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TMI Blog2023 (5) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. Thus we dismiss this issue of Revenue s appeal. The appeal of the Revenue is dismissed. Characterization of income - notional exchange gain on reinstatement of foreign currency loan - addition made by AO treating the same as revenue income as against claimed by assessee as capital in nature - HELD THAT:- We noted that now the assessee has filed complete details and tried to prove that this foreign currency gain is arising out of Mill Development Plan which is an expansion project of the assessee company. The AO needs to verify all these details and for this purpose, matter has to go back to the file of the AO. Needless to say, that the assessee will file complete details before AO as to how the foreign currency loans were utilized for the purpose of expansion of project of mill development and for not any other purpose. In term of the above, we remit this issue back to the file of the AO. Disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of business. The proviso to Clause (ii) of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, if nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment year. 9. The language used in Clause (iia) of the said Section clearly provides that "a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)". The word "shall" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed 10. It has been consistently held by this Court, as well as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing foreign exchange rates and accordingly the gain on the same has been credited to the profit & loss account. The assessee before AO explained that the above reinstatement of foreign currency loan given raise to foreign currency gain was on account of reinstatement of foreign currency loan which was taken for Mill Development Plan. The AO has not accepted the plea of the assessee for the reason that the assessee following Mercantile System of Accounting and therefore as per Accounting Standary-11, any gain or loss on foreign exchange has to be debited and credited to the profit & loss account. He also noted that this gain is not related to any part of the fixed assets. Therefore following the decision of Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., 179 Taxman 326 treated the entire sum of foreign exchange gain as revenue receipt and added to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). 8. The CIT(A) after detailed discussion noted that though the assessee claimed that the gain is related to expansion project, however it is not able to prove with evidence that the same is relatable to fixed assets. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbarked upon an expansion project i.e., Mill Development Plan (MDP) involving a capital outlay of Rs. 619 crores for increasing pulp and paper production capacities. The MDP project cost was financed by foreign currency, rupee loans and internal accruals and for this, the assessee gave details as under:- Capital Cost Rs. 619.00 Crore Funding:- 1. Foreign Currency Term Loan Rs. 140.00 Crore(USD 31 Million) 2. Rupee Term Loan Rs. 275.00 Crore 3. Internal Accrual Rs. 204.00 Crore Rs. 619.00 Crore The assessee filed copy of 29th Annual Report relating to financial year 2008-09 relevant to this assessment year 2009-10 and referred to page 7, wherein the scope of commissioning status of MDP project was dealt with and the funding which was tuned through foreign currency and INR loans. According to ld. counsel, MDP project was commissioned primarily to increase paper and pulp production and power generation capacities and to add related auxiliary equipments as under:- 1) Hard Wood Pulp Mill (300 tpd) 2) Re-Causticising Plant 3) Chlorine Di-oxide Plat (15 tpd) 4) Oxygen Generation Plat 5) Chemical Bagasse Pulp ECF Bleaching Plant (500 tpd) 6) Chemical Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the sides and going through the facets of the case, we noted that now the assessee has filed complete details and tried to prove that this foreign currency gain is arising out of Mill Development Plan which is an expansion project of the assessee company. The AO needs to verify all these details and for this purpose, matter has to go back to the file of the AO. Needless to say, that the assessee will file complete details before AO as to how the foreign currency loans were utilized for the purpose of expansion of project of mill development and for not any other purpose. In term of the above, we remit this issue back to the file of the AO. 12. The next issue in this appeal of assessee is as regards to the order of CIT(A) restricting the disallowance to the extent of exempt income of Rs. 18,28,080/- as against the disallowance made by the AO at Rs. 4,57,368/- and thereby enhancing the disallowance in regard to expenses claimed against the exempt income by applying the provisions of section 14A r.w. rule 8D of the Income Tax Rules, 1962. 13. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO has made disallowance under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e PCIT issued show-cause notice u/s. 263 of the Act dated 28.10.2013 as to why the forward premium claimed on foreign exchange fluctuation as capital receipt be not treated as revenue receipt. The PCIT passed the revision order directing the AO to verify the assessee's claim of notional income with reference to annual accounts and verify the nature of forward transactions (hedging transactions) as to whether the assessee has debited the amount crystallized into profit and loss account. Consequently, the AO framed the set aside assessment. The AO noted that the PCIT while revising the assessment u/s. 263 of the Act has noted the following facts:- "a. It was seen from the documents available on record that the assessee has claimed and allowed Forward Premium on exchange fluctuation as detailed below: Forward Premium account 37,07,838 Forward Premium account - Buyers credit 71,19,911 Forward Premium account - LTL 2,44,90,066 Forward Premium account - LTL-MD plan 51,07,510 Total 4,04,25325 The records show that the assessee credited the gain in value of Rs. 46,64.38 lakh to Hedging Reserve account under the liability head in the Balance Sheet. The assessee should have tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en incurred and has become payable to banks in respect of foreign contracts entered with banks and this amount does not represent liability on account of restatement as on the previous year. Its plea was that since the foreign currency loan was not for acquiring any specific asset from country outside India and the exchange loans arose only on account of premium paid on forward contracts and hence, it should not be treated as capital expenditure rather it is revenue expenditure. We do not agree with the contention of the assessee for the reason that the provisions of section 43A of the Act specifically provides that the amount of increase or decrease in the liability due to fluctuation in exchange rate should be adjusted against the actual cost of the capital expenditure or the cost of acquisition of capital asset. When the terms of Section 43A of the Act are fulfilled, it is mandatory to take the actual cost, capital expenditure or the cost of acquisition at a higher or lower figure for the purposes of depreciation allowance irrespective of whatever might have been the position de hors the provision. This provision has been interpreted by the Hon'ble High Court of Madras in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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