2019 (6) TMI 1436 - AT - Income Tax

Revenue appeals dismissed, CIT(A) decisions upheld on depreciation, forex losses, speculation loss treatment. Consistency key.

The Tribunal dismissed all three appeals filed by the revenue, upholding the CIT(A)'s decisions on disallowance of depreciation on infrastructure ... Disallowance of deprecation of infrastructure facility - HELD THAT:- As decided in own case [2017 (3) TMI 28 - ITAT AHMEDABAD] Claim of the assessee for depreciation on infrastructural facility existed since 2004-05 should not be disturbed after referring a number of judicial pronouncements. In the case of ACIT vs. S.K. Patel Family Trust [2012 (6) TMI 790 - GUJARAT HIGH COURT] the Hon’ble Gujarat High Court has held that wherein deprecation on certain asset had been allowed in earlier years could not be disallowed merely on the ground that such assets were not put to use during the year under consideration. In the case of HSBC Asset Management India Pvt. Ltd. vs. Deputy Direction of Income [2011 (6) TMI 866 - ITAT MUMBAI] the ITAT Mumbai has held that the assessing officer cannot dispute the opening WDV of block asset after having allowed the depreciation in the immediately preceding years and does not open to the assessing officer to take different stand. In the light of the judicial findings and the facts reported in the finding of ld. CIT(A), we do not find any infirmity in the decision of ld. CIT(A). Accordingly, this ground of appeal of the revenue is dismissed. Disallowance of foreign exchange losses - HELD THAT:- The assessee company had entered into foreign currency forward contracts with banks in terms of prevalent RBI guideline which mandates entering of foreign currency contracts only with banks. In view of the above and after considering the detailed finding and judicial pronouncement referred in the decision of ld. CIT(A) as elaborated above in this order, we consider that foreign exchange loss on account of forward contract incurred by the assessee from year to year basis was correctly allowed by the ld. CIT(A). Therefore, we do not find any irregularity in the order of the ld. CIT(A), therefore, the appeal of the revenue on this issue is dismissed. Similarly, disallowance of realised foreign exchange loss by the assessing officer by treating the same as speculation loss u/s. 43(5)(d) of the act is not justified. Since the assessee was not the dealer in foreign exchange but providing the operating container handling terminal services and there was no purchase or sale of commodity settled otherwise than actual delivery, therefore, the same cannot be termed as speculation transaction in the case of the assessee. After considering the detailed finding of ld. CIT(A) and submission of the assessee produced of the ld. CIT(A), we do not find any substance in the finding of assessing officer treating the foreign exchange loss as speculative loss, therefore, this ground of appeal of the revenue is also dismissed. Disallowance of 14A - HELD THAT:- We consider that the Hon’ble Gujarat High court in the case of Corrtech Energy Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT] has held that where the assessee has not claimed any exempt income, no disallowance u/s. 14A can be made. In view of the above and the elaborate finding of the ld. CIT(A), we do not find any merit in this ground of appeal of the revenue, therefore, the same is dismissed. Issues Involved:1. Disallowance of depreciation on infrastructure facility.2. Disallowance of foreign exchange losses.3. Treatment of speculation loss as business loss.4. Disallowance under Section 14A of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Infrastructure Facility:The revenue challenged the deletion of disallowance of depreciation amounting to Rs. 10,13,23,469/- on infrastructure usage facility. The assessee had claimed depreciation on the infrastructure facility developed by Mundra Port and Special Economic Zone (MPSEZ), treating it as an intangible asset. The assessing officer disallowed this claim, arguing that the right to use the infrastructure facility is not similar to intangible assets as per section 32 of the Income Tax Act. However, the CIT(A) allowed the appeal of the assessee, noting that the depreciation had been consistently allowed from assessment year 2004-05 to 2011-12. The CIT(A) emphasized that once an asset enters the block of assets, it loses its individual character and depreciation should be allowed on the block of assets. The Tribunal upheld the CIT(A)'s decision, stating that the depreciation claim on the infrastructure usage facility should not be disturbed as it had been consistently allowed in previous years.2. Disallowance of Foreign Exchange Losses:The revenue contested the deletion of disallowance of foreign exchange loss amounting to Rs. 92,22,371/- (unrealized) and Rs. 2,33,24,764/- (realized). The assessing officer treated the realized foreign exchange losses as speculation loss under section 43(5)(d) and disallowed the unrealized loss as notional. The CIT(A) allowed the appeal of the assessee, stating that the foreign exchange losses were incurred on forward contracts to hedge foreign currency exposure arising from revenue transactions. The CIT(A) referred to various judicial pronouncements, including the Supreme Court's decision in the case of Oil & Natural Gas Corporation Vs. CIT and CIT Vs. Woodward Governor India Pvt. Ltd., which supported the assessee's claim. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had consistently followed the method of accounting for foreign exchange losses and gains, and the losses were on revenue account and not speculative.3. Treatment of Speculation Loss as Business Loss:The revenue challenged the CIT(A)'s decision to treat the speculation loss of Rs. 2,33,24,764/- as business loss. The assessing officer had treated the realized foreign exchange losses as speculation loss under section 43(5)(d). The CIT(A) held that the provisions of section 43(5)(d) were not applicable as the assessee did not engage in speculative transactions but entered into forward contracts to hedge foreign currency receivables/payables. The CIT(A) referred to judicial pronouncements, including the Gujarat High Court's decision in CIT Vs. Friends and Friends Shipping Pvt. Ltd., which supported the assessee's claim. The Tribunal upheld the CIT(A)'s decision, stating that the foreign exchange losses were incidental to the assessee's business and not speculative.4. Disallowance under Section 14A of the Income Tax Act:The revenue contested the deletion of disallowance of Rs. 35,00,000/- under section 14A. The assessing officer made the disallowance on the grounds that the assessee had shown investment in shares but had not shown any expenses incurred for earning exempt income. The CIT(A) deleted the disallowance, following various judicial pronouncements that no disallowance under section 14A could be made when the assessee had not claimed any exempt income. The Tribunal upheld the CIT(A)'s decision, referring to the Gujarat High Court's decision in Corrtech Energy Ltd. which held that no disallowance under section 14A can be made if no exempt income is claimed.Conclusion:In conclusion, the Tribunal dismissed all three appeals filed by the revenue, upholding the CIT(A)'s decisions on all the issues involved. The Tribunal emphasized consistency in the assessee's accounting methods and referred to various judicial pronouncements supporting the assessee's claims. The order was pronounced in the open court on 28-06-2019.