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2012 (10) TMI 675 - HC - Income TaxClaim of investment allowance under Section 32-A - disallowance on increase in the actual cost of assets due to foreign exchange fluctuations - Held that - As decided in CIT v. Arvind Mills (1991 (12) TMI 1 - SUPREME COURT) in which it was held that the increase or decrease in liability arising on account of fluctuation in the foreign exchange rate should be taken into account to modify to figure of actual cost and that such adjustment should be made in the assessment year in which the increase or decrease in the liability arises on account of fluctuations in the rate of exchange. The adjusted actual cost is to be taken as the actual cost for all purposes other than for the grant of development rebate. Clause (1) of Section 43-A of the Act grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate - in favour of assessee. Deductions under Section 80 HHC - disallowance as no export profit u/s 80 HHC after taking into account the provisions of Section 80AB - section 80AB had no application in determining the amount deductible under Explanation (iii) of section 115-J - Held that - The AO while adopting the book profit under Section 115J as the total income allowable to tax, reduced the profit for the year amounting to Rs. 6, 90, 92, 303/- to Nil after setting out the brought forward losses/allowances to that extent. The balance brought forward allowance was carried forward to the subsequent years. In appeal it was held that the unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance should be taken to be set off only to that extent which is sufficient to bring down the income computed under the normal provisions of the Act to the level of Section 115J income. And the AO was directed to increase the amounts of unabsorbed losses by the income computed under Section 115J income. The Tribunal upheld the order. Thus not agreeing with the submissions of revenue, that Section 80AB has overriding effect and will prevail over Section 80HHC. Section 80AB provides for deductions to be made with reference to the income included in the gross total income. Section 80HHC provides for deduction in respect of profits retained for export business. Although both the sections fall in Chapter VIA, they have to be applied independently - in favour of assessee Interest under section 234-B and 234-C - taxable income was determined under section 115-J - Held that - As decided in CIT v. Rolta India Ltd 2011 (1) TMI 5 - SUPREME COURT OF INDIA The pre-requisite condition for applicability of Section 234B is that assessee is liable to pay tax under Section 208 and the expression assessed tax is defined to mean the tax on the total income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of Section 115-J/115-JA in the levy of interest under Section 234-B - against assessee.
Issues Involved:
1. Investment allowance under Section 32-A of the Income Tax Act with reference to the actual cost of assets enhanced by foreign exchange fluctuations. 2. Deduction under Section 80 HHC in relation to Section 80 AB and Explanation (iii) of Section 115-J. 3. Levy of interest under Sections 234-B and 234-C on tax determined under Section 115-J. Detailed Analysis: Question Nos. 1 and 2: The primary issue was whether the assessee was entitled to claim investment allowance under Section 32-A on the increased cost of assets due to foreign exchange fluctuations. The Assessing Officer (AO) disallowed this claim, arguing that Section 43A(2) restricts such allowances for fluctuations occurring after the assets were already installed and put to use. The CIT(A) allowed the claim, referencing the case of Southern Asbestos Cement Ltd vs. DCIT, but the Tribunal reversed this decision, following the Ahmedabad Special Bench's decision in Lakhanpal International vs. ITO and the Andhra Pradesh High Court's decision in CIT vs. Windsor Foods Ltd. The assessee argued, citing the Full Bench decision of the Gujarat High Court in CIT v. Gujarat State Fertilizers and CIT v. Gujarat Siddhi Cement Ltd, that Section 32-A does not restrict investment allowance to the year of acquisition/installation but allows for adjustments due to foreign exchange fluctuations in subsequent years. The Gujarat High Court's decision, supported by the Supreme Court's judgment in CIT v. Arvind Mills Ltd, clarified that such adjustments should be made in the year the fluctuation occurs, not retroactively. The High Court agreed with the assessee, deciding that the investment allowance is allowable if the cost of the asset increases due to foreign exchange fluctuations in subsequent years. Thus, questions 1 and 2 were decided in favor of the assessee. Question Nos. 3 and 4: The issue here was whether the deduction under Section 80 HHC should be computed with reference to Section 80 AB or as per the calculation under Section 80 HHC(3) read with Explanation (iii) of Section 115-J. The AO disallowed the claim based on Section 80 AB, which the CIT(A) overturned, directing the AO to allow the deduction as per Section 80 HHC(3) without reference to Section 80 AB. The Tribunal, however, upheld the AO's view, relying on the Supreme Court's decision in Mettur Chemical and Industrial Corporation Ltd vs. CIT. The assessee countered this by citing the Supreme Court's decision in Ajanta Pharma Ltd vs. CIT, which held that Section 115-JA (and by extension, Section 115-J) is a self-contained code and should be applied independently of other provisions like Section 80 AB. The High Court agreed with the assessee, stating that Section 80 HHC should be applied independently of Section 80 AB when computing book profits under Section 115-J. Thus, questions 3 and 4 were decided in favor of the assessee. Question No. 5: The final issue was whether interest under Sections 234-B and 234-C was leviable when the taxable income was determined under Section 115-J. The assessee relied on the Karnataka High Court's decision in Kwality Biscuits Ltd v. CIT, which was affirmed by the Supreme Court, stating that interest under Sections 234-B and 234-C is not applicable until the accounts are audited and the balance sheet prepared. However, the Supreme Court's decision in CIT v. Rolta India Ltd clarified that Sections 234-B and 234-C apply to all companies, including those under MAT provisions of Section 115-J/115-JA. The High Court agreed with this view, deciding that interest under Sections 234-B and 234-C is applicable to MAT companies. Thus, question 5 was decided against the assessee and in favor of the revenue. Conclusion: The appeal was partly allowed. Questions 1, 2, 3, and 4 were decided in favor of the assessee, while question 5 was decided in favor of the revenue. The department was directed to proceed accordingly.
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