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2014 (7) TMI 1065 - AT - Income TaxAdditional depreciation on windmill Held that - Assessee has installed a Windmill during the year - CIT(A) while deciding the issue has given a finding that the Assessee is already engaged in the business of manufacturing of production of Pipes and Tubes and has also fulfilled all the conditions laid down for claim of additional depreciation Relying upon CIT vs. Diamines and Chemicals Ltd. 2013 (12) TMI 373 - GUJARAT HIGH COURT - while claiming the deduction u/s 32(1)(iia) setting up Windmill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that setting up of new machinery or plant should have been acquired and installed by an Assessee who was already engaged in the business of manufacture or production of any article or thing - assessee is already engaged in the business of manufacturing and the Assessee has installed a windmill during the year and there was no reason to interfere with the order of CIT(A) Decided against Revenue. Foreign exchange hedging loss - Assessee not entered into any forward contracts - Loss notional in character Held that - Assessee is engaged in the business of manufacturing Tubes and Pipes. From the copy of the balance sheet placed on record it is seen that the approximately 90% of the material consumed is from import purchases - assessee has availed financial facilities from its bankers for purchase of raw material - CIT(A) while allowing the appeal of the Assessee has given a finding that the dealing of Assessee in foreign exchange was in the normal course of business and to safeguard the future losses against foreign exchange rate fluctuations it had entered into hedging transaction - the loss falls under proviso (a) to Section 43(5) of the Act and the loss on account of fluctuation in the rate of foreign exchange in forward contract was not speculative transaction but is a business loss covered by Section 28 of the Act - the AO has failed to bring any material evidence on record to support its stand that the loss suffered by the Assessee was speculative loss the decision in CIT Versus M/s Woodward Governor India P. Ltd. & M/s Honda Siel Power Products Ltd. 2009 (4) TMI 4 - SUPREME COURT there was no reason to interfere with the order of CIT(A) Decided against Revenue.
Issues Involved:
1. Deletion of disallowance made on account of additional depreciation of Windmill. 2. Deletion of disallowance on account of foreign exchange hedging loss. Issue-wise Detailed Analysis: 1. Deletion of Disallowance Made on Account of Additional Depreciation of Windmill During the assessment proceedings, the Assessing Officer (A.O.) disallowed the additional depreciation claimed by the Assessee on a Windmill amounting to Rs. 1,87,57,882/-. The A.O. argued that the Windmill was not used in the manufacturing process of the Assessee, thus making the Assessee ineligible for additional depreciation under Section 32(1)(iia) of the Income Tax Act. The Assessee contended that the law does not require the new machinery to have operational connectivity with the manufactured articles. The CIT(A) sided with the Assessee, referencing the Madras High Court's decisions which supported the claim that the machinery need not be operationally used for manufacturing articles or things. The CIT(A) concluded that the Assessee fulfilled all conditions for claiming additional depreciation and deleted the disallowance. Upon appeal, the Tribunal upheld the CIT(A)'s decision, noting that the Assessee was engaged in manufacturing and had installed a Windmill. The Tribunal cited the Gujarat High Court decision in CIT vs. Diamines and Chemicals Ltd., which clarified that setting up a Windmill is not related to the power industry but rather to the business of manufacturing. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal on this ground. 2. Deletion of Disallowance on Account of Foreign Exchange Hedging Loss The A.O. noticed a claimed loss of Rs. 5,89,29,812/- due to foreign exchange derivatives and disallowed it, labeling it as an unrealized, notional, and speculative loss. The Assessee argued that the loss resulted from hedging transactions undertaken to minimize foreign exchange risk related to import purchases. The CIT(A) accepted the Assessee's explanation, noting that the transactions were part of normal business operations and aimed at hedging against foreign exchange fluctuations. The CIT(A) concluded that the loss was revenue in nature and not speculative, thus deleting the disallowance. The Tribunal supported the CIT(A)'s decision, emphasizing that the Assessee's foreign exchange dealings were in the normal course of business and backed by trading liabilities. It cited the Supreme Court's decision in CIT vs. Woodward Governor India Pvt. Ltd., which allowed such losses as business expenditure. The Tribunal found no evidence from the Revenue to counter the CIT(A)'s findings and dismissed the Revenue's appeal on this ground. Conclusion The Tribunal dismissed the Revenue's appeal on both grounds, upholding the CIT(A)'s decisions to delete the disallowances related to additional depreciation on the Windmill and the foreign exchange hedging loss. Consequently, the Assessee's Cross Objection (C.O.) was also dismissed. The judgment was pronounced in open court on 30-06-2014.
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