Income Tax Appellate Tribunal - Delhi
M/S. Quantrro Global Services Private ... vs Ito, New Delhi on 31 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F", NEW DELHI
BEFORE SMT. BEENA A. PILLAI, JUDICIAL MEMBER
AND
SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No. 2431/Del/2014
(Assessment Year 2009-10)
Quantrro Global Services Pvt. Ltd. ITO
Basement, 24, C-Block Ward-14(4)
Community Centre, Janakpuri New Delhi.
New Delhi. Vs.
GIR/PAN: AAFCA4469B
(Appellant) (Respondent)
Appellant by : Smt. Lalitha Krishnamurthy, CA
Respondent by : Sh. Atiq Ahmad, Sr. DR
Date of hearing : 10.07.2017
Date of Pronouncement : 31.07.2017
ORDER
PER BEENA A PILLAI, JM:
1. The present appeal has been filed by assessee against order dated 02.01.2014, passed by Ld. CIT(A)-XVII, New Delhi for assessment year 2009-10 on following grounds of appeal:
1. That the disallowance of loss of Rs.3,75,40,000/- on account of fluctuation in foreign exchange made by the Assessing Officer and sustained by CIT(Appeals), by holding that the same had been claimed without any transaction in the relevant year and was on capital account instead of on revenue account as claimed by assessee, not allowable as a loss under Section 37 of the Act, is arbitrary, unjust, bad in law, without any basis and contrary to the actual utilization of the foreign exchange loan.2 ITA No. 2431/Del/2014
(AY 2009-10)
2. That the observation made by the CIT(Appeals) that loss on account of fluctuation in foreign exchange was not incurred in the course of carrying on of the business and not part of trading asset of the company is based on surmise, conjecture, presumption and contrary to the facts on record and accordingly the assessment so framed by the Assessing Officer and sustained by CIT(Appeals) on such unwarranted and illogical inference is bad in law.
3. That without prejudice to above grounds, the CIT (Appeals) has erred on facts and under the law in giving a different treatment to the foreign exchange loss in the relevant year on account of restatement of foreign currency loan taken in the previous assessment year and consequently disallowance of foreign exchange loss, is arbitrary, unjust, discriminatory and bad in law.
4. That the disallowance of Rs. 1,68,27,395/- under Section 14A of IT Act made by Assessing Officer and sustained by CIT (Appeals) is arbitrary, unjust and at any rate very excessive.
5. The above grounds are independent and without prejudice to one another.
6. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.
2. Brief facts of the case are as under:
Assessee filed its return of income on 30.09.2009 at loss of Rs.25,19,18,008/-. Thereafter, assessee revised its return on 18.03.2010 declaring a loss of Rs.21,13,55,879/-. The case was selected for scrutiny and notice under section 143(2) was issued.
Thereafter, the case was transferred to New Delhi, and the case was discussed with representatives before Ld. AO.
3 ITA No. 2431/Del/2014(AY 2009-10)
3. In the course of assessment proceedings Ld. AO vide order sheet entry dated 07.12.2011, assessee was asked to furnish complete details in respect of foreign exchange fluctuation loss(net) amounting to Rs.3,04,13,033/-. In response assessee, assessee filed necessary details. On perusal of same, Ld. AO observed that foreign exchange fluctuation loss of Rs.3,75,40,000/- has been incurred on UTI Bank term loan taken in foreign currency. Assessee submitted that loss occurred due to foreign exchange fluctuation on term loan, was an allowable expenditure, as it was capital in nature.
4. Ld. AO however, disallowed claim of assessee, as he was of the opinion that assessee had obtained loan from UTI bank for capital purposes, and it could not be allowed as revenue expenditure.
5. During the course of assessment proceedings Ld. AO observed that, during year under consideration, assessee earned dividend income amounting to Rs.1,27,03,741/-. It was also observed that assessee made Suo Motu disallowance of Rs.13,84,588/-under section 14A, in its computation of income. Assessing officer made addition by observing that assessee has not computed amount of average investments correctly. He, therefore, recomputed disallowance under section 14A at Rs.1,68,27,395/-.
6. Aggrieved by order of Ld. AO assessee preferred appeal before Ld.CIT(A), who upheld the additions made.
4 ITA No. 2431/Del/2014(AY 2009-10)
7. Aggrieved by order of Ld. CIT(A) assessee is in appeal before us now.
Ground No.1-3
8. Ld. AR submitted that assessee had obtained foreign currency loans from Axis/UTI Bank; one was for capital expenditure towards borrower's delivery centers and other for working capital requirements of assessee. It has been submitted by Ld. AR that as loan was a foreign currency loan, it has to be reinstated at end of the year due to which their occurred fluctuation in currency, resulting in a loss of Rs. 2,22,14,000/-.
9. Ld. AR submitted that on term loan amounting to Rs. 78,560,000/- was sanctioned for capital purposes which was fully utilised by assessee for working capital requirement during the year under consideration. She submitted that assessee invested entire amount of loan received in mutual funds and redeemed mutual funds as per working capital requirement of appellant for the year under consideration. Ld. AR submitted that on reinstatement of loan at the end of year there arose gain, which has been accepted by authorities below.
Date Particulars Exchange Rate Amount in Amount in
of USD in INR USD INR
31-July- 07 Term Loan UTI Bank 40.29 20,00,000 8,03,60,000
Gain on account of
31-Mar-08 39.31 (17,40,000)
Reinstatement @ USD 1 = Rs.
31-Mar-08 Loan after reinstatement 20,00,000 7,86,20,000
Loss on account of Reinstatement
31-Mar-09 50.43 (A) 2,22,40,000
@ USD 1 = Rs. 50.43
31-Mar-09 Loan reinstatement 20,00,000
09-June- 08 Working Capital UTI Bank 20,00,000 8,55,60,000
5 ITA No. 2431/Del/2014
(AY 2009-10)
Loss on account of Reinstatement
31-Mar-09 50.43 (B) 1,53,00,000
@ USD 1 = Rs. 50.43
Loan after reinstatement
31-Mar-09 20,00,000 10,08,60,000
Disallowance by the Id. Assessing
(A+B) 3,75,40,000
Officer
10. Ld. AR submitted that term loan amounting to Rs. 8,03,60,000/- was received by assessee on 30.07.2007 being preceding assessment year. She submitted that during end of financial year that is on 31.03.2008, loan was reinstated at Rs. 7,86,20,06/- which was available for assessee for the year under consideration as an opening balance. Fresh loan obtained during the year under consideration was utilized towards working capital on 09.06.2008 amounting to Rs. 8,55,60,000/- which has been reinstated on 31.03.2009 being end of financial year amounting to Rs. 1,53,00,000/- upon reinstatement.
11. She referred to page 9 of paper book wherein the summary of the loan obtained from UTI Bank has been given which is being reproduced hereunder:
Opening Reinstatement Closing Purpose of Received Repaid Nature Balance balance the loan during the during the year year Loan UTI For Working Bank 7,86,20,000 2,22,40,000 10,08,60,000 capital requirements Term N.A INR Loan. NO loan 2,55,00,000 60,00,000 1,95,00,000 reinstatement Yes Bank Loan UTI 8,55,60,000 1,53,00,000 10,08,60,000 Additional Bank loan for Working capital requirements 6 ITA No. 2431/Del/2014 (AY 2009-10)
12. Ld. AR submitted that loans received has been utilised for the purposes of business and therefore, the loss must be allowed as expenditure under section 37(1) of the Act. She submitted that only reason for disallowance of assessee's claim is based on presumption by authorities below that there has been no transaction that has taken place during year which could result into profit or loss to assessee and also that loan has been utilised to acquire capital assets. She submitted that neither Ld. CIT(A) nor Ld. AO disputed the method of accounting followed by assessee. In support of claim Ld. AR has placed on record before us ledger account of foreign exchange fluctuation.
13. She placed reliance upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Goyal M.G.Cases reported in 173 Taxmann 34, wherein it has been held that;
"to effect the purpose of acquisition of the loan is of no consequence but waters of consequences utilisation of the amount at the time when the devaluation took place."
14. She also placed reliance upon decision of Hon'ble Delhi High Court in the case of Logic Tronics Pvt. Ltd. Vs. CIT reported in 333 ITR 386 wherein Hon'ble court has held that;
"if the loan was utilised for capital purposes is (to purchase capital assets) the weavers should resulting capital receipt, but if the loan was utilised for revenue purposes (working capital purposes) then the waiver of loan would result in taxable income.
15. She submitted that since loan was utilised for working capital purpose by assessee and from the date of receipt of the 7 ITA No. 2431/Del/2014 (AY 2009-10) loan assessee has treated it to be on the revenue account, any loss resulting from foreign exchange fluctuation on external commercial borrowings then would have to be allowable under section 37 (1) of the Act.
16. Ld. AR submitted that assessee maintains its books of account on mercantile basis and loss on account of exchange fluctuation had to be allowed in the year when it was reflected in the balance sheet as has been held by Hon'ble Supreme Court in the case of ONGC versus CIT reported in (2010) 189 Taxmann 292.
17. On the contrary Ld. Sr. DR submitted that, the ledger accounts submitted by Ld. AR has not been placed before authorities below. He also referred to page 13 of paper book being summary of working capital loan utilisation wherein Ld. Sr. DR submitted that this has never been verified by authorities below. Upon putting question to Ld. AR, she admitted that summary of utilisation of the loan placed at page 13 was not there before the authorities below for their consideration.
18. He also submitted that assessee has admitted even before this Tribunal that loan received have been utilised not been substantiated to have been utilised for the purposes of assessee's business. He submitted that under such circumstances any loss incurred by assessee on account of same cannot be an allowable deduction under section 37(1) of the Act. Ld. Sr. DR places reliance upon orders passed by authorities below.
19. We have perused submissions advanced by both sides in the light of records placed before us.
8 ITA No. 2431/Del/2014(AY 2009-10)
20. It has been admitted by Ld. AR that detailed at page 13 of paper book being summary of utilisation of the loan and the ledger account of foreign exchange fluctuation for financial year relevant to assessment year under consideration, has not been placed before authorities below for their consideration. It has been submitted by Ld. AR that these details shows the manner in which foreign currency loan received has been utilised by assessee. It has not been verified by the authorities below whether loan received by assessee has been actually utilised as working capital for assessee's business. Merely by placing reliance upon the statements would not establish actual utilisation of loan. In the Interest of Justice, we are, therefore, inclined to set aside this issue back to Ld. CIT(A) who would verify these details as per law.
21. Accordingly, this ground raised by assessee stands allowed for statistical purposes.
22. Ground No. 4 has been raised by assessee against disallowance of Rs. 1,68,27,395/- under section 14A read with rule 8D.
23. Ld. AR submitted that during the year under consideration assessee had received dividend amounting to Rs. 1,27,03,741/- from following investments in mutual funds:
9 ITA No. 2431/Del/2014(AY 2009-10) Name of the Investment Amount of Dividend
1. DSP ML Liquid Fund 2,45,390/-
2. ICICI Liquid Plan 8,04,209/-
3. DWS Money Plus Fund 79,95,930/-
4. HDFC - CMF-Saving plus Plan 36,58,393/-
Total 1,27,03,741/-
24. Ld. AR submitted that investments in unquoted shares was to an extent of Rs. 2,69,26,310/- and investment in subsidiaries was to an extent of Rs. 1,03,47,47,776/- which did not yield any exempt income during previous year. She submitted that investments in subsidiaries were strategic in nature and therefore, cannot be included for the purposes of disallowance under section 14A read with rule 8D.
25. Ld. AR submitted that assessee had made investments in certain foreign subsidiary company, which do not form part of value of investment for the purposes of disallowance under section 14A of the Act. She placed reliance upon decision in the case of CIT versus Suzlon Energy Ltd., Reported in (2013) 215 taxman 272.
26. She further submitted that assessee also did not consider investments made in growth fund for the purposes of disallowance as they do not yield any dividend / exempt income.
Ld. AR submitted that assessee had suo-motu disallowed Rs.13,84,588/- under section 14A read with rule 8D, which was computed as under :
10 ITA No. 2431/Del/2014(AY 2009-10) Quatrro BPO Solutions Private Limited Expenditure in relation to exempt income Amount INR Amount of expenditure directly relating to income which 1 does not form part of total income = 2 A Amount of Interest 4,61,10,065 B Average Investment Opening Investment (Daily Dividend) = 8,19,01,629 [Only Mutual Fund] Closing Investment (Growth Fund not taken) = 1,34,02,626 [Only Mutual Fund] Average Investment = 4,76,52,127 C Average Assets Opening Assets = 1,55,05,26,284 Closing Assets = 2,28,30,07,428 Average Assets 1,91,67,66,856 AXB/C 11,46,328 3 1/2 % of Average Value of Investment Average Investment = 4,76,52,127 1/2% 0.50% Disallowed Amount 2,38,261 Total Expenditure Disallowed 13,84,588
27. Ld. AR submitted that only difference in the computation of 14A disallowance by assessee vis-a-vis that made by Ld. AO is in respect of foreign investments in subsidiaries as well as investments made in growth funds that have been excluded by assessee. She submitted that exclusion of these two items from computation of disallowance is supported by various judicial precedents.11 ITA No. 2431/Del/2014
(AY 2009-10)
28. On the contrary Ld. Sr. DR placed his reliance on the decision of authorities below.
29. We have perused submissions advanced both sides in the light of the records placed before us. Assessee has placed the list of investment at page 5-7 of paper book. On perusal of the list there appears that assessee has made investment in foreign companies, subsidiaries certain unquoted shares etc. Ld. AO is directed to verify these scripts and exclude the foreign subsidiary investments for the purposes of computing 14A disallowance. As far as investment made in Indian subsidiary is concerned, it has been submitted that these were strategic investments needed to be made by assessee. However, Assessee has not demonstrated before us, the need of strategic investments in subsidiary. Ld. AO is therefore directed to verify details and also check if any exempt income has been received by assessee from these investments.
30. Further in respect of investments made in Foreign subsidiaries and growth fund, Ld. AR had submitted that assessee has been making such investments in the preceding assessment years which has been accepted by authorities below. She placed on record assessment order for AYs 2007-08 of a group company, wherein no disallowance u/s 14A was made. Further Ld. AO has not recorded any satisfaction in respect of amount and reasons for rejecting the disallowances offered by assessee as per the mandate u/s 14A(2). Ld. AO is therefore, directed not to include investments made in foreign subsidiary 12 ITA No. 2431/Del/2014 (AY 2009-10) and growth funds, as nothing contrary has been brought on record by the authorities below.
30. On the basis of above discussion, Ld. AO is directed to verify investments made by assessee and to consider disallowance under section 14A in accordance with law.
Accordingly this ground raised by assessee stands allowed for statistical purposes as discussed above.
In the result appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on 31.07.2017 Sd/- Sd/-
(PRASHANT MAHARISHI) (BEENA A. PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date: 31.07.2017
@mit.
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak
6. Bhawan, Khan Market, New Delhi.
True copy.
By Order
(ITAT, New Delhi)
13 ITA No. 2431/Del/2014
(AY 2009-10)
S.No. Details Date
1 Draft dictated on 14.07.2017
2 Draft placed before author 17.07.2017
Draft proposed & placed before the
3
Second Member
Draft discussed/approved by
4
Second Member
Approved Draft comes to the Sr.
5
PS/PS
6 Kept for pronouncement
7 File sent to Bench Clerk
Date on which the file goes to
8
Head Clerk
9 Date on which file goes to A.R.
10 Date of Dispatch of order