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TMI Blog2023 (8) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... On the contrary the judgments relied on behalf of the assessee expressly held that as assessee has not claimed any exempt income, no disallowance u/s 14A is required. Ground is allowed in favour of assessee. Disallowance on account of depreciation - damaged assets as for the destroyed - AO had directed the disallowance of depreciation, on the understanding, that the WDV is liable to be adjusted with the Claim amount raised with the insurance company - CIT(A) also sustained the addition with the further reasoning that if the assets were destroyed or lost in the earlier years then such an asset was not put to use for the business purpose, therefore entire claim of depreciation of such use plant and machinery has to be disallowed - HELD THAT:- The order of Ld.CIT(A) on basis of non use of assets is not sustainable. CIT(A) erred in giving directions to Ld AO to examine the insurance claim of the appellant and identify assets which were required to be replaced as these had got destroyed and those which were damaged and required repair and that the WDV will be reduced in respect of only those assets which were destroyed is not sustainable. In relevant year the Assessee was not requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of share capital, Reserve and surplus, Deferred Tax Liability and accumulated depreciation of Rs. 14542 lacs against investment in shares of Rs. 996 lacs. The assessee further relied upon the decision of the Hon ble High Court of Delhi in the case of CIT vs. Oriental Engineers Pvt. Ltd. However AO had made disallowance u/s 14 A by applying rule 8 D ; 2.2 In regard to 2nd addition, during the course of assessment proceedings, the assessee company was asked to show cause as to why loss on foreign exchange fluctuation on ECB may not be added to taxable income on the similar lines as in earlier assessment years. In response to query raised, the assessee company has furnished the reply stating therein that with regard to the Forex Exchange Loss on ECB Rs. 1,03,34,504/-, there was no change in the facts of the case compared with the earlier years and the Ld. CIT(A) has deleted the said addition in the AY 2009-10. However, relying Sutlej Cotton Mills V CTR (SC) 155(1979) the Ld AO observed that as the term loan was taken for fixed assets later on converted into USD the loss is not admissible u/s 37(1) of the Act. 2.3 In regard to 3rd addition, during the course of assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head mechanical and the Digester amounting to Rs 1,77,66,854/- and Rs 85,57,096/- which were destroyed in fire. As Ld AO found them not verifiable in nature of revenue expenditure an amount to extent 20%, i.e Rs 52,64,790 was considered to be capital in nature and added back to the total income. 3. The Ld CIT(A) had partly allowed the appeal so Revenue has come in appeal raising following grounds :- 1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of 'foreign exchange fluctuation loss of Rs 1,03,34,504/- on External Commercial Borrowing (ECB) which was illegally diverted for other than prescribed purpose without considering Explanation 1 to section 37(1) of the Income Tax Act, 1961 (the Act)? 2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of 'foreign exchange fluctuation loss of Rs 1,03,34,504/- on External Commercial Borrowing (ECB) even when the assessee had not discharged its primary onus u/s 37(1) of the Act? 3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in setting as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Ground no 1 and 2 of Revenue s Appeal. As for the disallowance of foreign exchange fluctuation loss of Rs. 1,03,34,504/- it can be observed that Ld. CIT(A) has followed the Hon ble Delhi High Court s order dated 03.08.2018 in regard to assessee s own case where considering the ECB loan as an old one the treatment of the foreign exchange fluctuation as revenue income or loss was sustained and Ld. DR was unable to cite any change of facts or law. There is no force in the ground raised by Revenue. 7. Ground no 1 of Assessee s Appeal . The issue is with regard to addition of Rs. 4,98,412/- made by Ld. AO on account of disallowance u/s 14A read with rule 8D. It appears admitted from the matter on record that during the year under consideration, no exempt income has been earned by the assessee and ld. CIT(A) has although taken note of judgment of Hon ble Delhi High Court in Maxopp Investment Ltd. 203 taxmann.com 364 but failed to distinguish it on facts, as present assessee had no exempt income. On the contrary the judgments relied on behalf of the assessee expressly held that as assessee has not claimed any exempt income, no disallowance u/s 14A is required. Ground is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Next Section 43(6) (c) of the Act which defines the written down values provides : (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted, -- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and 11. The Ld. AO had directed the disallowance of depreciation, on the understanding, that the WDV is liable to be adjusted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjusted in the relevant AY as the insurance claim amount was not received. As such the assessee was not even aware as to what is the value of loss assessed by the insurance company which can be reflected by way of adjustment in WDV. Therefore, distinguishing assets as one destroyed or damaged is irrelevant in relation to assets for which the insurance claim was raised. As such the claim may also have been raised for the damaged assets as for the destroyed. The distinction created by Ld. CIT(A) on the basis of judgment of Bombay Tribunal in JR Enterprises vs. ACIT 124 ITAT 493 (ITA No. 5124/Mum/2005) decided on 30.06.2008 is not sustainable. In that case the assessee had received the insurance settlement amount in the same. So the distinction may have been relevant. 12.1 The Mumbai Bench in ITA No. 2824/Mum/2014 vide order dated 01.12.2015, case titled Hathway Cable and Datacom Limited vs. CIT, 2015 SCC Online ITAT 14736, was confronted with similar situation. In that case the assessee had made additions in plant and machinery to the extent of Rs. 23,55,968/- to the block of assets which was stated to be adjustment on account of lower amount of insurance claim received. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly those assets which were destroyed is not sustainable. In relevant year the Assessee was not required to adjust the WDV of the block of assets, for the amount of insurance claim submitted irrespective of assets being of the category destroyed or damaged. Grounds of assessee is allowed. 14. Ground no 3 of Assessee s Appeal and 3 to 5 of Revenue s appeal . In regard to the disallowance of repair and maintenance expenditure treating the same as capital expenditure. It was submitted on behalf of the assessee that assets replaced were existing assets and no new asset has come into the existence. Therefore, the expenditure cannot be considered to be of capital nature. Ld. Counsel relied the following judgments to contend that where no new asset has come into existence and expenses have been incurred with the objected of preserving and maintaining the asset for the purpose of huge in the business demolished due to fire, the same shall be treated as revenue expenditure : 1 . Precision Wires India Ltd. vs. ACIT R/T ax Appeal No. 307 of 2008 Dtd. 11 Feb. 2020 Gujarat High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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