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2014 (3) TMI 1171 - AT - Income TaxAdditional depreciation - claim not allowed in the preceding year on the asset put to use by the assessee for less than 180 days - HELD THAT - As decided in assessee's own case provisions of the Act are very clear. The second proviso to section 32(1), which restricts the depreciation to 50% of the percentage prescribed in respect of assets used for less than 180 days is applicable for additional depreciation also. There is no provision in the act to carry forward and allow the balance depreciation in the next year. Further the additional depreciation is allowable only in respect of new machinery or plant that has been acquired, when the balance 50% of the additional depreciation is proposed to be claimed, the assets are not new machinery or plant eligible for additional depreciation. These assets form part of the opening written down value of the assets. Therefore, these are not entitled for the said additional depreciation. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Rule 8D of the Income Tax Rules is not applicable in the case of the assessee because it came into effect only w.e.f 24.03.2008. Prior to this date the decision pointed out by the Ld. A.R. would be applicable. In these circumstances, we are of the considered view that Ld. Assessing Officer reasonably estimated the disallowable expenses being 2% of dividend income earned by the assessee. Therefore, we set aside the order of the Ld. CIT (A) and confirm the order of the Ld. Assessing Officer on this issue. Treating the remission of sales tax liability as income of the assessee U/s. 41(1) - assessee argued that there was no remission of liability U/s. 41(1) of the Act as the amount was prepaid on the net present value basis and therefore, should not be included in the profits and gains of the assessee - HELD THAT - This issue was held in favour of the assessee by the decision of the Tribunal 2013 (11) TMI 1774 - ITAT CHENNAI as held that it is a simple case of collecting the amount at net present value which is due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts have been paid as per that formula. Therefore, such payment of net present provisions of section 41(1)(a) of the Income Tax Act, 1961 we are fully conscious that issue before us is regarding statutory liability and the above discussion and provisions of the Indian Contract Act referred to by us in the above para relate to the contractual liability. Disallowance of Loss on account of exchange fluctuation - HELD THAT - These transactions had arisen only due to the international business transaction of the assessee in order to protect itself from foreign exchange fluctuation. Accordingly, any expenditure related to the same has to be treated as expenditure incurred in the ordinary course of the business of the assessee and shall be allowed as an deduction under the provisions of the Act and shall not be considered as speculative business transaction. Since the facts are not clear from the order of the Ld. Assessing Officer and the Ld. CIT (A); like our predecessors we hereby remit back the matter to the file of Ld. Assessing Officer for verifying the nature of loss incurred and consider the issue on transaction to transaction basis and decide according to law and merits.
Issues Involved:
1. Disallowance of Additional Depreciation 2. Disallowance of Expenditure Under Section 14A by Applying Rule 8D 3. Treatment of Sales Tax Liability as Income Under Section 41(1) 4. Disallowance of Loss on Account of Exchange Fluctuation Detailed Analysis: 1. Disallowance of Additional Depreciation The assessee claimed additional depreciation under Section 32(1)(iia) of the Income Tax Act amounting to Rs. 3,74,00,160/- for assets put to use for less than 180 days in the preceding year. The Assessing Officer disallowed this claim, reasoning that the additional depreciation related to assets added during the preceding assessment year and could not be carried forward. The CIT (A) upheld this view, emphasizing that the second proviso to Section 32(1) restricts depreciation to 50% for assets used for less than 180 days and does not allow for carrying forward the balance depreciation. The Tribunal, following its earlier decision in the assessee's own case, confirmed that there is no provision in the Act to allow the carry forward of unabsorbed additional depreciation, thereby dismissing this ground of appeal. 2. Disallowance of Expenditure Under Section 14A by Applying Rule 8D The Assessing Officer disallowed Rs. 72,740/- as expenditure related to earning dividend income, estimating 2% of the dividend income as disallowable. The CIT (A) directed the application of Rule 8D, which was introduced on 24.03.2008. The Tribunal held that Rule 8D is not applicable for the assessment year 2006-07 and upheld the Assessing Officer's reasonable estimation of 2% of the dividend income as disallowable expenses, setting aside the CIT (A)'s order on this issue. 3. Treatment of Sales Tax Liability as Income Under Section 41(1) The assessee had opted for the Sales Tax Deferral Scheme and repaid the loan at a net present value, resulting in a benefit of Rs. 4,77,76,079/-. The assessee initially treated this as income under Section 41(1) but later argued that it should not be considered as such, citing the decision in M/s. Sulzer India Ltd vs. JCIT, where it was held that payment of net present value does not amount to remission of liability. The Tribunal noted that this issue was not raised before the lower authorities and remitted the matter back to the Assessing Officer for reconsideration in light of the cited decision. 4. Disallowance of Loss on Account of Exchange Fluctuation The Assessing Officer disallowed Rs. 1,08,49,000/- related to foreign exchange loss on derivative instruments, considering it speculative and contingent. The CIT (A) allowed the claim, reasoning that the losses arose from trading operations and were allowable under Section 37 of the Act, supported by the Supreme Court's decision in CIT vs. Woodward Governor India P. Ltd. The Tribunal found that the transactions were related to the assessee's business operations and not speculative in nature. However, it remitted the matter back to the Assessing Officer for verifying the nature of the loss incurred and to decide the issue on a transaction-to-transaction basis. Conclusion: The appeals resulted in a mix of dismissals, remittals, and confirmations of the lower authorities' decisions. The Tribunal upheld the disallowance of additional depreciation and the reasonable estimation of expenditure under Section 14A, while remitting the issues related to sales tax liability and foreign exchange fluctuation loss back to the Assessing Officer for further examination.
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