2022 (10) TMI 1044 - AT - Income Tax

Revision u/s 263 by CIT - disallowance of a part of depreciation by reducing the value of plant and machinery and disallowance of higher rate of depreciation in respect of factory building - AO misunderstood the difference occasioned due to the variance in the method of valuation of the cost asset under Companies Act and section 43A - HELD THAT - Method adopted by the assessee and accepted by CIT(A) is in accordance with the adjustment in the actual cost of the assets with reference to the change in the rate of foreign exchange subsequent to the acquisition of the asset. Hon'ble Apex Court in the above decision clearly held that section 43A which corresponds to para 10 of AS-11, particularly in the light of section 43(1) makes it not possible to adjustment of the carrying cost of the fixed assets acquired in foreign exchange. Though the DR produced the details of year wise CWIP, EDCP and capitalized machinery/equipment, it missed the attention of the DR that an amount is mentioned therein as capitalized machinery cost. When the foreign exchange earned during the year under consideration to the tune the assessee rightly reached the difference which occasioned solely because of the different methods followed for valuation of the plant and machinery under the provisions of Companies Act and differently in compliance with the provisions of the 43A - This aspect has already been dealt with in the case of Woodward Governor India (P) Ltd., 2009 (4) TMI 4 - SUPREME COURT and therefore, we do not find anything illegality or irregularity in the approach of the CIT(A) and accordingly, we decline to interfere with the same. Appeal of Revenue is dismissed.

Summary

Issues:
1. Disallowance of part of depreciation by reducing the value of plant and machinery.
2. Disallowance of higher rate of depreciation in respect of factory building.

Issue 1: Disallowance of part of depreciation by reducing the value of plant and machinery:
The case involved a dispute regarding the disallowance of a part of depreciation by reducing the value of plant and machinery. The Assessing Officer made an addition on this account, which the CIT(A) partially confirmed. The Revenue challenged the deletion of the disallowance, arguing that there was no increase in assets due to foreign exchange fluctuation. The Assessing Officer contended that there was a difference in the value of assets, while the assessee explained that it was due to the differential treatment under the Companies Act and section 43A of the Income Tax Act. The CIT(A) found that the difference in the value of assets was due to the treatment of foreign exchange gain and not as excess value of assets, as pointed out by the Assessing Officer. The Tribunal upheld the CIT(A)'s decision based on the method adopted by the assessee and the principles laid down by the Hon'ble Supreme Court in a relevant case.

Issue 2: Disallowance of higher rate of depreciation in respect of factory building:
The second issue pertained to the disallowance of a higher rate of depreciation in respect of the factory building. The CIT(A) confirmed this addition, which was challenged by the Revenue. However, the judgment did not provide detailed analysis or discussion specific to this issue. The focus of the judgment primarily revolved around the first issue related to the disallowance of part of depreciation by reducing the value of plant and machinery.

In conclusion, the Appellate Tribunal upheld the decision of the CIT(A) regarding the disallowance of part of depreciation by reducing the value of plant and machinery. The judgment extensively discussed the different treatments under the Companies Act and the Income Tax Act, emphasizing the adjustment in the actual cost of assets with reference to the change in the rate of foreign exchange. The Tribunal found the CIT(A)'s approach in line with legal principles and declined to interfere with the decision.