Simbhaoli Sugars Ltd., New Delhi vs Department Of Income Tax

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No. 5134/Del/2013 Assessment year : 2008-09 ACIT, CC-19, Vs. M/s. Simbhaoli Sugars Ltd., New Delhi. C-11, Connaught Place, New Delhi. GIR / PAN:AABCS9972P (Appellant) (Respondent)

Appellant by : Shri Ramesh Chandra, CIT DR Respondent by : Shri M M Kwatra, CA

Date of hearing : 23.02.2015 Date of pronouncement :_____________

ORDER

PER T.S. KAPOOR, AM:

This appeal has been filed by Revenue against the order of Ld. CIT(A) dated 23.05.2013. The Revenue is aggrieved with the action of Ld. CIT(A) by which he had deleted the income on account of foreign exchange fluctuation of loan taken for acquiring capital asset.

2. At the outset, Ld. D.R. invited our attention to Ld. CIT(A)'s order page 10 and submitted that the order passed by Ld. CIT(A) is a non speaking order and cryptic one as from page 1 to 9, he had just reproduced the assessment order and the submissions of assessee. He submitted that in spite of mandate given by law, Ld. CIT(A) cannot base his finding on the basis of estimation and in view of above, it was submitted that the case be 2 ITA No.5134/Del/2013

remanded back to Ld. CIT(A) . He submitted that Ld. CIT(A) was not sure in holding that foreign loan was deployed for capital expenditure and, therefore, his decision cannot be relied upon. In this respect, he invited our attention not page 11 of Ld. CIT(A) order.

3. Ld. A.R. on the other hand submitted that the assessee had taken foreign currency loan for making investment in fixed assets and loan was raised in the form of foreign convertible bonds. Regarding argument taken by Ld. D.R. that Ld. CIT(A) himself was not convinced regarding the utilization of loan, the Ld. A.R. submitted that since A.O. had not made any finding in this respect and that is why Ld. CIT(A) had directed the A.O. to examine the utilization of loan. He further submitted that the A.O. had issued verification report which is placed at pages 82-83 of the paper book and, therefore, the A.O. has given relief only after verification. Reliance in this respect was placed on the case laws as relied before Ld. CIT(A). The Ld. A.R. also relied upon the case law of Sutlaz Cotton Mills decided by Hon'ble Supreme Court and reported in 116 ITR 01.

4. Ld. D.R. in his rejoinder submitted that as per the mandate given in Section 251, Ld. CIT(A) 's right to set aside has been withdrawn therefore, he could not have set aside even for limited purposes.

5. We have heard rival parties and have gone through the material placed on record. We find that the arguments of Ld. D.R. are based on fact that Ld. CIT(A) was not authorized to set aside the issue to A.O. However, we find that the case has not been set aside rather, the A.O. has been directed to just verify the utilization of loan, which he had verified and has issued order u/s 250/143(3) of the Act and vide para 2, he had held that as per directions of Ld. CIT(A), the necessary verification has been done and, therefore, he had 3 ITA No.5134/Del/2013

allowed the relief. Ld. CIT(A)'s finding in this respect as contained in para 3.5 are reproduced below:

"3.5 Findings :-

I have considered the assessment order and written submission of Ld. AR. The assessing officer has made addition of exchange gain in respect of foreign currency convertible bonds treating the same as income on the ground that the assets acquired from foreign current convertible debenture has been put to use. Therefore, the said foreign currency convertible debenture has taken the character of now circulating capital.

I do not agree with this view of the assessing officer. Once, the foreign currency loan has already been utilized for acquiring capital asset, the same is not available as capital now. Therefore, loan already spent to acquire capital asset is no longer available to be utilized for other purposes.

As per the settled law relied by the assessing officer & quoted by Ld. AR as well, if foreign exchange fluctuation gain is on account of deployment of fund on capital asset it is not income& if the foreign exchange fluctuation is on account of circulating capital, the same is Business income. In present case, prima facie the character of foreign loan remains to be deployed for capital purposes even if the asset is put to use. The fluctuation on such fund is not revenue. Hence, the reliance of the assessing officer on the judgment of CIT Vs. V.S. Dempo & Co. (P) Ltd. (1994) 206 ITR 291 (Born) is misplaced as nature of loan has not changed. However, from the assessment order, it is not clear whether all the foreign loan has been utilized for acquiring capital asset, the assessing officer is directed to verify the utilization of fund on account of foreign currency convertible bond, if the fund is utilized for acquiring capital asset, fluctuation gain is not taxable income, in other case, the fluctuation gain is revenue receipt. Second issue is whether the foreign exchange fluctuation gain can be reduced from the cost of capital asset for the purpose of allowing depreciation. The assessing officer has analyzed the relevant provisions of Sec. 43A which deals with the capital asset acquired outside India, then the increase or decrease of liability on account of fluctuation of foreign exchange will amount to charge in actual cost. In present case, the capital asset has been acquired in India.

4 ITA No.5134/Del/2013 Therefore, this section does not apply in the present circumstances. Therefore, the action of the assessing officer appears to be proper. As a result this ground of appeal is partly allowed."

6. We find that with the passing of order by A.O. u/s 250/143(3) wherein he had verified the fact of utilization of loan for acquiring fixed asset and therefore, this is an admitted fact that foreign currency loan was raised for making investment in fixed assets and if that be the case the profit or loss arising on account of fluctuation in foreign exchange cannot be related to revenue as held by Hon'ble Supreme Court in the case of Satlaz Cotton Mills as reported in 116 ITR 01 wherein it has been held that where profit or loss arises on account of appreciation or depreciation in value of foreign currency loan held as assessee, such profit or loss would ordinarily be trading profit or loss from the foreign currency if it is held by assessee on revenue account but if on the other hand the foreign currency loan is held for capital assets such profit or loss will be of capital nature. The provisions of section 43A are not applicable in the case of assessee as the fixed assets were acquired from within India and were not acquired out of country. In view of above fact and circumstances, we do not find any infirmity in the order of Ld. CIT(A), therefore, appeal filed by Revenue is dismissed.

7. In view of above, appeal filed by Revenue is dismissed.

8. Order pronounced in the open court on 04.03. 2015.

Sd./- Sd./- (G. C. GUPTA ) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER Date: 04.03 2015 Sp 5 ITA No.5134/Del/2013

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.

True copy. By Orde (ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 24/2 Sr. PS/PS 2 Draft placed before author 25, 25,3, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order