Revenue's Appeal Partially Allowed: Exchange Rate Disallowed, Depreciation Allowed

The Tribunal partly allowed the Revenue's appeal, disallowing the exchange rate difference for deduction u/s. 80IB but allowing depreciation on the plant. The Tribunal found the gain from hedging not directly linked to export sales, unlike the case law relied upon by the assessee. The depreciation on the plant was allowed based on evidence of complementary work between units. The decision was pronounced on 09-06-2016.

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Issues:
1. Allowance of exchange rate difference for deduction u/s. 80IB of the Act.
2. Allowance of depreciation on plant.

Analysis:
1. Exchange Rate Difference for Deduction u/s. 80IB:
The appeal by the Revenue challenged the order of Ld. CIT(A) allowing the exchange rate difference for deduction u/s. 80IB of the Act. The assessee, engaged in manufacturing, claimed deduction for the exchange rate difference. The A.O. rejected the claim, citing the principles from the case of Sterling Food. The ld. CIT(A) favored the assessee, relying on the decision of the Hon'ble High Court of Gujarat in the case of Amba Impex. The Tribunal noted the substantial question of law before the High Court regarding the treatment of exchange rate differences on exports. However, the Tribunal found dissimilarity in the present case where the gain arose from hedging, not directly linked to export sales. Hence, the Tribunal set aside the CIT(A)'s decision and restored that of the A.O., disallowing the exchange rate difference for deduction u/s. 80IB.

2. Depreciation on Plant:
Regarding the depreciation on plant amounting to &8377; 20,32,557, the A.O. disallowed it as the business activities at Unit-I were not conducted during the year. The assessee explained the complementary nature of work between Unit-I and Unit-II, supported by evidence of plant and machinery usage. The ld. CIT(A) found merit in the assessee's case, allowing the depreciation. The Tribunal upheld the CIT(A)'s decision, noting that it was based on direct evidence and declined to interfere. Therefore, the depreciation on the plant was allowed as per the law.

In conclusion, the appeal filed by the Revenue was partly allowed, disallowing the exchange rate difference for deduction u/s. 80IB but allowing the depreciation on the plant. The Tribunal's decision was pronounced on 09-06-2016.

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