M/s Microsoft Corporation (India) Pvt. Ltd., New Delhi v. Dy. CIT, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL I.T.A. NO. 106(DEL)/2009 ASSESSMENT YEAR: 2000-01 M/S MICROSOFT CORPORATION (INDIA) DEPUTY COMMISSIONER OF PVT. LTD. FLOOR-9 DLF CYBER CITY VS. I NCOME-TAX CIRCLE 6(1) DLF CYBER GREENS SECTOR 25-A NEW DELHI. GURGAON. PAN-AAACM 5586C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJAN VORA & SHRI ANKUR GUPTA A.RS. RESPONDENT BY: SHRI G.S. SAHOTA SR. DR ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE ASSESSEE EMANATES FROM THE ORDER OF CIT(APPEALS)-IX NEW DELHI PASSED ON 23.10.200 8 IN APPEAL NO. 29/07- 08 PERTAINING TO ASSESSMENT YEAR 2000-01 IN W HICH LEVY OF PENALTY OF RS. 15 34 529/- UNDER SECTION 27191)(C) WAS CONF IRMED. THE ASSESSEE HAD TAKEN UP FIVE GROUNDS IN THE APPEAL. HOWEVE R THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED IN THE COURSE OF HEARING BEF ORE US THAT IT WANTS TO PRESS ONLY GROUND NOS. 4(II) AND 5. GROUND NO. 4(II) IS TO THE EFFECT THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE LEVY OF PENAL TY IMPOSED BY THE AO IN ITA NO. 106(DEL)/2009 2 RESPECT OF CLAIM OF FOREIGN EXCHANGE LOSS OCCUR RING ON ACCOUNT OF RE- STATEMENT OF FOREIGN CURRENCY LOAN WHICH WAS N OT THE SUBJECT MATTER OF APPEAL BEFORE THE HONBLE TRIBUNAL. GROUND NO. 5 IS TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN NOT APPRECIATING THA T THE AFORESAID CLAIM OF DEDUCTION WAS MADE UNDER A BONA FIDE BELIEF AN D THE SAME CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. IN VIEW OF THE AFORESAID OTHER GROUNDS ARE DISMISSED AS NO T PRESSED. 1.1 IN THE COURSE OF HEARING THE ASSESSEE FILED TWO ADDITIONAL GROUNDS WHICH READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY ORDER OF THE LD. AO WHICH IS VOID AB-INITIO AS NO SATISFACTION WAS RECORDED BY THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS THA T THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED BY THE L D. AO BY MERELY RELYING ON SECTION 271(1B) INSERTED BY THE FINA NCE ACT 2008 WITH RETROSPECTIVE FROM 1 APRIL 1989. THE H ONBLE DELHI HIGH COURT IN THE CASE OF MADHUSHREE GUPTA VS. UOI [W P (C) NO. 5059/2008] AND BRITISH AIRWAYS PLC. VS. UOI [WP (C) NO. 6272/2008] (317 ITR 107) HAS CONSIDERED THE PRO VISIONS OF SECTION 271(1B) OF THE ACT AND HAS HELD THAT IN CASE A PRIMA FACIE SATISFACTION IS NOT RECORDED BY THE LD. AO FOR THE INITIATION OF PENALTY PROCEEDINGS THE PENALTY PROCEEDINGS W OULD BE LIABLE TO BE QUASHED. ITA NO. 106(DEL)/2009 3 1.2 DURING THE COURSE OF HEARING BEFORE US THE L D. COUNSEL DID NOT PRESS FOR ADMISSION OF THESE GROUNDS. THEREFORE THE GROUNDS ARE NOT ADMITTED FOR THE PURPOSE OF ADJUDICATION IN THIS ORDER. 2. THE FACTS MENTIONED IN THE ASSESSMENT ORDER DATED 31.01.2003 IN RESPECT OF THE MATTER COVERED IN GROUNDS 4(II) & 5 ARE THAT THE ASSESSEE HAD TAKEN LOAN OF ABOUT RS. 13.13 CRORE FROM M ICROSOFT CORPORATION U.S.A. (THE USA CO. FOR SHORT). DUE TO FLUCTUAT ION IN RATE OF THE FOREIGN EXCHANGE A LOSS OF RS. 39.90 LAKH WAS INCURRE D IN THIS YEAR ON ACCOUNT OF THE RESTATEMENT OF THE LIABILITY ON THE CLOSI NG DAY OF THE PREVIOUS YEAR. THIS AMOUNT WAS CLAIMED AS A REVENUE LOSS. T HE ASSESSEE WAS REQUESTED TO JUSTIFY THE CLAIM OF DEDUCTION OF AFORESAID AMOUNT IN COMPUTING THE TOTAL INCOME. IT WAS SUBMITTED T HAT THE LOAN TAKEN FROM THE USA CO. HAS BEEN UTILIZED FOR REVENUE AS WELL AS CAPITAL EXPENDITURE AND IT IS DIFFICULT TO BIFURCATE THE AFORESAID LOSS IN TERMS OF CAPITAL AND REVENUE EXPENSES. IT WAS CONCEDED THAT THE LOSS ON CAPITAL ACCOUNT WAS LOWER THAN THE LOSS ON REVENUE ACCO UNT. IT WAS FURTHER SUBMITTED THAT EVEN CAPITAL LOSS WILL GET A LLOWED OVER A PERIOD OF TIME BY INCREASE IN THE DEDUCTION OF DEPRECIATION. THE AO CONSIDERED THE FACTS AND THE SUBMISSIONS. IT WAS MENTIONED THA T IT IS THE ASSESSEE WHO ITA NO. 106(DEL)/2009 4 CLAIMED REVENUE LOSS OCCURRING ON ACCOUNT OF CHA NGE IN RATE OF FOREIGN EXCHANGE. THEREFORE THE ONUS OF PROVING THAT T HE LOSS WAS A REVENUE LOSS IS ON THE ASSESSEE. THIS ONUS HAS NOT BEE N DISCHARGED. THEREFORE THE LOSS WAS DISALLOWED. PROCEEDINGS U/S 271(1)(C) WERE ALSO INITIATED IN THE COURSE OF ASSESSMENT WHICH WERE DISPOSED OFF BY THE ORDER DATED 28.09.2007. IN THIS ORDER IT IS MENTIONED THAT FROM THE LETTER OF THE RESERVE BANK OF INDIA DATED 16.10.1997 IT IS SEE N THAT THE ASSESSEE WAS PERMITTED TO TAKE A LOAN FROM THE USA CO. FOR THREE PURPOSES NAMELY - (I) EXPANSION OF BUSINESS OPERATION (II) PROVI DING INFRASTRUCTURE FACILITIES AND(III) MEETING WORKING CAPITAL REQUIREMENT. THE ASSESSEE HAD SUBMITTED THAT THE LOAN WAS UTILIZED BOTH ON CAPITAL AND REVENUE ACCOUNTS. THE EVIDENCE ON RECORD SHOWS THAT O NLY A SUM OF RS. 1.25 LAKH WAS UTILIZED ON REVENUE ACCOUNT AND THE PROPORTIONATE LOSS ON THIS AMOUNT WORKS OUT TO RS. 4 224/-. IT IS FURTHER MENTIONED THAT THE EXPLANATION OF THE ASSESSEE IN THE PENALTY PROCE EDINGS IS THAT THERE IS ALWAYS A DIFFERENCE OF OPINION WHETHER AN EXPE NDITURE IS OF CAPITAL NATURE OR REVENUE NATURE. THE AUDITORS REPOR T DOES NOT SUGGEST WHETHER THE EXPENDITURE WAS ON CAPITAL ACCOUNT OR REVEN UE ACCOUNT. THE MONEY WAS ACTUALLY UTILIZED AND THUS THERE IS NO C ONCEALMENT OF INCOME OR MAKING OF FALSE OR BOGUS ENTRIES IN THE BOOKS OF ACCOUNT. THEREFORE IT ITA NO. 106(DEL)/2009 5 WAS CONTENDED THAT ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE PENALTY U/S 271(1)(C) IS NOT LEVIABLE. THE AO CO NSIDERED THE EXPLANATION. IT WAS MENTIONED THAT THE ASSESSEE COULD SUBSTAN TIATE REVENUE EXPENDITURE OF RS. 4 224/- ONLY. THE REST OF THE EXPENDITU RE IS ON CAPITAL ACCOUNT. THIS LEADS TO AN INFERENCE THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME IN AS MUCH AS CAPITAL EXPENSES WERE CLAIMED AS REVENUE EXPENSES. ON THE FACTS THERE COULD BE NO DEBATE THAT THE EXPENDITURE WAS BY AND LARGE CAPITAL EXPENDITU RE. THE FAILURE OF THE AUDITOR TO MENTION THE PURPOSE OF THE EXPENDITUR E DOES NOT ABSOLVE THE ASSESSEE FROM LEVY OF PENALTY BECAUSE IT WAS ALW AYS AWARE OF THE PURPOSE FOR WHICH THE LOAN HAD BEEN TAKEN. THUS IT WAS HELD THAT THE ASSESSEE IS LIABLE TO BE PENALIZED U/S 271(1)(C) LEADING TO LEVY OF PENALTY OF RS. 15 34 529/-. 2.1 AGGRIEVED BY THIS ORDER THE ASSESSEE MOVED AN APPEAL BEFORE THE CIT(APPEALS)-IX NEW DELHI. THE ARGUMENTS TAKE N BEFORE HIM WERE MORE OR LESS THE SAME AS THE ARGUMENTS TAK EN BEFORE THE AO. THE FINDINGS OF THE LD. CIT(APPEALS) ARE THAT IN VIEW OF THE SETTLED LEGAL POSITION AND THE SUBMISSIONS OF THE ASSESSEE ITSE LF THE DEDUCTIBILITY OF THE EXPENDITURE IN COMPUTING THE TOTAL INCOME WOULD DEPEND UPON THE ITA NO. 106(DEL)/2009 6 PURPOSE FOR WHICH THE LOAN IS TAKEN. IN SUCH A CIRCUMSTANCE THE ASSESSEE SHOULD HAVE BIFURCATED THE EXPENDITURE IN TER MS OF CAPITAL AND REVENUE EXPENDITURE. SINCE THE ASSESSEE WAS AWARE OF THE PURPOSE FOR WHICH THE LOAN WAS RAISED ITS ARGUMENT THAT THE MATTER WAS DEBATABLE IS NOT ACCEPTABLE. THUS THE LEVY OF PENALTY WAS UPHELD. 3. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE FINDING OF THE AO ON PAGES 4 AND 5 OF THE ASSESSMENT ORDER IN WHICH THE CLAIM OF LOSS OCCURRING ON ACCOUNT OF FLUCTUATION IN RAT E OF FOREIGN EXCHANGE AMOUNTING TO RS. 39.90 LAKH WAS DISALLOWED IN TER-ALIA BY RELYING ON THE DECISION IN THE CASE OF BESTOBELL INDIA LTD. VS. CIT 117 ITR 789. FURTHER OUR ATTENTION WAS DRAWN TOWARDS THE W RITTEN SUBMISSIONS FILED BEFORE THE AO DATED 12.12.2002 IN THE COURSE OF ASSESSMENT PROCEEDINGS IN WHICH IT WAS INTER-ALIA SUBMI TTED THAT AS PER DECISION OF HONBLE SUPREME COURT IN THE CASE OF SUTLE J COTTON MILLS LTD. VS. CIT 116 ITR 1 WHERE PROFIT OR LOSS ARIS ES ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREI GN EXCHANGE ON CONVERSION INTO ANOTHER CURRENCY SUCH PROFIT O R LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT A TRADING ASSET OR A PART O F CIRCULATING CAPITAL. BUT IF ITA NO. 106(DEL)/2009 7 ON THE OTHER HAND THE FOREIGN CURRENCY IS HELD A S A CAPITAL ASSET OR AS FIXED CAPITAL SUCH PROFIT OR LOSS WOULD BE O F CAPITAL NATURE. THIS PRINCIPLE WAS FOLLOWED IN THE CASE OF CIT VS. HINDUSTAN ALUMINIUM CORPORATION LTD. 207 ITR 670 AND CIT VS. BHAR AT HEAVY ELECTRICALS LTD. 239 ITR 756. THE CLAIM OF DEDUCTION WOU LD THUS DEPEND UPON THE PURPOSE FOR WHICH THE FOREIGN CURRENCY IS HELD OR UTILIZED. IN THE CASE OF BESTOBELL (INDIA) LTD. (SUPRA) THE HONBLE C ALCUTTA HIGH COURT HAD DISALLOWED SUCH A LOSS AS THE SAME WAS HELD TO BE CAPITAL IN NATURE. IN THE CASE OF IAC VS. RENUSAGAR POWER CO. LTD. 28 ITD 439 IT WAS OBSERVED THAT WHEREAS FOR THE ALLOWANCE OF EXPE NDITURE INCURRED IN OBTAINING A LOAN IT IS NOT NECESSARY TO ENQU IRE WHETHER THE LOAN WAS USED FOR ACQUIRING THE CAPITAL ASSET OR CURR ENT ASSET BUT THE EXPENDITURE INCURRED FOR REPAYING THE LOAN WO ULD BE ALLOWABLE DEPENDING UPON WHETHER IT WAS UTILIZED FOR ACQUI RING CAPITAL ASSET OR A CURRENT ASSET. THE CASE OF THE LD. COUNSEL W AS THAT RIGHT FROM THE INCEPTION OF THE ASSESSMENT PROCEEDINGS THE ASSES SEE HAD INFORMED THE AO THAT THE DEDUCTIBILITY OF THE EXPENDITURE WO ULD DEPEND UPON THE FACT WHETHER THE LOAN WAS USED TOWARDS CAPITAL ACCOUNT OR CURRENT ACCOUNT. ITS DETERMINATION IS A VEXED QUESTION AND HAS TO BE DECIDED ON THE FACTS OF EACH CASE. COMING TO THE FACTS OF THIS CASE THE AO WAS INFORMED THAT ITA NO. 106(DEL)/2009 8 THE ASSESSEE IS NOT IN A POSITION TO IDENTIFY THE EXPENDITURE IN TERMS OF CAPITAL OR REVENUE EXPENDITURE. THE AUDITORS H AD ALSO NOT FURNISHED THE BIFURCATION IN TERMS OF CAPITAL OR REVENUE EXPENDI TURE. THEREFORE THE WHOLE OF THE LOSS WAS DEBITED TO PROFIT AND LO SS ACCOUNT AND THUS GOT CLAIMED AS DEDUCTION UNDER THE BONA FIDE BEL IEF THAT IT WAS REVENUE IN NATURE. HOWEVER THAT DOES NOT LEAD TO INFERENCE OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. 3.1 IN ORDER TO SUPPORT THE PROPOSITION THAT THE EXPENDITURE WAS CLAIMED BONAFIDELY AS REVENUE EXPENDITURE REL IANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS. CIT (1989) 177 ITR 377 IN WHIC H EXPENDITURE INCURRED ON ACQUISITION OF KNOW-HOW LEADING TO HIGHER YIELD AND SUB-CULTURES OF PENICILLIN IN AN EXISTING BUSINESS WAS HELD TO BE REVENUE IN NATURE. FURTHER RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIES INVESTMENT CORP ORATION LTD. VS. CIT (1997) 225 ITR 802 IN WHICH THE LIABILITY IN CURRED ON ISSUING OF DEBENTURES AT A DISCOUNT WAS ALLOWED OVER THE PERIOD OF THE SUBSISTENCE OF THE LIABILITY BEING 12 YEARS IN THAT CASE. HOWEVER IT WAS ALSO MENTIONED THAT ORDINARILY THE REVENUE EXPE NDITURE WHICH IS INCURRED ITA NO. 106(DEL)/2009 9 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED AN D THE SAME CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF ASSESSEE HAS D ONE SO IN ITS BOOKS OF ACCOUNT. RELIANCE WAS ALSO PLACED ON THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HMA UDYOG (P) LTD. 211 CTR 543 IN WHICH THE ASSESSEE HAD CLAIMED EXPENDITURE INCURRED ON EXTENSIVE REPAIRS IN ITS COMMERCIAL PREMISES FOR STARTING NEW BUSINESS OF RESTAURANT AND FILM DISTRIBUTION TO BE REVENUE EXPENDITURE . THE AO HELD THE EXPENDITURE TO BE CAPITAL EXPENDITURE. THIS DECISION WAS UPHELD BY THE CIT(APPEALS) AND THE TRIBUNAL. HOWEVER IN APPEA L AGAINST THE LEVY OF PENALTY THE TRIBUNAL HELD THAT THE QUESTION WHE THER THE EXPENDITURE WAS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE WAS A DEBATABLE ISSUE. IN VIEW THEREOF EVEN IF THE REVENUE SUCCEEDS FINALLY IN QUANTUM APPEAL THAT WILL NOT LEAD TO THE INFERENCE OF CONCEALM ENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. WARNER HINDUSTAN LTD. (1986) 160 ITR 217 IN WHICH ONE OF THE QUESTIONS BEFORE THE HONBLE COURT WAS WHETHE R THE APPELLATE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE TECHN ICAL FEE PAID TO WARNER LAMBERT PHARMACEUTICALS CO. OF USA OF RS. 51 264/ - AND RS. 1 56 771/- ITA NO. 106(DEL)/2009 10 FOR ASSESSMENT YEARS 1970-71 AND 1971-72 RESP ECTIVELY WAS REVENUE EXPENDITURE? (QUESTION NO. 6). IT WAS HELD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNTS PAID BY THE ASSESSEE IN TWO ASSESSMENT YEARS CONSTITUTED REVENUE EXPENSES. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 2 24 ITR 627 IN WHICH IT WAS HELD THAT INTEREST PAID ON BORROWED C APITAL USED TO MEET PERSONAL OBLIGATION OF THE ASSESSEE WOULD NOT BE DEDUCTIBLE EXPENDITURE U/S 37(1) OF THE ACT. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOO DWARD GOVERNOR INDIA P. LTD. (2009) 312 ITR 254 IN WHICH IT WAS HELD THAT THE LOSS INCURRED ON ACCOUNT OF ADDITIONAL LIABILITY ARISING FR OM FLUCTUATION IN RATE OF EXCHANGE IN RESPECT OF LOANS RAISED FOR REVENU E PURPOSES IS DEDUCTIBLE AS EXPENDITURE U/S 37(1). 3.2 COMING TO THE LEVY OF PENALTY IT WAS ARGUED THAT SINCE THE ISSUE IS DEBATABLE THE PENALTY COULD NOT BE LEVIED MERELY BECAUSE THE CORRESPONDING ADDITION ACCEPTED BY THE ASSESSEE AND IT HAS BECOME FINAL. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE P ETRO PRODUCTS PVT. LTD. ITA NO. 106(DEL)/2009 11 (2010) 322 ITR 158. THE HONBLE COURT CONSIDERE D THE LANGUAGE OF THE PROVISION AND THE DECISION OF THE COURT IN THE CASE OF CIT VS. ATUL MOHAN BINDAL (2009) 9 SCC 589; UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS & OTHERS (2008) 13 SCC 369; UNION OF INDIA VS. RAJASTHAN SPINNING & WEAVING MILLS LTD. (2009) 13 SCC 448; AND DILIP N. SHROFF VS. JOINT CIT (2007) 6 SCC 329. IT WAS INTER-ALIA HELD THAT THE WORD PARTICULARS MEANS THE DETAILS FURNISH ED IN RESPECT OF A PARTICULAR CLAIM IN THE RETURN OF INCOME. THEREF ORE FURNISHING INACCURATE PARTICULARS OF INCOME WOULD MEAN FURNISHING DET AILS WHICH WERE NOT ACCURATE. SINCE THERE WAS NO FINDING OF THE LO WER AUTHORITIES THAT THERE WAS INACCURACY ERRONEOUSNESS OR FALSITY IN THE DETAILS MERELY MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT LEAD TO LEVY OF PENALTY. THUS IT WAS ARGUED THAT SINCE TH ERE WAS NO FALSITY IN THE PARTICULARS FURNISHED BY THE ASSESSEE PENALTY CO ULD NOT BE LEVIED U/S 271(1)(C) OF THE ACT. 3.3 IN REPLY THE LD. DR RELIED ON THE ORDER O F THE LD. CIT(APPEALS) WHICH HAS BEEN SUMMARIZED BY US ALREADY AND IT READS AS UNDER:- 4.6 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. AR. ON THE POINT THAT THE LEVY OF PENALTY IS VOID A B-INITIO AS THE ITA NO. 106(DEL)/2009 12 AO HAS NOT RECORDED ANY SATISFACTION DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS REGARDING THE FURN ISHING OF THE INACCURATE PARTICULARS OF INCOME I REJECT TH E CONTENTIONS OF THE AR AS THE FINANCE ACT 2008 HAS INTRODUCED SECTION 271(1B) WITH RETROSPECTIVE EFFECT FROM 1 ST OF APRIL 1989 SO AS TO PROVIDE THAT WHERE ANY AMOUNT IS ADDED O R DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASS ESSEE IN ANY ORDER OF ASSESSMENT OR RE-ASSESSMENT AND IF SUC H ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS UNDER SUB-SECTION (1) SUCH AN ORDER OF ASSESS MENT OR RE- ASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATIS FACTION OF THE AO FOR INITIATION OF THE PENALTY UNDER SUB-SECTIO N(1). AS MENTIONED IN PARA 4.1 OF THIS ORDER THE AR HIMSELF REFERRED TO AND CONFIRMED THE FACT THAT THE DEDUC TIBILITY OF THE FOREIGN EXCHANGE LOSS WOULD DEPEND ON THE PURPOS E FOR WHICH THE SAID FOREIGN CURRENCY LOAN IS TAKEN. THIS B EING SO THE APPELLANT ITSELF SHOULD HAVE TAKEN PAINS TO BIFURCATE THE EXPENSES RELATING TO CAPITAL NATURE AND THE REV ENUE NATURE AND INSTEAD OF WRONG CLAIM MADE IN ITS RETURN OF INCOME SHOULD HAVE CLAIMED CORRECT FIGURES OF THE RE VENUE EXPENSES PERTAINING TO THE LOSS ON FOREIGN EXCHANG E FLUCTUATION. THE APPELLANT COULD DO SO ONLY DUR ING THE COURSE OF THE PROCEEDINGS BEFORE THE CIT(A)-IX NEW D ELHI WHICH SHOWS THAT THE APPELLANT HAS FILED INACCURATE PARTICULARS WHILE FILING THE RETURN OF INCOME FOR THE SUBJE CT ASSESSMENT YEAR. REGARDING THE CONTENTIONS OF THE AR THAT THE PENA LTY HAS BEEN LEVIED ON THE CONTENTIOUS ISSUE AS MENTIONED IN PARA 4.2 OF THIS ORDER THE LD. AR HAS FILED TO REALIZE T HAT THOUGH THE DECISIONS OF OTHER HIGH COURTS MAY BE ITS FAVOU R BUT THE DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) IS A LATER DECISION WHICH SHALL OVERRULE THE DECISION OF ANY HIGH COURT ON THE ISSUE. THIS AGAIN SHOWS THE MALAFIDES ON THE PART OF THE APPELLANT. THE AR HAS TIME AND AGAIN REFE RRED TO THE DECISION OF THE APEX COURT IN THE CASE OF SUTLEJ COTTON MILLS LTD. (SUPRA) BUT THE RATIO OF THIS DECISION IS OF NO HELP TO THE APPELLANT AS THE FACTS OF THE CASE ARE DISTI NGUISHABLE FROM ITA NO. 106(DEL)/2009 13 THE FACTS OF THE PRESENT CASE. REFERENCE BY T HE AR TO SECTION 43A OF THE ACT IS ALSO OF NO HELP TO THE APPELLANT COMPANY AS IT IS AN ESTABLISHED POSITION THAT ANY EXPENDITURE- MAY BE OF FOREIGN CURRENCY OR OUT OF THE LOCAL CURRENCY- HAS TO BE GIVEN TREATMENT AS PER THE NATURE OF THE ACTIVITIES ON WHICH THE AMOUNT HAS BEEN SPENT. IF IT IS CAPITAL THEN NO CLAIM CAN BE MADE IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WHICH IS THE CASE HERE. THE AR HIMSELF CONFIRMED THE FACT THAT THE APPELLANT HA S NOWHERE DISCLOSED THIS FACT IN THE TAX AUDIT REPORT WHI CH HAS CONFIRMED THE CONTENTS OF DELIBERATENESS IN IT S INTENTIONS AS FAR AS CLAIMING LOSS ON FOREIGN EXCHANGE FLUC TUATION IS CONCERNED. EVEN THE REFERENCE TO THE RBI ORDER IS OF NO RELEVANCE IN THE INSTANT CASE DUE TO THE FACT TH AT THOUGH THE RBI GAVE APPROVAL TO THE APPELLANT BUT THAT DOES NOT MEAN THAT THE CAPITAL NATURE OF THE LOSS CAN ALSO BE CLAIMED AS REVENUE LOSS IN ITS RETURN OF INCOME. IN VIEW OF THE ABOVE ARGUMENTS ESPECIALLY THE FACT THAT THE APPELLAN T COULD CARRY OUT THE BIFURCATION FOR LOSS INCURRED BY IT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION INTO REVENUE AND C APITAL EXPENSE ONLY BEFORE THE CIT(A) THERE REMAIN NO DOUBT THAT THE APPELLANT FILED INACCURATE PARTICULARS OF IN COME FOR SUBJECT ASSESSMENT YEAR. I FAIL TO COMPREHEN D AS TO HOW THE VARIOUS CASE LAW ON WHICH THE APPELLANT RELIED HAVE ANY RELEVANCE IN THE INSTANT CASE ESPECIALLY W HEN THE APPELLANTS AR CONFIRMED THAT CLAUSE 17(A) OF TAX AUDIT REPORT ISSUED FOR THE SUBJECT ASSESSMENT YEAR D OES NOT CONTAIN ANY MENTION OF THE SAME. ACCORDINGLY THE VARIOUS GROUNDS TAKEN UP BY THE APPELLANT AGAINST LEVY OF PENALTY FOR CONCEALMENT IS HEREBY REJECTED. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. THE FIRST QUESTION IN THIS CASE IS WHETHER A NY BONA FIDE DISPUTE EXISTED ON THE ISSUE WHETHER THE LOSS OCCURRING ON ACCOUNT OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE PROVIDED IN THE B OOKS BY RE-STATING THE ITA NO. 106(DEL)/2009 14 LIABILITY AT THE CLOSE OF THE PREVIOUS YEAR CONSTITUTED REVENUE OR CAPITAL EXPENDITURE? THE ASSESSEE HAD NOT FURNISHED THE DETAILS OF UTILIZATION OF LOAN OR THE LOSS BEFORE THE AO. THE DETAILS WE RE OBTAINED BY THE LD. CIT(APPEALS) IN THE COURSE OF APPEAL AGAINST THE Q UANTUM ORDER. THESE HAVE BEEN MENTIONED BY THE LD. CIT(A) ON PAGE 8 OF HIS ORDER IN APPEAL NO. 4/2003-04. THE DETAILS ARE AS UNDER:- PARTICULARS SECURITY DEPOSIT PURPOSE- CAPITAL PURPOSE- REVENUE BALANCE SHEET ITEM 40425500 TAX PAYMENT ADVANCE/SELF TAX 35169966 COMPUTERS 24028396 PLANT & MACHINERY 9870134 FURNITURE 5994760 OTHER FIXED ASSETS 2451944 REVENUE ITEMS 125000 4.1 THE LEARNED CIT(A) HELD ONLY A SUM OF RS. 1 .25 LAKH TO BE REVENUE EXPENDITURE DEDUCTIBLE AS SUCH. THE EXPENDITURE ON COMPUTERS PLANT AND MACHINERY FURNITURE AND OTHER FIXED ASSETS AND THE SECURITY DEPOSIT WERE HELD TO BE ON CAPITAL ACCOUNT. PAYMENT OF TAX IS NOT A REVENUE EXPENDITURE DEDUCTIBLE IN COMPUTING THE INCOME AS IT IS ITA NO. 106(DEL)/2009 15 APPROPRIATION OF INCOME. THUS ON MERITS THE ORD ER OF THE LD. CIT(A) WAS CORRECT. THIS PART OF THE ORDER WAS ACCEPTED BY THE ASSESSEE. 4.2 SINCE A PART OF THE FOREIGN EXCHANGE LOAN WAS USED FOR PURCHASE OF CAPITAL ASSET WE MAY ALSO REFER TO THE PRO VISION CONTAINED IN SECTION 43A WHICH HAS NOT BEEN REFERRED TO BY ANY OF THE RIVAL PARTIES. THIS PROVISION READS AS UNDER:- 43A SPECIAL PROVISIONS CONSEQUENTIAL TO CHANGES IN R ATE OF EXCHANGE OF CURRENCY- (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT WH ERE AN ASSESSEE HAS ACQUIRED ANY ASSET FROM A COUNTR Y OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS OR PROFESS ION AND IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCHANGE AT ANY TIME AFTER THE ACQUISITION OF SUCH ASSET THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS E XPRESSED IN INDIAN CURRENCY FOR MAKING PAYMENT TOWARDS THE WHO LE OR A PART OF THE COST OF THE ASSET OR FOR REPAYMENT OF THE WHOLE OR A PART OF THE MONEYS BORROWED BY HIM FROM ANY PERSON DIRECTLY OR INDIRECTLY IN ANY FOREIGN CURRENCY S PECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET (BEING I N EITHER CASE THE LIABILITY EXISTING IMMEDIATELY BEFORE THE D ATE ON WHICH THE CHANGE IN THE RATE OF EXCHANGE TAKES EFFEC T) THE AMOUNT BY WHICH THE LIABILITY AFORESAID IS SO INCRE ASED OR REDUCED DURING THE PREVIOUS YEAR SHALL BE ADDED TO O R AS THE CASE MAY BE DEDUCTED FROM THE ACTUAL COST OF THE ASSET AS DEFINED IN CLAUSE (1) OF SECTION 43 OR THE A MOUNT OF EXPENDITURE OF A CAPITAL NATURE REFERRED TO IN C LAUSE (IV) OF SUB-SECTION (1) OF SECTION 35 OR IN SECTION 35A O R IN CLAUSE (IX) OF SUB-SECTION (1) OF SECTION 36 OR IN THE CASE OF A CAPITAL ASSET (NOT BEING A CAPITAL ASSET REFERR ED TO IN SECTION 50) THE COST OF ACQUISITION THEREOF FOR THE P URPOSES OF ITA NO. 106(DEL)/2009 16 SECTION 48 AND THE AMOUNT ARRIVED AT AFTER SUCH ADDITION OR DEDUCTION SHALL BE TAKEN TO BE THE ACTUAL COST O F THE ASSET OR THE AMOUNT OF EXPENDITURE OF A CAPITAL NATURE OR AS THE CASE MAY BE THE COST OF ACQUISITION OF THE CAPITA L ASSET AS AFORESAID. 4.3 WE HAVE ALSO PERUSED FORM NO. 3CD DATED 24.7 .2000 CERTIFIED BY SHRI DEEPAK ROY OF DELOITTE HASKINS & SELLS. THIS REPORT DOES NOT FURNISH ANY DETAIL ABOUT UTILIZATION OF FOREI GN EXCHANGE DENOMINATED LOAN BECAUSE SUCH DETAIL WAS NOT REQUIRED TO BE FURNISHED IN THE AFORESAID STATUTORY FORM. THE REPORT ALSO MEN TIONS THAT EXPENDITURE OF CAPITAL NATURE AMOUNTED TO RS. 5 89 650/-. THE NOT E FURTHER STATES THAT ASSETS COSTING BELOW RS. 40 000/- AMOUNTING TO RS. 55 19 919/- HAVE BEEN CHARGED TO PROFIT AND LOSS ACCOUNT. ANNEXURE IV FURNISHING THE DETAILS OF SUCH ASSETS HAS NOT BEEN ENCLOSED WITH THE RE PORT AS FILED IN THE PAPER BOOK. ANNEXURE XI OF THE TAX AUDIT REPORT SHOWS OPENING BALANCE AT RS. 13 39 65 467/- ADDITION TO LOAN AT RS. 39.90 L AKH (BECAUSE OF EXCHANGE FLUCTUATION) PAYMENT OF RS. 66 75 467/- AND CLOSI NG BALANCE AT RS. 13 12 80 000/-. THUS THE EVIDENCE DOES NOT THR OUGH ANY LIGHT ON THE ISSUE BEFORE US. IN VIEW THEREOF THE ASSESSE ES CASE CANNOT DRAW ANY SUPPORT FROM THE REPORTS. FURTHER IN THE CASE OF CONCORD OF INDIA INSURANCE CO. LTD. VS. SMT. NIRMALA DEVI & OTHER S (1979) 118 ITR 507 (NOT REFERRED TO BY ANY OF THE PARTIES BUT SUPPLIED BY US ) A CASE ITA NO. 106(DEL)/2009 17 DEALING WITH DELAY IN FILING SPECIAL LEAVE PETIT ION THE HONBLE SUPREME COURT INTER-ALIA HELD THAT IT IS A SETTLED LA W THAT THE MISTAKE OF COUNSEL MAY IN CERTAIN CIRCUMSTANCES BE TAKEN INTO ACCOU NT IN CONDONING THE DELAY. HOWEVER THERE IS NO GENERAL PROPOSITION OF LAW IN THIS BEHALF. THE QUESTION ALWAYS IS-WHETHER THE MISTAKE WAS BON A FIDE OR A DEVISE TO COVER UP LATCHES? 4.4 SECTION 43A DEALS WITH ASCERTAINMENT OF THE COST OR WRITTEN DOWN VALUE OF AN ASSET ACQUIRED FROM A COUNTRY OUTS IDE INDIA ON ACCOUNT OF CHANGE IN RATE OF EXCHANGE DURING A YEAR. WE EXAMINED VARIOUS SUBMISSIONS AND ORDERS PLACED BEFORE US TO FIN D WHETHER COMPUTERS PLANT AND MACHINERY ETC. WERE PURCHASED FROM A COUNTRY OUTSIDE INDIA. WE DO NOT FIND ANY MENTION ABOUT THE VENDOR E ITHER IN THE DETAILS OR IN THE ORDER. THEREFORE WE ARE NOT IN A POSITIO N TO EXAMINE THE CASE FROM THE STAND POINT OF SECTION 43A. THIS POINT HAS ALSO NOT BEEN MENTIONED BY ANY OF THE RIVAL PARTIES. 5. THE LD. COUNSEL HAS RELIED ON A NUMBER OF CAS ES TO ARGUE THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE QU ESTION-WHETHER THE EXPENDITURE IS CAPITAL OR REVENUE IN NATURE? IS A DISPUTABLE POINT. ON THE ITA NO. 106(DEL)/2009 18 OTHER HAND THE CASE OF THE LD. DR IS THAT NO SUCH DISPUTE EXISTS AS THE ADDITION WAS SUSTAINED ON THE BASIS OF THE DEC ISION IN THE CASE OF BESTOBELL INDIA LTD. (SUPRA) AND THE SUBMISSION S OF THE ASSESSEE WHICH WERE IN LINE WITH THE AFORESAID DECISION. WE MAY NOW CONSIDER VARIOUS CASES RELIED UPON BY THE RIVAL PARTIES IN THI S BEHALF. 5.1 IN THE CASE OF SUTLEJ COTTON MILLS LTD. (SU PRA) THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS- WHETHER ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ASSESSEES CLAIM FOR EXCHANGE LOSS OF RS. 11.00 LAKH FOR ASSESSMENT YEAR 1957-58 AND RS. 5 50 000/- FOR ASSESSMENT YEAR 1959-60 IN RESPECT OF REMITTAN CES OF PROFITS FROM PAKISTAN WAS NOT ALLOWABLE AS A DEDUCTION? I N THAT CASE THE ASSESSEE HAD REMITTED RS. 25.00 LAKH AND RS. 12.50 LAKH IN PAKISTANI CURRENCY FROM WEST PAKISTAN TO INDIA. THESE AMOUNTS ADMIT TEDLY ORIGINATED FROM PROFIT EARNED IN PAKISTAN IN ASSESSMENT YEAR 1954-55. THE COURT CAME TO THE CONCLUSION THAT THE QUESTION CANNOT BE ANS WERED UNLESS IT IS FIRST DETERMINED WHETHER THE AMOUNTS WERE HELD AS PART OF FIXED CAPITAL OR CIRCULATING CAPITAL. THEREFORE THE MATTER WAS RE MITTED TO THE TRIBUNAL TO DECIDE THE ISSUE OF DETERMINATION OF THE AFORESA ID QUESTION AFTER OBTAINING ADDITIONAL EVIDENCE IF NECESSARY. TH E RATIO OF THE JUDGMENT IS ITA NO. 106(DEL)/2009 19 THAT IT WILL BE A REVENUE LOSS IF THE AMOUNT I S HELD AS A PART OF CIRCULATING CAPITAL AND CAPITAL LOSS IF IT IS HELD AS A PART OF FIXED CAPITAL. TO OUR MIND THE RATIO OF THIS CASE DOES NOT ADVANCE THE CASE OF THE ASSESSEE. IN FACT IT GOES AGAINST ITS CASE FO R THE SIMPLE REASON THAT THE ASSESSEE UTILIZED THE FOREIGN CURRENCY DENOMINATE D LOAN INTER-ALIA FOR PLACING SECURITY DEPOSITS PURCHASE OF COMPUTER S PLANT AND MACHINERY FURNITURE AND OTHER FIXED ASSETS WHICH LED TO CREATION OF NEW CAPITAL ASSETS AND DISCHARGE OF TAX LIABILITY. IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. (SUPRA) THE FINDING O F THE TRIBUNAL WAS THAT SINCE THE ENTIRE LIABILITY TO PAY THE DISCOUNT H AD BEEN INCURRED IN THE ACCOUNTING YEAR IN QUESTION THE ASSESSEE WAS E NTITLED TO DEDUCT THE ENTIRE AMOUNT OF RS. 3.00 LAKH IN THAT ACCOUNTI NG YEAR. THE COURT CAME TO THE CONCLUSION THAT THIS CONCLUSION WAS N OT JUSTIFIED LOOKING TO THE NATURE OF THE LIABILITY. ALTHOUGH THE LIABILITY WAS INCURRED IN THE ACCOUNTING YEAR YET IT WAS A CONTINUING LIABI LITY WHICH STRETCHED OVER A PERIOD OF 12 YEARS. IN THIS CONTEXT THE HO NBLE COURT OBSERVED THAT ORDINARILY THE REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED EVEN THOUGH IT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OVER A NUMBER OF YEARS. H OWEVER THE FACTS MAY ITA NO. 106(DEL)/2009 20 JUSTIFY AN ASSESSEE WHO HAS INCURRED AN EXPEND ITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A NUMBER OF YEA RS BECAUSE ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR WILL GIVE A DISTORTED PICTURE OF PROFIT OF THAT YEAR. THIS DECISION ALSO DOES NOT ADVANC E THE CASE OF THE ASSESSEE FOR THE SIMPLE REASON THAT THE LOAN WAS UTILIZ ED PRIMARILY FOR PLACING SECURITY DEPOSIT PAYMENT OF TAX LIABILITY AND P URCHASE OF ASSETS. IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. (SUPRA) THE ASSESSEE HAS ACQUIRED KNOW-HOW FOR OBTAINING HIGHER YIELD AND ALSO SU B-CULTURES OF HIGHER YIELD OF PENICILLIN. HE WAS ALREADY CARRYING ON THE BUSINESS OF MANUFACTURE OF PENICILLIN. THE COURT CAME TO THE CONCLUSION THAT ALTHOUGH THE ASSESSEE HAD OBTAINED A COMPLETELY NEW P LANT UNDER THE AGREEMENT WITH NEW PROCESSES AND TECHNOLOGIES IT IS ALSO A MATTER OF FACT THAT THE ASSESSEE WAS CARRYING ON THE MANUFACTURING OF PE NICILLIN IN THE PLANT FROM THE YEAR 1961. THE PRODUCTS OF THE ASSESSE E CONTINUED TO BE THE SAME. THEREFORE IT WAS HELD THAT THE EXPENDI TURE WAS OF REVENUE NATURE. THE FACTS OF THIS CASE ARE ALSO DISTIN GUISHABLE IN AS MUCH AS THE LOAN HAS BEEN UTILIZED FOR DISCHARGING TAX LIABILITY PURCHASE OF FIXED ASSETS ETC. IN THE CASE OF HMA UDYOG (P) LTD . (SUPRA) THE QUESTION WAS REGARDING THE EXPENDITURE INCURRED ON REPAIRS I N HIS COMMERCIAL PREMISES FOR STARTING BUSINESS OF RESTAURANT AND FILM DISTRIBUTION. THE ASSESSEE ITA NO. 106(DEL)/2009 21 WAS EARLIER CARRYING ON THE BUSINESS OF ADVERT ISING OF VARIOUS CIGARETTE PRODUCTS. IN REGARD TO LEVY OF PENALTY ON THE ADDITION OF THE EXPENDITURE TO TOTAL INCOME IT WAS HELD THAT THE QUESTION W AS DEBATABLE AND THUS PENALTY WILL NOT BE LEVIABLE. HOWEVER IN THE I NSTANT CASE THE MONEY HAS BEEN UTILIZED FOR THE PURPOSE OF PAYMENT OF TAX LIABILITY AND PURCHASE OF FIXED ASSETS WHERE NO SUCH CONTROVERSY CAN ARISE. THE QUESTION IN THE CASE OF WARNER HINDUSTAN LTD. (SUPRA) WAS REGA RDING PAYMENT OF TECHNICAL FEES AND THE HONBLE ANDHRA PRADESH HIG H COURT HELD THAT THE EXPENDITURE WAS CAPITAL IN NATURE. IN THIS CA SE A REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1 IN WHICH I T WAS MENTIONED THAT THE QUESTION WHETHER AN EXPENDITURE IS CAPITAL OR REVENUE IN NATURE IS A VEXED ONE. ITS DETERMINATION REQUIRES NOT ON LY THE CONSIDERATION OF ACQUISITION OF A CAPITAL ASSET AND BENEFIT OF ENDURING NATURE BUT ALSO WHETHER THE EXPENDITURE WAS IN THE CAPITAL FIE LD OR THE REVENUE FIELD. EVEN WHEN SEEN IN THE LIGHT OF THIS DECISION THE FOREIGN EXCHANGE WAS UTILIZED FOR SECURITY DEPOSIT TAX PAYMENT AND PURC HASE OF FIXED ASSETS. THEREFORE THE UTILIZATION WAS EITHER IN CAPITAL FIELD OR AMOUNTED TO APPROPRIATION OF PROFIT. THE RATIO OF THIS CASE DOES NOT ADVANCE THE CASE OF THE ASSESSEE. THUS ON THE FACE OF IT VARIO US AMOUNTS MENTIONED IN THE ITA NO. 106(DEL)/2009 22 TABLE IN PARAGRAPH 3.4 EXCEPT FOR RS. 1.25 LA KH WERE SPENT FOR ACQUISITION OF CAPITAL ASSET AND PAYMENT OF TAX . THESE EXPENSES ARE CAPITAL IN NATURE AND THERE CANNOT BE ANY D ISPUTE ABOUT IT. 5.2 COMING TO THE ISSUE WHETHER INCREASE IN LIA BILITY ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE REFERABLE TO THE AFORESAID AMOUNT WOULD BE REVENUE OR CAPITAL IN NATURE THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOV ERNOR INDIA P. LTD. (SUPRA). THE RATIO OF THE DECISION IS THAT SUC H EXPENDITURE WOULD BE REVENUE EXPENDITURE IF THE LIABILITY WAS INCU RRED ON REVENUE ACCOUNT AND IT WOULD BE CAPITAL EXPENDITURE IF IT WAS INCURRED ON CAPITAL ACCOUNT. IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) THE HONBLE COURT MENTIONED THAT THE MONEY WAS WITHD RAWN FROM THE OVERDRAFT ACCOUNT TO MEET PERSONAL OBLIGATION TO DONATE A SUM OF RS. 10.00 LAKH FOR STATING AN ENGINEERING COLLEGE. THEREFORE THE INTEREST CANNOT BE ALLOWED TO BE DEDUCTED IN COMPUTING T HE TOTAL INCOME. THESE CASES GO AGAINST THE ASSESSEE. BUT WE ARE ALSO AWARE OF THE PROVISION CONTAINED IN SECTION 36(1)(III) REGARDING DEDUC TION OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF B USINESS AND THE CASE LAW THEREUNDER. SUCH INTEREST IS DEDUCTIBLE IN COMPUTING THE INCOME U/S ITA NO. 106(DEL)/2009 23 36(1)(III). THERE ARE A NUMBER OF CASES TO S UPPORT THE AFORESAID VIEW. HOWEVER WE MAY MENTION THAT NONE OF THE RIVAL PARTIES REFERRED TO ANY CASES DECIDED UNDER THE AFORESAID PROVISION. 5.3 ON THE OTHER HAND IN THE CASE OF BESTOBELL ( INDIA) LTD. (SUPRA) RELIED UPON BY THE REVENUE IN THIS BEHALF THE H ONBLE CALCUTTA HIGH COURT MENTIONED THAT AS A RESULT OF DEVALUATION TH E ASSESSEE BECAME LIABLE TO AN EXTRA AMOUNT IN TERMS OF RUPEES FOR REPA YMENT OF ITS DEBT. THE WHOLE OF SUCH EXPENDITURE IS INEXTRICABLY CO NNECTED WITH THE INDEBTEDNESS OF THE ASSESSEE AND DID NOT ARI SE DE-HORS THE INDEBTEDNESS. IT WAS ALSO NOT INCURRED FOR TH E PURPOSE OF TAKING LOAN. THEREFORE THE HONBLE COURT DID NOT AGREE WI TH THE LD. COUNSEL FOR THE ASSESSEE THAT THE EXTRA AMOUNT PROVIDED BY THE ASSESSEE CONSTITUTED EXTRA EXPENDITURE INCURRED FOR MEETING THE DEB T JUST AS POSTAL EXPENSES BANK CHARGES ETC. THUS IT WAS HELD THAT THE L OSS WAS NOT OF REVENUE NATURE. 5.4 ON THE CONJOINT READING OF ALL THE AFORESAI D CASES IT BECOMES CLEAR TO US THAT THE LOAN WAS PRIMARILY UTILIZE D IN THE CAPITAL FIELD AND THUS ANY INCREASE OR DECREASE IN THE LIABILITY W ILL BE ON CAPITAL ACCOUNT. ITA NO. 106(DEL)/2009 24 HOWEVER IN THE RELEVANT YEAR INTEREST PAID ON B ORROWINGS FOR ACQUISITION OF CAPITAL ASSET WAS DEDUCTIBLE AS REVENUE EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER THE CAPITAL ASSET WAS PUT TO USE OR NOT. EVEN AFTER THE AMENDMENT MADE TO THIS SECTION BY FINANCE A CT 2003 W.E.F. 1.4.2004 THE INTEREST PAID ON SUCH BORROWINGS CONTINUES TO BE DEDUCTIBLE ALBEIT FROM THE DATE WHEN THE ASS ET WAS PUT TO USE. ALTHOUGH PROVISION OF SECTION 36(1)(III) IS NOT APPLICABLE IN CASE OF LOSS OCCURRING ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS THE PROVISION DEALS WITH INTEREST ONLY YET TH ERE COULD BE GENUINE DOUBT IN THE MIND OF THE ASSESSEE THAT SUCH LOSS IS TO BE AT PAR WITH INTEREST EXPENDITURE BOTH BEING REVENUE IN NATURE EVE N IN ABSENCE OF ANY SPECIFIC PROVISION DEALING WITH FOREIGN EXCHANGE LOSS. IN THAT SENSE ONE COULD CONCLUDE THAT IN SO FAR AS LOSS RELAT ABLE TO SECURITY DEPOSIT AND PURCHASE OF COMPUTERS PLANT AND MACHINERY FURNI TURE AND OTHER FIXED ASSETS IS CONCERNED THE SAME IS ALLOWABLE AS R EVENUE EXPENDITURE. IN CASE OF FIXED ASSETS EVEN IF THE LOSS IS CAP ITALIZED THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF DEPRECIATION AND THU S WILL ULTIMATELY BE ABLE TO GET THE DEDUCTION ALBEIT OVER A NUMBER OF YEA RS. HOWEVER THE ASSESSEE ALSO UTILIZED A PORTION OF THE LOAN FOR PAYMENT OF ADVANCE-TAX. THE GENERAL PROPOSITION CANVASSED BEFORE US AB OUT THE ISSUE BEING ITA NO. 106(DEL)/2009 25 DEBATABLE IS NOT APPLICABLE AT ALL IN RESPECT OF THIS PAYMENT BECAUSE PAYMENT OF ADVANCE-TAX AND SELF-ASSESSMENT TAX IS NOT AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. THIS IS AN I TEM OF APPROPRIATION OF INCOME. THEREFORE WE ARE OF THE VIEW THAT TH ERE COULD BE NO DISPUTE IN REGARD TO THE LOSS PERTAINING TO THE PAYMENT OF ADVANCE-TAX. 6. COMING TO THE ISSUE OF LEVY OF PENALTY THE ON LY CASE MADE OUT BY THE LD. COUNSEL IS THAT BONA FIDE DISPUTE EXIS TED BETWEEN THE REVENUE AND THE ASSESSEE AS TO WHETHER THE LOSS WAS DED UCTIBLE IN COMPUTING THE INCOME. IN THIS REGARD THE FACTS ARE THAT THE INCREASE IN LOAN WAS QUANTIFIED BY THE AUDITOR IN ANNEXURE XI OF THE TAX AUDIT REPORT REGARDING PARTICULARS OF LOAN OR DEPOSITS. THE LOSS OCCURRING ON ACCOUNT OF FLUCTUATION WAS NOT DEBITED TO PROFIT AND L OSS ACCOUNT AS SCHEDULE-K REGARDING ADMINISTRATIVE AND OTHER EXPENSES S HOWED SUCH LOSS AT NIL AGAINST RS. 26 28 380/- LAST YEAR. THEREFORE T HIS AMOUNT SEEMS TO HAVE BEEN CLAIMED WHILE COMPUTING THE INCOME AS REV ENUE LOSS. WE HAVE ALREADY DEALT WITH THE ARGUMENT THAT THERE WAS A BONA FIDE DISPUTE IN REGARD TO DEDUCTIBILITY OF THIS LOSS. IT HAS BE EN HELD THAT WHILE THERE COULD BE DISPUTE IN REGARD TO OTHER ITEMS THERE COUL D BE NO DISPUTE ITA NO. 106(DEL)/2009 26 WHATSOEVER IN RESPECT OF TAX PAYMENT. THE QUE STION IS WHETHER PENALTY U/S 271(1)(C) IS LEVIABLE ON THE WHOLE OR ANY PA RT OF THE CLAIM. 6.1 IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS (SUPRA) RELIED UPON BY THE LD. CIT(APPEALS) AND THE LD. DR THE FINDING OF THE COURT IS THAT IT IS NOT PENAL IN NATURE AND THE QUESTION OF LEVY OF PENALTY HAS TO BE DECIDED IN TERMS OF STATUTORY LANGUAGE EMPLOYE D IN THE MAIN PROVISION AND EXPLANATIONS APPENDED THERETO. THIS CASE THEREFORE CANNOT BE TAKEN TO BE AN AUTHORITY FOR THE PROPOSITION THAT WHEREVER ADDITION IS MADE TO THE RETURNED INCOME PENALTY U/S 271(1)(C) FO LLOWS AUTOMATICALLY. THE CORRECT INTERPRETATION OF THE JUDGMENT IS THAT THE EXPLANATION OF THE ASSESSEE HAS TO BE TESTED IN TERMS OF THE STAT UTORY PROVISION. 6.2 IN THE CASE OF RAJASTHAN SPINNING & WEAVING MILLS (SUPRA) THE FINDING OF THE HONBLE COURT IS THAT IT HAS TO BE SHOWN BY THE REVENUE THAT CONDITIONS EXPRESSLY MENTIONED IN THE STATUTE F OR APPLICABILITY OF SECTION 11AC HOLD GOOD ON THE FACTS OF THE CASE. THE JUDGMENT IS SIMILAR IN CONTENTS TO THE INTERPRETATION PLACED BY US E ARLIER ON THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS. THUS IT HAS TO BE SEEN WHETHER THE CONDITIONS MENTIONED IN SECTION 271 (1)(C) ARE SATISFIED IN ITA NO. 106(DEL)/2009 27 THE INSTANT CASE. IN THE CASE OF DILIP N. SH ROFF (SUPRA) IT WAS HELD THAT INACCURATE PARTICULARS OF INCOME MEAN INACCUR ACY IN THE DETAILS FILED BY THE ASSESSEE REGARDING ITS CLAIM. IF TH E DETAILS ARE FACTUALLY CORRECT MERE OMISSION OR NEGLIGENCE WOULD NOT LEAD TO EITHER SUPPRESSIO VERI OR SUGGESTIO FALSI. HOWEVER THE FINDING REGARDING MENS-REA HAS BEEN DISPLACED BY THE DECISION IN THE CASE OF DHA RMENDRA TEXTILE PROCESSORS LTD. AND OTHERS. THESE CASES ALONG WITH OTHER CASES WERE CONSIDERED BY THE HONBLE SUPREME COURT IN THE C ASE OF RELIANCE PETRO PRODUCTS P. LTD. (SUPRA). THE AFORESAID AND OTH ER CASES WERE CONSIDERED AND THEREAFTER IT WAS HELD THAT THE WORD PARTICU LARS MEANS DETAILS FURNISHED IN RESPECT OF A PARTICULAR CLAIM AND THEREFORE IF THE DETAILS ARE ACCURATE THE INFERENCE REGARDING CONCEALMENT O F INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME CANNOT BE DRAWN . THUS THE RATIO WHICH EMANATES FROM THESE CASES IS THAT (I) THE LEVY WILL DEPEND UPON THE STATUTORY LANGUAGE AND EXPLANATIONS THERETO; AND (II) THE INFERENCE OF INACCURATE PARTICULARS CANNOT BE DRAWN IF DE TAILS FURNISHED ARE CORRECT. 6.3 IN THIS CASE THE DETAILS OF FOREIGN EXCHA NGE LOSS WERE NOT FURNISHED IN THE RETURN OF INCOME. IN THE TAX A UDIT REPORT IT WAS SHOWN AS INCREASE IN LIABILITY OF THE LOAN. THE LOSS W AS NOT DEBITED IN SCHEDULE K ITA NO. 106(DEL)/2009 28 OF THE AUDITED ACCOUNTS. THE PARTICULARS OF E XPENDITURE WERE ASCERTAINED BY THE LD. CIT(A) IN QUANTUM-APPEAL PROCEEDINGS WHICH HAVE BEEN FURNISHED BY US IN PARAGRAPH 3.4 OF THIS ORDER . THUS IT CAN BE SAID THAT THE ASSESSEE MADE A CLAIM IN RESPECT OF WHICH FULL PARTICULARS WERE NOT FURNISHED IN THE RETURN. THE CLAIM NOT WARRANTE D AS PER THE TENOR OF SCHEDULE-XI OF THE TAX-AUDIT REPORT AND SCHEDULE- K OF THE AUDITED ACCOUNTS. NONETHELESS WE HAVE ALREADY HELD T HAT THERE COULD BE A BONA FIDE BELIEF AS TO WHETHER INCREASE IN LIABILITY ON ACCOUNT OF PURCHASE OF ASSETS AND SECURITY DEPOSIT WAS REVENUE OR CAPIT AL LIABILITY. THERE COULD HAVE BEEN NO SUCH BELIEF IN REGARD TO THE TAX PAYMENT. THUS THE CLAIM WAS EX-FACIE FALSE IN RESPECT OF THE TAX PA YMENT. THERE IS NO EXPLANATION BEYOND WHAT HAS BEEN CONSIDERED EA RLIER I.E. EXISTENCE OF BONA FIDE BELIEF. AS PER STATUTORY LANGUAGE T HE INITIAL ONUS TO FURNISH SATISFACTORY EXPLANATION IS ON THE ASSESSEE. NO SATISFACTORY EXPLANATION HAS BEEN FURNISHED IN REGARD TO THE LOSS OCCURRIN G ON ACCOUNT OF TAX PAYMENT. THE GENERAL EXPLANATION THAT CAPITA L EXPENSE VERSUS REVENUE EXPENSE IS A VEXED QUESTION IS NOT APPLICABLE TO LOSS OCCURRING ON THIS ACCOUNT. THEREFORE WE ARE OF THE VIEW THAT (I) THE LD. CIT(A) WAS NOT RIGHT IN LEVYING PENALTY IN RESPECT OF LOSS OC CURRING ON ACCOUNT OF PURCHASE OF CAPITAL ASSET AND PLACING SECURITY DEPOSIT; AND (II) HE WAS ITA NO. 106(DEL)/2009 29 RIGHT IN LEVYING PENALTY IN RESPECT OF LOSS O CCURRING ON ACCOUNT OF TAX PAYMENT. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWE D. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 1 6 APRIL 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 16.04.2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S MICROSOFT CORPORATION (INDIA) PVT. LTD. GUR GAON. 2. DY.CIT CIRCLE 6(1) NEW DELHI. 3. CIT(A) 4. CIT NEW DELHI. 5. DR ITAT NEW DELHI. ASSISTANT REGISTRA R.