2018 (5) TMI 961 - HC - Income Tax

Addition to income - Benefit of the foreign exchange fluctuation on account of the purchase of an imported lift - Assessee asserted that since the elevator was not used for the purpose of its business and no deduction or depreciation or the like had been claimed in respect thereof - Held that - The appellate Tribunal held in this case that since the construction of the relevant house was not a part of the business of the assessee, Section 43A of the Act would not apply to the apparent gain made by the assessee as a consequence of the foreign exchange fluctuation. On a plain reading of Section 43A of the Act and the fact that the assessee had not claimed any deduction or depreciation on account of the lift or other construction material, it cannot be said that the appellate Tribunal committed any error or that there is any significant question of law that needs to be looked into.

Summary

Issues:
1. Whether the benefit of foreign exchange fluctuation on the purchase of an imported lift should be added to the income of the assessee.
2. Disallowance of interest under Section 14A of the Income Tax Act, 1961.

Analysis:
1. The primary issue in this case revolves around whether the benefit of foreign exchange fluctuation should be added to the income of the assessee due to the purchase of an imported lift. The assessee constructs houses for rental income and imported an elevator for one of the buildings. The rise in the rupee against the foreign currency resulted in a cost reduction of over ?6 lakh for the equipment. The assessing officer added this amount to the income of the assessee. The Commissioner (Appeals) upheld this addition as the assessee did not contest it during the appeal. However, the Tribunal ruled that since the elevator was not used for business purposes and no deductions were claimed for it, Section 43A of the Income Tax Act, which deals with foreign exchange rate fluctuations, did not apply. The Tribunal's decision was based on the fact that the construction of the house was not part of the assessee's business, and hence, the gain from foreign exchange fluctuation need not be added to the income.

2. The second issue relates to the disallowance of interest under Section 14A of the Income Tax Act. This matter was considered a factual issue by the court, as it was extensively addressed in the impugned order. The Tribunal dismissed the appeal, stating that no significant question of law arose from the disallowance of interest under Section 14A. The court concurred with the Tribunal's decision, emphasizing that since the assessee did not claim any deduction or depreciation for the imported lift, and considering the provisions of Section 43A, there was no error in the Tribunal's ruling.

In conclusion, the High Court dismissed the appeals, emphasizing that the Tribunal's decisions were sound and in accordance with the provisions of the Income Tax Act. The court found no merit in the arguments raised by the department regarding the addition of foreign exchange fluctuation benefits to the assessee's income or the disallowance of interest under Section 14A.