TaxTMI 
TaxTMI 
2023 (8) TMI 373
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.... Gujrat. During the course of scrutiny assessment proceedings, Ld AO had made following additions. 2.1 In regard to 1st addition, Assessee company has made investment amounting to Rs. 9,96,82,500/- in the form of equity shares. Ld AO enquired as to why disallowance of expenses u/s 14A may not be made. In response to query raised, the assessee company had furnished the reply stating therein that the company has made investment out of interest free funds in the form of share capital, Reserve and surplus, Deferred Tax Liability and accumulated depreciation of Rs. 14542 lacs against investment in shares of Rs. 996 lacs. The assessee further relied upon the decision of the Hon'ble High Court of Delhi in the case of CIT vs. Oriental Engineers Pvt. Ltd. However AO had made disallowance u/s 14 A by applying rule 8 D ; 2.2 In regard to 2nd addition, during the course of assessment proceedings, the assessee company was asked to show cause as to why loss on foreign exchange fluctuation on ECB may not be added to taxable income on the similar lines as in earlier assessment years. In response to query raised, the assessee company has furnished the reply stating therein that with regard to....
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....AO as observed from the P&L account that the assessee had made huge expenses under the head repair and maintenance & replacement amounting to Rs. 3,08,45,539/- as compared to last year's expenses at Rs. 53,64,765/-. The assessee was asked to justify the huge expenses incurred under the head of the repair & maintenance and replacement. Assessee furnished a chart in a excel format. Ld AO observed that the assessee has claimed the expenses for repair and maintenance under the head mechanical and the Digester amounting to Rs 1,77,66,854/- and Rs 85,57,096/- which were destroyed in fire. As Ld AO found them not verifiable in nature of revenue expenditure an amount to extent 20%, i.e Rs 52,64,790 was considered to be capital in nature and added back to the total income. 3. The Ld CIT(A) had partly allowed the appeal so Revenue has come in appeal raising following grounds :- 1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of 'foreign exchange fluctuation loss of Rs 1,03,34,504/- on External Commercial Borrowing (ECB) which was illegally diverted for other than prescribed purpose without considering Explanat....
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..... 3. That the learned CIT (A) has erred in law and facts by directing the learned AO, to consider the amount of replacement expenses as capital expenditure and therefore, the Assessing officer should be directed to allow the same as revenue expense, while computing total income. 4. Your appellant craves a leave to add, alter or amend any grounds at the time of hearing." 5. Arguments were heard and record perused. The grounds raised are common and accordingly determined as below. 6. Ground no 1 and 2 of Revenue's Appeal. As for the disallowance of foreign exchange fluctuation loss of Rs. 1,03,34,504/- it can be observed that Ld. CIT(A) has followed the Hon'ble Delhi High Court's order dated 03.08.2018 in regard to assessee's own case where considering the ECB loan as an old one the treatment of the foreign exchange fluctuation as revenue income or loss was sustained and Ld. DR was unable to cite any change of facts or law. There is no force in the ground raised by Revenue. 7. Ground no 1 of Assessee's Appeal. The issue is with regard to addition of Rs. 4,98,412/- made by Ld. AO on account of disallowance u/s 14A read with rule 8D. It appears admitted from ....
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.... (ii) Riot or civil disturbance; or (iii) Accidental fire or explosion; or (iv) Action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), Then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head "capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Next Section 43(6) (c) of the Act which defines the "written down values" provides : "(c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted, -- (A) by the increase by the actual cost of any asset f....
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....sidered view that as far as adjustment of WDV for the purpose of Section 43(6)(c)(i)B of the Act is concerned, as the case of assessee is that no insurance claim was settled in the relevant year and the assessee got the claim amount of Rs. 64,84,434/- on 12.09.2013, instead of claim raised of Rs 86,42,865/-, and the claim amount of Rs 64,84,434/- was offered as income under the assessment year 2014-15 as per the Section 45(1A) of the Act. Then the written down value for the purpose of Section 43(6)(c)(i) B of the Act is not liable to be adjusted in the relevant AY as the insurance claim amount was not received. As such the assessee was not even aware as to what is the value of loss assessed by the insurance company which can be reflected by way of adjustment in WDV. Therefore, distinguishing assets as one destroyed or damaged is irrelevant in relation to assets for which the insurance claim was raised. As such the claim may also have been raised for the damaged assets as for the destroyed. The distinction created by Ld. CIT(A) on the basis of judgment of Bombay Tribunal in JR Enterprises vs. ACIT 124 ITAT 493 (ITA No. 5124/Mum/2005) decided on 30.06.2008 is not sustainable. In that....
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.... secondly, rework the deprecation for the assessment year under appeal accordingly. Thus, the grounds raised by the assessee are treated as allowed in the manner indicated above." 13. Thus the order of Ld.CIT(A) on basis of non use of assets is not sustainable. Ld. CIT(A) erred in giving directions to Ld AO to examine the insurance claim of the appellant and identify assets which were required to be replaced as these had got destroyed and those which were damaged and required repair and that the WDV will be reduced in respect of only those assets which were destroyed is not sustainable. In relevant year the Assessee was not required to adjust the WDV of the block of assets, for the amount of insurance claim submitted irrespective of assets being of the category destroyed or damaged. Grounds of assessee is allowed. 14. Ground no 3 of Assessee's Appeal and 3 to 5 of Revenue's appeal. In regard to the disallowance of repair and maintenance expenditure treating the same as capital expenditure. It was submitted on behalf of the assessee that assets replaced were existing assets and no new asset has come into the existence. Therefore, the expenditure cannot be considered to be o....