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Issues: (i) Whether depreciation could be claimed on foreign exchange fluctuation capitalised on account of cancellation of foreign exchange covers; (ii) whether 100% depreciation was admissible on forklift trucks under the relevant entry in Appendix I to the Income Tax Rules, 1962; (iii) whether advances written off as irrecoverable were allowable as revenue deduction.
Issue (i): Whether depreciation could be claimed on foreign exchange fluctuation capitalised on account of cancellation of foreign exchange covers.
Analysis: The claim was found to fall outside the scope of section 43A of the Income-tax Act, 1961. The amount represented expenditure incurred for getting rid of forward contracts and did not amount to a loss arising from exchange fluctuation in the manner asserted. On that footing, the assessee could not claim depreciation on the amount capitalised.
Conclusion: The issue was answered in favour of the Revenue and the claim for depreciation was not allowable.
Issue (ii): Whether 100% depreciation was admissible on forklift trucks under the relevant entry in Appendix I to the Income Tax Rules, 1962.
Analysis: The relevant entry in Appendix I, Part A, item III(3)(xiii)(o) covered electrically operated vehicles, including battery-powered or fuel-cell-powered vehicles, for 100% depreciation. The forklift trucks fell within that category.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (iii): Whether advances written off as irrecoverable were allowable as revenue deduction.
Analysis: The finding that the advances were incidental to the business remained undisturbed. Applying the distinction between capital and revenue outgoings, the write-off was treated as a loss arising in the course of business and not as a capital loss.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Final Conclusion: Three questions were decided on merits, with the Revenue succeeding on the depreciation claim relating to foreign exchange fluctuation and failing on the remaining two issues. The first question was kept pending for further hearing and judgment.
Ratio Decidendi: A deduction or depreciation claim is allowable only where the expenditure or loss is shown to be of the legally relevant revenue character or within the specific statutory allowance; amounts outside the scope of the governing provision cannot be converted into depreciation merely because they have been capitalised.
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