M/s. Honda Motorcycle and Scooter India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 1020/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90848 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES
• Assessee Lawyers: VIJAY IYER
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Cost of acquisition
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K ., JM ITA NO.1020/DEL/2015 ASSESSMENT YEAR : 2010-11 HONDA MOTORCYCLE & SCOOTERS INDIA PVT. LTD., PLOT NO.01, SECTOR-03, IMT MANESAR, GURGAON. PAN : AAACH7467D VS. ACIT, CIRCLE-2, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY IYER, CA DEPARTMENT BY : SHRI JUDY JAMES, STANDING COUNSEL DATE OF HEARING : 01.04.2015 DATE OF PRONOUNCEMENT : 13 .04.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) READ WITH SECTION 144C OF THE ITA NO.1020/DEL/2015 2 INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) ON 16.01.2014 IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. FIRST GROUND IS AGAINST THE ADDITION TOWARDS THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.22,13,13,283/- ON ACCOUN T OF TWO INTERNATIONAL TRANSACTIONS, NAMELY, PAYMENT OF EXPORT COMMISSION AMOUNTING TO RS.17,50,15,000 AND PAYMENT OF ROYALTY FOR EXPORT T O THE ASSOCIATED ENTERPRISES (AES) AT RS.4,62,98,283. 3. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THA T LIKE EARLIER YEARS, THE ASSESSEE CONTINUED TO MANUFACTURE TWO-WHEELERS BY O BTAINING TECHNOLOGY FROM HONDA, JAPAN. THE ASSESSEE REPORTED EIGHT INT ERNATIONAL TRANSACTIONS. ON A REFERENCE MADE BY THE AO, THE TRANSFER PRICING OFFICER (TPO) ACCEPTED SIX INTERNATIONAL TRANSACTIONS AT ARMS LE NGTH PRICE (ALP). AS REGARDS THE INTERNATIONAL TRANSACTION OF `PAYMENT OF EXPORT COMMISSION, THE TPO HELD THAT NO SERVICE WAS RENDERED BY THE AE TO DESERVE EXPORT COMMISSION. THAT IS HOW, HE DETERMINED THE ALP OF THIS INTERNATIONAL TRANSACTION AT NIL. AS REGARDS THE INTERNATIONAL T RANSACTION OF PAYMENT OF TOTAL ROYALTY AMOUNTING TO RS.336,26,07,000/-, THE TPO ACCEPTED THE ITA NO.1020/DEL/2015 3 PAYMENT OF ROYALTY AT ARMS LENGTH PRICE IN RESPECT OF DOMESTIC SALES AND EXPORT SALES MADE TO NON-AES. HOWEVER, HE DISPUTED THE PAYMENT OF ROYALTY ON EXPORTS MADE TO AES. IN DOING SO, THE T PO HELD THE ASSESSEE TO BE A `CONTRACT MANUFACTURER. ACCORDINGLY, HE OPIN ED THAT SINCE THE ASSESSEE IS MAKING A PART OF ITS SALES TO THE RELAT ED PARTIES AND THE BENEFIT OF PRODUCING COMPONENTS IS REAPED BY AE, THE PAYMENT O F ROYALTY DID NOT CONFORM TO THE ARMS LENGTH PRINCIPLE. HE, THEREFO RE, PROPOSED THE TP ADJUSTMENT AMOUNTING TO RS.4,62,98,283/- IN RESPECT OF PAYMENT OF ROYALTY FOR EXPORTS TO AES. THE AO MADE THE ABOVE ADDITION S BY ADOPTING THE FIGURES FROM THE TPOS ORDER AS SUCH WITHOUT ANY FU RTHER EVALUATION. THE ASSESSEE IS AGGRIEVED AGAINST THE MAKING OF SUCH AD DITIONS. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUES WER E RAISED IN APPEALS BY THE ASSESSEE FOR THE AYS 2008-09 AND 2009-10, WHICH CAM E TO BE HEARD SIMULTANEOUSLY WITH THE INSTANT APPEAL. WE HAVE PA SSED SEPARATE ORDER FOR THE ABOVE REFERRED TWO EARLIER YEARS IN WHICH THE Q UESTION OF DETERMINATION OF ALP IN RESPECT OF EXPORT COMMISSION HAS BEEN RES TORED TO THE FILE OF ITA NO.1020/DEL/2015 4 AO/TPO WITH CERTAIN DIRECTIONS AND THE PAYMENT OF R OYALTY FOR EXPORTS TO AE HAS BEEN ACCEPTED AT ARMS LENGTH PRICE. NO DIS TINGUISHING FEATURE HAS BEEN BROUGHT TO OUR NOTICE IN THE FACTS OF THE INST ANT YEAR VIS--VIS THOSE OF THE ABOVE REFERRED EARLIER TWO YEARS. WE ADOPT THE SAME REASONS FOR THE YEAR UNDER CONSIDERATION AS WELL AND, ACCORDINGLY, REMIT THE INTERNATIONAL TRANSACTION OF `PAYMENT OF EXPORT COMMISSION TO T HE FILE OF AO/TPO FOR A FRESH DETERMINATION AS PER THE GUIDELINES GIVEN I N OUR ABOVE REFERRED ORDER AND DELETE THE ADDITION ON ACCOUNT OF `PAYME NT OF ROYALTY IN RESPECT OF EXPORTS MADE TO THE AES. 5. GROUND NOS. 2.1 AND 2.2 ARE AGAINST THE DISALLOW ANCE OF RS.55,45,182/-, BEING SALES TOOL EXPENSES INCURRED BY THE ASSESSEE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE HAS BEEN RAISED BY THE ASSESSEE IN ITS APPEALS FOR THE AYS 2006-07, 2008-0 9 AND 2009-10, FOR WHICH SEPARATE ORDERS HAVE BEEN PASSED. IN THE ORD ER PASSED FOR THE AY 2006-07, WE HAVE REMITTED THE MATTER TO THE FILE OF AO FOR DECIDING THIS ISSUE IN CONFORMITY WITH THE FINAL VIEW TAKEN IN EA RLIER YEARS. SINCE THE ITA NO.1020/DEL/2015 5 FACT-SITUATION REMAINS SIMILAR FOR THE INSTANT YEAR AS WELL, INASMUCH AS NEITHER THE LD. AR NOR THE LD. DR COULD CLEARLY INF ORM ABOUT THE FINAL VIEW TAKEN ON THIS ISSUE FOR THE EARLIER YEARS, WE SET A SIDE THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE FILE OF AO FOR DECI DING IT IN CONFORMITY WITH THE VIEW TAKEN BY US IN OUR ORDER FOR THE A.Y. 2006-07. 7. GROUND NO. 2.3 IS AGAINST THE DISALLOWANCE OF RS .1,30,67,871/-, BEING THE AMOUNT OF DEPRECIATION ON FOREIGN EXCHANG E (FOREX) LOSS OF RS.5,22,71,487/- ON THE PAYMENT OF MODEL FEES, WHI CH WAS CAPITALIZED BY THE ASSESSEE AS PART OF THE COST OF INTANGIBLE ASSE TS. 8. THE FACTUAL MATRIX APROPOS THIS ISSUE IS THAT TH E ASSESSEE ACQUIRED TECHNICAL KNOW-HOW IN RESPECT OF SOME AUTOMOBILE MO DELS DURING THE YEAR UNDER CONSIDERATION, WHICH WAS CAPITALIZED AS AN `I NTANGIBLE ASSET AND DEPRECIATION WAS CLAIMED THEREON. THE AO OBSERVED THAT BETWEEN THE DATE OF CREDIT OF ACQUISITION PRICE AND THE DATE OF ACTU AL PAYMENT, THE EXCHANGE RATE OF RUPEE AND JAPANESE YEN FLUCTUATED, AS A RES ULT OF WHICH THE ASSESSEE SUFFERED A FOREX LOSS OF RS.5,22,71,487/-. THE COS T OF ACQUISITION OF THE SAID ASSET WHICH WAS ORIGINALLY RECORDED AT RS.141, 47,84,832/- SWELLED TO ITA NO.1020/DEL/2015 6 RS.146,70,56,319/-, THE INCREMENTAL AMOUNT BEING T HE FOREX LOSS OF RS.5.22 CRORE. THE AO OBSERVED THAT THE ASSESSEE D EDUCTED TAX AT SOURCE U/S 195 OF THE ACT ONLY ON THE PAYMENT OF RS.141.47 CRORE AND NO TAX AT SOURCE WAS DEDUCTED FROM THE ADDITIONAL PAYMENT OF RS.5.22 CRORE ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE. T HE ASSESSEES CONTENTION THAT NO TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED O N ADDITIONAL LIABILITY FALLING ON THE ASSESSEE DUE TO VARIATION IN THE FLU CTUATION IN THE FOREIGN CURRENCY RATE AT THE TIME OF PAYMENT, DID NOT FIN D FAVOUR WITH THE AO. HE, THEREFORE, DISALLOWED DEPRECIATION ON THE CORRE SPONDING AMOUNT OF RS.5.22 CRORE, WHICH RESULTED INTO DISALLOWANCE OF RS.130,67,871/-. THE ASSESSEE IS AGGRIEVED AGAINST THE DISALLOWANCE MADE BY THE AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACTS OF THE CASE LIE IN A NARROW COMPASS INASMUCH AS THE ASSESSEE ACQUIRED THE TECHNICAL KNOW-HOW AND THE INVOICE WAS RAISED IN JAPANESE YEN. AT THE TIME OF ACQUISITION , THE ASSESSEE TRANSLATED THE INVOICE VALUE FROM JAPANESE YEN INTO INDIAN RUP EE AT THE RATE PREVAILING AT THAT TIME AND CREDITED THE CONVERTED AMOUNT OF R S.141.47 CRORE TO THE ITA NO.1020/DEL/2015 7 ACCOUNT OF THE SUPPLIER OF KNOW-HOW. TAX WAS DULY DEDUCTED AT SOURCE ON THIS AMOUNT OF RS.141.47 CRORE AT THE TIME OF CREDI T, WHICH WAS DULY DEPOSITED IN THE EXCHEQUER. THIS IS AN ADMITTED POS ITION. THE ENTIRE CONTROVERSY REVOLVES AROUND THE ADDITIONAL SUM OF R S.5.22 CRORE, WHICH THE ASSESSEE BECAME LIABLE TO PAY BECAUSE OF DIFFERENCE IN FOREIGN CURRENCY RATE AS ON THE DATE ON WHICH PAYMENT WAS ACTUALLY M ADE VIS--VIS THE DATE ON WHICH THE AMOUNT WAS CREDITED TO THE ACCOUNT OF THE PAYEE TOWARDS THE COST OF ASSET. 10. IT CAN BE NOTICED THAT THE AO INVOKED THE PR OVISIONS OF SECTION 40(A)(I) TO DISALLOW THE PROPORTIONATE AMOUNT OF D EPRECIATION ON INTANGIBLE ASSET TOWARDS THE ADDITIONAL COST PAID BY THE ASSES SEE DUE TO CHANGE IN THE FOREIGN CURRENCY RATE. THE CASE OF THE AO IS THAT T HE ASSESSEE WAS ALSO REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 ON THE ADD ITIONAL AMOUNT DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE AND SUCH NON-D EDUCTION LED TO THE INVOCATION OF SECTION 40(A)(I). SECTION 40 WITH THE CAPTION `AMOUNTS NOT DEDUCTIBLE PROVIDES THROUGH SUB-CLAUSE (I) OF CLAU SE (A) THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, NO ITA NO.1020/DEL/2015 8 DEDUCTION SHALL BE ALLOWED FOR ANY SUM IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', WHICH IS PAYABLE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ` ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YE AR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESC RIBED UNDER SUB-SECTION (1) OF SECTION 200. SECTION 195 PROVIDES THAT A PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT SHALL AT THE TIME OF CRED IT OF SUCH INCOME TO THE ACCOUNT OF PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER DEDUCT INCOME- TAX THEREON AT THE RATES IN FORCE. WHEN WE READ SE CTION 40(A)(I) IN JUXTAPOSITION OF SECTION 195, THE POSITION WHICH FO LLOWS FOR DISALLOWANCE U/S 40(A)(I) IS THAT THERE SHOULD BE A SUM ON WHICH TAX IS DEDUCTIBLE AT SOURCE AND THE ASSESSEE FAILS TO DEDUCT THE SAME. THE STAGE OF DEDUCTION OF TAX AT SOURCE HAS BEEN SET OUT BY SECTION ITSELF. I T CLEARLY PROVIDES THAT THE DEDUCTION SHOULD BE MADE `AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT, WH ICHEVER IS EARLIER. ITA NO.1020/DEL/2015 9 THUS IT IS CLEAR THAT THE DEDUCTION OF TAX AT SOURC E ON A SINGLE TRANSACTION IS CONTEMPLATED AT THE EARLIER OF THE DATES OF CREDIT OR PAYMENT TO THE PAYEE. IT IS NOT ON BOTH THE OCCASIONS. ONCE DEDUCTION OF TAX AT SOURCE HAS BEEN MADE AT THE TIME OF CREDIT, WHICH EVENT OCCURS FIRS T, THEN THERE CAN BE NO QUESTION OF ONCE AGAIN MAKING DEDUCTION OF TAX AT S OURCE ON FULL OR IN PART AT THE TIME OF PAYMENT. THIS POSITION HAS BEEN MADE CLEAR BY RULE 26 OF INCOME-TAX RULES, 1962 WITH THE HEADING `RATE OF EX CHANGE FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE ON INCOME PAY ABLE IN FOREIGN CURRENCY, WHICH PROVIDES AS UNDER:- ` FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE ON AN Y INCOME PAYABLE IN FOREIGN CURRENCY , THE RATE OF EXCHANGE FOR THE CALCULATION OF THE V ALUE IN RUPEES OF SUCH INCOME PAYABLE TO AN ASSESSEE OUTSIDE INDIA SHALL BE THE TELEGRAPHIC TRANSFER BUYING RATE OF SUCH CURRENCY A S ON THE DATE ON WHICH THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVIIB BY THE PERSON RESPONSIBLE FOR PAYING SUCH INCOME . EXPLANATION : FOR THE PURPOSES OF THIS RULE, 'TELEG RAPHIC TRANSFER BUYING RATE'', IN RELATION TO A FOREIGN CURRENCY, MEANS TH E RATE OR RATES OF EXCHANGE ADOPTED BY THE STATE BANK OF INDIA CONSTITUTED UNDE R THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), HAVING REGARD TO THE GUIDELINES SPECIFIED FROM TIME TO TIME BY THE RESERVE BANK OF INDIA FOR BUYING SUCH CURRENCY WHERE SUCH CURRENCY IS MADE AVAILABLE TO THAT BANK THROUGH A TELEGRAPHIC TRANSFER. ITA NO.1020/DEL/2015 10 11. A BARE PERUSAL OF THE ABOVE RULE INDICATES THAT THE DEDUCTION OF TAX AT SOURCE ON ANY INCOME PAYABLE IN FOREIGN CURRENCY SH ALL BE MADE ON THE AMOUNT DEDUCED BY CONVERTING FOREIGN EXCHANGE LIABI LITY INTO INDIAN RUPEES AT THE TELEGRAPHIC TRANSFER PAYING RATE AS ON THE DATE ON WHICH THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVIIB. TO PUT IT SIMPLY, THE DEDUCTION OF TAX AT SOURCE SHOULD BE MADE FROM THE INCOME PAYABLE IN FOREIGN CURRENCY ON THE AMOUNT CONVERTED INTO INDIAN RUPEES AS PER THE TT BUYING RATE ON THE DATE ON WHICH TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. THE AO HAS HELD THAT RULE 26 OPERATES ONLY IN RESPECT OF INCOME UNDER THE HEAD `SALARIES ON WHICH TAX IS REQUIRED TO BE DEDUCTED AT SOURCE U/S 192 AND NOT O N OTHER PAYMENTS INCLUDING SECTION 195. IT IS DISCERNIBLE FROM THE PLAIN LANGUAGE OF RULE 26 THAT THE SAME IS APPLICABLE IN RESPECT OF PROVISION S OF CHAPTER XVIIB, WHICH COVERS SECTIONS 190 TO 206AA. NOT ONLY SECTI ON 192, BUT SECTION 195 IS ALSO COVERED BY THE MANDATE OF RULE 26. IF WE READ SECTION 195 ON ONE HAND AND SECTION 40(A)(I) ON THE OTHER IN CONJU NCTION WITH RULE 26, THE POSITION WHICH EMERGES IS THAT THE DEDUCTION OF TAX AT SOURCE IS REQUIRED AT THE RATE OF EXCHANGE FOR THE CALCULATION OF THE VAL UE IN RUPEES OF SUCH ITA NO.1020/DEL/2015 11 INCOME PAYABLE TO AN ASSESSEE OUTSIDE INDIA AT THE TELEGRAPHIC TRANSFER BUYING RATE OF SUCH CURRENCY AS ON THE DATE ON WHIC H THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE AND THE RESULTANT DATE ON WHI CH THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE IS `THE TIME OF CREDIT OF SU CH INCOME TO THE ACCOUNT OF PAYEE OR AT THE TIME OF PAYMENT THEREOF ., WHIC HEVER IS EARLIER. THIS SHOWS THAT THE TAX IS REQUIRED TO BE DEDUCTED AT TH E FIRST STAGE WHEN THE AMOUNT OF INCOME IS CREDITED TO THE ACCOUNT OF PAYE E AND, HENCE, DEDUCTION OF TAX AT SOURCE IS ALSO CONTEMPLATED AT THAT STAGE ALONE WHICH IS TO BE DONE BY CONVERTING FOREIGN CURRENCY INTO TT BUYING RATE AT THAT PARTICULAR DATE. THERE IS NO WARRANT FOR ACCEPTING THE REVENUES CON TENTION THAT THE DEDUCTION OF TAX AT SOURCE SHOULD HAVE BEEN MADE AT THE LATER STAGE ALSO ON THE ADDITIONAL LIABILITY WHEN THE ASSESSEE MADE PAY MENT. IN OUR CONSIDERED OPINION, THE ACT DOES NOT REQUIRE TWO PHASED DEDUCT ION OF TAX AT SOURCE ON ONE TRANSACTION, ONE AT THE TIME OF CREDIT AND SECO ND AT THE TIME OF ACTUAL PAYMENT. DEDUCTION OF TAX AT SOURCE IS REQUIRED TO BE MADE ONLY ON ONE OCCASION, WHICH IN THE CONTEXT OF SECTION 195 IS, E ARLIER OF THE TIME OF CREDIT OR THE TIME OF PAYMENT. UNDER SUCH CIRCUMST ANCES, THE ASSESSEE CANNOT BE CALLED UPON TO DEDUCT TAX AT SOURCE ON TH E ADDITIONAL LIABILITY ITA NO.1020/DEL/2015 12 ARISING BECAUSE OF FOREIGN EXCHANGE LOSS. IF WE TA KE THE CONTENTION OF THE REVENUE TO A LOGICAL CONCLUSION, THEN EVERY CASE OF PAYMENT IN CONVERTIBLE FOREIGN EXCHANGE WOULD REQUIRE DEDUCTION OF TAX AT SOURCE, FIRSTLY, AT THE TIME OF CREDIT AND SECONDLY, AT THE TIME WHEN ADDIT IONAL LIABILITY IS FASTENED ON IT DUE TO UNFAVOURABLE RATE OF EXCHANGE. A VERY PECULIAR SITUATION WOULD ARISE, IF INSTEAD OF THE ASSESSEE SUFFERING F OREX LOSS, GETS FOREX GAIN ON ACCOUNT OF FAVOURABLE RATE OF EXCHANGE AT THE TI ME OF PAYMENT. GOING BY THE VIEWPOINT OF THE REVENUE, IN THAT CASE, IT W OULD BECOME LIABLE TO REFUND A PART OF THE AMOUNT OF EXCESS TAX DEDUCTED AT SOURCE AT THE FIRST INSTANCE AT THE TIME OF CREDIT TO THE ACCOUNT OF T HE PAYEE, WHICH POSITION IS MANIFESTLY CONTRARY TO THE LEGISLATIVE INTENT AND P RESCRIPTION. THE CRUX IS THAT IN BOTH THE SITUATIONS, I.E., WHETHER THERE IS A FOREX LOSS OR GAIN, DEDUCTION OF TAX AT SOURCE U/S 195 IS CONTEMPLATED ONLY AT THE FIRST STAGE OF THE CREDIT OF INCOME TO THE ACCOUNT OF THE PAYEE. THE HIGHER OR LOWER LIABILITY DUE TO FOREIGN EXCHANGE LOSS OR FOREIGN E XCHANGE GAIN IS INCONSEQUENTIAL IN SO FAR AS DEDUCTION OF TAX AT SO URCE U/S 195 IS CONCERNED. ONCE THERE IS NO DEFAULT ON THE PART OF THE ASSESSE E IN MAKING DEDUCTION OF TAX AT SOURCE ON THE ADDITIONAL AMOUNT PAID DUE TO FOREIGN EXCHANGE LOSS, ITA NO.1020/DEL/2015 13 THERE CAN BE NO QUESTION OF MAKING ANY DISALLOWANCE U/S 40(A)(I) OF THE ACT. 12. OUR ABOVE CONCLUSION IS FORTIFIED FROM ANOTHE R ANGLE AS WELL. SECTION 32 OF THE ACT PROVIDES FOR DEPRECIATION, INTER ALIA, ON INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, WH ICH ARE OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES O F THE BUSINESS OR PROFESSION. IT PROVIDES THAT DEPRECIATION SHALL BE ALLOWED IN THE CASE OF ANY BLOCK OF ASSETS, AT SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. SECTION 43A OF THE ACT IS A SPE CIAL PROVISION CONSEQUENTIAL TO CHANGES IN RATE OF EXCHANGE OF CUR RENCY. THIS SECTION BEGINS WITH A NON-OBSTANTE CLAUSE AND ITS RELEVANT PART PROVIDES AS UNDER : 43A. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET IN AN Y PREVIOUS YEAR FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSIN ESS OR PROFESSION AND, IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCHANGE DUR ING ANY PREVIOUS YEAR AFTER THE ACQUISITION OF SUCH ASSET, THERE IS AN IN CREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN INDIAN CU RRENCY (AS COMPARED TO THE LIABILITY EXISTING AT THE TIME OF ACQUISITION OF TH E ASSET) AT THE TIME OF MAKING PAYMENT (A) TOWARDS THE WHOLE OR A PART OF THE COST OF THE ASSET; OR ITA NO.1020/DEL/2015 14 (B) TOWARDS REPAYMENT OF THE WHOLE OR A PART OF TH E MONEYS BORROWED BY HIM FROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN ANY FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET ALONG WITH INTEREST, IF ANY, THE AMOUNT BY WHICH THE LIABILITY AS AFORESAID IS S O INCREASED OR REDUCED DURING SUCH PREVIOUS YEAR AND WHICH IS TAKEN INTO A CCOUNT AT THE TIME OF MAKING THE PAYMENT, IRRESPECTIVE OF THE METHOD OF A CCOUNTING ADOPTED BY THE ASSESSEE, SHALL BE ADDED TO, OR, AS THE CASE MA Y BE, DEDUCTED FROM (I) THE ACTUAL COST OF THE ASSET AS DEFINED IN C LAUSE (1) OF SECTION 43; .................. AND THE AMOUNT ARRIVED AT AFTER SUCH ADDITION OR DE DUCTION SHALL BE TAKEN TO BE THE ACTUAL COST OF THE ASSET OR THE AMOUNT OF EX PENDITURE OF A CAPITAL NATURE OR, AS THE CASE MAY BE, THE COST OF ACQUISIT ION OF THE CAPITAL ASSET AS AFORESAID: 13. THE MANDATE OF THIS PROVISION IS THAT WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET FROM A COUNTRY OUTSIDE INDIA AND DUE TO C HANGE IN THE RATE OF EXCHANGE AFTER THE ACQUISITION OF SUCH ASSET, THE A MOUNT BY WHICH THE ORIGINALLY RECORDED LIABILITY INCREASES OR REDUCES, SUCH INCREASE OR REDUCTION SHALL BE ADDED TO OR DEDUCTED, AS THE CAS E MAY BE, FROM THE ACTUAL COST OF ASSET. THE ESSENCE OF THIS PROVISIO N IS THAT THE PAYMENT MADE FOR THE ACQUISITION OF AN ASSET SHOULD BE CONSIDERE D AS ACTUAL COST OF ASSET NOTWITHSTANDING THE INCREASED OR REDUCED COST RECOR DED AT THE TIME OF ACQUISITION OF SUCH ASSET. IN OTHER WORDS, IF LIAB ILITY OF THE ASSESSEE IS ITA NO.1020/DEL/2015 15 INCREASED DUE TO UNFAVOURABLE FLUCTUATION IN THE FO REIGN EXCHANGE RATE, THEN, SUCH INCREASED LIABILITY WILL GO TO ENHANCE THE ACTUAL COST OF THE ASSET AND VICE VERSA . IT IS THIS ADJUSTED COST OF ACQUISITION WHICH IS CONSIDERED FOR THE PURPOSES OF GRANTING DEPRECIATION. THE NON -OBSTANTE CLAUSE IN THE OPERATING PART OF THIS SECTION MAKES IT EXPLICITLY CLEAR THAT IT IS THIS PROVISION WHICH SHALL APPLY IN SUPERSESSION OF ANY OTHER CONTRARY PROVISION IN SO FAR AS THE COMPUTATION OF ACTUAL COST OF AN A SSET DUE TO CHANGE IN THE RATE OF FOREIGN CURRENCY, IS CONCERNED. ONCE THIS, BEING A SPECIAL PROVISION GETS TRIGGERED ON ACCOUNT OF CHANGE IN TH E RATE OF FOREIGN CURRENCY AND PROVIDES FOR TAKING THE COST OF ACQUIS ITION AS SO ADJUSTED, WE CANNOT COMPREHEND UNADJUSTED COST, WITHOUT ADJUSTM ENT DUE TO CHANGE IN THE RATE OF FOREIGN CURRENCY, AS ACTUAL COST. IT I S ONLY THIS ADJUSTED COST WHICH CAN BE CONSIDERED FOR ALLOWING DEPRECIATION. THE INTERPRETATION AS SUGGESTED BY THE REVENUE IN NOT CONSIDERING THE ADJ USTED COST AS THE COST OF ACQUISITION OF CAPITAL ASSET FOR ALLOWING DEPREC IATION, RESULTS INTO DISTORTION OF THE PROVISIONS OF SECTION 43A, WHICH IS IMPERMISSIBLE. IT, THEREFORE, FOLLOWS THAT THERE CAN BE NO QUESTION OF ADOPTING UNADJUSTED COST OF ACQUISITION OF ASSET FOR ALLOWING DEPRECIATION B Y INVOKING THE PROVISIONS ITA NO.1020/DEL/2015 16 OF SECTION 40(A)(I) OF THE ACT INASMUCH AS THE DEPR ECIATION IS ALLOWABLE WITH REFERENCE TO THE ADJUSTED COST OF ACQUISITION OF THE ASSET IN TERMS OF SECTION 43A. WE, THEREFORE, ALLOW GROUND NO. 2.3. 14. THE LAST EFFECTIVE GROUND NO. 2.4 ABOUT THE DIS ALLOWANCE OF DEPRECIATION OF RS.2,41,092/- BY APPLYING THE DEPRE CIATION RATE OF 10% ON SIGNAGES INSTEAD OF 15% CLAIMED BY THE ASSESSEE, WAS NOT SERIOUSLY PRESSED BECAUSE OF THE INSIGNIFICANCE OF THE AMOUNT INVOLVED. THIS GROUND IS, THEREFORE, NOT ALLOWED. 15. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13.04.201 5. SD/- SD/- [GEORGE GEORGE K.] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 13 TH APRIL, 2015. DK ITA NO.1020/DEL/2015 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.