesh Impex (supra) we hold that CIT(A) has not justified in not adjudicating the ground raised by the assessee before him for the first time. We therefore restore the issue back to the file of CIT(A) and direct him to decide the issue in accordance with law and after giving reasonable opportunity of hearing. CIT(A) shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee. Assessee shall also be free to file such documents, explanations, submissions as it deems fit in respect of the claim. Needless to state that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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