2021 (10) TMI 821 - AT - Income Tax

Disallowance of depreciation relatable exchange fluctuations - assets acquired in India from the funds raised through foreign currency convertible bonds following its own order of earlier assessment years - HELD THAT - As decided in own case 2021 (6) TMI 609 - ITAT DELHI although assessee has a good case to argue that exchange fluctuation loss attributable to depreciable assets acquired in India is an allowable revenue expenditure, however, it would require tedious exercise of modifying assessments for number of year. Therefore, we hold that the assessee is entitled to depreciation on exchange loss. - Decided in favour of assessee.

Summary

Issues involved:
Disallowance of depreciation due to exchange fluctuations in assets acquired from foreign currency convertible bonds for A.Y. 2011-12.

Analysis:

1. Issue of Disallowance of Depreciation:
- The primary grievance of the assessee was the disallowance of depreciation amounting to &8377; 54,29,216 due to exchange fluctuations in assets acquired from foreign currency convertible bonds. Both the CIT(A) and AO upheld this disallowance based on similar reasoning from earlier assessment years A.Y. 2009-10 and 2010-11.

2. Judicial Findings from Earlier Assessment Years:
- The Tribunal examined a similar issue in the assessee's case for A.Y. 2009-10 and 2010-11. The Tribunal noted that the assessee had attributed exchange loss to the acquisition of indigenous depreciable assets, leading to a claim for depreciation. While the CIT(A) had enhanced the income by disallowing depreciation, the Tribunal observed that the liability due to exchange fluctuation was not applicable under section 43A as the assets were acquired in earlier years. The Tribunal also referred to a similar case involving M/s. KEI Industries Ltd., where depreciation on enhanced cost was allowed for assets acquired in India from foreign funds raised through FCCBs.

3. Decision and Ruling:
- The Tribunal, considering the precedents and lack of distinguishing decisions presented by the DR, directed the AO to delete the addition of &8377; 54,29,216, thereby allowing the appeal filed by the assessee for A.Y. 2011-12. The Tribunal emphasized the applicability of revenue expenditure rules and the consistent application of accounting standards in allowing depreciation on exchange loss attributable to depreciable assets acquired in India.

4. Conclusion:
- The judgment highlights the importance of consistency in applying legal principles across assessment years and the relevance of accounting standards in determining the allowability of depreciation on exchange fluctuations in assets acquired from foreign sources. The Tribunal's decision to allow the appeal underscores the need to align assessments with legal precedents and established norms in tax matters.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision regarding the disallowance of depreciation due to exchange fluctuations in assets acquired from foreign currency convertible bonds for the relevant assessment year.