2018 (5) TMI 2135 - AT - Income Tax

Disallowing assessee s market-to-market loss claimed treating the same to be notional and a contingent liability - HELD THAT - Both parties are very fair in pointing out that various co-ordinate benches decisions have already upheld the CIT(A) s similar action in the said preceding assessment years. Respective orders are 2018 (2) TMI 1806 - ITAT KOLKATA , 2017 (10) TMI 1399 - ITAT KOLKATA and 2017 (3) TMI 1173 - ITAT KOLKATA DR is very fair in not indicating any distinction on facts or law therein. We therefore conclude that the CIT(A) has rightly deleted the impugned market-to-market loss disallowance. The Revenue s former substantive ground fails. Additional depreciation claim disallowance third proviso to Section 32(1)(ii) - Asset put to use for period less than 180 days - Scope of amendment is carried out in the Act - HELD THAT - The proviso inserted by the Act, 2015 being curative in nature was retrospective in operation since it merely removes the unintended hardship. Moreover the said amendment is in consonance with the judicial interpretation placed on the provisions of Section 32(1)(iia) of the Act and therefore direct he AO to allow the appellant benefit of additional depreciation in relation to actual cost of plant and machineries installed in AY 2011-12 but put to use for period less than 180 days - Ground is therefore allowed. Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of market-to-market loss on foreign exchange contracts.
2. Disallowance of additional depreciation claim.

Issue-wise Detailed Analysis:

1. Disallowance of Market-to-Market Loss on Foreign Exchange Contracts:

The Revenue's appeal contested the CIT(A)'s decision to reverse the Assessing Officer's (AO) disallowance of the assessee's market-to-market loss claim of ?449.18 lakh. The AO had treated this loss as notional and contingent, referring to CBDT Instruction No. 3/2010. The CIT(A) had allowed the loss, citing the Supreme Court's judgments in *Woodward Governor of India Ltd vs. CIT* (312 ITR 254) and *CIT vs. ONGC Ltd* (322 ITR 180), which held that such losses are defined and ascertained liabilities, not contingent. The CIT(A) also noted that the assessee consistently followed the ICAI's recommended accounting standards for such transactions. The Tribunal upheld the CIT(A)'s decision, noting that similar claims had been allowed in the assessee's previous assessment years (2008-09 to 2010-11) and that there was no distinction in facts or law in the current year. Thus, the Revenue's ground on this issue failed.

2. Disallowance of Additional Depreciation Claim:

The Revenue's appeal also challenged the CIT(A)'s decision to allow the assessee's claim for additional depreciation of ?55,13,634/-. The AO had disallowed this claim on the grounds that the plant and machinery in question had been put to use in the previous year and that there was no provision in the Act allowing the remaining 50% of additional depreciation in the succeeding year. The CIT(A) reversed this disallowance, citing appellate orders in the assessee's favor for previous years (2007-08 to 2010-11) and the insertion of a proviso by the Finance Act, 2015, which clarified that the remaining 50% of additional depreciation could be claimed in the subsequent year. The CIT(A) also referenced the Supreme Court's judgment in *Vatika Township Ltd vs. CIT* (367 ITR 466), which held that curative amendments removing unintended hardships should be considered retrospective. The Tribunal upheld the CIT(A)'s decision, noting that similar claims had been allowed in previous years and that the amendment by the Finance Act, 2015, was retrospective in nature. Thus, the Revenue's ground on this issue also failed.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The CIT(A) had correctly allowed the market-to-market loss and the additional depreciation claim, following precedents and relevant legal provisions. The order was pronounced in the open court on 31/05/2018.