2019 (5) TMI 349 - HC - Income Tax

Capital expenditure under 35D(1) and (2) - Applicability of Section 43A - increase of cost on fluctuation of foreign currency - HELD THAT - Applicability of Section 43A stands already settled in favour of the assessee, by virtue of the law declared by the Supreme Court in Oil Natural Gas Corporation Ltd., Dehradun through Managing Director Vs. The Commissioner of Income Tax, Dehradun 2010 (3) TMI 81 - SUPREME COURT . This being the position, there cannot be any further dispute in this regard and the surviving issue is only with regard to the one with reference to Section 35D of the Income Tax Act. This Court finds that no finding on merit has been arrived at by the Tribunal and it is only an 'open remand'. It is quite possible for the Revenue to raise all the relevant contentions including the 'question of law', if any, before the AO, even with reference to Section 35D. No prejudice is caused in any manner. That apart, in so far as no finding has been rendered by the Tribunal as to the applicability of Section 35D it cannot be said that the appeal involves any 'substantial question of law' so as to call for interference of this Court in exercise of the power under Section 260A of the Income Tax Act.

Summary

Issues:
1. Consideration of capital expenditure under Section 35D of the Income Tax Act, 1961.
2. Acceptance and consideration of fluctuation in currency rate for depreciation calculation.

Analysis:
Issue 1:
The appeal raised questions regarding the ITAT's direction to consider capital expenditure under Section 35D(1) and (2) of the Income Tax Act. The assessee filed a return for the assessment year 1994-95, which led to a series of appeals culminating in the Tribunal's decision. The Revenue contended that the project had been abandoned, making Section 35D inapplicable. However, the Tribunal remanded the matter to the Assessing Officer for further consideration. The High Court noted that no finding on merit was established by the Tribunal, leading to an open remand. As no substantial question of law was identified, the appeal was dismissed.

Issue 2:
The second issue involved the acceptance of fluctuation in currency rate for depreciation calculation. The Revenue argued against allowing depreciation on an imaginary amount based on foreign currency fluctuation without actual payment, contending that it was against the Income Tax Act. The High Court highlighted that the Tribunal did not provide a conclusive finding on the applicability of Section 35D, leading to an open remand. As no substantial question of law was established, the appeal was dismissed.