THE COMMR. OF INCOME TAX V. M/S NATIONAL HYDRO ELECTRIC POWER CORP.

ITA/274/2006

AI Insights

The case involves the Commissioner of Income Tax as the appellant and M/s National Hydroelectric Power as the respondent, concerning the assessment year 1998-99. The core issue was the disallowance of depreciation amounting to Rs. 585.75 lacs, which the Assessing Officer had disallowed based on the increased asset value due to foreign exchange rate fluctuations. The CIT(A) and subsequently the Tribunal overturned this disallowance, leading to the revenue's appeal. The High Court, referencing Supreme Court decisions, upheld the Tribunal's decision, emphasizing that the impact of foreign exchange fluctuations on asset values should be recognized in the financial year they occur, not contingent on actual payment.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 719280 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 17-12-2010
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax v. Woodward Governor India P. Ltd. [2009] 312 ITR 254(SC), Oil and Natural Gas Corporation Ltd. v. Commissioner of Income-Tax [2010] 322 ITR 180 (SC), CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PIYUSH KAUSHIK
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Accounting Standard; Capitalization; Depreciation; Foreign exchange fluctuation; Mercantile system of accounting
• Section: 260A

Judgement Text

"ITA No. 274 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 274 of 2006 Date of Decision: 17.12.2010 The Commissioner of Income Tax ....Appellant. Versus M/s National Hydroelectric Power ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. Mr. Piyush Kaushik, Advocate for the respondent. ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 against the order of Income Tax Appellate Tribunal, Delhi Bench 'F' passed in ITA No. 1496/Delh/2003 dated 27.10.2004 for the assessment year 1998-99, claiming following substantial question of law:- “Whether Hon'ble ITAT has erred in law in confirming the order of the CIT (A) in deleting the disallowance of depreciation of Rs.585.75 lacs claimed by the assessee on capitalization of the effect of the fluctuation in the rate of foreign exchange on the outstanding liability, though no amount was actually ITA No. 274 of 2006 -2- paid during the year?” 2. The Assessing Officer partly disallowed the claim for depreciation calculated on the basis of increased value of the assets of the assessee on account of fluctuation of foreign exchange rates. On appeal, the CIT(A) upheld the plea of the assessee as follows:- “4.3 From the above judgment of the Special Bench of Delhi, ITAT, it is clear that change in the value of asset because of fluctuation in foreign currency is not a contingent liability. The appellant company is following mercantile system of accounting and following the accounting standard issued by ICAJ. The Chamera project has already started the operation and the assets of the project are in use. Therefore, keeping the aforesaid facts and the legal position as enunciated by Delhi ITAT (Special Bench) the AO was not justified in disallowing the claim of the appellant and accordingly the disallowance of Rs.585.75 lacs made by the AO is hereby deleted. The appellant succeeds on this ground.” The Tribunal affirmed the said finding. 3. We have heard learned counsel for the parties. 4. Learned counsel for the revenue does not dispute that the view taken by the Tribunal is in consonance with the view taken by the Hon'ble Supreme Court in Commissioner of Income-Tax v. Woodward Governor India P. Ltd. [2009] 312 ITR 254(SC) and Oil and Natural Gas Corporation Ltd. v. Commissioner of Income-Tax ITA No. 274 of 2006 -3- [2010] 322 ITR 180 (SC). Following earlier judgment in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 (SC), it was held that increase or decrease in liability in the repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of fluctuation in the rate of exchange. This has to be done irrespective of the date of actual payment in foreign currency. 5. In view of above, the question claimed on behalf of the revenue is answered against the revenue. 6. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 17, 2010 (AJAY KUMAR MITTAL) gbs JUDGE "