2022 (8) TMI 486 - AT - Income Tax

Additional depreciation on capitalization of forex loss - Depreciation on the exchange rate fluctuation loss on new Plant and Machinery purchased during the earlier year denied - According to the assessee, loss incurred on foreign fluctuation loss incurred for acquisition of plant machinery should be capitalized to cost of asset as per provisions of section 43A of the Act, and once loss incurred by the assessee goes to increase W.D.V of new plant machinery, then, the assessee is entitled for additional depreciation as per provisions of section 32(1)(iia) - HELD THAT - In this case, the assessee has claimed additional depreciation as per provisions of section 32(1)(iia) of the Act, on capitalized value of forex loss incurred on acquisition of plant machinery during earlier financial years by taking clue from provisions of section 43A of the Act. In our considered view, arguments of the assessee is misplaced, because as per provisions of section 32(1)(iia) the assessee is entitled for additional depreciation only in the year of acquisition and installation of new plant machinery, but not for subsequent financial years. Although, provisions of section 43A of the Act allows capitalization of forex loss incurred on acquisition of plant machinery outside India to cost of assets, but said additional cost can only be eligible for normal depreciation as per provisions of section 32(1) of the Act, but not for additional depreciation as contemplated under section 32(1)(iia) of the Act. Therefore, we are of the considered view that the assessee is not entitled for additional depreciation on capitalized portion of forex loss incurred on plant machinery acquired and installed during earlier financial year for the impugned assessment year. AO as well as the learned CIT(A), after considering relevant facts has rightly rejected additional depreciation claimed on capitalized portion of forex loss. Hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the assessee.

Summary

Issues:
1. Denial of additional depreciation on exchange rate fluctuation loss on new Plant and Machinery.
2. Ignoring the alternative claim for adding the forex loss to the block of assets for claiming tax depreciation.

Issue 1: Denial of additional depreciation on exchange rate fluctuation loss on new Plant and Machinery:

The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) denying additional depreciation on exchange rate fluctuation loss on new Plant and Machinery purchased during the earlier year. The assessee, engaged in the manufacture of automobile components, claimed additional depreciation under section 32(1)(iia) of the Act for new plant and machinery purchased and put to use. The dispute arose from the capitalization of exchange rate fluctuation loss on plant and machinery purchased in earlier years. The Assessing Officer allowed depreciation on new plant and machinery acquired during the year but rejected the additional depreciation claimed on the capitalization of exchange loss on plant and machinery purchased earlier. The CIT(A) upheld the Assessing Officer's decision, leading to the appeal before the Appellate Tribunal.

Issue 2: Ignoring the alternative claim for adding the forex loss to the block of assets for claiming tax depreciation:

The assessee contended that the CIT(A) erred in denying additional depreciation on exchange rate fluctuation loss, emphasizing the provisions of section 43A of the Act allowing capitalization of exchange loss on plant and machinery purchased from outside India. The assessee also argued that they satisfied the conditions under section 32(1)(iia) of the Act to claim additional depreciation on new plant and machinery. However, the Departmental Representative supported the CIT(A)'s decision, stating that the additional depreciation was rightly disallowed as the assessee claimed it on forex loss incurred for acquiring plant and machinery in earlier financial years.

The Appellate Tribunal analyzed the provisions of section 32(1)(iia) of the Act, which allow additional depreciation on new plant and machinery acquired and installed after a specified date. It was established that the assessee purchased new plant and machinery before the relevant period, and claimed additional depreciation on the capitalized value of forex loss incurred on these assets. The Tribunal observed that while section 43A of the Act permits the capitalization of forex loss on assets, it does not entitle the assessee to claim additional depreciation under section 32(1)(iia) for subsequent financial years. Therefore, the Tribunal upheld the decision of the CIT(A) and dismissed the appeal, ruling that the assessee was not entitled to additional depreciation on the capitalized forex loss for the impugned assessment year.