ITAT allows depreciation on exchange loss from FCCB funds, restores TP adjustment matter for fresh examination

The ITAT Delhi allowed the assessee's appeal on two issues. First, regarding TP adjustment for notional interest on delayed export proceeds from AEs, the tribunal restored the matter to CIT(A) for fresh examination, noting that new contentions can be raised before appellate authorities per SC precedent in Goetze India. Second, concerning depreciation disallowance on exchange fluctuations for assets acquired using FCCB funds, the tribunal directed AO to allow depreciation on capitalized exchange loss, following identical facts from AY 2012-13. The appeal was allowed for statistical purposes on the first issue and substantively on the second.

---

---

Issues:
1. Transfer Pricing Adjustment on delayed receipt of export proceeds from Associated Enterprises (AEs).
2. Disallowance of depreciation on exchange fluctuations for assets acquired using foreign currency convertible bonds (FCCBs).

Transfer Pricing Adjustment Issue:
The appeal was filed against the Commissioner of Income Tax (Appeals) order upholding the addition of notional interest on delayed receipt of export proceeds from AEs. The assessee argued that the delay was minimal, and interest was not charged on such receivables. The CIT(A) did not consider the new contention, citing a Supreme Court judgment. The Tribunal found that the Supreme Court judgment did not restrict raising new pleas, so the matter was remanded back to the CIT(A) for fresh examination.

Depreciation Disallowance Issue:
The appeal challenged the disallowance of depreciation on exchange fluctuations for assets acquired using FCCBs. The assessee contended that a previous ITAT decision favored their claim for depreciation. Referring to the previous decision, the Tribunal held that the issue had attained finality and ruled in favor of the assessee, setting aside the additions made by the lower authorities.

The Tribunal allowed Ground No.1 of the appeal for statistical purposes regarding the Transfer Pricing Adjustment issue and Ground No.2 concerning the depreciation disallowance issue, thereby partly allowing the appeal of the assessee.

---