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TMI Blog2016 (9) TMI 1435X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Act dated 25/08/2011 and the assessment was completed u/s 143(3) vide order dated 19/03/2013. While doing so, the AO made the following additions: i) Foreign exchange gain ... Rs. 298,93,65,068/- ii) Concession fee payable to Govt. of India ...Rs. 20,43,03,000/- iii)Disallowance of depreciation on intangible assets ...Rs. 4,00,01,168/- The Assessing Officer (AO) denied the claim of the assesseecompany to set off of lower of unabsorbed depreciation or book loss whichever is less on the ground that computation of loss brought forward business loss or depreciation whichever is less as per books of account is to be done on an year to year basis and the same cannot be claimed on a cumulative basis. Following this principle, AO disallowed the claim of Rs. 36,33,43,000/- u/s 115JB of the Act. 3. Being aggrieved, an appeal was preferred before the CIT(A), who vide impugned order partly allowed the assessee's appeal. 4. The CIT(A) allowed the claim of the assessee that the gain on account of fluctuation in foreign exchange of Rs. 29,893,65,068/- is not taxable as external commercial borrowing was taken on capital account following the law laid down by the Hon'ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the ECB loan was for capital goods purchases. 3. The CIT(A) erred in allowing Rs. 17,16,79,432 out of Rs. 19,05,43,000 on the ground that the assessee furnished details of Rs. 17,16,79,432 under repairs and maintenance-others without appreciating the fact the assessee could only furnish the breakup of Rs. 17,16,79,432 but failed to prove the expenditure conclusively and also the nature of work carried out. 4. The CIT(A) erred in directing the AO to adopt and reduce the lower of brought forward loss/depreciation worked out at Rs. 19,31,59,000/- from book profit u/s. 115JB without providing an opportunity of being heard to the Assessing Officer when the assessee had made a different claim before the Assessing Officer and the set off is to be allowed only in relation to lower of business loss or unabsorbed depn. loss as on 31.03.2009. 5. For these and such other grounds that may be urged at the time of hearing. It is humbly prayed that the directions of the DRP be reversed. 6. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 6. Ground Nos.1, 5 and 6 are general in nature and do not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, if the foreign exchange liability arises in relation to acquisition of capital assets, the corresponding gain or loss would be of a capital nature. This aspect has been discussed in details by the Hon'ble High Court of Delhi in the case of CIT Vs. Woodward Governor India (P) Ltd. (2007) 294 ITR 451 (Delhi) wherein it was held that- "32. We then turn to the position with regard to the losses on capital account where higher depreciation or investment allowance could be claimed as a result of the reworking of the cost of asset consequent upon the appreciation in the rate of foreign exchange. We proceed to examine the position prior to the amendment to section 43A with effect from 1-4-2003 and the change as a result of that amendment. 33. Section 43(1) of the Act defines actual cost for the purpose of depreciation to mean "the actual cost of the asset to the assessee." There was no provision for the assessment of the actual cost at a stage subsequent to the date of acquisition of the asset. Depreciation had to be worked out thereafter only on the basis of the actual cost at the time of acquisition to provide for the subsequent revisions to the actual cost. Section 43A was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43A apply in a case where an assessee has acquired any capital asset from abroad for the purpose of his business or profession, on credit or on deferred payment terms, or against a loan in foreign currency, and the whole or a part of the cost of such asset or of the loan in foreign currency, is outstanding as on the date on which there is a change in the rate of exchange of currency. In such a case where, in consequence of the change in the rate of exchange of currency, there is an increase or reduction in the assessee's liability as expressed in Indian currency for payment of the whole or a part of the cost of the assets or of the loan in foreign currency, the original actual cost, to the assessee, of the machinery or plant or other capital asset, is required to be increased or, as the case may be, reduced, correspondingly for the following purposes:- "The above-mentioned adjustment to the original actual cost of the assessee to the imported capital asset is to be made in respect of the previous year in which there is an increase or reduction in the assessee's liability in terms of Indian currency for payment of the whole or part of the cost of the asset or for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired any capital asset from a country outside India for the purposes of his business or profession on deferred payment terms or against a foreign loan, before the date of devaluation of the rupee, the additional rupee liability incurred by him in meeting the instalments of the cost of the asset or of the foreign loan, as the case may be, falling due for payment after the date of devaluation, will be allowed to be added to the original actual cost of the asset for the purpose of calculating the allowance on account of depreciation in computing the profits for the assessment year 1967-68 and subsequent assessment years. Similarly increase in the original actual cost will be allowed to be made in respect of capital assets acquired by the assessee to be used in scientific research related to the class of business carried on by him or patent rights or copyrights acquired from abroad or any capital asset required by a company for the purpose of promoting family planning amongst its employees. Further, in computing the capital gains arising to the assessee on the sale or transfer of a capital asset acquired by him from abroad on deferred payment terms or against a foreign loan, the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, deducted from- (i) the actual cost of the asset as defined in clause (1) of section 43; or (ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub- section (1) of section 35; or (iii) the amount of expenditure of a capital nature referred to in section 35A; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid: Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts also provides for similar adjustment. However, provisions of section 43A were amended by the Finance Act, 2002 w.e.f. 1/3/2003 to provide that this adjustment is required to be made only at the time of making payment. In other words, prior to amendment of section 43A, adjustment was required to be made at the end of every year on account of rate fluctuation. This position was made amply clear by the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor (P) Ltd. (312 ITR 254): 30. Section 43A starts with a non obstante clause. Section 43A(1) overrides the other provisions only as regards cases falling under that sub-section. For instance, in a case where the asset is acquired, or the liability to pay in foreign exchange arises, after the change in the rate of exchange, the said sub-section has no application and the general principles of law must be applied in deciding whether the actual cost is increased or reduced as a result of such change. In other words, section 43A(1) applies only where as a result of change in the rate of exchange there is an increase or reduction in the liability of the assessee in terms of the Indian rupee to pay the price of any asset payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As a consequence of the insertion of the said section, it became possible to adjust the increase/decrease in liability relating to acquisition of capital assets on account of exchange rate fluctuation, in the actual cost of the assets acquired in foreign currency and for, inter alia, depreciation to be allowed with reference to such increased/decreased cost. This position is also made clear by Circular No. 5-P, dated 9-10-1967 issued by CBDT. One more point needs to be mentioned. Section 43A (unamended) corresponds to para 10 of AS-11 similarly providing for adjustment in the carrying cost of fixed assets acquired in foreign currency, due to foreign exchange fluctuation at each balance sheet date. The relevant para reads as follows : "10. Exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which carried in terms of historical cost, should be adjusted in the carrying amount of the respective fixed assets. The carrying amount of such fixed assets should, to the extent not already so adjusted or otherwise accounted for, also be adjusted to account for any increase or decrease in the liability of the enterprise, as expressed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the amended section is amendatory and not clarificatory in nature. 11.2 Thus, the principle enunciated in the above decision is that adjustment on account of foreign exchange rate fluctuation is required to be made to actual cost as at the end of every year prior to amendment of provisions of section 43A i.e. before 1/4/2003. In the present case, the assessment year involved is 2010-11. Therefore, amended provisions of section 43A are applicable. As per the amended provisions of section 43A, adjustment is required to be made in actual cost of the asset for the purpose of allowing depreciation only at the time of actual payment of such ECB borrowings. Therefore, we are of the considered opinion that the CIT(A) was right in holding that gains arising on account of exchange fluctuation are not liable to tax as it is on capital account and is required to be adjusted in the year of actual repayment of loan from the actual cost of asset. To this extent, the direction of the CIT(A) is modified and the grounds of appeal are partly allowed. 12. Ground No.3 challenges the direction of the CIT(A) in allowing a sum of Rs. 17,16,79,432/- out of Rs. 19,05,43,000/- under repairs and maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for set off against book profit, had considered amount of loss or depreciation on cumulative basis as per books of account, whereas the AO was of the view that the amount of loss or depreciation is to be considered on year to year basis in terms of CBDT circular No.495 dated 22/9/1987. Accordingly, the AO disallowed the entire claim of the assessee. However, on appeal before the CIT(A), the CIT(A) following the decision of the Hon'ble ITAT, Bombay in the case of Amline Textiles (P.) Ltd. vs. ITO (27 SOT 152) directed the AO to compute the amount of loss or depreciation on cumulative basis which is given as under: 17. Being aggrieved by this direction, the revenue is in appeal before us. 18. In the present ground, the dispute is with regard to method of computing amount of loss or depreciation, whichever is less, for the purpose of setting off against declared book profit for the year. The provisions of section 115JB read as under: Special provisions for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined liabilities; or d) the amount by way of provision for losses of subsidiary companies; e) or the amount or amounts of dividends paid or proposed ; or f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or g) the amount of depreciation h) the amount of deferred tax and the provision therefor, i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account and as reduced by - (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Cess on incometax, if any, as levied by the Central Acts from time to time. The said provisions have been considered by the co-ordinate bench of the Tribunal in the case of Amline Textiles (P.) Ltd.vs. ITO (27 SOT 152) and held as follows: "8. Section 115JB is a special provision for payment of tax by certain companies. Sub-section (1) contains the non obstante clause and provides that where the income-tax payable on the total income of a company as computed under this Act is less than 10 per cent of its book profit, then such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 10 per cent. Explanation (1) provides the mode of computing "book profit" by taking net profit as shown in the profit and loss accounts as its starting point to be increased by the items mentioned in clauses (a) to (h) debited to the profit & loss account and as reduced by the items specified in clauses (i) to (vii). At this stage it will be apt to consider the relevant part of this section as under :- "Explanation (1) - For the purposes of this section, 'book profit' means the net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been used in clause (iii) of Explanation (1) to section 115JB also, which is under consideration. Hence the judgment of the Hon'ble Supreme Court rendered in the case of Surana Steels (supra) is not relevant in the context of section 115JB, which specifically states that the loss shall not include depreciation. The net effect of the position as it now exists is that while computing the amount of loss brought forward, the amount of depreciation is not to be considered. In other words, the loss for the purposes of section 115JB has to be computed before depreciation. 11. The basic rule of interpretation of the provisions is the 'strict rule', that is, follow what has been expressly stated in the provision and go by the plain language of the section. It is not permissible to import any thing into statutory provision and read what is not explicitly provided. The need for unearthing the real intention arises only when the language of the section is ambiguous, vague or uncertain. With this basic principle of interpretation on hand, we move on to examine the rival contentions made by the parties as to whether clause (iii) it refers to consideration of year-wise separate figures of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the provision itself. In the absence of any specific mention in this regard in the clause, we are unable to infer such intendment. Since the language of the section is clear and does not admit of any doubt, we are not persuaded to interpret it in the way, the ld. DR impresses upon us to do. 14. The authorities below have concluded that year-wise determination of the amount of loss brought forward or unabsorbed depreciation is to be considered and if in a particular year - as in assessment year 2001-02 under consideration - there is no loss before depreciation, then the benefit of unabsorbed depreciation cannot be granted. In forming this opinion, assistance has been taken from the opening words of sub-section (1) of section 115JB as well as sub-section (5) of this section. Sub-section (1) starts with a non obstante clause : "Notwithstanding anything contained in any other provisions of this Act, ........" and sub-section (5) states that : "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." It is on the strength of these two sub-sections that the learned CIT(A) has decided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t' is liable to be reduced, in our considered opinion, there is no authority for falling upon the command of section 72 for holding that the business loss is to be considered on year to year basis and not as an aggregate figure for all years in unison. 16. There is one more reason for not approving the view taken by the authorities below. Section 72(3) restricts the period to which the loss can be carried forward to not more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. As per this section if there is a brought forward loss which is more than eight years old, that has to be abandoned and only the brought forward loss of less than the prescribed period can be carried forward for set off against the business income. On the contrary there is no prohibition in section 115JB as per which the amount of unabsorbed loss is to be discarded after the expiry of eight years from the year in which it was first computed. Even if loss is brought forward from 50 years back, that has also to be reckoned. To put it simply the amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as coming in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reduced for the purposes of computing "book profit" under section 115JB. As the aggregate amount of unabsorbed depreciation in respect of the four years is at Rs. 1,51,15,393 which is lower than the aggregate of the loss before depreciation at Rs. 2,40,75,717, in our considered opinion, the assessee had rightly claimed reduction for the lower amount of Rs. 1.51 crores. We, therefore, accept the assessee's contention on this point. 19. Applying the above legal position to the facts of the present case, as per audited financial statements, for the immediately preceding year i.e. March 2009, there was loss of Rs. 150,31,14,000/- which comprised of depreciation loss of Rs. 113,14,04,000/- and business loss of Rs. 37,17,10,000/- chart showing above loss as furnished by the assessee is placed at page 322 of the paper book which is as under: The lower of depreciation loss or business loss is required to be set off against book profit determined. In the present case, the amount of unabsorbed depreciation, loss is to be set off against book profit is required determined. In this case, there is unabsorbed depreciation loss of Rs. 113,14,04,000/- and business loss of Rs. Rs. 37,17,10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertently erred in facts in granting set-off of lower of brought forward business loss or unabsorbed depreciation of Rs. 193,159,000 only, as against Rs. 363,340,000 claimed by the Appellant in the return of income. 4. Interest levied under section 234B of the Act The learned CIT(A) erred in upholding the levy of interest under section 234B of the Act. 5. Interest levied under section 234D of the Act The learned CIT(A) erred in upholding the levy of interest under section 234D of the Act. 6. Initiation of penalty proceedings under section 271(1)(c) of the Act The learned CIT(A) erred in law and facts in not adjudicating on the ground of initiation of penalty proceedings by the Assessing Officer under section 271(1)(c) read with section 274 of the Act. 7. Relief The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal. 22. The first ground of appeal relates to disallowance of depreciation on intangibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement is necessary for the proper government of the Airport and to fulfill the obligation in the concession agreement in terms of standards and quality. * State Support Agreement The recital of the State support reflects the viability of the Airport. Beside the concession agreement, the state support from government of Karnataka commits an interest free debt of the company. * Land lease rights The Land lease rights agreement provides the company with a right to 3,884 acres of land in Devenahalli. The master plan of Bangalore Airport over fifty years has to be built on 3,884 acres of land. The AO denied the claim holding that the amount was incurred for availing legal, technical and management services which does not resulted in acquisition of any right of any nature. 23. On appeal before the CIT(A) the same was confirmed by the CIT(A) as under: 24. Being aggrieved, the assessee is in appeal before us. 24.1 It was argued that the above expenditure has resulted in acquisition of commercial right and following the law laid down by the Hon'ble Supreme Court in the case of CIT vs. Smifs Securites Ltd. (2012)24 taxmann.com 222 (SC). Therefore, expenditure qualifies for depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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