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Issues Involved:
1. Deduction of expenses incurred due to higher foreign exchange rates. 2. Allowance of exchange difference for dollar loans as revenue expenditure. 3. Higher rate of depreciation and development rebate for certain assets. 4. Treatment of miscellaneous expenses as capital and their eligibility for depreciation and development rebate. 5. Allowance of pre-commissioning expenses other than technical services. 6. Depreciation and development rebate on expenses incurred per technical services agreement. 7. Consideration of certain expenditures u/s 43A for depreciation and development rebate. Summary: Issue 1: Deduction of Expenses Incurred Due to Higher Foreign Exchange Rates The Tribunal held that the purchase of dollars by the assessee-company for repayment of loans taken in dollars is in the ordinary course of the company's business, and if in making such purchase, the company incurs certain extra expenses because of the higher rate of foreign exchange, the company's claim for deduction of such expenses is allowable. However, the court concluded that the excess amounts payable due to devaluation or fluctuation in currency value were for the acquisition of capital assets and thus constituted capital expenditure. Questions Nos. 1 and 2 were answered in the negative, in favor of the Revenue. Issue 2: Allowance of Exchange Difference for Dollar Loans as Revenue Expenditure The Tribunal allowed the assessee's claim for deduction of Rs. 90,106 representing the difference in exchange for payment of dollar loans as revenue expenditure. However, the court held that the repayment of loans raised for the purchase of capital assets is capital expenditure. Thus, the court answered in favor of the Revenue. Issue 3: Higher Rate of Depreciation and Development Rebate for Certain Assets The Tribunal allowed higher rates of depreciation and development rebate for assets like waste ponds, fresh water tank, pipe racks, alloy piping, jetty facilities, and cherry picker cranes, treating them as integral parts of the refinery. The court agreed with this view and answered question No. 3 in the affirmative, in favor of the assessee. Issue 4: Treatment of Miscellaneous Expenses as Capital and Their Eligibility for Depreciation and Development Rebate The Tribunal granted depreciation and development rebate on miscellaneous expenses treated as capital expenditure. The court found that the Tribunal exceeded its jurisdiction by granting development rebate, which was not sought by the assessee. The court redrafted question No. 4 and answered it in the negative, in favor of the Revenue. Issue 5: Allowance of Pre-Commissioning Expenses Other Than Technical Services The Tribunal allowed the capitalisation of the total pre-commissioning expenses and directed that depreciation and development rebate be allowed. The court upheld this decision based on precedents and answered question No. 5 in the affirmative, in favor of the assessee. Issue 6: Depreciation and Development Rebate on Expenses Incurred Per Technical Services Agreement The Tribunal allowed depreciation and development rebate on expenses incurred under the Technical Services Agreement, considering them as part of the plant. The court agreed with this view, referencing the Supreme Court's decision in Scientific Engineering House P. Ltd. v. CIT, and answered question No. 6 in the affirmative, in favor of the assessee. Issue 7: Consideration of Certain Expenditures u/s 43A for Depreciation and Development Rebate The court held that the excess liability towards payment of interest on dollar loans, etc., obtained for the acquisition of capital assets, is attracted by section 43A of the Income-tax Act, 1961. Thus, question No. 7 was answered in the affirmative, in favor of the assessee. Conclusion: The court directed the parties to bear their respective costs and ordered a copy of the judgment to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
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