TaxTMI 
TaxTMI 
2016 (4) TMI 904
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....confirming allocation of director's remuneration, directors' traveling expenses, audit fees, computer expense and security charges for calculating profit of Captive Power plant for deduction u/s. 80-IA of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). 2.1. Without prejudice to above, the learned Commissioner of Income Tax (Appeals) has erred in confirming allocation of salary of Rs. 117.44 lacs paid to Mr. S.B. Dangayach, Managing Director & In-charge of Plastic Division and salary of Rs. 143.65 lacs paid to Mr. Rahul Patel, Managing Director who is looking after sales of Textile Division to Captive Power Plant for calculation of profit eligible for deduction u/s.80IA of the Act who are dedicatedly working on the respective divisions and have nothing to do with the operations of the CPP units. It is submitted to be held so now. 3. The learned Commissioner of Income Tax (Appeals) has erred is not deleting interest charged u/s 234B, 234C & 234D. It is submitted that no interest u/s 234B, 234C & 234D is leviable. It be so held now." ITA No.1548/Ahd/2012 (Asstt.Year 2010-11) "1. The order passed by the learned Commissioner is erroneous and contrary ....
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....) unit. [2]. The Ld. CIT[A] has erred and on facts in deleting the disallowance of Rs. 18,25,69,000/-made u/s. 80IC on Baddi Unit. [3]. The Ld. CIT[A]-XIV, Ahmedabad has erred and on facts in deleting the disallowance of Rs. 82,34,951/- made by the Assessing Officer u/s. 14A of the Act. [4]. The Ld. CIT[A]-XIV, Ahmedabad has erred and on facts in granting relief regarding the disallowance of Rs. 24,37,500/- made by the Assessing Officer treating the expenditure towards service charge fee paid to DSP Merill Lynch for purchase of units under Portfolio Management Scheme(PMS) as Capital in nature u/s. 37 of the Act. [5]. On the facts and in the circumstances of the case, the Id. Commissioner of lncome-tax[A]-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. [6]. It is therefore, prayed that the order of the Id. Commissioner of Income-tax[A]-XIV, Ahmedabad may be setaside and that of the Assessing Officer be restored. ITA No.1524/Ahd/2012 (Asstt.Year 2010-11) 1 .a). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer, not to allocate general charges of Rs. 4359.1-5 Lacs whi....
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....he Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in directing the AO to allocate the interest expenses on the investment ratio for allowing deduction U/S.80IC of the Act, in respect of Baddi Unit. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the allocation of common head office expenses to Baddi Unit for calculating profit eligible for deduction U/S.80IA of the Act. 4). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the allocation of certain expenses claimed to be incurred specifically for plastic Division as well as common head office expenses for Baddi Unit while calculating profit eligible for deduction u/s.80lC of the IT. Act. 5). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in deleting the addition of Rs. 39,48,81,350/-, being gain on account of foreign exchange fluctuation gain, on the incorrect ground that similar gain / loss was accepted by Assessing Officer in preceeding and following Assessment Year." 3. The common issue involved in all these grounds of appeals relate to quantificati....
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....he turnover of CPP unit in comparison to the total turnover of the assessee-company worked out to 2.05% in the Asstt.Year 2009-10, and 1.53% in the Asstt.Year 2010-11. The ld.AO thereafter, tabulated various common head expenses. Out of which, expenses are required to be allocated to the CPP in ratio of turnover of CPP vis-à-vis the total turnover. It read as under: Assessment Year 2009-10 Sr. No. Particulars Amount (Rs.in lakhs) 1 Directors' Remuneration 670.00 2 Directors' Traveling 46.00 4 Audit Fees 43.00 5 Computer Maintenance Expenses 165.07 6 Security charges 15.12 7 General Charges 4228.11 8 Miscellaneous Expenditure 98.00 9 Interest & Financial Charges 6396.75 10 Director Fees 3.90 11 Rlates & Taxes 34.00 12 Stationery & Printing Expenses 1495.00 13 Charity & Donation 7.00 14 Salaries & Wages of Corporate Division 581.00 15 Contribution to PF of Corporate Division 142.00 16. Welfare expenses of Corporation division 926.44 17. Foreign exchange Loss 3178.00 18 Bad debts 25.00 19. Rent 267.25 Total 18321.64 Assessment Year 2010-11: Sr. No. Particulars Amount (Rs.in lakhs) 1 Dire....
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.... upon an inquiry as to whether the items of expenditure considered by the AO for proportionate allocation to CPP unit has any nexus to the operation of CPP unit, we find that in Asstt.Year 2010-11, the ld.First Appellate Authority has taken cognizance of the submissions made by the assessee as well as the order of the CIT(A) passed in A.Y.2009-10. The ld.First Appellate Authority, thereafter, recorded a finding on all these issues independently and upheld the allocation partly which is being challenged by the assessee in its appeal and deleted the allocation partly which is challenged in Revenue's appeal. It is pertinent to take note of the arguments raised by the assessee and the finding of the ld.CIT(A) in the Asstt.Year 2010-11 as under: "2.2 During the course of appellate proceedings, the AR of the appellant has made the written submission and it will be appropriate to reproduce below the relevant part of the submission: "The learned Asst. CIT has grossly erred in law and on facts of the case in disallowing an amount of Rs. 2,06,06,000/- out of the appellant's claim for deduction u/s. 80IA in respect of profits of Captive Power Project Unit IV claimed for a sum of Rs. ....
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....ave been considered which should not at all be considered, vis a vis turnover of CPP and total turnover. iv) Computer maintenance expenses In this regard it is submitted that during the year under review, the company has incurred total computer maintenance expenses of Rs. 68.96 lacs. The expenses would reveal that it has no connection so far as CPP is concerned and hence, it should not at all be considered for the same. v) Security charges It is pertinent to note here that during the year under review, the appellant company has incurred Security charges of Rs. 10.21 lacs. The expenses would reveal that it has no connection so far as CPP is concerned and hence, it should not at all be considered for the same. vi) General charges (Rs.4359.15 lacs) In this regard Appellant would like to submit that such expenses have been considered for the purpose of proportionate disallowance. These expenses actually include all the general expenses incurred for the company as a whole. As the nomenclature these are entirely unrelated and general expenses which cannot be allocated to any specific business activity including CPP units. It is respectfully submitted here that app....
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....0. In view of this factual background appellant submits that on same facts for the year disallowance made should be deleted. Copy of the C1T(A) order for the Assessment Year -2009-10 is submitting herewith as Annexure -2 for your immediate reference. viii) Director Fees (Rs.5 lacs), Charity & Donation (Rs.68 lacs). Salary & Wages of Corporate Division (Rs.450 lacs), Contribution to PF of Corporate Division (Rs.l54 lacs). Welfare Expenses of Corporate Division (Rs. 1,026.86 lacs) & Miscellaneous expenditure (Rs. 17 lacs) These expenses are actually incurred for the corporate division of the Appellant Company and are unrelated to the CPP units by any stretch of imagination and cannot be considered for the purpose of allocation to CPP units. These expenses in no ways can be considered to be contributing towards earning profits from the CPP units. It is pertinent to note in this regard that allocation of expenses like donations made, rates & taxes, welfare expenses, rent etc. are by no stretch of imagination expenses -which may require allocation to any profit centre for the purpose of arriving at the profit of the same. These expenses are totally non-operating and unrelated e....
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....ar and the disallowance made by the A. O. has been confirmed by CIT(A) - XIV in A.Y.2009-10. Respectfully following the decision, the disallowance is upheld. 4. Computer Maintenance Expenses The claim of the appellant has been dismissed in the earlier year and the disallowance made by the AO has been confirmed by CIT(A)-XIV in A.Y.2009-10. Respectfully following the decision, the disallowance is upheld. 5. Security charges The claim of the appellant has been dismissed in the earlier year and the disallowance made by the AO has been confirmed by CIT(A)-XIV in A.Y.2009-10. Respectfully following the decision, the disallowance is upheld. 6. General charges The issue has been decided in favour of the appellant by my predecessor in para 5 of his order for A. Y. 2009-10. Respectfully following the decision of earlier year, the allocation of general charges of Rs. 4359.15 lacs is directed to be deleted. 7. Misc. Expenditure The issue has been decided in favour of the appellant by my predecessor in para 5 of his order for A. Y. 2009-10. Respectfully following the decision of earlier year, the allocation of general charges of Rs. 17lacs is directed to be deleted. 8. Interest &....
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....f earlier year, the allocation of general of Rs. 289 lacs is directed to be deleted. The A. O. is directed to work out the disallowance in accordance with the above direction. The ground of appeal is accordingly partly allowed. 8. With the assistance of the ld.representatives, we have gone through the record carefully. The ld.counsel for the assessee has placed on record a chart exhibiting each item of expenditures considered by the AO for allocation and how such item was considered upto the level of Tribunal starting from the Asstt.Year 2004-05 to 2008- 09. This chart has been supplied to the ld.DR on earlier occasions. Both the parties have agreed that all these issues have been considered by the Tribunal in the Asstt.Years 2004-05 to 2008-09. Copies of the Tribunal orders are being placed in the paper book, from page nos.318 to 386. The unanimous history in earlier years is that expenditure incurred under head directors' remuneration, directors travelling expenses, audit fees, computer expenses, security expenses are to be considered for allocation in the ratio of turnover of CPP units vis-à-vis total turnover. 9. It is pertinent to observe here that the asse....
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....ative division and rent. We do not find any error in the order of the ld.CIT(A) for exclusion of these items from allocation to the CPP units. Similarly, the ld.First Appellate Authority has upheld the inclusion of items for allocation viz. directors' remuneration, directors' travelling expenses, audit fees, computer maintenance expenses, security charges etc. and we do not find any error in the order of the ld.CIT(A) on this issue. Therefore, these grounds of appeal are rejected. 10. Ground no.2 and ground no.4 in the Revenue's appeal for the Asstt.Year 2009-10, 2010-11 and ground no.3 in the assessee's appeal for the Asstt.Year 2010-11. 11. The common issue involved in these grounds relates to computation of deduction admissible to the assessee under section 80IC of the Income Tax Act. Though the facts are common in both the years, for the facility of reference, we mainly take up the facts from the assessment year 2009-10. 12. Brief facts of the case are that in the return of income, the assessee has submitted a computation for deduction under section 80IC. It has submitted Form No.10CCB in this regard. The assessee has claimed deduction of Rs. 83,94,80,246/- and Rs. 85,10,56,....
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.... As regards interest expenses of Rs. 637.40 lacs to the Baddi Unit in the ratio of turnover against the allocation made by the appellant on the basis of investment while calculating the profit eligible for deduction u/s. 80IC of the IT. Act. The AO observed that the appellant has incurred-interest charge of Rs. 5456.88 lacs (other than textile division) against which the appellant has allocated interest expense of Rs. 120.56 lacs to Baddi Unit. The AO observed that appellant has a common pool of funds as well as common bank accounts for the entire business being carried out from head quarters. The C.C. Account with the bank and financial institutions and loans raised by them had been utilized as per requirement of running the entire business including Baddi Unit. The AO therefore allocated interest proportionately to this unit on the basis of ratio of sales of the undertaking which comes to Rs. 637.40 lacs. The AO has discussed this issue at para 4.2 of the Assessment Order. It was submitted by the AR of the appellant that the allocation made by the appellant was reasonable and ought not to have been disputed by the AO. The appellant had claimed that since no other specific loa....
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....15.87%. He worked out the salary expenses required to be allocated to Bhaddi Units in this sale ratio at Rs. 385.14 lakhs which is 15.87% of total salary of Rs. 242686 lakhs. 20. On appeal, the assessee has contended that remuneration to the employees of Rs. 360.00 lakhs already been considered by the assessee for the purpose of Bhaddi Units. The ld.CIT(A) has directed the AO to give credit of this allocation against the salary required to be reduced worked out by him. In other words, the salary considered by the AO is lesser than this amount, therefore, in the Asstt.Year 2009-10, no disallowance would remain under this head. This is the reason, there is no ground taken by the assessee. However, in the Asstt.Year 2010-11, the remuneration allocated by the assessee are of Rs. 341.46 whereas worked out by the AO are of Rs. 385.14 lakhs. It is for this reason, the assessee has also taken the ground of appeal bearing no.3. 21. The ld.counsel for the assessee, at the very outset submitted that a similar issue has come up before the Tribunal in the Asstt.Year 2008- 09, whereby the Tribunal has observed that the salary of those employees who are working in plastic division could only be....
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....expenditure in the Asstt.Year 2009-10 at 3535.09 lakhs. In the Asstt.Year 2010-11. He worked out total expenses at Rs. 209.17 lakhs. According to the ld.AO, the sale made by the assessee of the products produced from Bhaddi units is 13.85% and 15.87% of the total sales of the company in these two assessment years respectively. Thus, in his opinion, the assessee ought to have allocated the expenditure in the ratio of sales to these units. The 13.89% of total expenditure under the alleged common head office expenses amounting to Rs. 3535.09 lakhs in the Asstt.Year 2009-10 comes out to 491.02 lakhs. Similarly, in the Asstt.Year 2010-11, it comes out to Rs. 33.20 lakhs. The assessee has allocated expenditure of Rs. 235.56 lakhs in the Asstt.Year 2009-10 and Rs. 7.34 lakhs in the Asstt.Year 2010-11. Accordingly, the difference has been allocated by the AO for disallowance which will reduce the eligible profit for the purpose of deduction under section 80IC. The amount allocated by the AO is Rs. 255.46 lakhs (Rs.491.02 lakhs minus Rs. 235.56 lakhs) in the Asstt.Year 2009-10 and Rs. 25.86 lakhs in the Asstt.Year 2010-11 (Rs.33.20 lakhs minus Rs. 7.35 lakhs). 24. On appeal, the ld.CIT(A) ....
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.... expenditure incurred by plastic division and corporate division. Under this head, the ld.AO found that the expenditure of Rs. 8106.37 lakhs and 7180.75 lakhs have been incurred by the assessee on rates and Taxes, printing and stationery, common expenses on sales, general charges and insurance. The assessee has allocated on expenditure of Rs. 521.70 lakhs and Rs. 424.18 lakhs. The ld.AO made disallowance of Rs. 604.27 lakhs and Rs. 714.64 lakhs in the Asstt.Year 2009-10 and 2010-11 respectively. 27. On appeal, the ld.CIT(A) has deleted these disallowances in both the years. 28. We have examined the details with the assistance of the ld.representatives. In our reasoning given while upholding the deletion out of certain common head expenses, we do not find any error in deleting the disallowance under these head. The basic reason is that the assessee has debited expenditure which has direct nexus with 80IC units. Such expenditure cannot be amplified by considering the sales ratio. The AO has nowhere highlighted, as to which particular facility was used by the assessee, generated out of common head expenses. He simply adopted the figure of sales and then proceeded to disallow the exp....
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....e would like to state that certain expenses incurred in relation to earning such income have already been disallowed of Rs. 0.52 lacs on suo moto basis by us in its Return of Income. We request your goodself to refer to Annexure 1 for details in this regard. 1.2. At the outset, we would like to mention that surplus funds available with the company are invested in Mutual Funds. The prime motive of investment in mutual funds is to gain by appreciation in the Net Asset Value of the funds. Your goodself would appreciate that all of the investments made by the Company are in 'Growth Option' of the Mutual Funds. It is important to mention here that in case of Growth Options, no dividends are declared by the Mutual Funds and the only income received by the investor is in form of Capital Gains. Capital Gains derived by the assesses on Mutual Funds are taxable and no exempt income is derived from such investments. Your goodself would observe that during the year under consideration, the assessee has earned profit of Rs. 8.23 crores on sale of such investments and the same has been appropriately offered to tax after categorizing the same in long term and short term capital gains. ....
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....hus Rule 8D cannot be invoked. Further, during AY 2009-10 additions were made by applying Rule 8D in the case of the Assessee however learned CIT(A) vide his order dated 19th January 2011 deleted the addition made by AO in this regard. 1.10. It is important to note that Rule 8D would trigger only in cases where the Assessing Officer is not satisfied with the correctness of the claim of the Assessee and such dissatisfaction has been arrived at with regard to the accounts of the Assessee. Since the disallowance made by us is in. line with disallowance made by AO in earlier years, Rule 8D cannot be invoked. 1.11 For the purpose, we rely upon the decision of Punjab & Haryana High Court in the case of CIT vs. Hero Cycles. Copy of the said judgement is attached as Annexure V. In the said case, the assessee earned dividend income on shares which was exempt from tax. The AO took the view that the investment in shares was made out of borrowed funds on which interest expenditure was incurred and consequently made a disallowance u/s 14A. Tribunal deleted the disallowance by noting that unless there was evidence to show that the interest - bearing funds had been invested in the tax - free i....
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....clarify the already existing position that only those expenses could be claimed which were relatable to the taxable income. In the past, it was seen that assessee's were pushing the expenses relating to exempt income which were not taxable towards taxable income and thereby reducing the taxable income wrongly. The intention of the Legislature is clearly evident from the Memorandum explaining the provisions contained in the Finance Bill wherein it was explained that only those expenses could be claimed as deduction which are incurred in relation to earning the taxable income. The use of the expression 'only to the extent' in the memorandum is clear indicator that only that part of expenses can be allowed as deduction which is related to the earning of taxable income. Accordingly, when the income is exempt and does not form part of the total income then, no expenditure whether direct or indirect in relation to that income could be claimed as deduction. Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions which the management is called upon to take. These are one of the most important decisions in wh....
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.... crores as on 31.3.2008 which was liquidated during the Asstt.Year 2009-10 and on 31.3.2009, such investment was shown at NIL. The ld.AO was not satisfied with the explanation of the assessee. He has recorded a verbatim same finding as extracted by us in the Asstt.Year 2010-11. He made addition of Rs. 87,44,951/- in the Asstt.Year 2009-10 after giving credit of the amounts, the assessee itself disallowed. An addition of Rs. 82,34,951/- was made. 33. On appeal, the ld.CIT(A) have recorded a divergent finding in both the years. The ld.CIT(A) in the Asstt.Year 2009-10 has deleted the disallowance. However, in the Asstt.Year 2010-11, the ld.CIT(A) has confirmed the disallowance by observing as under: "7.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The appellant has claimed that no expenses other than what have already been disallowed have been incurred for earning of the dividend or earning of exempt income. The appellant had surplus funds which were invested in mutual funds. The other investment is in overseas subsidiary and that has not generated income which is exempt from tax therefore no disallowance on account of inte....
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....lant and the disallowance should accordingly be restricted to the income earned. The appellant's claim cannot be accepted as it is not necessary that the expenditure should be limited by the income earned. The expenditure cannot be restricted to the income earned. The disallowance is to be made after considering the funds invested in tax exempt assets and the overall interest expenditure incurred by the appellant. Similarly, the administrative expenses in maintaining and investing such assets is also to be taken into account. The claim of the appellant is therefore not acceptable. In view of the above discussion the disallowance made by the AO under section 14A by applying the provisions of rule 8D is upheld and the ground of appeal is dismissed." 34. Before us, the ld.CIT-DR has relied upon the order of the AO and that of the CIT(A) in the Asstt.Year 2010-11. On the other hand, the ld.counsel for the assessee has contended that from the very beginning the assessee was pointing out to the AO that it has added back the amounts which are attributable to earning of exempt income. In its written submissions, the assessee has specifically pleaded that the Rule 8D of the Income ....
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....s order in the case of ACIT Vs. Vepar Pvt. Ltd. in ITA No.1374/Ahd/2009. The Revenue was not satisfied with conclusions of the Tribunal and took the matter in the Hon'ble High Court. The Hon'ble High Court though dismissed the appeal on account of smallness of the amount involved in that year, but made an observation that even in the absence of Rule 8D, the expenditure can be disallowed on reasonable basis. She contended that even on estimate, this disallowance can be made. 36. We have duly considered rival contentions. As far as the proposition of the ld.CIT-DR that even in the absence of any mechanism for disallowance, the expenditure, which is attributable to earning of exempt income can be worked out on estimate basis or reasonableness basis after looking into the facts and circumstances of a particular case is concerned, we do not have any dispute. The amounts can be disallowed on estimate basis. In the present appeals, the assessee itself has made disallowance of Rs. 5.10 lakhs in the Asstt.Year 2009-10 and Rs. 52,000/- in the Asstt.Year 2010-11. In the Asstt.Year 2009-10, the exempt income is of Rs. 2.02 crores whereas in the Asstt.Year 2010- 11 it is Rs. 22.50 lakhs. Befor....
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....ny prescribed method, as mentioned in subsection (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same." 37. According to the Hon'ble Delhi High Court, when an assessee demonstrate actual incurrence of the expenditure, then Rule 8D would not be automatically applied without looking into the explanations. In other words, when an assessee has worked out the expenditure relatable to earning of exempt income on actual, basis and demonstrated to the AO the incurrence of such expenditure, then AO has to record a finding that he was not satisfied with the correctness of the ex....
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....xpenses account, there cannot be any disallowance as the assessee has far more interest free fund than investment. We are of the view that the ld.CIT(A) has looked into all these aspects in the Asstt.Year 2009-10 before deleting the disallowance. We do not find any error in the order of the ld.CIT(A) on this issue in Asstt.Year 2009-10. Consequently, we allow the ground of appeal raised by the assessee in the Asstt.Year 2010-11 and delete the disallowance made by the AO. 38. Next grievance of the assessee in the Asstt.Year 2009-10 is that the ld.CIT(A) has erred in upholding the charging of interest under sections 234B, 234C and 234D of the Act. No arguments were advanced on this issue. Charging of interest is consequential in nature. Hence, this ground of appeal is rejected. 39. In the result, the appeal of the assessee in the Asstt.Year 2009- 10 is dismissed. 40. Next ground pleaded by the Revenue in the Asstt.Year 2009-10 is that the ld.CIT(A) has erred in deleting the disallowance of Rs. 24,37,500/-. The ld.AO has recorded a very brief finding on this issue. It reads as under: 8. Expenditure for PMS Services From the details submitted by the assessee in respect of legal....
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....dant along with the government, and hence, it incurred litigation expenses defending the suit filed against it. The litigation expense was allowed to the assessee on the ground that these expenses were incurred to protect the business and not with a view to safeguard its prospects of getting a new lease. Similarly, in the case of Raigarh Jute Mills Ltd. (supra) such expenditures were incurred for defending the persons for the company, who were defendants. This expenditure was allowed to the assesseecompany on the strength of this decision. He contended that expenses were incurred for the purpose of management of portfolio. 42. We have duly considered rival contentions and gone through the record carefully. No doubt, the expenses were incurred by the assessee towards consultancy charges for making investment. On sale of investment, capital gain would arise to the assessee, but the expenses incurred by the assessee are not directly linked to the purchase of investment. These are paid for consultancy. If the expenses are not to be capitalized in the investment, then how the assessee will get this set off. Therefore, the ld.CIT(A) has rightly observed that the expenses were not incurr....
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....is no reason that such gain be excluded from taxation. He made addition of Rs. 39,48,81,350/-. 49. On appeal, the ld.CIT(A) has deleted this disallowance. The relevant observations of the ld.CIT(A) reads as under: " ....... After considering the above details, it is noted that the money have been borrowed by the appellant in foreign exchange for the purpose of expanding its business and making investment. The purpose was, therefore, on capital account and any exchange, fluctuation resulting into profit or loss should be treated on capital account and adjusted from the cost of the asset but it cannot have any impact on the revenue account. Had the loan been taken by the appellant for trading asset or for running the business or for circulating capital, the treatment could have been in the revenue account. The Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. [116 ITR 1] has laid down similar guidelines. Similar view has been taken by ITAT, Mumbai in the case of Essar Oil Limited Vs. DCIT [13 SOT 691 ], ITAT, Bangalore in the case of JSW Steel Limited Vs. ACIT [5 ITR (Trib.) 31] and Special Bench of ITAT, New Delhi in case of Apollo Tyres, New Delhi [89 ITD 235 .....
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....has no application unless an asset was acquired and the liability existed, before change in the rate of exchange. When the assessee buys an asset at a price, its liability to pay the same arises simultaneously. This liability can increase on account of fluctuation in the rate of exchange. An assessee who becomes the owner of an asset (machinery) and starts using the same, it becomes entitled to depreciation allowance. To work out the amount of depreciation, one has to look to the cost of the asset in respect of which depreciation is claimed. Section 43A was introduced to mitigate hardships which were likely to be caused as a result of fluctuation in the rate of exchange. Section 43A lays down, firstly, that the increase or decrease in liability should be taken into account to modify the figure of actual cost and, secondly, such adjustment should be made in the year in which the increase or decrease in liability arises on account of fluctuation in the rate of exchange. It is for this reason that though section 43A begins with a non obstante clause, it makes section 43(1) its integral part. This is because section 43A requires the cost to be recomputed in terms of section 43Afor the ....