AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 1436
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....aterial brought on record. 2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made on account of forex loss amounting to Rs. 92,22,371/- without properly appreciating the facts of the case and the material brought on record. 3. The Ld. CIT(A) has erred in law and on facts in treating the speculation loss of Rs. 2,33,24,764/- as business loss without properly appreciating the facts of the case and the material brought on record. 4. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made u/s.14A of the Act amounting to Rs. 35,00,000/-without properly appreciating the facts of the case and the material brought on record." 3. The fact in brief is that return of income declaring income of Rs. Nil was filed on 16th Nov, 2016. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 8th August, 2013. The further facts of the case are discussed while adjudicating the different grounds of appeal filed by the assessee as under:- Ground No. 1 (Disallowance of deprecation of infrastructure facility) 4. During the course of assessment, the assessing officer has noticed t....
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....appellant. The AO has made the disallowance of claim of depreciation of Rs.l 0,13,23,469/- on the infrastructure usage facility taken by the appellant from Mundra Port and Special Economic Zone in the F.Y. 2003-04 relevant to A.Y. 2004-05. The appellant claimed the depreciation from the opening WDV of Rs. 40,52,93,877/- as on 01/04/2011 and there was no addition in the assets in this block of assets during the year under consideration. The deprecation was claimed treating the same as intangible asset being infrastructure usage facility. The appellant has used the infrastructure developed by Mundra Port and SEZ under the right to use the same through the lease agreement executed between the appellant and the said party dtd. 5.6.2003 i.e. F.Y. 2003-04 relevant to A.Y. 2004-05. The AO held that the uses of the infrastructure facility and the expenditure incurred thereupon was undoubtedly capital in nature and the AO observed that right to use the infrastructure facility was not similar to intangible asset u/s.32 of the Act and hence not eligible to claim the deprecation @25% as the appellant has no business or commercial rights in the infrastructure facility, since the assessee has no....
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....7- as on 31/03/2004. Thus the appellant has been claiming the depreciation upon such infrastructure facilities from A.Y. 2004-05 and onwards upto A.Y. 2011-12. In all the above assessment years the scrutiny assessment u/s.143(3) of the Act has taken place and the deprecation claimed by the appellant in all these years have been allowed by the AO having regard to the facts and submissions given under the head. 2.6. It has been noticed that in the preceding years the appellant has claimed the depreciation on the closing WDV at the end of the relevant assessment years. The claim of depreciation made in the preceding years and the opening and closing WDV of the infrastructural facility uses is noted hereunder for ready reference. A. Y. Addition during the year Opening Balance / Addition Depreciation claimed Closing WDV 2004-05 4048367551 0 1012091888 3036275663 2005-06 0 3036275663 759068916 2277206747 2006-07 0 2277206747 569301687 1707905061 2007-08 0 1707905061 426976265 1280928795 2008-09 0 1 280928795 320232199 960696597 2009-10 0 960696597 240174149 720522447 2010-....
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....India (P) Ltd. 23 Taxmann.com 4 (Mum) It has also been noticed that the concept of block of assets has been brought in the statute w.e.f 1.4.1988 and henceforth the deprecation is to be allowed on block of assets and not on individual items. The merger of various assets into the block of asset can be altered only when the eventuafity contained in clause-c of Section 43(6) takes place i.e. when a particular asset is sold, discarded or destroyed in the previous year. In the instant case the impugned assets has been acquired in the previous year 2003-04 relevant to A.Y. 2004-05 and was forming part of block of asset of intangible assets and since then the appellant has been claiming deprecation on the impugned intangible assets namely Infrastructural uses facility and the same has been allowed by the A.O. since then. 2.8. It has also been contended that the AO has not empowered to disturb opening WDV of the block of asset which was purchased/expired in the preceding years and on which depreciation has already been allowed in the earlier years. This contention is found acceptable as has been held by the Hon'ble Courts noted as under:- (a) The Hon'ble ....
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....sessee company for i.e. assessment year 2004-05 till assessment year 2011-12 the same claim of depreciation has been allowed to the assessee company since assessment year 2004-05. The assesee has entered into aforesaid asset into the block of plant and machinery as intangible asset. The assessee has acquired infrastructure usages facility right from Mundra Port Trust to operate its container operation in Mundra area in the F.Y. 2003-04 relevant to assessment year 2004-05. It is noticed that infrastructure usages facility is a sort of license given by Mundra Port to the assessee company to operate its container operation in Mundra Port area. The assessee has got the right to use and maintain services of certain infrastructural facilities as set out in the infrastructure usages agreement. The assessee has been showing this right on the asset side of the balance sheet and claimed the same as intangible asset on which the deprecation was claimed. With the assistance of ld. representatives, we have gone through the various judicial pronouncements referred by the ld. counsel. Co-ordinate Bench of the ITAT vide ITA No. 1253/Ahd/2016 in the case of assessee itself pertaining to assessment ....
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....ith banks in terms of prevalent RBI guideline which mandates entering of foreign currency contract only with banks. It is also clarified that the assessee company has been consistently following method of accounting of charging the loss/gain arising on account of market to market price of foreign currency as on the last day of the year to P & L account in respect of revenue account transaction. The assessing officer has not accepted the explanation of the assessee and stated that the assessee is not a manufacturing unit nor is engaged in sale of merchandise. Therefore, treated the foreign exchange losses to the amount of Rs. 2,33,24,764/- as speculation loss in view of the section 43(5)(d) of the act and foreign exchange derivatives unrealized loss of Rs. 92,22,371/- was also disallowed treating the same as notional loss and added to the total income of the assessee. 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) deleting the unrealized foreign exchange loss of Rs. 92,22,370/- is reproduced as under:- "3.3. Decision: I have carefully considered ....
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....In support the appellant has relied upon various judgments which are applicable on the facts of the case and some of them are noted as under:- * Hon'ble Supreme Court in the case of Oil & Natural Gas Corporation Vs. CIT 322 ITR 180 * Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. 312 ITR 354 3.6. The appellant has demonstrated that the test laid down by the Hon'ble Apex Court in the case of Woodward Governor India Pvt. Ltd. is duly satisfied in the following manner:- whether the system of accounting followed by the assessee is mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; Admittedly, the Appellant is following mercantile system of accounting and that is in fact not denied by the Id. AO. whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide: Again admittedly, from the beginning the Appellant is following mer....
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....tem adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation The system adopted by the Appellant is fair and reasonable and is not adopted with a view to reduce the incidence of taxation. In fact the Rule 115 of the Income Tax Rules provides that that all the assessee should convert their foreign exchange assets into Indian Rupees on the last day of the previous year. In CIT vs. R. B. Construction 202 ITR 222 (AP)(FB), it has been held that if rule is not considered, the decision becomes per incuram. In as much as the Appellant has followed the accounting treatment which is in conformity with Accounting Standard 11 issued by the ICAI. Various authorities have held that while determining alowability of an expenditure, accounting standard has a great persuasive value. Challapalli Sugars Ltd. Vs. CIT (1975) (98 I.T.R. 167). Further following authorities have held that foreign exchange fluctuation loss suffered on account of circulating capital or revenue account should be treated as revenue expenditure in the year in which the devaluation takes place when the method of accounting followed is mercantile. * 116....
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..... Such realised losses on account of forward contracts were claimed as revenue expenditure. 4.6. Here it is worth to mention that the provisions of section 43(5) (d) would not be applicable on the facts of the case as the appellant did not indulge in any speculative transactions but it has made the hedging of the foreign exchange receivables from its clients towards the receipts of operating container handling terminal services. The Honourable Bombay High Court in the case of Badridas Gauridu (P.) Ltd. [261 ITR 256] and the Calcutta High Court in the case of Soorajmull Nagarmull [129 ITR 169] has held that such type of forward contracts with the banks in respect of foreign exchange cannot be covered under the provisions of section \ 43(5) (d) of the Act as speculative transactions. Since the appellant was not the dealer in foreign exchange but providing the operating container handling terminal services and there did not happen to be any purchase or sale of commodity settled otherwise then by actual delivery, thus the. same cannot be termed as speculative transactions. The foreign exchange were only incidental to the assessee's regular course of business and the loss w....
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....spect of consideration for export proceeds, which are revenue items. There is an actual contract for sale of merchandise. In this factual matrix, it is clear in our view that the transaction in question will not qualify to be called as speculative transaction. 4.10. Subsequently, the Honourable Gujarat High Court in the case of CIT Vs. Panchmahal Steel Ltd. (2013) 33 taxmann.com 10 by following its earlier judgment in the case of Friends and Friends (supra) has allowed loss incurred on account of hedging on foreign exchange fluctuation as revenue / business loss. 4.11. In view of the aforesaid discussion, and respectfully following the decisions / judgments of honourable courts referred above, the claim of realised loss of foreign exchange fluctuation incurred by the appellant in the year under consideration is found to be eligible for deduction. Such profits / losses have also been claimed as revenue by the appellant and this method is consistently being followed in the preceding and subsequent years also. Thus, the disallowance made by the AO is found untenable and hence, the same is deleted. The ground of appeal is allowed." 10. We have heard the rival conte....