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www.taxpublishers.in Income Tax Act, 1961, Section 92C Transfer pricing--*Computation of ALP--Adjustment on account of short delays in receipt of export receivables--Non-consideration of new facet of contentions raised by assessee before CIT(A)* *Conclusion:* Where assessee merely raised a new facet of contentions before CIT(A) to support its plea on lack of justifiable grounds for impugned TP adjustment on account of short delays in receipt of export receivables, non-consideration of said contentions by CIT(A) was not justified and hence, matter was remanded to him for fresh examination of issue in accordance with law. TPO/AO made TP adjustment on account of notional interest towards delayed receipt of export proceeds from AEs. CIT(A) upheld the addition. Assessee-company submitted that it was pointed out before CIT(A) that delays in receipt of export proceeds were very minimal and besides, interest was not charged on such receivables pending realization either from AEs or non-AEs, however, CIT(A) did not examine the issue at all on the ground that such new contentions could not be entertained at said stage. *Held:* CIT(A) did not examine new contention on parity in treatment to receivables from AEs and non-AEs and dismissed the same in limine taking support from judgment of Supreme Court in the case of Goetze (India) Limited v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC). However, ratio of said judgment was not applicable to instant case as Supreme Court in that case, did not put any restrictions or fetters upon assessee to raise a new plea on subject matter of dispute before appellate authorities including CIT(A). In instant case, since assessee merely raised a new facet of contention before CIT(A) to support its plea on lack of justifiable grounds for impugned TP adjustment on account of short delays in receipt of export receivables, non-consideration of the said contentions by CIT(A) was not justified and hence, matter was remanded to him for fresh examination of issue in accordance with law. *Decision:* Matter remanded *Distinguished:* Goetze (India) Limited v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC) Income Tax Act, 1961, Section 32(1) Depreciation--*Allowability--Exchange fluctuations in respect of assets acquired utilizing foreign currency loan* *Conclusion:* Where fixed assets were acquired by utilizing foreign currency loan and on account of currency fluctuation, loan liability was added to fixed assets, assessee was entitled to depreciation on exchange loss. AO made disallowance of depreciation on account of exchange fluctuations in respect of assets acquired in India utilizing funds raised through foreign FCCBs. CIT(A) upheld the disallowance. Assessee contended that on identical issue, in its own case pertaining to earlier assessment year, Co-ordinate Bench of Tribunal allowed its claim of depreciation. *Held:* In view of decision of Co-ordinate Bench in assessee's own case for earlier assessment years, since fixed assets were acquired by utilizing foreign currency loan and on account of currency fluctuation, loan liability was added to fixed assets, assessee was entitled to depreciation on exchange loss. *Decision:* In assessee's favour *Followed:* Paramount Communications v. DCIT Circle-19 (2) New Delhi [I.T.A. No. 5395/DEL/2016, dt. 18-8-2021] IN THE ITAT DELHI BENCH CHALLA NAGENDRA PRASAD, J.M. & PRADIP KUMAR KEDIA, A.M. Paramount Communication (P) Ltd. v. DCIT I.T.A. No. 2542/Del/2018 4 April, 2024 Appellant by: Satyan Sethi, Advocate, A.T. Panda, Advocate Respondent by: Ambika Aggarwal, Sr.DR ORDER *Pradip Kumar Kedia A.M.* The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-44, New Delhi ('CIT(A)' in short) dated 31-1-2018 arising from the assessment order dated 15-12-2016 passed by the assessing officer (assessing officer) under section 143(3) read with section 144C of the Income Tax Act, 1961 (the Act) concerning assessment year 2013-14. 2. The grounds of appeal raised by the assessee read as under: 1. That on the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals)-44, New Delhi (briefly "the Commissioner (Appeals)") has erred in upholding addition of Rs. 35,49,435 being the notional interest on delayed receipt of export proceeds from its associated enterprises (AEs). 1.1 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) did not appreciate that delayed receipt of export proceeds from AEs was not an international transactions under section 92CA of the Act. 1.2 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) did not appreciate that applying TNMM, the TPO has already accepted exports at arm length. Hence, no separate bench marking for delay in receiving export proceeds was warranted. 1.3 Without prejudice, on the facts and circumstances of the case and in law, the adjusted operating margin ratio even after application of LIBOR + 1.5% rate would be 0.28% and the same would be within $3% range of safe harbor rule. 2. That on the facts and circumstances of the case and in law, the Commissioner (Appeals) has erred in upholding disallowance of depreciation of Rs. 1,50,20,339 on account of exchange fluctuations in respect of assets acquired in India utilizing the funds raised through foreign currency convertible bonds (FCCBs). 2.1 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) has erred in not appreciating that the provisions of section 43A of the Act were not applicable to the indigenous assets acquired out of FCCB's brought into India. 2.2 Without prejudice, on the facts and circumstances of the case and in law, increased liability on account of foreign exchange fluctuations attributable to acquisition of indigenous depreciable assets was allowable deduction under section 37 of the Act. 3. As per Ground No.1, the assessee has challenged the Transfer Pricing Adjustment of Rs. 35,49,435 on account of notional interest towards delayed receipt of export proceeds from its Associated Enterprises (AEs). 4. When the matter was called for hearing, the learned counsel for the assessee straightaway adverted to paragraph 5.4 of the Commissioner (Appeals) order and submitted that it was pointed out before the Commissioner (Appeals) that the delay in receipt of export proceed are very minimal and of few days. Besides, interest has not been charged on such receivables pending realization either from AEs or non-AEs. The AE and non AE are treated at par as per its business practices. A tabular statement showing number of days delay qua AEs as well as non-AEs were referred. It was further pointed out that Commissioner (Appeals) has not examined the issue at all on the ground that such new contention cannot be entertained at this stage in view of the judgment delivered by the Hon'ble Supreme Court in the case of Goetze India Ltd. v. CIT, (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC). The ld. counsel submitted that the treatment given to export receivables from non-AEs should be applied mutatis mutandis to the export receivables from the AEs and therefore, the Revenue is not justified in making impugned Transfer Pricing Adjustment on account of minor delays in collecting the export receivables from AEs. 5. The learned Senior Departmental Representative for the Revenue, on the other hand, relied upon the first appellate order on the issue and submitted that such contentions were not brought before the assessing officer and therefore, rightly rejected by the Commissioner (Appeals). 6. We have considered the rival submissions on the issue and perused the case records. 7. The Commissioner (Appeals) has not examined the new contention on parity in treatment to receivables from AE and non-AE and dismissed the same in limine taking support from the judgment in Goetze India (supra). In the instant case, the assessee has merely raised a new facet of argument to support its plea on lack of justifiable grounds for impugned Transfer Pricing Adjustment on account of short delays in receipt of export receivables. 7.1 We also observe that ratio of Goetze India (supra) relied upon by the Commissioner (Appeals) is not applicable in the present case. The Hon'ble Supreme Court in Goetze India (supra) has not put any restrictions or fetters upon the assessee to raise a new plea on the subject matter of dispute before the appellate authorities including Commissioner (Appeals). Thus, non-consideration of the new facet of contentions raised before the Commissioner (Appeals) does not appear justified. 7.2 Hence, without going into merits of the correctness of additions made by the assessing officer, we consider it expedient to restore the matter back to the file of the Commissioner (Appeals) for fresh examination of the issue in accordance with law. It shall be open to the assessee to raise all contentions before the Commissioner (Appeals) as may be advised and adduce such evidences as may be considered necessary to challenge the correctness of the impugned Transfer Pricing Adjustment towards interest on delay in receipt of export receivables from AEs. Needless to say, reasonable opportunity shall be given to the assessee to address the issue before the Commissioner (Appeals). 7.3 Accordingly, the matter is set aside and restore to the file of the Commissioner (Appeals). 8. Ground No.1 of the appeal of the assessee is allowed for statistical purposes. 9. Ground No.2 concerns disallowance of depreciation of Rs. 1,50,20,339 on account of exchange fluctuations in respect of assets acquired in India utilizing the funds raised through foreign currency convertible bonds (FCCBs). 10. In the course of hearing, the learned counsel for the assessee submitted that the Commissioner (Appeals) has decided the issue against the assessee by adopting the view taken by the precedator Commissioner (Appeals) for assessment year 2012-13 vide order dated 26-9-2016. In this regard, the learned counsel submitted that the sole basis of disallowance is the view taken in assessment year 2012-13 by the Commissioner (Appeals) which order of Commissioner (Appeals) was put under challenge by the assessee before the ITAT. The Co-ordinate Bench of ITAT in ITA No.5395/Del/2016 order dated 18-8-2021 has reversed the disallowance of depreciation claim by applying the view taken by ITAT in assessment years 2009-10 and 2010-11 in assessee's own case. The ld. counsel thus pointed out that the issue has attained finality before ITAT there is no reason to take a different view in assessment year 2013-14 in question. 11. We straightaway refer to the view expressed by the Co-ordinate Bench of ITAT in assessment year 2012-13 as referred above. 7. We have heard both the parties and perused the material available on record. The Tribunal in assessee's own case in assessment year 2009-10 & 2010-11 has held as under:- "24. Since, the assessee in the instant case has attributed the increased liability of Rs. 12,65,54,992 to the cost of the assets and the depreciation was allowed, therefore, although the assessee has a good case to argue that exchange fluctuation loss attributable to depreciable assets acquired in India is an allowable revenue expenditure, however, it would require tedious exercise of modifying assessments for number of year. Therefore, we hold that the assessee is entitled to depreciation on exchange loss and the additional grounds raised by the assessee for assessment year 2009-10 becomes in-fructuous. It is held in the case of CIT v. Industrial Finance Corp of India Ltd. (2009) 185 Taxman 296 (Del) : 2010 TaxPub(DT) 0775 (Del-HC), that revenue expenditure (loss) is allowable in the year in which it is incurred but where the assessee has spread it over, the Court would allow the benefit. We find merit in the argument of the learned counsel for the assessee that it cannot be held that neither depreciation on enhanced cost due to exchange fluctuation is to be allowed nor the loss itself was to be allowed more so because claim to this effect was raised both before the assessing officer as well as the Commissioner (Appeals). Accordingly, ground no.3 raised by the assessee is allowed and additional ground being infructuous is dismissed." The facts in the present assessment year i.e. 2012-13 are also identical and no distinguishing facts were pointed out by the learned Departmental Representative. The assessee has attributed the liability in the present assessment year to the fixed assets which were acquired in India out of foreign currency loan. Since the fixed asset was acquired by utilizing foreign currency loan and on account of currency fluctuation, the loan liability was added to the fixed assets. Thus, the assessee is entitled to depreciation on exchange loss. Therefore, we direct the assessing officer to allow the depreciation attributable to capitalization of exchange rate fluctuation loss. Thus, the appeal of the assessee is allowed. 12. The issue is thus no longer res integra and has been adjudicated by the co-ordinate bench in favour of the assessee in assessment year 2012-13 as well as in other A.Ys. 2009-10 and 2010-11 in assessee's own case. Therefore, we see no perceptible reasons to re-examine the issue again. In consonance with the view taken in other years noted above in assessee's own case in identical facts, we find substantial merit in the plea of the assessee. The additions on account of depreciation allowance in question made by the lower authorities are thus set aside and cancelled. 13. Ground No.2 of the appeal of the assessee is allowed. 14. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 04/04/2024

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Income Tax Act, 1961, Section 92C

Transfer pricing--Computation of ALP--Adjustment on account of short delays in receipt of export receivables--Non-consideration of new facet of contentions raised by assessee before CIT(A)

Conclusion: Where assessee merely raised a new facet of contentions before CIT(A) to support its plea on lack of justifiable grounds for impugned TP adjustment on account of short delays in receipt of export receivables, non-consideration of said contentions by CIT(A) was not justified and hence, matter was remanded to him for fresh examination of issue in accordance with law.

TPO/AO made TP adjustment on account of notional interest towards delayed receipt of export proceeds from AEs. CIT(A) upheld the addition. Assessee-company submitted that it was pointed out before CIT(A) that delays in receipt of export proceeds were very minimal and besides, interest was not charged on such receivables pending realization either from AEs or non-AEs, however, CIT(A) did not examine the issue at all on the ground that such new contentions could not be entertained at said stage. Held: CIT(A) did not examine new contention on parity in treatment to receivables from AEs and non-AEs and dismissed the same in limine taking support from judgment of Supreme Court in the case of Goetze (India) Limited v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC). However, ratio of said judgment was not applicable to instant case as Supreme Court in that case, did not put any restrictions or fetters upon assessee to raise a new plea on subject matter of dispute before appellate authorities including CIT(A). In instant case, since assessee merely raised a new facet of contention before CIT(A) to support its plea on lack of justifiable grounds for impugned TP adjustment on account of short delays in receipt of export receivables, non-consideration of the said contentions by CIT(A) was not justified and hence, matter was remanded to him for fresh examination of issue in accordance with law.

Decision: Matter remanded

Distinguished: Goetze (India) Limited v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC)

Income Tax Act, 1961, Section 32(1)

Depreciation--Allowability--Exchange fluctuations in respect of assets acquired utilizing foreign currency loan

Conclusion: Where fixed assets were acquired by utilizing foreign currency loan and on account of currency fluctuation, loan liability was added to fixed assets, assessee was entitled to depreciation on exchange loss.

AO made disallowance of depreciation on account of exchange fluctuations in respect of assets acquired in India utilizing funds raised through foreign FCCBs. CIT(A) upheld the disallowance. Assessee contended that on identical issue, in its own case pertaining to earlier assessment year, Co-ordinate Bench of Tribunal allowed its claim of depreciation. Held: In view of decision of Co-ordinate Bench in assessee's own case for earlier assessment years, since fixed assets were acquired by utilizing foreign currency loan and on account of currency fluctuation, loan liability was added to fixed assets, assessee was entitled to depreciation on exchange loss.

Decision: In assessee's favour

Followed: Paramount Communications v. DCIT Circle-19 (2) New Delhi [I.T.A. No. 5395/DEL/2016, dt. 18-8-2021]

IN THE ITAT DELHI BENCH

CHALLA NAGENDRA PRASAD, J.M. & PRADIP KUMAR KEDIA, A.M.

Paramount Communication (P) Ltd. v. DCIT

I.T.A. No. 2542/Del/2018

4 April, 2024

Appellant by: Satyan Sethi, Advocate, A.T. Panda, Advocate

Respondent by: Ambika Aggarwal, Sr.DR

ORDER

Pradip Kumar Kedia A.M.

The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-44, New Delhi ('CIT(A)' in short) dated 31-1-2018 arising from the assessment order dated 15-12-2016 passed by the assessing officer (assessing officer) under section 143(3) read with section 144C of the Income Tax Act, 1961 (the Act) concerning assessment year 2013-14.

2. The grounds of appeal raised by the assessee read as under:

1. That on the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals)-44, New Delhi (briefly "the Commissioner (Appeals)") has erred in upholding addition of Rs. 35,49,435 being the notional interest on delayed receipt of export proceeds from its associated enterprises (AEs).

1.1 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) did not appreciate that delayed receipt of export proceeds from AEs was not an international transactions under section 92CA of the Act.

1.2 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) did not appreciate that applying TNMM, the TPO has already accepted exports at arm length. Hence, no separate bench marking for delay in receiving export proceeds was warranted.

1.3 Without prejudice, on the facts and circumstances of the case and in law, the adjusted operating margin ratio even after application of LIBOR + 1.5% rate would be 0.28% and the same would be within $3% range of safe harbor rule.

2. That on the facts and circumstances of the case and in law, the Commissioner (Appeals) has erred in upholding disallowance of depreciation of Rs. 1,50,20,339 on account of exchange fluctuations in respect of assets acquired in India utilizing the funds raised through foreign currency convertible bonds (FCCBs).

2.1 That on the facts and circumstances of the case and in law, the Commissioner (Appeals) has erred in not appreciating that the provisions of section 43A of the Act were not applicable to the indigenous assets acquired out of FCCB's brought into India.

2.2 Without prejudice, on the facts and circumstances of the case and in law, increased liability on account of foreign exchange fluctuations attributable to acquisition of indigenous depreciable assets was allowable deduction under section 37 of the Act.

3. As per Ground No.1, the assessee has challenged the Transfer Pricing Adjustment of Rs. 35,49,435 on account of notional interest towards delayed receipt of export proceeds from its Associated Enterprises (AEs).

4. When the matter was called for hearing, the learned counsel for the assessee straightaway adverted to paragraph 5.4 of the Commissioner (Appeals) order and submitted that it was pointed out before the Commissioner (Appeals) that the delay in receipt of export proceed are very minimal and of few days. Besides, interest has not been charged on such receivables pending realization either from AEs or non-AEs. The AE and non AE are treated at par as per its business practices. A tabular statement showing number of days delay qua AEs as well as non-AEs were referred. It was further pointed out that Commissioner (Appeals) has not examined the issue at all on the ground that such new contention cannot be entertained at this stage in view of the judgment delivered by the Hon'ble Supreme Court in the case of Goetze India Ltd. v. CIT, (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC). The ld. counsel submitted that the treatment given to export receivables from non-AEs should be applied mutatis mutandis to the export receivables from the AEs and therefore, the Revenue is not justified in making impugned Transfer Pricing Adjustment on account of minor delays in collecting the export receivables from AEs.

5. The learned Senior Departmental Representative for the Revenue, on the other hand, relied upon the first appellate order on the issue and submitted that such contentions were not brought before the assessing officer and therefore, rightly rejected by the Commissioner (Appeals).

6. We have considered the rival submissions on the issue and perused the case records.

7. The Commissioner (Appeals) has not examined the new contention on parity in treatment to receivables from AE and non-AE and dismissed the same in limine taking support from the judgment in Goetze India (supra). In the instant case, the assessee has merely raised a new facet of argument to support its plea on lack of justifiable grounds for impugned Transfer Pricing Adjustment on account of short delays in receipt of export receivables.

7.1 We also observe that ratio of Goetze India (supra) relied upon by the Commissioner (Appeals) is not applicable in the present case. The Hon'ble Supreme Court in Goetze India (supra) has not put any restrictions or fetters upon the assessee to raise a new plea on the subject matter of dispute before the appellate authorities including Commissioner (Appeals). Thus, non-consideration of the new facet of contentions raised before the Commissioner (Appeals) does not appear justified.

7.2 Hence, without going into merits of the correctness of additions made by the assessing officer, we consider it expedient to restore the matter back to the file of the Commissioner (Appeals) for fresh examination of the issue in accordance with law. It shall be open to the assessee to raise all contentions before the Commissioner (Appeals) as may be advised and adduce such evidences as may be considered necessary to challenge the correctness of the impugned Transfer Pricing Adjustment towards interest on delay in receipt of export receivables from AEs. Needless to say, reasonable opportunity shall be given to the assessee to address the issue before the Commissioner (Appeals).

7.3 Accordingly, the matter is set aside and restore to the file of the Commissioner (Appeals).

8. Ground No.1 of the appeal of the assessee is allowed for statistical purposes.

9. Ground No.2 concerns disallowance of depreciation of Rs. 1,50,20,339 on account of exchange fluctuations in respect of assets acquired in India utilizing the funds raised through foreign currency convertible bonds (FCCBs).

10. In the course of hearing, the learned counsel for the assessee submitted that the Commissioner (Appeals) has decided the issue against the assessee by adopting the view taken by the precedator Commissioner (Appeals) for assessment year 2012-13 vide order dated 26-9-2016. In this regard, the learned counsel submitted that the sole basis of disallowance is the view taken in assessment year 2012-13 by the Commissioner (Appeals) which order of Commissioner (Appeals) was put under challenge by the assessee before the ITAT. The Co-ordinate Bench of ITAT in ITA No.5395/Del/2016 order dated 18-8-2021 has reversed the disallowance of depreciation claim by applying the view taken by ITAT in assessment years 2009-10 and 2010-11 in assessee's own case. The ld. counsel thus pointed out that the issue has attained finality before ITAT there is no reason to take a different view in assessment year 2013-14 in question.

11. We straightaway refer to the view expressed by the Co-ordinate Bench of ITAT in assessment year 2012-13 as referred above.

7. We have heard both the parties and perused the material available on record. The Tribunal in assessee's own case in assessment year 2009-10 & 2010-11 has held as under:-

"24. Since, the assessee in the instant case has attributed the increased liability of Rs. 12,65,54,992 to the cost of the assets and the depreciation was allowed, therefore, although the assessee has a good case to argue that exchange fluctuation loss attributable to depreciable assets acquired in India is an allowable revenue expenditure, however, it would require tedious exercise of modifying assessments for number of year. Therefore, we hold that the assessee is entitled to depreciation on exchange loss and the additional grounds raised by the assessee for assessment year 2009-10 becomes in-fructuous. It is held in the case of CIT v. Industrial Finance Corp of India Ltd. (2009) 185 Taxman 296 (Del) : 2010 TaxPub(DT) 0775 (Del-HC), that revenue expenditure (loss) is allowable in the year in which it is incurred but where the assessee has spread it over, the Court would allow the benefit. We find merit in the argument of the learned counsel for the assessee that it cannot be held that neither depreciation on enhanced cost due to exchange fluctuation is to be allowed nor the loss itself was to be allowed more so because claim to this effect was raised both before the assessing officer as well as the Commissioner (Appeals). Accordingly, ground no.3 raised by the assessee is allowed and additional ground being infructuous is dismissed."

The facts in the present assessment year i.e. 2012-13 are also identical and no distinguishing facts were pointed out by the learned Departmental Representative. The assessee has attributed the liability in the present assessment year to the fixed assets which were acquired in India out of foreign currency loan. Since the fixed asset was acquired by utilizing foreign currency loan and on account of currency fluctuation, the loan liability was added to the fixed assets. Thus, the assessee is entitled to depreciation on exchange loss. Therefore, we direct the assessing officer to allow the depreciation attributable to capitalization of exchange rate fluctuation loss. Thus, the appeal of the assessee is allowed.

12. The issue is thus no longer res integra and has been adjudicated by the co-ordinate bench in favour of the assessee in assessment year 2012-13 as well as in other A.Ys. 2009-10 and 2010-11 in assessee's own case. Therefore, we see no perceptible reasons to re-examine the issue again. In consonance with the view taken in other years noted above in assessee's own case in identical facts, we find substantial merit in the plea of the assessee. The additions on account of depreciation allowance in question made by the lower authorities are thus set aside and cancelled.

13. Ground No.2 of the appeal of the assessee is allowed.

14. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 04/04/2024