2013 (3) TMI 397 - AT - Income Tax

Tribunal upholds lower authority decisions, confirms sales suppression addition, allows pre-amendment capitalization, denies unabsorbed depreciation set-off.

Filatex India Ltd. Versus Department of Income Tax

Filatex India Ltd. Versus Department of Income Tax - TMI Issues Involved:1. Addition as income from undisclosed sources representing suppression of sales on account of under-valuation of sales of waste.2. Disallowance on account of foreign exchange fluctuation loss included in the WDV of plant and machinery.3. Non-allowance of set-off for unabsorbed depreciation.Detailed Analysis:Issue 1: Addition as Income from Undisclosed Sources Representing Suppression of Sales on Account of Under-Valuation of Sales of WasteSummary of Facts:- The search and seizure activities at the assessee's office revealed under-valuation of waste sales.- The Excise Department found that the waste was sold at Rs. 5.5 per kg instead of the actual price of Rs. 20 per kg.- The differential value of sales was calculated at Rs. 91,81,006/- for the financial years 2000-01 to 2004-05.- The assessee had filed a petition before the Central Excise Settlement Commission and paid duty on the differential value.Assessee's Argument:- The excise duty was paid to avoid prolonged litigation and not because of actual suppression of sales.- The alleged suppression of sales should be considered as income in the assessment year 2008-09.Commissioner of Income Tax (A)'s Decision:- The Commissioner confirmed the addition, stating that the under-valuation was detected by the Intelligence Wing of the Excise Department.- The assessee's own admission of suppressed sales amounting to Rs. 91,84,006/- was taken as a basis for the addition.Tribunal's Decision:- The Tribunal upheld the Commissioner's decision, noting that the assessee's acceptance before the Excise Settlement Commission and payment of excise duty substantiated the suppression of sales.- The Tribunal found no infirmity in the orders of the authorities below and decided the case against the assessee.Issue 2: Disallowance on Account of Foreign Exchange Fluctuation Loss Included in the WDV of Plant and MachinerySummary of Facts:- The assessee capitalized the adverse impact of foreign exchange fluctuation in the value of plant and machinery.- The Assessing Officer disallowed depreciation on this amount, considering it a notional loss under section 43A of the Act.Assessee's Argument:- Prior to the amendment of section 43A, it was permissible to increase the value of assets by the amount of loss suffered due to foreign exchange fluctuation.- The assessee relied on the decision of the Hon'ble Apex Court in the case of Arvind Mills Ltd. 193 ITR 255.Commissioner of Income Tax (A)'s Decision:- The Commissioner allowed the assessee's appeal, stating that before the amendment to section 43A, any loss due to foreign exchange fluctuation had to be capitalized in the year of such fluctuation.Tribunal's Decision:- The Tribunal agreed with the Commissioner that the amendment to section 43A was prospective and upheld the decision to allow capitalization of the foreign exchange fluctuation loss for assessment years prior to 2003-04.- The Tribunal found no infirmity in the Commissioner's order and dismissed the revenue's appeal on this issue.Issue 3: Non-Allowance of Set-Off for Unabsorbed DepreciationSummary of Facts:- The Assessing Officer rejected the assessee's claim for setting off Rs. 4,17,94,000/- as unabsorbed depreciation.Commissioner of Income Tax (A)'s Decision:- The Commissioner upheld the Assessing Officer's decision, referencing the ITAT, Mumbai's decision in the case of Metmine Investment & Trading Pvt. Ltd. vs. I.T.O.Tribunal's Decision:- The Tribunal upheld the Commissioner's order, noting that the assessee's counsel conceded that the issue should be decided against the assessee.- The Tribunal decided the issue against the assessee and upheld the order of the Commissioner.Conclusion:All the appeals filed by the assessee and revenue were dismissed. The Tribunal upheld the decisions of the lower authorities on all issues, confirming the addition for suppression of sales, allowing capitalization of foreign exchange fluctuation loss prior to the amendment of section 43A, and denying the set-off for unabsorbed depreciation.