Tribunal upholds CIT(A)'s decision on windmill depreciation & forex loss, Assessee's cross objection dismissed.

The Tribunal upheld the CIT(A)'s decisions to delete the disallowances related to additional depreciation on the Windmill and the foreign exchange hedging loss. The Assessee's Cross Objection was also dismissed. The judgment was pronounced on 30-06-2014.

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Issues Involved:
1. Deletion of disallowance made on account of additional depreciation of Windmill.
2. Deletion of disallowance on account of foreign exchange hedging loss.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Made on Account of Additional Depreciation of Windmill
During the assessment proceedings, the Assessing Officer (A.O.) disallowed the additional depreciation claimed by the Assessee on a Windmill amounting to Rs. 1,87,57,882/-. The A.O. argued that the Windmill was not used in the manufacturing process of the Assessee, thus making the Assessee ineligible for additional depreciation under Section 32(1)(iia) of the Income Tax Act. The Assessee contended that the law does not require the new machinery to have operational connectivity with the manufactured articles. The CIT(A) sided with the Assessee, referencing the Madras High Court's decisions which supported the claim that the machinery need not be operationally used for manufacturing articles or things. The CIT(A) concluded that the Assessee fulfilled all conditions for claiming additional depreciation and deleted the disallowance.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, noting that the Assessee was engaged in manufacturing and had installed a Windmill. The Tribunal cited the Gujarat High Court decision in CIT vs. Diamines and Chemicals Ltd., which clarified that setting up a Windmill is not related to the power industry but rather to the business of manufacturing. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance on Account of Foreign Exchange Hedging Loss
The A.O. noticed a claimed loss of Rs. 5,89,29,812/- due to foreign exchange derivatives and disallowed it, labeling it as an unrealized, notional, and speculative loss. The Assessee argued that the loss resulted from hedging transactions undertaken to minimize foreign exchange risk related to import purchases. The CIT(A) accepted the Assessee's explanation, noting that the transactions were part of normal business operations and aimed at hedging against foreign exchange fluctuations. The CIT(A) concluded that the loss was revenue in nature and not speculative, thus deleting the disallowance.

The Tribunal supported the CIT(A)'s decision, emphasizing that the Assessee's foreign exchange dealings were in the normal course of business and backed by trading liabilities. It cited the Supreme Court's decision in CIT vs. Woodward Governor India Pvt. Ltd., which allowed such losses as business expenditure. The Tribunal found no evidence from the Revenue to counter the CIT(A)'s findings and dismissed the Revenue's appeal on this ground.

Conclusion
The Tribunal dismissed the Revenue's appeal on both grounds, upholding the CIT(A)'s decisions to delete the disallowances related to additional depreciation on the Windmill and the foreign exchange hedging loss. Consequently, the Assessee's Cross Objection (C.O.) was also dismissed. The judgment was pronounced in open court on 30-06-2014.

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