2023 (5) TMI 1345 - AT - Income Tax

Revenue's appeal dismissed on additional depreciation claim under section 32(1)(iia) for plant machinery operating under 180 days

The ACIT, Corporate Circle-3 (1), Chennai Versus Tamilnadu Newsprint and Papers Ltd. And (Vice-Versa)

ITAT Chennai dismissed Revenue's appeal regarding additional depreciation disallowance under section 32(1)(iia). The tribunal held that when plant and ... Disallowance of 50% of additional depreciation - depreciable assets which were installed less than 180 days - claim of 10% (50% of 20%) in the first year and balance 10% in the second year - new machineries were purchased and installed in financial year 2007-08 pertaining to assessment year 2008-09, thus CIT(A) deleted addition - HELD THAT:- Only dispute is as regards to additional depreciation claimed by assessee u/s. 32(1)(iia) of the Act, which was substituted w.e.f. 01.04.2006. No contrary decision was given during the hearing and the issue seems covered by the decision of Rittal India Pvt. Ltd. [2016 (1) TMI 81 - KARNATAKA HIGH COURT] as held The word 'shall' used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. Thus we dismiss this issue of Revenue’s appeal. The appeal of the Revenue is dismissed. Characterization of income - notional exchange gain on reinstatement of foreign currency loan - addition made by AO treating the same as revenue income as against claimed by assessee as capital in nature - HELD THAT:- We noted that now the assessee has filed complete details and tried to prove that this foreign currency gain is arising out of Mill Development Plan which is an expansion project of the assessee company. The AO needs to verify all these details and for this purpose, matter has to go back to the file of the AO. Needless to say, that the assessee will file complete details before AO as to how the foreign currency loans were utilized for the purpose of expansion of project of mill development and for not any other purpose. In term of the above, we remit this issue back to the file of the AO. Disallowance u/s 14A r.w.r.8D - disallowance in regard to expenses claimed against the exempt income - HELD THAT:- We noted that the AO has made disallowance under Rule 8D(2)(iii) i.e., average value of investment of Rs. 4,57,368/- and the CIT(A) enhanced the disallowance to the extent of exempt income i.e., dividend income earned by assessee i.e., Rs. 18,28,080/-. The issue is now covered by the decision of Cheminvest Ltd.[2015 (9) TMI 238 - DELHI HIGH COURT] wherein it is held that disallowance u/s. 14A r.w. rule 8D can be made to the extent of exempt income earned by the assessee. CIT(A) has simply followed the decision of Hon’ble Delhi High Court and for which he has not committed any infirmity, hence we affirm the order of CIT(A) and accordingly, this issue of assessee is dismissed. Disallowance of forward premium treating the same as capital expenditure by applying the provisions of section 43A - HELD THAT:- We do not agree with the contention of the assessee for the reason that the provisions of section 43A of the Act specifically provides that the amount of increase or decrease in the liability due to fluctuation in exchange rate should be adjusted against the actual cost of the capital expenditure or the cost of acquisition of capital asset. When the terms of Section 43A of the Act are fulfilled, it is mandatory to take the actual cost, capital expenditure or the cost of acquisition at a higher or lower figure for the purposes of depreciation allowance irrespective of whatever might have been the position de hors the provision. This provision has been interpreted in the case of CIT vs. Elgi Rubber Products Ltd., [1995 (2) TMI 4 - MADRAS HIGH COURT] wherein it has been held that having regard to the provisions of section 43A of the Act, the additional amount paid to the ICICI due to fluctuation in exchange rate was capital in nature and not revenue. Similarly, in the case of CIT vs. South India Viscose Ltd., [1996 (11) TMI 32 - MADRAS HIGH COURT] held a similar view that the amount paid as difference in exchange value resulting in higher installment paid due to exchange fluctuation in respect of loans taken from foreign banks for purchase of machinery, is capital in nature. In view of the above, we are of the view that the AO and CIT(A) has rightly disallowed the expenditure claimed by assessee and we affirm the same. Therefore, the appeal of the assessee is dismissed. Issues Involved:1. Deletion of disallowance of 50% additional depreciation.2. Addition of notional exchange gain on reinstatement of foreign currency loan.3. Disallowance of expenses claimed against exempt income u/s 14A r.w. Rule 8D.4. Disallowance of forward premium treating the same as capital expenditure u/s 43A.Summary:1. Deletion of Disallowance of 50% Additional Depreciation:The Revenue's appeal contested the CIT(A)'s decision to delete the disallowance of 50% additional depreciation made by the AO. The AO had denied the additional depreciation claimed by the assessee u/s 32(1)(iia) of the Act, arguing that further depreciation is not allowable in any subsequent assessment year. The CIT(A) allowed the claim following the decisions of ITAT, Chennai Bench and Hon'ble Karnataka High Court, which held that the balance 10% additional deduction can be availed in the subsequent assessment year. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision.2. Addition of Notional Exchange Gain on Reinstatement of Foreign Currency Loan:The assessee's appeal challenged the addition of notional exchange gain of Rs. 13,97,10,757/- as revenue income. The AO treated the gain as revenue receipt based on the mercantile system of accounting and Accounting Standard-11. The CIT(A) upheld the AO's decision, citing the Supreme Court's ruling in Woodward Governor India Pvt. Ltd., which mandates treating foreign exchange gain as income. The Tribunal remitted the issue back to the AO for verification of details, as the assessee provided additional evidence that was not previously examined.3. Disallowance of Expenses Claimed Against Exempt Income u/s 14A r.w. Rule 8D:The assessee's appeal also contested the CIT(A)'s enhancement of disallowance to Rs. 18,28,080/- under Rule 8D(2)(iii), which was initially Rs. 4,57,368/- by the AO. The CIT(A) followed the decision of Hon'ble Delhi High Court in Cheminvest Ltd., which allows disallowance u/s 14A r.w. Rule 8D to the extent of exempt income earned. The Tribunal affirmed the CIT(A)'s order, dismissing the assessee's appeal on this issue.4. Disallowance of Forward Premium Treating the Same as Capital Expenditure u/s 43A:In another appeal, the assessee challenged the disallowance of forward premium of Rs. 4,04,25,325/- treated as capital expenditure. The AO and CIT(A) applied the provisions of section 43A, treating the forward premium related to foreign currency loans for capital expenditure as capital in nature. The Tribunal upheld the disallowance, referencing the provisions of section 43A and relevant case law, affirming the decisions of the AO and CIT(A).Conclusion:- The Revenue's appeal in ITA No. 940/CHNY/2017 is dismissed.- The assessee's appeal in ITA No. 895/CHNY/2017 is partly allowed for statistical purposes.- The assessee's appeal in ITA No. 896/CHNY/2017 is dismissed.