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2012 (6) TMI 680 - AT - Income TaxDepreciation on loss due to fluctuation of foreign exchange and capitalization u/s 43A - CIT denied the capitalization as the asset did not exist in the Block of Assets - Held that - Considering the provisions of section 43A that if there is a change in the rate of foreign exchange after the acquisition of assets, as a result of which there is an increase or reduction in the liability of the assessee as expressed in the Indian currency, then such increase or reduction shall be added to or deducted from the actual cost of the asset and after giving effect to this adjustment the actual cost of the assets shall stand substituted with the new figure. Depreciation - Definitions contained in section 32 r.w.s.43(1) & (6) describes the depreciation is to be allowed on the actual cost of the asset less all depreciation actually allowed in respect thereof in earlier years. Thus, where the cost of the asset subsequently goes up because of devaluation, whatever might have been the position in the earlier year, it is always open to the assessee to insist, and for the Income-tax Officer to agree, that the written down value in the year in which the increased liability has arisen should be taken on the basis of the increased cost minus depreciation earlier allowed on the basis of the old cost - in favour of assessee. Loss on fluctuation of foreign currency in respect of development cost u/s 42 - AO has considered the claim of the assessee u/s 42(1)(a) whereas the claim falls under section 42(1)(b)by assessee - Held that - Section 42(1)(b) entitles the assessee to deduction after the beginning of the commercial production and the case of the assessee is that it was working in consortium, however necessary details could not be placed to show that the assessee had commenced production - set aside this issue to the record of the CIT(A) for deciding the issue afresh in terms of the directions of the Tribunal in the earlier year - in favour of assessee by way of remand. Treatment of interest income as income from other sources claimed by the assessee for the purpose of deduction u/s 80IB(9)- department treated it as business income - Held that - As the deduction u/s 80IB(9) is not available to the interest received from bank deposits as the receipt of interest does not comes within first decree source as derived from the undertaking, accordingly, the issue is decided against the assessee. Setting off of brought forward losses and unabsorbed deprecation against business profit a determined by AO - Held that - As this issue is subjected to the outcome of the issue involved for the AY 2001-02 the same may be remanded back to the record of the AO to decide the issue as per the outcome of the appeal for the AY 2001-02 pending before the Tribunal. Eligibility of deduction/s 80IB on extraction of oil from oil field - Held that - As in the case of CIT vs Sesa Goa Ltd 2004 (11) TMI 14 (SC) the assessee in the extracting process of iron ore, the High Court came to the conclusion that extraction of iron ore and the various process would involve production within the meaning of sec 32A(2)((b)(iii) and consequently, the assessee was entitled to the benefit of investment allowance under sec. 32A. The view expressed by the High Court that the activity of extraction and processing of iron ore constitute production has been affirmed by the Supreme Court -every manufacturer can be characterised as production, every production need not amount to manufacture - in favour of assessee. Treatment of provision of site restoration expenses - computation of the book profit u/s 115JB - Held that - As the Site Restoration expenses are scientifically estimated by an independent agency for determining the abandonment costs of contracted area in accordance with the guidelines issued by the ICAI, then it cannot be said as contingent liability - the provision has been made as per the requirement under the Production Sharing Contract and the appellant is liable to contribute this amount to site restoration fund in each year. In view of these facts, the provision is made for an ascertained liability - in favour of assessee.
Issues Involved:
1. Depreciation on loss due to fluctuation of foreign exchange and capitalization under Section 43A of the Income-tax Act, 1961. 2. Loss on fluctuation of foreign currency in respect of development cost under Section 42 of the Income-tax Act, 1961. 3. Treatment of interest income for the purpose of deduction under Section 80IB(9) of the Income-tax Act, 1961. 4. Setting off brought forward losses and unabsorbed depreciation against business profit. 5. Eligibility of deduction under Section 80IB on extraction of oil from oil field. 6. Treatment of provision for site restoration expenses as ascertained liability while computing book profit under Section 115JB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Depreciation on Loss Due to Fluctuation of Foreign Exchange and Capitalization under Section 43A: The Tribunal noted that an identical issue was adjudicated in the assessee's own case for AY 2000-01. The assessee capitalized the loss on foreign exchange fluctuation towards repayment of a loan for purchasing sub-sea equipment, which was allowed 100% depreciation in the preceding year. The authorities rejected the claim as the asset did not exist in the block of assets. However, Section 43A mandates adjusting the actual cost of the asset due to exchange rate fluctuation. The Tribunal upheld the assessee's action of including the fluctuation loss in the asset's cost and claiming depreciation, citing Supreme Court and High Court precedents. Consequently, the Tribunal decided this issue in favor of the assessee. 2. Loss on Fluctuation of Foreign Currency in Respect of Development Cost under Section 42: The Tribunal observed that this issue was also considered in AY 2000-01. The Assessing Officer considered the claim under Section 42(1)(a), whereas it should have been under Section 42(1)(b). The Tribunal set aside the issue to the CIT(A) for fresh adjudication, following the directions given in the earlier year, emphasizing the need to consider the claim under the correct provision. 3. Treatment of Interest Income for Deduction under Section 80IB(9): The Tribunal noted that this issue was decided in the assessee's favor for AY 2003-04, and the revenue's appeal was dismissed by the High Court. However, the Tribunal acknowledged that the Supreme Court's decisions in Pandian Chemicals and Liberty India, which were not considered in the earlier order, clarified that interest income does not qualify for deduction under Section 80IB(9) as it is not derived from the first-degree source of the undertaking. Thus, the Tribunal decided this issue against the assessee. 4. Setting off Brought Forward Losses and Unabsorbed Depreciation: Both parties agreed that this issue depends on the outcome of the appeal for AY 2001-02. Consequently, the Tribunal remanded the issue to the Assessing Officer to reconsider based on the outcome of the pending appeal. 5. Eligibility of Deduction under Section 80IB on Extraction of Oil from Oil Field: The Tribunal referred to an identical issue decided in favor of a consortium partner in a similar case. The extraction of oil was considered "production" within the meaning of Section 80IB. The Tribunal upheld the CIT(A)'s order, affirming that extraction of oil qualifies for the deduction under Section 80IB. 6. Treatment of Provision for Site Restoration Expenses as Ascertained Liability: The Tribunal reviewed the production sharing contract and found that the site restoration expenses were a definite liability, not contingent. The provision was based on a scientific estimate by an independent agency and required under the contract. The Tribunal agreed with the CIT(A) that the liability was ascertained and directed the deletion of the addition from the book profits. Conclusion: The appeals of the assessee were partly allowed, and the appeal of the revenue was dismissed. The Tribunal provided detailed rulings on each issue, ensuring compliance with relevant legal provisions and precedents.
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