Ita v. Income Tax Officer[2] Is Not Applicable To The Facts Of The Case

Digitally signedby C MALATHILocation: HighCourt ofKarnataka IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19 DAY OF SEPTEMBER, 2022 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE UMESH M ADIGA INCOME TAX APPEAL NO. 329 OF 2017 BETWEEN: 1. THE PR COMMISSIONER OF INCOME TAX CIT(A), 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095. 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(2), PRESENT ADDRESS, CIRCLE-11(2), PRESENT ADDRESS, CIRCLE-1(1)(2), 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095. …APPELLANTS (BY SHRI. E.I.SANMATHI, ADVOCATE) AND: M/S BANGALORE INTERNATIONAL AIRPORT LTD., ADMINISTRATION BLOCK, BIAL, DEVANAHALLI, BENGALURU-560300. PAN:AABC 8973D. …RESPONDENT (BY SHRI.T.SURYANARAYANA, SENIOR COUNSEL FOR SMT. TANMAYEE RAJKUMAR., ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27/09/2016 PASSED IN ITA NO.662/BANG/2014, FOR THE ASSESSMENT YEAR 2010-2011 PRAYING THIS HON'BLE COURT TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ETC., THIS APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the Revenue challenging the order dated September 27, 2016 in ITA No.662/Bang/2014 for the Assessment Year 2010-11 has been admitted to consider following substantial questions: “1. Whether in the facts and circumstances of the case, the Tribunal is right in law in setting aside the disallowance of Rs.29,83,65,068/- being foreign exchange gain by holding that the gain made on account of restatement of external commercial borrowings is on capital account and liable to tax even when the assessee had failed to substantiate its claim by producing proof/evidences and details in support of such claim? 2. Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that assessee is entitled for set off of brought forward Book Loss of Rs.36,33,40,000/- in the computation of income under section 115JB of the Act by relying on decision in case of Amline Textile (P) Ltd even when said decision has not reached finality and such a claim is contrary to the provisions of section 115JB and Board’s Circular No.495 dated 22/9/1987 and ignoring application of Explanation (iii) to said section?” 2. Heard Shri E.I.Sanmathi, learned standing counsel for the Revenue and Shri T.Suryanarayana, learned Senior Advocate for the respondent. 3. The first substantial question of law is with regard to adding an addition of Rs.29,83,65,068/- which the assessee had claimed it as foreign exchange gain on restatement of external commercial borrowings. 4. Shri Sanmathi arguing in support of the appeal, submitted that assessee has gained sum of Rs.29,83,65,068/- in the relevant year. Therefore, it is a taxable. 5. In reply, Shri Suryanarayana submitted that the assessee avails external commercial borrowing from international financiers to produce capital assets. While restating the external commercial borrowing, there will be either gain or loss of value of the loan. In the relevant Assessment Year 2010-11, there was gain of some amount. According to him, the settled position of law is that gain or loss shall be kept to the capital account and the same is not taxable. 6. The second substantial question of law is whether the ITAT was right in holding that assessee is entitled for set off of Book Loss of Rs.36,33,40,000/- in the computation of income under Section 115JB of the Income Tax Act, 1961[1]. 1 'the Act' for short 5. In reply, Shri Suryanarayana submitted that the assessee avails external commercial borrowing from international financiers to produce capital assets. While restating the external commercial borrowing, there will be either gain or loss of value of the loan. In the relevant Assessment Year 2010-11, there was gain of some amount. According to him, the settled position of law is that gain or loss shall be kept to the capital account and the same is not taxable. 6. The second substantial question of law is whether the ITAT was right in holding that assessee is entitled for set off of Book Loss of Rs.36,33,40,000/- in the computation of income under Section 115JB of the Income Tax Act, 1961[1]. 1 'the Act' for short 7. Shri Sanmathi argued that the assessee’s business had commenced in the Financial Year 2008-09. The consolidated loss is claimed in the relevant Assessment Year 2010-11 and the same is not permissible. The CBDT circular refers to the relevant year and not the previous year. Therefore, the finding recorded by the ITAT is not sustainable and the authority in Amline Textiles (P) Ltd. vs. Income Tax Officer[2] is not applicable to the facts of the case. 8. In reply, Shri Suryanarayana submitted that clause 2(iii) Explanation 1(i) of Section 115JB of the Act is unambiguous and includes the brought forward or unabsorbed depreciation whichever is less as per the books of accounts to be set off. 9. We have carefully considered the rival contentions and perused the records. 2 (2009) 27 SOT 0152 10. Reg - question No.1: Assessee’s case is, it has borrowed funds for external commercial borrowing to avail capital assets. In the restatement of the account to be made every year, there is bound to be a change in the value of the borrowings in view of fluctuation in the foreign exchange. The ITAT in para 9 of its order has referred to CIT(A)'s order and rightly recorded that the fluctuation in the rates of foreign exchange can result in either a gain or a loss because of value of the currency which appreciates or depreciates on the date of computation namely 31[st]March of the relevant accounting year. Placing reliance on CIT vs. Woodward Governor India (P) Limited[3], the ITAT has held that the adjustment on account of foreign exchange rate fluctuation is required to be made to actual cost at the end of every year after amendment of Section 43A with effect from 01.04.2003 and upheld CIT(A)'s order that the gain arising on account of exchange fluctuation are not liable to tax as it is on the capital account. 11. The second substantial question is with regard to brought forward book loss in computation of income and Section 115JB of the Act. 12. We have carefully perused the explanation to Section 115JB of the Act. Clause 2(iii) of Explanation 1 (i)of Section 115JB makes it clear that the amount of loss brought forward or unabsorbed depreciation whichever is less as per the books of accounts must be permitted to be set off. The CIT(A)[4]and the ITAT[5] placing reliance on CBDT[6] Circular No.495 dated September 22, 1987, have rightly held that the cumulative brought forward losses or unabsorbed depreciation should be considered for set off. In view of unambiguous language employed in the statute, no exception can be taken with ITAT’s order confirming the CIT(A)’s order holding that the assessee 4 Commissioner of Income Tax (Appeals) 5 Income Tax Appellate Tribunal 6Central Board of Direct Taxes is entitled to claim set off. So far as the actual amount is concerned, the ITAT has remitted the matter to the Assessing Officer. However, on principle, the ITAT has rightly held that the assessee is entitled to claim set off. 13. In view of the above, the following: ORDER (i)Appeal is dismissed; and (ii) The substantial questions of law are answered in favour of the assessee and against the Revenue. against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE