2016 (9) TMI 1435 - AT - Income Tax

Foreign exchange gain - gains made on account of restatement of foreign exchange loan - revenue or capital gain - Held that - Adjustment on account of foreign exchange rate fluctuation is required to be made to actual cost as at the end of every year prior to amendment of provisions of section 43A i.e. before 1/4/2003. In the present case the assessment year involved is 2010-11. Therefore amended provisions of section 43A are applicable. As per the amended provisions of section 43A adjustment is required to be made in actual cost of the asset for the purpose of allowing depreciation only at the time of actual payment of such ECB borrowings. Therefore we are of the considered opinion that the CIT(A) was right in holding that gains arising on account of exchange fluctuation are not liable to tax as it is on capital account and is required to be adjusted in the year of actual repayment of loan from the actual cost of asset. To this extent the direction of the CIT(A) is modified and the grounds of appeal are partly allowed. Addition under repairs and maintenance - Held that - CIT(A) had merely allowed repairs and maintenance towards machinery and other expenditure of Rs. 17, 16, 77, 432/- based on account-wise details filed before him without examining in detail true nature of expenditure incurred with reference to invoices bills etc. In our considered opinion the CIT(A) not to have allowed the same without examining true nature of expenditure with reference to external evidence - to meet ends of justice we remit this ground to the file of the AO for fresh adjudication after affording due opportunity to the assessee. MAT - reduce a sum being lower of brought forward loss or depreciation from book profit under section 115JB - Held that - The lower of depreciation loss or business loss is required to be set off against book profit determined. In the present case the amount of unabsorbed depreciation loss is to be set off against book profit is required determined. In this case there is unabsorbed depreciation loss of Rs. 113, 14, 04, 000/- and business loss of Rs. Rs. 37, 17, 10, 000/- depreciation loss of Rs. 37, 17, 10, 000/- lower of the two is required to be set off against book profits. However the CIT(A) though accepted in principle contention of the assessee-company that lower of unabsorbed depreciation or business loss calculated on cumulative basis as shown in the immediately preceding financial year can be set off against book profits - Since the figures adopted by the CIT(A) are not borne out of record we remit the issue back to the file of the AO to adopt the correct figure following the principle that unabsorbed depreciation or business loss should be calculated on cumulative basis. Depreciation on the intangible assets - Held that - CIT(A) erred in facts and law in confirming the disallowance of depreciation on the intangible assets having upheld the Appellant s claim of acquiring business and commercial right. Repairs & maintenance expenses for building and machinery - Held that - CIT(A) erred in facts and in law in confirming the disallowance of repairs and maintenance expenses for building and machinery on the grounds that details/invoices/bills/vouchers were not furnished without taking cognizance of the invoices and the submissions made by the Appellant. Without prejudice to the above the learned CIT(A) erred in law in not granting depreciation on the aforesaid expenses held to be capital in nature. Set off of brought forward business loss in the computation of income under section 115JB - Held that - On the facts and in the circumstances of the case the learned CIT(A) inadvertently erred in facts in granting set-off of lower of brought forward business loss or unabsorbed depreciation of Rs. 193, 159, 000 only as against Rs. 363, 340, 000 claimed by the Appellant in the return of income. Disallowance of depreciation on intangible assets - Held that - The expenditure was incurred wholly in connection with entering into various agreements. Most of the expenditure was towards availing of professional and legal services during pre-operative period i.e. before commencement of the commercial operation. This expenditure is revenue in nature incurred during pre-operative period which qualifies for capitalization among various fixed assets. As a result of this expenditure it cannot be said that the assessee had acquired any commercial rights. Furthermore some of the expenditure also related to leasehold rights in land which par takes character of the land which does not qualify for depreciation. We uphold the order of the CIT(A) and dismiss the ground of appeal filed by the assessee-company.

Issues Involved:
1. Foreign exchange gain taxation.
2. Concession fee payable to Government of India.
3. Depreciation on intangible assets.
4. Repairs and maintenance expenses.
5. Set off of brought forward business loss or unabsorbed depreciation under section 115JB.
6. Interest levied under sections 234B and 234D.
7. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Foreign Exchange Gain Taxation:
The AO added Rs. 29,83,65,068/- as taxable income, arguing the assessee failed to prove the ECB loan was for capital goods. The CIT(A) reversed this, citing the Hon’ble Delhi High Court in CIT vs. Woodward Governor India (P) Ltd., concluding the gain was on capital account and not taxable. The Tribunal upheld this decision, noting the gain should be adjusted in the year of actual repayment of the loan, as per amended section 43A.

2. Concession Fee Payable to Government of India:
The AO disallowed Rs. 20,43,03,000/- under section 43B. The CIT(A) allowed it, referencing the concession agreement with the Ministry of Civil Aviation, concluding it did not fall under section 43B. This decision was not contested further in the Tribunal’s analysis.

3. Depreciation on Intangible Assets:
The AO disallowed Rs. 4,00,01,168/- for lack of evidence of cost incurred for acquiring intangible assets. The CIT(A) confirmed this, stating no evidence was provided. The Tribunal upheld this, agreeing the expenditure did not result in acquisition of any commercial rights and was revenue in nature, qualifying for capitalization among various fixed assets.

4. Repairs and Maintenance Expenses:
The AO disallowed Rs. 19,05,43,000/- for lack of detailed evidence. The CIT(A) allowed Rs. 17,16,79,432/- but confirmed the disallowance of Rs. 1,88,63,568/-. The Tribunal remitted the issue back to the AO for fresh adjudication, directing examination of true nature of expenditure with reference to invoices and bills.

5. Set Off of Brought Forward Business Loss or Unabsorbed Depreciation under Section 115JB:
The AO disallowed the claim of Rs. 36,33,43,000/-, arguing the set off should be calculated on a year-to-year basis. The CIT(A) directed the AO to compute it on a cumulative basis, following the decision in Amline Textiles (P.) Ltd. vs. ITO. The Tribunal upheld this principle but remitted the issue back to the AO to adopt the correct figure.

6. Interest Levied under Sections 234B and 234D:
The CIT(A) upheld the levy of interest under sections 234B and 234D. The Tribunal did not provide further adjudication on these grounds, noting they were consequential in nature.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The CIT(A) did not adjudicate on the initiation of penalty proceedings. The Tribunal did not address this issue further.

Conclusion:
The Tribunal partly allowed the revenue’s appeal for statistical purposes, remitting specific issues back to the AO for fresh adjudication. The assessee’s appeal was also partly allowed for statistical purposes, with some issues remitted back to the AO. The judgment emphasized the importance of detailed evidence and proper adherence to legal provisions in tax assessments.

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