ITA No. 8323/MUM/2010 IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI RAJENDRA, HON BLE ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, HON BLE JUDICIAL MEMBER ITA No. 8323/MUM/2010 (Asst. Year : 2006-07) DCIT-2(3), Room No. 555, Vs. Telecom Investment India Pvt. Ltd., Mumbai. Mechant Chambers, 5th Floor, R.K. Marg, Ballard Estate, Mumbai. PAN : AABCT 1955 F (Appellant) (Respondent) Assessee by : Shri Nageswar Rao Adv. Department By : Shri N. Sathya Moorthy - DR Date of hearing : 21/07/2016. Date of pronouncement : 19/10/2016. ORDER PER C.N. PRASAD, JUDICIAL MEMBER This appeal is filed by Revenue against order of ld.CIT(A)-6, Mumbai dated 22/09/2010 for Assessment Year 2006-07 arising out of assessment order passed under section 143(3) of Act. 2. only grievance of Revenue in its appeal is that ld.CIT(A) erred in deleting addition of Rs. 2,42,50,527/- on account of foreign exchange gain on repayment of loan. 3. Brief facts of case are that assessee is engaged in business of investment and finance, filed its return of income on 30/11/2016 declaring total income of Rs. 2,96,80,630/-. 2 ITA No. 8323/MUM/2010 assessment was completed on 08/12/2008 under section 143(3) of Act determining income of assessee at Rs. 5,51,46,180/-. While completing assessment, Assessing Officer disallowed foreign exchange gain of Rs.2,42,50,527/- and added to income of assessee by observing that assessee has credited this amount to profit & loss account and this was not offered to tax. He also observed that there is no supporting proof of foreign exchange loan claimed to have been borrowed in earlier years and was invested in shares. Thus, Assessing Officer treated this foreign exchange gain as income from other sources. 4. On appeal, ld. CIT(A) after obtaining remand report from Assessing Officer held that foreign exchange loans obtained by assessee were partly utilized towards capital assets, therefore, difference in foreign exchange rate on repayment of loan during year under consideration would be treated as capital receipt. Against this order, Revenue is in appeal before us. 5. Departmental Representative supported order of Assessing Officer and submitted that in course of assessment, nothing was placed on record to suggest that assessee has obtained foreign exchange loan for making investment in shares. Thus, Assessing Officer is adjusted in treating difference in foreign exchange as income from other sources. 6. Authorized Representative of assessee strongly placed reliance on order of ld. CIT(A) and submitted that assessee obtained loan in foreign exchange for purchase of shares during this year. Authorized Representative of assessee further submitted that it is settled legal position that if foreign exchange liability was on account of capital, corresponding gain/loss would be of capital in nature. He further submitted that in present case, assessee had 3 ITA No. 8323/MUM/2010 used borrowed funds for making long term investment into HEL and for repayment of preference share application money to CGP investments. He submitted that utilization of loan being on capital account, any gain arising from such loan would also be on capital gain and accordingly, would not be taxable. 7. We have heard rival submissions and perused orders of authorities below. We find that in course of assessment proceedings, Assessing Officer found no proof of foreign exchange loan claimed to have been borrowed for utilization of same in purchase of shares. Thus, he treated foreign exchange gain as income from other sources. In course of appellate proceedings, remand report was called for by ld. CIT(A) and in remand report, Assessing Officer admitted that loan was obtained for investment in shares. Considering remand report, ld. CIT(A) held that foreign exchange gain is on account of capital receipt as investment was made in purchase of shares, hence he partly apportioned foreign exchange between capital and revenue based on investment made by assessee by observing as under:- 5.7 I have considered facts, submissions and legal position discussed above by AR. Earlier, additional evidence filed by appellant was admitted during appellate proceedings after considering importance said evidence to issues on hand and same was forwarded to AO for his comments. report of AO was also made available to AR who offered his comments thereon. After considering all these documents, it is noted that out of said loan of Rs. 83,00,13,900/- obtained in foreign exchange, sum of Rs. 82 crores was invested as share application money in M/s. Hutchison Max Telecom Ltd. on same date. Further, it has been confirmed by M/s. Vodafone Essar Ltd (successor t M/s. Hutchison Max Telecom Ltd.) that appellant invested Rs. 82 crores towards subscription in their equity share capital. This fact has also been confirmed by AO in his remand report on additional evidence filed by appellant. Further, contention of appellant that further sum of Rs. 39,95,685/- was utilized towards repayment of reference shares application money has also been found to be correct. Thus, foreign exchange loans 4 ITA No. 8323/MUM/2010 were utilized towards capital account to that extent of Rs. 82,39,95,685/- while remainder amount Rs.60,18,215/- has not been utilized towards capital account. There is merit in submissions of AR that treatment given by appellant in books is not determining factor regarding taxability or otherwise of sum. Taking into consideration legal position brought out by AR, it is held that foreign exchange gain due to difference in foreign exchange rate on repayment of loan during year under consideration would be treated as capital receipt and revenue receipt in proportion of Rs.82,39,95,685/- (utilized on capital account) vis-a-vis Rs.60,18,215/- (not utilized on capital amount). Hence, this ground is partly allowed. 8. Since, ld. CIT(A) has decided based on findings of Assessing Officer in remand report that foreign exchange loan was utilized for purchase of shares and therefore it is of capital account, we do not find any valid reason to interfere in holding that foreign exchange gain due to difference in foreign exchange rate of repayment of loan during year under consideration should be treated as capital receipt and revenue receipt in proportion of utilization. Hence, we sustain order of ld. CIT(A) and reject ground of Revenue. 9. In result, appeal of Revenue is dismissed. Order Pronounced in open Court on 19th October, 2016 Sd/- sd/- (RAJENDRA) (C.N. PRASAD) Accountant Member Judicial Member Dated : 19 t h Oct., 2016. vr/- 5 ITA No. 8323/MUM/2010 Copy to: 1. Assessee. 2. Revenue. 3. CIT 4. CIT(A) 5. D.R. 6. Guard file. By order //True Copy// Assistant Registrar I.T.A.T., Mumbai. DCIT-2(3), Mumbai v. Telecom Investment India Pvt. Ltd