TaxTMI 
TaxTMI 
2019 (12) TMI 367
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....e learned CIT (Appeals) is not justified in directing the Assessing Officer to allow the depreciation of Rs. 30,73,444 /- claimed on account of exchange loss incurred on cancellation of forward exchange contracts, without appreciating the reasons recorded by the Assessing Officer in the relevant assessment order. 3. The learned CIT (Appeals) has erred in not appreciating that the provisions of section 43A of the I.T Act, 1961 were not applicable as the losses arose from cancelled forward exchange contracts and not settled contracts, wherein payments relating to purchase of capital assets or payments towards loans taken for purchasing capital assets .were actually made. 4. The learned CIT (Appeals) was not justified in directing the Assessing Officer to allow depreciation of Rs. 4,47,62,874/- in respect of foreign currency loss incurred on cancellation of forward exchange contracts on which depreciation was not allowed by the Assessing Officer respect of the assessment year 2005-06. 5. The learned CIT (Appeals) was not justified in directing the Assessing Officer to allow depreciation of Rs. 6,81,21,607/- on the increased Written Down Value (WDV) of the as....
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....1961 and the CIT (Appeals)'s finding that interest u/s. 234B is chargeable with reference to a pan of such "assessed tax" for the reasons mentioned in the appellate order, is clearly not in accordance with the relevant provisions of the I.T. Act, 1961. 13. The learned CIT (Appeals) has erred in not appreciating that his finding on the above mentioned issue is not in accordance with the ratio of the decisions of the Hon'ble Supreme Court in the cases of CIT vs. Central Provinces Manganese Ore Company Ltd reported in 160 ITR 961 and CIT v Anjum M.H. Ghaswala and others reported in 252 ITR 1. 14. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CJT(Appeals) may be reversed in so far as the above mentioned issues are concerned and that of the Assessing Officer be restored 15. The appellant craves leave to add, after, amend or withdraw all or any of the grounds that may be urged at the time of hearing of the appeal.. 3. The brief facts of the case are that the assessee is a public limited company which is engaged in the business of manufacturing and selling of pellets, hot/cold roll....
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....g the year under consideration, the said contacts were settled/cancelled resulting in a foreign exchange loss of Rs. 2,04,89,627/-. In the original return of income, the assessee has omitted to adjust cost of the capital asset for loss on forward contract in terms of section 43A of the Act. But subsequently, the same was claimed in the revised return filed for the year under consideration. During the course of assessment proceedings, the Ld. AO rejected the claim of the assessee to adjust cost of asset on the ground that on cancellation of the forward contracts, no payments were actually made and the loss on cancellation of forward contract was not covered by section 43A of the Act, and accordingly, could not be added to the Written Down Value(WDV) of the assessee. 6. The Ld. DR submitted that the Ld.CIT(A) was erred in deleted additions made by the AO towards adjustment to cost of assets for loss arising on account of forward foreign exchange contracts without appreciating the fact that provision of section 43A of the I.T. Act, 1961 were not applicable as the losses arose from cancelled forward foreign exchange contracts are not settled and also payments relating to purchase of....
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....r that increase or decrease may be adjusted at the time of making payment. In other words, such adjustment can 6e mode only in the previous year in which the foreign account was settled by an assessee. 7. As far as the assessee's appeal is concerned, the amended law of section.43A applies. Now whether she assessee is entitled for claiming the loss on account of settlement of foreign exchange forward contract or not., has to be considered in light of the recent Judgment of the Hon'ble Supreme Court in the case of ACIT v ELKCON Engineering company Ltd.re reported m 322 ITR 20. The Hon'ble Court has considered the impact of sec.43A both before amendment and after amendment. The Court was intact examining the deductibility of Roll over premium in respect of foreign exchange forward contracts. The Court has held that whatever the foreign exchange loans were availed for securing capital assets, the decrease or increase would affect the capital asset. If the foreign exchange loan was acquired for working capital! or other revenue commitments, the fluctuation effect shall be adjusted in Revenue account. Till the amendment brought in by Finance Act 2002, this adjustment....
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....hange contracts. Hence, we are inclined to uphold finding of the Ld.CIT(A) and reject ground taken by the revenue. 10. The next issue that came up for our consideration from ground No.4 of revenue appeal is disallowances of depreciation of Rs. 4,47,62,874/- on loss arising on cancellation of forward foreign exchange contracts during the assessment year 2005-06. In this ground, the assessee seeking consequential depreciation for the current year on loss that arising on the forward foreign contracts settled/ cancellation in the previous year relevant assessment year 2005-06. We find that ITAT, Bangalore bench in assessee's own case held that such loss arising on forward foreign exchange contracts should be added to the cost of asset in terms of section 43A of the Act, and consequently, depreciation should be allowed on the same. Accordingly, the assessee is seeking consequential depreciation for the current year on such adjusted cost of assets as, which the Ld. AO has failed to grant. The Ld.CIT(A) after considering relevant facts has rightly directed the Ld. AO to allow consequential depreciation on fixed assets towards adjusted cost on account of loss arising on cancellation....
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....ed depreciation C 23,74,07,315 21,67,76,733 12. In the return of income, filed by the assessee for the year of amalgamation i.e AY 2006-07, the assessee has computed WDV, in respect of the assets transferred by the amalgamating companies by reducing the amount of deprecation ("actually allowed") in AY 2005-06 in accordance with the provisions of Explanation (2) to section 43(6) of the Act,1961. However, the Ld. AO observed that closing WDV of the amalgamating company becomes the WDV in the hands of amalgamated company and accordingly determined the WDV of assets acquired on amalgamation after considering normal depreciation allowed on assets of two amalgamating companies and consequently, disallowed excess depreciation of Rs. 6,81,27,607/- (being 15% of the difference in WDV of Rs. 45,41,84,048/-). 13. The Ld. DR submitted that the Ld.CIT(A) was not justified in directing the AO to allow depreciation on the increased written down value of the assets, without appreciating the detailed reasons recorded in the relevant assessment order and the AO analysis of the provision of Explanation (2) and (3) to section 43(6) and the provision of section 72A of the I.T. Act, 1961.....
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....y forward of business loss and unabsorbed depreciation in the hands of the amalgamated company in the cases of amalgamation. If you go through, Explanation (2) to section 43(6), it is very clear that the word used therein speaks about depreciation 'actually allowed' in relation to said preceding year in case of amalgamated company. Thus, in view of Explanation (2) to section 43(6) of the Act, the WDV in the hands of the assessee as on 01/4/2005 (appointed date) would be the WDV of block of assets as on 31/03/2004 as reduced by the depreciation 'actually allowed' during the said preceding year i.e FY 2004-05 in the hands of the amalgamating companies. Accordingly, the WDV of assets transferred on amalgamation in the hands of the amalgamating company has to be necessarily computed in terms of Explanation (2) to section 43(6) of the Act. As can be seen from the above, in terms of Explanation (2) to section 43(6), while computation the WDV on amalgamation, depreciation actually allowed has to be reduced. However, the case of the AO is that Explanation (3) has to be read into Explanation (2) and accordingly, the WDV of assets transferred on amalgamation has to be comp....
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....92 (SC), wherein it has been held that, the term 'depreciation actually allowed' means depreciation of which the assessee has received effective advantage or benefit and not merely, which is notionally allowed or which is allowable. Accordingly, the words actually allowed under Explanation '(2) only mean depreciation, which has been given effect to, in the computation of income of the amalgamating companies and will not include unabsorbed depreciation. This legal proposition is supported decision of Hon'ble Bombay High Court, in the case of CIT v. Silical Metallurgic Ltd. [2000] 324 ITR 29 Mad HC). Where, the Hon'ble Court held that the statutory provision makes it clear that the WDV of the asset would be the actual cost of the assets of the assessee less depreciation allowed to the company. Any unabsorbed depreciation, which was not set off for carry forward could not be taken into account. A similar view was taken by the Bombay High Court in the case of CIT v. Hindustan Petroleum Corporation Ltd. (supra). Further, it is relevant to note that a Special Leave Petition filed against the aforesaid High Court decision has been dismissed by the Hon'ble Supreme C....
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.... the issue for AY 1995-96, even though, on further appeal the Hon'ble Supreme Court had remanded the matter to the Hon'ble Karnataka High Court for fresh consideration. The Ld. DR, further submitted that the Ld.CIT(A) had erred in not taking into consideration, the decision of the Hon'ble Supreme Court, in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (supra), while arrive at his findings. 20. The Ld.AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Karnataka High court, in assessee's own case for AY 1995-96. The Ld. AR, further submitted that although, the Hon'ble Karnataka High Court set aside the aforesaid order of the ITAT in first round of litigation, but on second round of litigation as per the directions of Hon'ble Supreme Court, allowed relief to the assessee and direct the Ld.AO to assess interest income under the head income from business. The Ld.CIT(A) after considering necessary facts has rightly directed the Ld.AO to consider interest income under the head income from business. 21. We have heard both the parties and perused the material available on....
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....iance is placed by the revenue on this judgment of the Apex Court in the case of Tlticorin Alkali Chemicais & Fertilizers Ltd v. Commissioner of Income Tax reported in (1997) 227 ITR 172 (SC). 22. In the aforesaid judgment, Ike Supreme Court has made the position dear at para 4, which reads as "4. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of wh.ifh will be chargeable to income-tax 'Profits and gains of business or profession' is only vie of the head under which the company's income is liable to assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that does not mean that until and unless the company commences its business^ its income from any other source will not be noted. If the company even before it commences business, invests the surplus, fund in its hand for purchase of land or house property and later sells it of profit, the gain made by the company will be assessable under the head Capital gains. Similarly, if a company purchases a rented ho....
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....ties for the local people of the state of Karnataka. In terms of the state policy in the year 1994, the assessee proposed to set up an integrated steel plant for manufacture of 1.25 million tons per annum (MTPA) of Hot Rolled (HR) Coils at village Toranagallu, Bellary Hospet, Karnataka with an initial investment of Rs. 3,200 crores. Accordingly, the assessee has made a application on 29th January, 1994, under the Industrial policy to the Government of Karnataka for grant of infrastructural assistance and incentives under the policy. In respect of the aforesaid application, the Government of Karnataka passed an order No. CI 29 SPI 94, Bangalore, dated 11/10/1994 granting exemption from payment of purchase-tax and entry- tax on all materials, plant and machinery and other production assets, acquired for the implement of the project for a period of 14 years. It also included exemption from payment of sales tax on sale of finished goods, by products and waste products. Consequential notification to this effect was passed by the Government of Karnataka, vide No. ED 165 CSL 94 (I), dated 14/02/1995, by which the tax payable under section 5 and 6C of the Karnataka Sales Tax act, 1957 was ....
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....onni Sugars and Chemicals Ltd. and other (306 ITR 392) and the decision of Hon'ble Bombay High Court in the case of Reliance industrial Limited v. CIT 33 ITR 632, without appreciating the fact that the Ld. AO has brought out clear facts to the effect that the subsidy was given for day to day maintenance of the assessee, which is in the nature of the revenue receipt, but not capital receipt. The Ld. DR, further referring to the decision of Hon'ble Supreme Court, in the case of M/s Sahney Steel & Pres Works Ltd.vs CIT(supra) submitted that the Hon'ble Court categorically held that when, payments are made after industries have been set up, then the said payments are not being made for the purpose of setting up of the industries, and the package of incentives were given to the industries to run more profitably for a period of 5 years from the date of commencement of production. In other words helping hand was being provided to the industries during the earlier days to enable them to come to a competitive level with other established industries. In this case, on perusal of scheme of incentives given by the State Government of Karnataka, it was very clear that the said incent....
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....urther submitted that in all cases subsidy was received after the commencement of business and allowed in terms of sales tax exemption for a period of five years also and in those facts, the High Court's came to the conclusion that even though, the subsidy was given in terms of sales tax subsidy after commencement of production, but such subsidy was given to reimburse the cost incurred by the assessee to set up industries. Therefore, he strongly submitted that it is only the purpose of the scheme that has to be seen to find out, whether the scheme is in fact capital revenue in nature. The Source of funds for the scheme and form of the scheme are irrelevant and point in time, when subsidy is received is also immaterial. Accordingly, he submitted that the case laws relied upon by the Ld. DR, in the case of M/s Sahney Steel and Press Works (supra) has no application to facts of the present case. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the AO and his order should be upheld. 28. We have heard both the parties, perused the material available on record and gone through orders of the authorities below along with plethora of case laws cite....
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....siness, the subsidy must be treated as to have been given for capital purposes, whereas if it is given by way of assistance to the assessee in carrying of its trade/business, it has to be treated as a trading receipts. This controversy has been examined by the Hon'ble Supreme Court and also various high courts, in light of industrial policy of various state Governments and came to the conclusion that the mechanism, the source, point in time and the form in which subsidy has been granted are irrelevant and what is relevant is only the purpose for which the subsidy is granted to decide, whether the subsidy is revenue or capital in nature. The Hon'ble Supreme Court in the case of Chaphalkar Brothers (supra) had considered an identical issue, in the light of setting up a new multiplex theatre complex and held that if, the object of the scheme was to promote cinema houses by constructing multiplex theatres, then irrespective of the fact that the multiplexes have been constructed out of the own funds or borrowed funds, the receipt of subsidy would be on capital account. Further, the Hon'ble Supreme Court, while delivering the judgment has considered its earlier decision in th....
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....a High Court in the case of Shyam Steel Industries Ltd. (303 CTR 628) had expressed similar view and held that purpose test is most relevant to decide the nature of subsidy. The sum and substance of the ratio laid down by Hon'ble Supreme Court and various High Courts are that if the assistance/subsidy was given to enable to set up a new unit or to expand the existing unit in the backward area, the receipt of the subsidy was on capital account. 31. In this case, on perusal of facts, it is abundantly clear that the assessee has setup a new industry under the Industrial policy, 1993 of Government of Karnataka and package of incentives and concessions given by the state of Karnataka was to accelerate industrial development in the state of Karnataka. The said subsidy, although was qualify in terms of sales tax exemption on purchase of raw materials and plant and machinery and also, on sale of finished goods after commencement of production, but the purpose of the subsidy was to reimburse the cost of expenditure incurred for setting up the new industry. Therefore, we are of the considered view that when, the subsidy was given with an object to effect new industries in the backward....
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....ng clause(h) in Explanation 1 to section 115JB of the Act 1961 with retrospective effect from 01/04/2001. The Ld. DR, further, submitted that the findings of the Ld.CIT (A) are not in accordance with the ratio of the decision the Hon'ble Supreme Court in the case of CIT v. Central provinces manganese ore co. Ltd. 160 ITR 961 and CIT v. Anjum Ghaswala and others, (252 ITR 1). 34. The Ld. AR for the assessee, on the other hand, submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT, Bangalore Tribunal, in assessee's own case for AY 2005-06 in ITA. No. 924/Bang/2009, wherein it was held that no interest can be levied u/s 234B of the Act, where the liability arises on account of retrospective amendment in the Act. 35. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that whether, interest us/ 234B can be charged on the basis of retrospective amendment to section 115JB of the Act 1961, on recomputed book profit is no longer is res Integra. The coordinate bench of ITAT Bangalore Tribunal in assessee's own case for AY 2005-06 in ITAT No. 924/Bang/200....
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....ppeal by the Revenue the Hon'ble High Court held that the appellant had paid advance tax after deducting the payments made under the voluntary retirement scheme. In view of the decisions of the jurisdictional High Court, the appellant was allowed to deduct expenditure incurred towards voluntary retirement scheme. Since sec. 35DDA was introduced by the Finance Ac, 2001 w.e.f. April , 2001 and received assessment on 11.05.2001 the appellant couldn't have envisaged that it would become liable for payments of tax revenue against voluntary retirement payments, which were higher to deductible. The appellant could not have visualized that a new liability would be fattened on the appellant by a subsequent amendment. The Court held that in such circumstances, no liability existed for payment of advance tax much less the liability to pay interest. 21. We find that the judgment of the Jurisdictional High Court in the case of Jindal Thermal Power Company Ltd. vs. DCIT, 286 ITR 182 rendered in a writ petition on a fundamentally different legal issue, is not applicable to the present case. The judgment of the Hon'ble Madras High Court in the case of Revathy equipment Ltd. vs....
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....is a delay of 371 days in filing cross objection filed by the assessee, for which necessary petition for condonation of cross objection along with affidavit has been filed explaining the reasons for delay in filing cross objection. The Ld. AR, further submitted that during the AY, the Ld. AO made various additions, but the assessee was assessed to tax under the MAT provision of the Act. Against aforesaid additions, the assessee has preferred appeal before the Ld.CIT(A) and the Ld.CIT(A) has decided all the issues in favour of the assessee, including the issue of sales tax subsidy held to be capita in nature, however he do not give a corresponding reduction of MAT profits to the extent of sales tax subsidy, it being held to be capital in nature. Accordingly, the assessee has filed cross objection against the findings of the Ld.CIT(A) in not reducing the sales tax subsidy from book profits computed u/s 115JB. He, further submitted that a copy of the appeal filed by the department was served on the assessee 21/03/2011. However, the assessee did not file cross objection under the misconception of fact that the Ld.CIT(A)has decided all the issues in favour of the assessee. But, on the f....
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....re pitted against each other, the courts are expected to further the cause of substantial justice. The relevant findings of the Hon'ble Supreme Court are as under:- "3. The Legislature has conferred the power to condone delay by enacting Section 5 of the Limitation Act of 1963 in order to enable the court to do substantial justice to parties by disposing of matters on "merits". The expression "sufficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the (am in a meaningful manner which sub serves the ends of justice - that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making o justifiably liberal approach in mutters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy 4. And such a liberal approach is adopted on principle as it is realized that: 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal fate. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated As ....
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....f Rs. 36,15,49,828/- from the Government of Karnataka for setting up a new industrial unit in the backward area of the state. The refund of sales tax subsidy was routed through the profit and loss account and hence, the same was considered as part of the book profits u/s 115JB of the I.T. Act, 1961. Subsequently, the assessee realized that sales tax subsidy being capital receipt as held by the Ld.CIT(A), the same is not taxable under the MAT provisions and accordingly, the issue was raised before the Tribunal. 44. The ld. AR for the assessee, at the outset, submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT Mumbai in assessee's own case for AY 2004-05 in ITA No. 923/Bang/2009, where it has been held that when a receipt is held to be capital in nature and not chargeable to tax under the normal provisions of the Act, the same cannot be taxed u/s. 115JB of the Act as well. In this regard, he relied upon the following case laws. * Shivalik Venture (P) Ltd. v. DCIT [2015) 173 TTJ (Mum) 238 * ACTT v. Shree Cement Ltd. (ITA Nos.614, 615 & 635/JP/2010) Following Shree Cement Ltd, vs. ACIT (2015) 152 ITD 561 (Jaipur) ....
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....d an identical issue and after considering the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (supra) held that when a receipt is not in the character of income as defined under section 2(24) of the I.T. Act, 1961, then it cannot form part of the book profit u/s 115JB of the I.T. Act, 1961. The Hon'ble High court, further observed that sales tax subsidy received by the assessee is capital receipt and does not come within definition of income under section 2(24) of the I.T. Act, 1961 and when, a receipt is not a in the nature of income, it cannot form part of book profit u/s 115JB of the I.T. Act, 1961. The Court, further observed that the facts of case before the Hon'ble Supreme Court in the case of Apollo Tyres Limited (supra) were altogether difference, where the income in question was taxable, but was exempt under a specific provision of the Act, and as such it was to be included as a part of book profit, but where the receipt is not in the nature of income at all, it cannot be included in book profit for the purpose of computation u/s 115JB of the I.T. Act, 1961. 48. We further noted that the ITAT special bench of Kolkata Tribunal, in t....