Tribunal allows appeal, rejects revenue receipt treatment, allows investment allowance on exchange rate fluctuation.

The tribunal partly allowed the appeal, rejecting the treatment of Rs. 1,35,000 as a revenue receipt and the disallowance of Rs. 1,83,217 under Section 43B. However, the claim for investment allowance on exchange rate fluctuation capitalized during the year was allowed, with the tribunal finding that the assessee is entitled to investment allowance under Section 32A. The tribunal distinguished the case from previous decisions and held that the actual cost should include the increased figure due to exchange rate fluctuations.

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Issues Involved:
1. Treatment of Rs. 1,35,000 as revenue receipt.
2. Disallowance of Rs. 1,83,217 under Section 43B of the Income-tax Act, 1961.
3. Claim of investment allowance on exchange rate fluctuation capitalized during the year.

Detailed Analysis:

1. Treatment of Rs. 1,35,000 as Revenue Receipt:
The first grievance of the assessee was that the CIT(A) had legally gone wrong in treating a sum of Rs. 1,35,000 as revenue receipt. However, this ground was not pressed by the assessee's counsel and, therefore, was rejected by the tribunal.

2. Disallowance of Rs. 1,83,217 under Section 43B:
The second issue was the disallowance of Rs. 1,83,217 under Section 43B of the Income-tax Act, 1961. The assessee's counsel admitted that the decision of the jurisdictional Delhi High Court was against the assessee but requested that the issue be decided on merit. The Departmental Representative relied on the decisions of the Delhi High Court in the cases of Union of India vs. Sanghi Motors and Escorts Ltd. vs. Union of India. After considering the rival submissions and the material on record, the tribunal found that the Delhi High Court had taken a view against the assessee. Therefore, in light of the High Court's decisions, the tribunal did not find any justification to interfere and rejected this ground.

3. Claim of Investment Allowance on Exchange Rate Fluctuation:
The main ground of the assessee related to the claim of investment allowance on exchange rate fluctuation capitalized during the year. The assessing officer rejected the claim, citing Section 43A(ii) which states that the provisions of sub-section (i) shall not be taken into account in computing the actual cost of an asset for the purpose of the deduction on account of development rebate under Section 33. The AO argued that the provisions of Section 32A, introduced in 1976, are similar to those of the development rebate, and the claim of investment allowance on account of exchange fluctuations would render other subsections otiose.

The CIT(A) supported the AO's view, referring to the scope of Section 43A and relevant judicial pronouncements and circulars. The CIT(A) concluded that the provisions relating to the grant of investment allowance are in pari materia with those governing the grant of development rebate. The CIT(A) upheld the AO's action, noting that it would be practically impossible to give any such allowance due to fluctuating rates and the timing of loan repayments.

The assessee's counsel argued that investment allowance under Section 32A is based on the "actual cost" of machinery, which includes price fluctuations. They cited the Supreme Court's decision in CIT vs. Arvind Mills Ltd., which held that the actual cost of machinery should be computed after considering exchange rate fluctuations. The counsel also referred to various Tribunal decisions supporting the claim for investment allowance on increased costs due to exchange fluctuations.

The Departmental Representative relied on the CIT(A)'s order and the Tribunal's decision in the case of Dalmia Cement (Bharat) Ltd., which denied investment allowance due to exchange rate fluctuations in subsequent years. However, the assessee's counsel distinguished the facts of the present case, noting that the machinery was put to use in the same year as the exchange fluctuation and the year of profit.

After considering the rival submissions and the material on record, the tribunal concluded that the assessee is entitled to investment allowance under Section 32A. The tribunal noted that the provisions of Sections 32A and 33 are not in pari materia, and the actual cost should include the increased figure due to exchange rate fluctuations. The tribunal allowed the ground, distinguishing the facts of the present case from those in the Dalmia Cement (Bharat) Ltd. case.

Conclusion:
The appeal was partly allowed, with the tribunal rejecting the first two grounds and allowing the claim for investment allowance on exchange rate fluctuation capitalized during the year.

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