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TMI Blog2023 (12) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... a direct link of LOC towards purchase of the fixed assets, therefore it will be treated as capital in nature. Section 43(1) has defined the actual cost of the assets. Therefore the actual loss suffered by the assessee cannot be charged to the profit and loss account. CIT(A) has rightly decided the issue in favour of the revenue. However, the AO is directed to give benefit of depreciation as per section 32 of the IT Act in the current year as well as in following years if there is effect on the following years. This issue is partly allowed for statistical purposes. Addition u/s 14A r.w.r. 8D - As argued Only the investments yielding non-taxable income have to be considered and not all investments - HELD THAT:- CIT(A) has dealt with this issue in detail however he has not considered the issue completely as per Rule 8D(2)(iii). The disallowance should be calculated as per Rule 8D(2)(iii) considering only the investments in which the assessee has received exempt income. In similar issue in the assessee s own case for the AY 2014-15 [ 2023 (9) TMI 108 - ITAT BANGALORE ] wherein held that while calculating disallowance under section 14A of the Act, only investment that have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to exempt income cannot be on a notional basis, as it would result in the imposition of an artificial method of computation. 12. The learned CIT(A) erred in assuming that there may be expenses expended for earning such exempt income despite the fact that no fresh investments were made during the year under review. 13. The Appellant craves leave to add, alter, substitute, and delete any or all the grounds of appeal urged above. 14. For the above and other grounds to be urged during the hearing of the appeal, the Appellant prays that the appeal be allowed in the grant of a refund. 2. Briefly stated the facts of the case are that assessee is engaged in the manufacture and sale of Professional Grade Electronic equipment and components and power generation through wind mills. The assessee filed the original return of income on 18.09.2012 admitting an income of Rs. 831,85,31,660/-. Subsequently the return was revised admitting an income of Rs. 831,32,80,673/-. The case was selected for scrutiny and statutory notices were issued to the assessee and assessee filed requisite details. During the course of assessment proceedings, from the documents it is noticed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.com 285 before AY 2017-18 and introduction of section 43AA from AY 2017-18 provide for the debit of such forex losses on revenue account to the profit loss account of the assessee. Further the CIT(A) observed that in the case of Sutlej Cotton Mills Pvt. Ltd. the Apex Court in 188 ITR 255 (SC), laid down an important observation to decide the fate of forex gain/loss and dismissed the ground raised by the assessee treating the loss as capital in nature. Further in respect of disallowance u/s. 14A, the Ld.CIT(A) calculated the disallowance under Rule 8D(2)(iii) of Rs. 4,69,055/- and directed the Ld.AO to restrict upto this amount. 6. Aggrieved by the above order, the assessee filed appeal before the Income Tax Appellate Tribunal. 7. The Ld.AR of the assessee reiterated the submissions made before the lower authorities and she has also filed a written synopsis which is as under: Only the investments yielding non-taxable income have to be considered and not all investments 1. While, the Appellant had disallowed Rs. 1,30,000 in its return of income, as aforementioned, the learned Assessing Officer made the disallowance under Rule 8D(2)(ii) in addition to disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came in the case of Pr. CIT v. Indiabulls Capital Services Ltd [2020] 114 taxmann.com 647 wherein the SLP of revenue was dismissed upholding the validity of judgment in ACB India Ltd's (supra) stating that where the assessee in his return has himself apportioned expenditure but the AO was not accepting the said apportionment, in that eventuality, the Assessing Officer will have to record its satisfaction to this effect. We find that no such satisfaction has been recorded by the AO to come to the conclusion to invoke the provisions of Section 14A(2) and the disallowance is directed to be deleted. 6. Further, various courts on different occasions have also held that investments which not yielded income cannot be considered and investments that yielded income only be considered for computing the disallowance: Welspun India Ltd. v. Dy. CIT (2019) 69 ITR 617 (Mum) (Trib.) PTC India Ltd. v. DCIT (2019) 69 ITR 37(SN.) (Delhi) (Trib.) ACIT v. Paras Buildtech (India) (P.) Ltd. (2018)62 ITR 284 (Delhi) (Trib.) ACIT v. Vireet Investment Pvt. Ltd. (2017) 165 ITD 27 / 58 ITR 313 / 154 DTR 241 / 188 TTJ 1 (SB) (Delhi) (Trib.) Dy.CIT v. Diamon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year and the expenditure has been incurred during the said previous year in relation to such exempt income. 5. This amendment will take effect from 1 st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1 st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years. 9. Thus, Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1 st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. 10. The learned CIT (A) in its order relied on the decision of Williamson Financial Services Ltd. [2022] 140 taxmann.com 164/196 ITD 422 (Guwahati ITAT Guwahati Bench in ACIT v. - Trib.), which observed as under In order to remove the prevailing doubts about the interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has stated the reason for making the disallowance under section 14A of the Act that 14. It is pertinent to note that the investments flow from a common pool of funds, viz., the current or cash credit accounts. The business receipts and payments as well as investments are made from these accounts. Therefore, it cannot be assumed that the investments were made exclusively out of non-interest bearing or surplus funds. 15. The learned assessing officer himself has stated that the only such expenses that cannot be allocated to any specific head of income and are non-identifiable can be considered for invoking Rule 8D. In this regard, it is humbly submitted that the learned Assessing Officer, hence, has failed to demonstrate the correct reason for invoking Rule 8D. The reason stated by the Assessing Officer itself is invalid and non-existent as the Appellant has not incurred any interest expenditure which is unattributable. The interest expenditure is clearly identifiable and is mostly towards the trade payables and finance lease costs since there are no other borrowings held by the Appellant. It is reiterated that the Appellant does not have any long-term or short- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account of the Appellant. Out of the net loss of Rs. 3,70,63,515/-, the net foreign exchange loss on account of capital items is Rs. 38,06,679/-, and the balance pertains to the revenue items. It is imperative to note that the net foreign exchange loss on capital items is calculated after taking the exchange gain of Rs. 10,70,445/- into consideration. Thus, there was a foreign exchange loss of Rs. 48,23,924/- 3. The learned Assessing Officer disallowed the entire foreign exchange loss of Rs. Rs. 48,23,924/- holding that the foreign exchange loss is attributable to the cost of capital assets acquired by the Appellant, and necessary adjustment towards depreciation shall be allowed on furnishing the requisite details. It is humbly submitted that the CIT(A) also, without appreciating the facts in hand, upheld the order of learned A.O. held that forex loss in the present case is on account of capital account and cannot be debited to the P/L account. 4. It is humbly submitted that the learned Assessing Officer and learned CIT (A) has failed to appreciate the fact that the Appellant had obtained a letter of credit in the process of buying the capital asset as detailed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss, by no stretch of the imagination, would fall under the four corners of Section 43A of the Act. In order to illustrate the same, the provisions as contained in Section 43A of the Act is reproduced here-in-below for ready reference 43A. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment (a) towards the whole or a part of the cost of the asset; or (b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced during such previous year and which is taken into account at the time of making payment, irrespective of method of accounting adopted by the assessee, shall be added to, or as the case may be deducted from the actual cost of asset and the amount arrived at after such addition or deduction shall be taken as actual cost of the asset. 10. It is apparent that Section 43A of the Act shall be applicable only if an asset is acquired from a country outside India and at the time of payment, there is a difference in liability, instead of treating the same as income or loss, the same shall be adjusted to the actual cost of the asset and the balance shall be taken as actual cost. 11. It is reiterated that Section 43A of the Act is applicable only in consonance of the acquisition of capital asset and not otherwise and in the instant case, impugned foreign exchange loss has no relation with the acquisition of capital asset. It is humbly submitted that as explained above, the Appellant had obtained Letter of Credit following the common practice of international trade and made the advance payment against such letter of credit, way before acquisition of the capital asset. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be well-settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the business. But; if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. . . . (p. 13) [Emphasis supplied] 17. Thus, in light of the above submissions, it is contended that the Section 43A of the Act is not applicable in the case of the Appellant as the foreign exchange loss/gain pertains to the advance payment by Letter of Credit (i.e., before acquiring the assets) but not on the actual cost of the assets. Prayer: In light of the submission made hereto above, the Appellant pleads your learned Authority to: a. Delete the addition made by the learned Assessing Officer on account of disallowance of expenditure under Section 14A read with rule 8D and disallowance of the foreign exchange l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as in following years if there is effect on the following years. This issue is partly allowed for statistical purposes. 11. Disallowance u/s. 14A The Ld.CIT(A) has dealt with this issue in detail however he has not considered the issue completely as per Rule 8D(2)(iii). The disallowance should be calculated as per Rule 8D(2)(iii) considering only the investments in which the assessee has received exempt income. In similar issue in the assessee s own case for the AY 2014-15 in ITA NO. 395/Bang/2023 order dated 30.08.2023 the co-ordinate bench has decided as under:- 7. We have heard the rival submissions and perused the material on record. We are of the view that only investment yielding non-taxable income has to be considered and not all the investments. This proposition has been held correct by the Hon ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT (supra). The Hon ble Delhi High Court had held that for the purpose of section 14A, instead of taking into account total investment, the investment attributable to dividend (exempt income) was only required to be adopted and thereafter the disallowance was to be arrived. The relevant finding of the Hon ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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