Foreign exchange fluctuation loss and depreciation disallowance in tax appeal: remand for reconsideration; depreciation disallowance upheld.

Challenge to disallowance of foreign exchange fluctuation loss was remitted for fresh consideration by the Tribunal in light of the principle in Azadi Bachao Andolan, with the substantial question answered to the extent that the Tribunal must re-examine the issue in favour of the assessee. Separate challenge to partial disallowance of depreciation claimed for a Gurgaon building leased to a subsidiary was upheld against the assessee, with the High Court affirming the Tribunals and assessing authorities conclusion that depreciation claim is not allowable under the facts, resulting in an outcome favourable to the Revenue.

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Issues: (i) Whether the Tribunal was justified in confirming disallowance of foreign exchange fluctuation loss on account of change in value of loan to a Mauritius subsidiary; (ii) Whether the Tribunal erred in treating the subsidiary's acquisition as acquisition by the appellant contrary to the separate legal entity principle; (iii) Whether the Tribunal was justified in sustaining disallowance of part depreciation for Gurgaon office building in relation to the let out portion to Apollo International Ltd; (iv) Whether the Tribunal erred in sustaining part depreciation disallowance ignoring the block of assets concept.

Issue (i): Whether the Tribunal was justified in confirming disallowance of foreign exchange fluctuation loss on loan to Mauritius subsidiary.

Analysis: The Court found this question covered by the view taken in a connected appeal (ITA No.272/2013) and directed that the matter requires re-examination by the Tribunal in light of relevant Supreme Court authorities; the Tribunal's reasoning is to be reconsidered on remand.

Conclusion: Question (i) is remitted to the Tribunal for reconsideration in favour of the assessee to the extent of reconsideration.

Issue (ii): Whether treating the subsidiary's acquisition as acquisition by the appellant violates the separate legal entity principle.

Analysis: The Court observed that this legal question is linked to the need for the Tribunal to re-examine the matter in accordance with the principle in Azadi Bachao Andolan and related authorities and directed reconsideration by the Tribunal.

Conclusion: Question (ii) is remitted to the Tribunal for fresh consideration in favour of the assessee to the extent of reconsideration.

Issue (iii): Whether the Tribunal was justified in sustaining disallowance of part depreciation for the Gurgaon office building relating to the let out portion.

Analysis: The Court followed its earlier decision in the connected appeal (ITA No.26/2013) and adopted the same reasoning as the Tribunal and tax authorities in upholding the disallowance of part depreciation.

Conclusion: Question (iii) is answered against the assessee and in favour of the Revenue.

Issue (iv): Whether the Tribunal erred in sustaining part depreciation disallowance by ignoring the block of assets concept.

Analysis: The Court applied the reasoning adopted in the connected appeal and confirmed that the block of assets concept does not alter the conclusion reached on the disallowance in the facts of this case.

Conclusion: Question (iv) is answered against the assessee and in favour of the Revenue.

Final Conclusion: The appeal is allowed in part by remitting issues (i) and (ii) to the Tribunal for fresh consideration; issues (iii) and (iv) are decided against the assessee in favour of the Revenue.

Ratio Decidendi: Issues involving treatment of transactions with a subsidiary and characterization of acquisition must be re-examined by the Tribunal in light of the separate legal entity principle and relevant Supreme Court precedents, while depreciation disallowance in respect of let-out portions may be sustained on the facts despite the block of assets concept.

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