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TMI Blog2012 (8) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Book Profit u/s. 115JB Foreign exchange loss resulting in the enhancement of loan liability taken to acquire assets in earlier year - revenue or capital expenditure - Held that:- Since Tribunal in earlier year allowed the claim u/s 43A. Hence, the same is allowed. Foreign exchange loss allocated to development expenses - revenue or capital expenditure - Held that:- Starting of the commercial production is not the only condition as provided u/s 42(1)(b) but it is one of the conditions, as the assessee has satisfied that this condition has been fulfilled , we restore this matter back to the files of the AO with the direction to verify whether the assessee complies/fulfills other conditions as provided u/s. 42(1)(b) - ITA No. 5108/Del/04 - - - Dated:- 29-6-2012 - SHRI D.K. AGARWAL AND SHRI N.K. BILLAIYA JJ. Appellant by : S/Shri Dinesh Vyas/Ajit Shah Respondent by : Smt. Kusum Ingale O R D E R PER N.K. BILLAIYA, AM The appeal is filed by the assessee against the order of Ld. CIT(A)XIX, New Delhi dt. 12.8.2004 for the assessment year 2001-02. 2. The first ground relates to the grievance against the order of Ld. CIT(A) who confirmed the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,46,00,000/- on account of Exchange fluctuation and revaluation out of which Rs. 1,25,93,021/- has been claimed as revenue expenses in form of Development cost u/s. 42 of the I.T. Act. The AO was of the view that the expenditure being capital in nature cannot be allowed in computing the total income for the year as loan was on capital account and accordingly rejected the claim of the assessee to allow the expenses as per provisions of Sec. 42 of the Act. The AO further was of the view that u/s. 42, deduction for Exploration and Development costs are allowed but the allowability under income tax Act is deferred till the starting of the commercial production and as the assessee has not started commercial production, the same cannot be allowed. 10. The matter was agitated before the Ld. CIT(A). The Ld. CIT(A) dismissed the claim of the assessee following the order of the immediate preceding year. 11. Before us, the Ld. Counsel for the assessee explained provisions of Sec. 42 and argued that a plain reading of the provisions of sec 42 of the Act suggest that expenses are allowed whether they are in the nature of revenue or capital. The Counsel further submitted that in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order of Ld. CIT(A) to upheld the action of AO denying the benefit of brought forward business loss by applying the provisions of Sec. 79 of the Act. 16. During the course of assessment proceedings, the AO found that the share holding of the company has been changed because of which the AO was of the opinion that the assessee is not entitled for the set off of brought forward business loss by virtue of provisions of Sec. 79 of the Act. The AO asked the assessee company to explain as to why the provisions of Sec. 79 are not applicable in this case. The assessee filed a detailed reply which is incorporated by AO in assessment order at page-11. The main claim of the assessee was that the assessee company is a deemed public company in which public are substantially interested as per provisions of Sec. 2(18)(b) of the Act and accordingly provisions of Sec. 79 are not applicable on the facts of the case. The AO was of the opinion that the change in the share holding has resulted into company becoming 100% subsidiary of M/s. Tata Power Co. Ltd. The AO was further of the opinion that the assessee company cannot be treated as a company in which public are substantially intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which reads as under: Section 2(18) (b)(B)(c) provides that the company is said to be a company in which public are substantially interested (b) if it is a company which is not a private company as defined in the Companies Act, 1956 and the conditions specified either in item (A) or in item (B) are fulfilled namely (B) Shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profit) carrying not less than 51% of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by (c) .. any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. 20. In the light of the provisions of Sec. 2(18)(b)(B)(c) and the arguments submitted by parties, let us see the share holding patterns as its drew before and after the change which is as under : 31st March 2000 31st March, 2000 Name of share holders No. of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is debited in P L A/c as depletion of producing properties. Balance Rs. 25,97,72,266/- is shown as loss before depreciatio0n and depletion. The AO was of the opinion that by claiming the depletion with depreciation the assessee company has wiped off the book profit and has shown Nil tax liability u/s. 115JB of the Act which is not correct. The AO was also of the opinion that depletion of Producing properties cannot be treated as depreciation but can only be termed as deferred revenue expenses and deferred revenue expenses cannot be clubbed with depreciation for the purpose of Sec. 115JB and accordingly denied the claim of the assessee and went on to compute the profit u/s. 115JB of the Act at Rs. 16,45,76,748/-. The matter was taken before the Ld. CIT(A) but without any success. 24. Before us, the Ld. Senior Counsel reiterated the company s stand that book profit for the year under consideration u/s. 115JB of the Act is to be treated as Nil as computed by the assessee company. The Ld. Counsel relied upon the decision of the Hon ble Supreme Court in the case of Apollo Tyres Vs CIT 255 ITR 273. The Ld. Counsel further relied upon the guidance Note of Accounting standard issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined. 27. According to Para 4 of Guidance Note on Accounting for Oil and Gas Producing Activities issued by ICAI, Depreciation is defined as under: Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined. Depreciation also includes depletion of natural resources through the process of extraction or use. 28. As per Guidance Note of the ICAI, depreciation also includes depletion of natural resources through the process of extraction or use. The ITAT Chennai Bench had an occasion to deal in a similar issue in the case of Hardy Exploration Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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