IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH `A' CHANDIGARH
BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No .1114/ CH D/ 2009
Assessm ent Y ear : 2006- 07
M/ s Baj aj Sons Lt d., Vs T he Addl . CIT ,
C -103, Phase -V , Range -1,
Focal Poi nt , Ludhi ana.
Ludhi ana.
PAN : AA ACB6875 H
(Appellant ) (R espondent )
Appell ant b y : None
Respondent by : Smt. J yoti Kum ari
Date of Heari ng : 21.05.2014
Date of P ronouncem ent : 19.06.2014
O R D E R
PE R SUSHMA CH OWLA, JM
The appeal filed by the assessee is against the order of the
Commissioner of Income Tax (Appeals)-I, Ludhiana dated
30.09.2009 against the order passed under section 143(3) of the
Income-tax Act, 1961 ( 'the Act' for short).
2. The assessee has raised the following grounds of appeal :
1. That order passed u/s 250(6) by the Ld. Commissioner of Income
lax (Appeals) is against law and facts on the file in as much as he was
not justified to arbitrarily uphold action of the Ld. Assessing Officer in
disallowing interest on capital-work-in progress amounting to Rs.
12,805/-.
2. That he was further not justified to uphold the action of the Ld.
Assessing Officer in:
a) disallowing a sum of Rs. 6,95,000/- towards exchange
difference by resort to provisions of section 43A.
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b) disallowing a sum of Rs. 3,05,735/- out of processing fee
against ECB by wrongly treating the same as a capital
expenditure.
3. That he further gravely erred in upholding the disallowance of
Rs. 50,000/- by resort to provisions of section 14A."
3. The assessee moved an application for adjournment which
was refused as the matter had been adjourned from date to date.
We proceed to decide the present appeal after hearing ld. DR for
the revenue.
4. The perusal of the Memo of Appeal reflects that the ground
of appeal No. 1 against addition of Rs. 12,805/- was not pressed
on the earlier dates of hearing and hence, the same is dismissed as
not pressed.
5. The issue in ground No. 2(a) is against disallowance of Rs.
6,95,000/- under the provisions of section 43A of the Act.
6. T h e b r i e f f a c t s o f t h e c a s e a r e t h a t d u r i n g t h e ye a r u n d e r
consideration, the assessee had debited a sum of Rs.6,95,000/-
under head `Financial Expenses' on account of foreign exchange
difference on ECB. I n r e p l y, t h e a s s e s s e e p o i n t e d o u t t h a t t h e
foreign exchange difference is in accordance with the accounting
standard AS-II had to be reported at each balance sheet date using
the closing date and the same was allowable as an expenditure.
The Assessing Officer, however noted that " The foreign
exchange difference claimed under the head `financial expenses'
is on account of ECB loan from Citi Bank and loan from GE
Capital raised by the assessee company against various assets
during the year under consideration. Since the loan fund raised
from these banks has been utilized for the raising of capital
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assets, the expenses connected with the raising of capital assets,
the expenses connected with the raising of loan, till the asset is
first put to use for the purpose of business has to be capitalized."
The Assessing Officer, thus treated a sum of Rs. 6,95,000/- as a
capital loss and capitalized the same under the head Plant &
Machinery on which depreciation @ 15% was allowable.
However, depreciation @ 7.5% was allowed as the asset was put
to use for a period less than 180 days and the net addition was
made at Rs. 642,875/-.
7. Before the Commissioner of Income Tax (Appeals), the
submission of the assessee was that the loans were availed much
later than the date of putting to use the respective assets. As per
the ld. AR for the assessee, as contended before the Commissioner
of Income Tax (Appeals), the provisions of section 43A were not
applicable as the exchange difference was not on account of
b o r r o w i n g f o r t h e p u r p o s e o f i m p o r t e d m a c h i n e r y. The said loan
was taken only to save the cost of interest on indigenous
borrowing. T h e C o m m i s s i o n e r o f I n c o m e T a x ( A p p e a l s ) r e l yi n g
upon the provisions of section 43A of the Act upheld the order of
Assessing Officer and dismissed the ground of appeal.
8. The assessee is aggrieved and hence, the ground No. 2(a)
raised by the assessee.
9. On the perusal of record and the relevant provisions of Act,
the issue arising in the present appeal is in relation to the
disallowance computed under section 43A of the Act. Section
43A of the Act is attracted where an assessee has acquired any
a s s e t i n a n y p r e v i o u s ye a r f r o m a n y c o u n t r y o u t s i d e I n d i a f o r t h e
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purpose of his business or profession and in case the said asset
has been acquired out of foreign borrowings, where there is an
increase or reduction in the liability of the assessee as compared
to the liability of the assessee after the acquisition of the asset,
as compared to the liability existing at the time of acquisition of
the asset as compared to the liability at the time of making
p a ym e n t , then such liability irrespective of the method of
accounting adopted by the assessee is to be added or deducted
from the actual cost of the asset. The first condition provided
under section 43A of the Act is that the assessee should have
acquired any asset from a country o utside India in any previous
year. The Assessing Officer had noted that the assessee had
raised the said ECB loan from Citi Bank and from GE Capital
a g a i n s t v a r i o u s a s s e t s d u r i n g t h e ye a r . However, the case of the
assessee before the Commissioner of Income Tax (Appeals) was
that the provisions of sec43A were not applicable as the foreign
exchange was not on account of borrowing for the purpose of
imported machinery. The assessee has filed a Paper Book which
is available on record. However, it is not clear from the
documents available on record whether the assessee had utilized
the said foreign exchange for the purpose of acquisition of
machinery from an y country outside India. Incase the basic
condition of acquisition of asset from outside India is not
satisfied then the provisions of section 43A are not attracted. In
order to cull out the facts, we deem it fit to restore this issue
back to the file of Assessing Officer to determine the facts of the
case and decide the issue in accordance with law after affording
reasonable opportunity of hearing to the assessee. The ground of
appeal No. 2(a) is thus, allowed for statistical purposes.
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10. The issue in ground No. 2(b) is against the disallowance of
Rs. 305735/- on account of processing fee against the ECB loan.
11. This issue raised vide ground No. 2(b) is linked to the
earlier issue raised by the assessee. The matter has been remitted
back to the file of Assessing Officer against ground No. 2(a) in
order to determine the nature of the ECB loan taken by the
assessee. In case the said loan has been taken during the course
o f c a r r yi n g o n o f t h e b u s i n e s s , t h e e x p e n d i t u r e i n c u r r e d o n
processing fee is to be allowed as expenditure in the hands of the
assessee. However, in case the said loan is utilized for the
acquisition of assets from a country outside India, then the
processing fee is a capital expenditure and the same is to be
c a p i t a l i z e d t o t h e c o s t o f P l a n t & M a c h i n e r y. This aspect also
shall be verified by the Assessing Officer and the issue would be
decided in accordance with law. The ground of appeal No. 2(b)
raised by the assessee is allowed for statistical purposes.
12. The ground No. 3 raised by the assessee is against
disallowance of Rs. 50,000/- under section 14A of the Act.
13. The brief facts relating to the issue are that during the year
under consideration, the assessee had earned dividend income of
Rs. 279,170/- and also agricultural income of Rs. 45,000/-. The
Assessing Officer in view of the investments made by the assessee
invoked the provisions of section 14A of the Act and disallowed a
sum of Rs.1,00,000/- out of general and administrative expenses
and financial expenses relatable to earning of exempt income.
The said disallowance was restricted to Rs. 50,000/- by the
Commissioner of Income Tax (Appeals) against which the
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assessee is in appeal. T h e ye a r u n d e r a p p e a l i s a s s e s s m e n t ye a r
2006-07 and the provisions of section 8D are not applicable and
in view thereof, we restrict the disallowance to Rs. 20,000/-. The
ground of appeal No. 3 raised by the assessee is thus, partly
allowed.
14. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 19th June, 2014.
Sd/- Sd/-
( T.R.SOOD) (S USHMA CHO WLA)
ACCO UNTANT ME MBER JUDICIAL ME MBER
Dated: 19th June, 2014
`Poonam '
Copy to:
The Appell ant, The Respondent, The C IT(A), The C IT,DR.
Assistant R egist rar
ITAT,Chd.
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