2021 (8) TMI 1414 - AT - Income Tax

Depreciation attributable to capitalization of exchange rate fluctuations loss in respect of indigenous assets purchased in India - fixed assets as acquired in India out of foreign currency loan - HELD THAT - The facts in the present Assessment Year i.e. 2012-13 2021 (6) TMI 609 - ITAT DELHI are identical and no distinguishing facts were pointed out by the Ld. DR. The assessee has attributed the liability in the present Assessment Year to the fixed assets which were acquired in India out of foreign currency loan. Since the fixed asset was acquired by utilizing foreign currency loan and on account of currency fluctuation, the loan liability was added to the fixed assets. Thus, the assessee is entitled to depreciation on exchange loss. Therefore, we direct the AO to allow the depreciation attributable to capitalization of exchange rate fluctuation loss. Thus, the appeal of the assessee is allowed.

Summary

Issues:
Disallowance of depreciation attributable to capitalization of exchange rate fluctuations loss in respect of indigenous assets purchased in India.

Analysis:

Issue 1: Disallowance of Depreciation

The appeal was filed against the order passed by CIT(A) disallowing depreciation of Rs. 1,15,65,043 attributable to the capitalization of exchange rate fluctuations loss in relation to indigenous assets purchased in India. The assessee, engaged in manufacturing cables, initially declared a loss of Rs. 43,75,44,247, which was later revised to Rs. 29,79,17,511. The Assessing Officer made additions for excessive depreciation and disallowance on account of PF/ESI. The CIT(A) partially allowed the appeal. The Tribunal referred to previous cases where depreciation was allowed on enhanced liability due to exchange rate fluctuations. It was held that the assessee is entitled to depreciation on exchange loss, as the liability was attributed to fixed assets acquired in India using a foreign currency loan. The Tribunal directed the Assessing Officer to allow depreciation on the exchange rate fluctuation loss. The appeal of the assessee was allowed.

Final Decision:

The ITAT Delhi, comprising Shri R. K. Panda, Accountant Member, and Ms. Suchitra Kamble, Judicial Member, allowed the appeal filed by the assessee against the disallowance of depreciation attributable to the capitalization of exchange rate fluctuations loss in respect of indigenous assets purchased in India. The Tribunal held that the assessee, being in the business of manufacturing cables, was entitled to depreciation on exchange loss as the liability was attributed to fixed assets acquired in India using a foreign currency loan. The decision was based on precedents where depreciation was allowed on enhanced liability due to exchange rate fluctuations. The Tribunal directed the Assessing Officer to allow the depreciation, resulting in the appeal of the assessee being allowed.