DCIT, Circle - 6, Kolkata, Kolkata V. M/s. Century Enka Ltd., Kolkata

ITA 1775/KOL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9335 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 1992-1993
• Appeal Filed On: 14-09-2010
• Court: TRIBUNAL
• Department Lawyers: D R SINDHAL
• Assessee Lawyers: A J MAJ UMDAR AKASH MANSINKA; PREET I BHATN
• Keywords: Capital asset; Depreciation; Additional depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 145

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, B BENCH : KOLKATA [ BEFORE HONBLE SHRI B.R. MITTAL, JM AND HONBLE S HRI C. D. RAO, AM ] ITA NO. 1775 (KOL) OF 2010 : ASSESSMENT YEAR : 199 2-93 DY. COMISSIONER OF INCOME TAX -VS.- CENTURY ENKA LIMITED CIRCLE-6,KOLKATA. KOLKATA [PAN : AABCC 2491 D] [APPELLANT] [RESPONDENT] APPELLANT BY : SHRI D. R. SIN DHAL, CIT RESPONDENT BY : S/SHRI A. J. MAJ UMDAR, AKASH MANSINKA & MS. PREET I BHATNAGAR. PER B. R. MITTAL, J. M. THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 1992-93 AGAINST ORDER OF LD. CIT(A)-VI, KOLKATA DATED 28.06.2010 ON THE FOLLOWIN G GROUNDS :- (1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A)- VI, KOLKATA HAS ERRED IN LAW IN DELETING THE DISALL OWANCE OF INTEREST ON BORROWED CAPITAL OF RS.204.93 LAKH (CORRECT AMOUNT OF INTEREST DELETED BY LD. CIT(A) RS.138.20 LAKH) . (2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN DELETING THE DISALLOWAN CE OF INVESTMENT ALLOWANCE OF RS.251.46 LAKH. (3) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A)-VI. KOLKATA HAS ERRED IN LAW IN DELETING THE DISALLOWAN CE OF ADDITIONAL DEPRECIATION ALLOWANCE OF RS.1,89,69,500/- IN RESPE CT OF FOREIGN EXCHANGE LIABILITY AND DEVALUATION OF RUPEE. (4) THAT THE LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN ALLOWING FOREIGN EXCHANGE LIABILITY AND DEVALUATION OF RUPEE ON NOTIONAL BASIS. (5) THAT THE LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN ALLOWING CLAIM MADE DURING ASSESSMENT PROCEEDINGS OTHERWISE THAN BY REVISED RETURN ON NOTIONAL BASIS IN VIOLATION OF PR INCIPLE LAID DOWN BY THE APEX COURT IN M/S. GOETZE INDIA LTD. CASE. 2. THIS APPEAL IS ARISING OUT OF ASSESSMENT ORDER P ASSED U/S. 143(3)/254/251 OF THE ACT. ITA NO. 1775/KOL/20 10 2 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE FILED R ETURN ON 30.12.1992 DISCLOSING TOTAL INCOME OF RS.2830.83 LAKHS AS PER NORMAL PROVISIONS OF THE INCOME TAX ACT. AT THE TIME OF FILING OF SAID ORIGINAL RETURN ASSESSEE CAPITALIZED INTEREST EXPENDITURE AND CLAIMED DEPRECIATION THEREON. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE FILED A LETTER DATED 17.02.1995 AND CLAIMED FOLLOWING DEDUCTIONS :- (A) INVESTMENT ALLOWANCE OF RS.251.46 LAKHS U/S. 32A OF THE INCOME TAX ACT ON ACCOUNT OF REVISED COST OF PLANT AND MAC HINERY IN TERMS OF SECTION 43A OF THE ACT DUE TO VARIATION OF RATE OF FOREIGN EXCHANGE AS ON 31.03.1992; AND (B) INTEREST OF RS.204.93 LAKHS PAYABLE DURING THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , ON FUNDS BORROWED FOR ACQUISITION OF FIXED ASSETS, WHICH WAS CAPITALISED IN THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO FILED REVIS ED DEPRECIATION SCHEDULE ALONGWITH SAID LETTER. 4. THE ASSESSING OFFICER MADE ASSESSMENT VIDE ORDER DATED 31.03.1995, COPY PLACED AT PAGES 36 TO 46 OF THE PAPER BOOK AND STATED AS UNDE R :- (I) THAT QUESTION OF EXCHANGE RATE LOSS CAN NOT ARI SE DURING THE YEAR AS THE ASSESSEE HAS NOT MADE ANY ACTUAL PAYMENT. NO CONSIDERATION FOR FUTURE LOSS CAN BE CONSIDERED OR ASCERTAINED. (II) THAT THE ASSESSEE CANNOT BE ALLOWED TO REVISE ITS RETURN BY SUBMITTING A LETTER AND CLAIM INTEREST OF RS.204.93 LAKHS IN RESPECT OF LOANS TAKEN FOR PURCHASE/ACQUISITION OF FIXED AS SETS, WHICH WAS CAPITALIZED AS PART OF INTEREST ON FIXED ASSETS AND CLAIMED DEPRECIATION INTEREST IN ITS INCOME-TAX RETURN FILE D FOR ASSESSMENT YEAR 1992-93. (III) THAT ASSESSING OFFICER DID NOT DISCUSS CLAIM OF INV ESTMENT ALLOWANCE U/S. 32A OF THE ACT CLAIMED BY THE ASSESS EE ON ACCOUNT ITA NO. 1775/KOL/20 10 3 OF VARIATION OF RATE OF FOREIGN EXCHANGE. 5. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) 6. THE LD. CIT(A) VIDE HIS ORDER DATED 07.09.1998 H ELD AS UNDER :- (I) IN DISALLOWING DEPRECIATION WITH REFERENCE TO INCRE MENTAL LIABILITY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION, FINDING OF ASSESSING OFFICER IS CONFUSING AS HE FAILED TO BRING OUT ISSUE CLEARLY. THEREFORE, THE L D. CIT(A) RESTORED THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE TH E ISSUE WITH A SPEAKING ORDER DEVOID OF AMBIGUITIES. (II) IN REGARD TO CLAIM OF INTEREST ON BORROWED FUND AND CLAIM OF INVESTMENT ALLOWANCE ON INCREMENTAL LIABILITY, LD. CIT(A) DIRE CTED THE ASSESSING OFFICER TO EXAMINE AND ALLOW THE SAME IF ADMISSIBLE. 7. BEING AGGRIEVED THE DEPARTMENT AS WE ALL AS THE ASSESSEE FILED APPEALS AGAINST THE AFORESAID ORDER OF LD. CIT(A) DATED 07.09.1998 BEFO RE THE TRIBUNAL BEING ITA NO.1596/KOL/98 (FILED BY THE ASSESSEE) AND ITA NO.1841/KOL/98 (FIL ED BY THE DEPARTMENT). THE TRIBUNAL VIDE ITS ORDER DATED 19.07.2002 DECIDED THE APPEAL OF THE AS SESSEE ALONGWITH OTHER APPEALS OF THE ASSESSE FOR ASSESSMENT YEARS 1993-94 & 1997-98 (COP Y PLACED AT PAGES 73 TO 82 OF THE PAPER BOOK). THAT APPEAL OF DEPARTMENT WAS DECIDED VIDE O RDER DATED 24.10.2002 (COPY PLACED AT PAGES 83 TO 85 OF THE PAPER BOOK). PURSUANT TO ABOV E, THE ASSESSING OFFICER HAS PASSED ASSESSMENT ORDER DATED 28.11.2003 GIVING RISE TO TH IS APPEAL FOR OUR CONSIDERATION. 8. IN RESPECT OF GROUND NO.1 OF THE APPEAL, THE ASS ESSING OFFICER HAS STATED AS UNDER :- INTEREST ON BORROWED CAPITAL AS REGARDS THE ALLOWABILITY OF INTEREST ON BORROWED MONEY AS REVENUE EXPENDITURE, THE A/R STATED THAT BORROWED MONEY HAS BEEN USED FOR THE PURPOSES OF BUSINESS AND DEPRECIATION HAS ALSO BEEN ALLOWED AND ON THE IDENTICAL POINT THE ITAT HAS ALLOWED IN ASSESSMENT YEAR 1993-94. THE A/ R HAS POINTED OUT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C HALLAPALLI SUGARS LTD. VS. CIT (1975) 98 ITR 167. IN RESPONSE, THE A/R SUBMITTED T HAT THE CITED CASE IS FOR AN ALTOGETHER NEW BUSINESS AND IN THE ASSESSEES CASE, IT IS AN EXISTING BUSINESS AND USED FOR THE EXPANSION OF BUSINESS WHICH HE CONTEND ED WAS NOTHING BUT REVENUE EXPENDITURE. ITA NO. 1775/KOL/20 10 4 THE SUBMISSION OF THE A/R WAS CONSIDER ED AND RECORDS VERIFIED IN THIS REGARD. IT IS SEEN FROM THE ORIGINAL ASSESSMENT ORD ER THAT THE ASSESSEE HAS CAPITALISED THE INTEREST UPTO THE DATE OF INSTALLAT ION OF FIXED ASSETS IN RESPECT OF LOANS TAKEN FOR PURCHASE/ACQUISITION OF FIXED ASSET S. THIS IS IN CONFORMITY WITH THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. VS. CIT (1975) 98 ITR 167, THE LEADING CASE LAW O THIS ISSUE. IT IS ALSO NOTED THAT THE PORTION OF IN TEREST, ON BEING CAPITALIZED AS ABOVE, IS BEING ACTUALLY ALLOWED TO THE ASSESSEE BY WAY OF HIGHER DEPRECIATION AND NOT DIRECTLY U/S. 36. THEREFORE THE ASSESSEE IS NOT BEI NG DENIED THE BENEFIT OF INTEREST PAYMENT. THE CASE LAW CITED BY THE ASSESSEE (CIT VS . BERGER PAINTS (INDIA) LTD., 254 ITR 503 (CAL) IS NOT BEING DEFIED AS ASSESSEES CLAIM IS NOT BEING DENIED ONLY BECAUSE THE SAME WAS NOT MADE IN THE RETURN FI LED. THIS ISSUE IS BEING DECIDED ON ITS MERITS ONLY, WHICH INCIDENTALLY IS I N INCONFORMITY WITH ASSESSEES OWN COMPUTATION AS GIVEN IN ITS RETURN OF INCOME. A CCORDINGLY, AS DIRECTED BY HONBLE ITAT, THE ISSUE HAS BEEN EXAMINED, AND ON E XAMINATION AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CONTENTION OF THE ASSESSEE IS REJECTED. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE L D. CIT(A). 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS HELD THAT THE CASE OF HONBLE APEX COURT OF CHALLAPALLI SUGARS LTD. [1 975] 98 ITR 167, RELIED BY THE ASSESSING OFFICER DOES NOT APPLY AS THE ASSESSEE HAS SUCCESSF ULLY DISTINGUISHED THE SAID DECISION THAT IN THE CASE OF THE ASSESSEES BUSINESS IT WAS ALREADY IN E XISTENCE. THE LD. CIT(A) RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF D CIT VS. CORE HEALTHCARE LTD. [298 ITR 194 (SC)] HELD THAT OUT OF TOTAL INTEREST OF RS.204.93 LAKHS, INTEREST OF RS.138.20 LAKHS RELATES TO ASSETS INSTALLED DURING THE RELEVANT ASSESSMENT YEA R AND INTEREST OF RS.66.73 LAKHS ARE IN RESPECT OF ASSETS THAT WERE NOT INSTALLED DURING THE RELEVA NT ASSESSMENT YEAR AND ACCORDINGLY ALLOWED INTEREST TO THE EXTENT OF RS.138.20 LAKHS TO THE AS SESSEE. THE LD. CIT(A) HAS ALSO HELD THAT AMENDED SECTION 36(1)(III) PROVIDE FOR CAPITALIZATI ON OF INTEREST EXPENSES ON BORROWING FOR PURCHASE OF FIXED ASSETS BEFORE THEY ARE PUT TO USE IS EFFECTIVE ONLY FROM ASSESSMENT YEAR 2004- 05. THE LD. CIT(A) HAS ALSO STATED THAT ASSESSEE HA S FURNISHED DETAILS OF LOANS BORROWED, ASSETS PURCHASED AND TIME FOR PUTTING THEM TO USE. HENCE, THE DEPARTMENT IS IN APPEAL AGAINST AFORESAID ORDER OF THE LD. CIT(A) BEFORE THE TRIBUNAL. 10. ON BEHALF OF THE DEPARTMENT, LD. DEPARTMENTAL R EPRESENTATIVE CONTENDED THAT THE ASSESSEE ITSELF CAPITALIZED INTEREST AND CLAIMED DE PRECIATION THEREON. THEREFORE, THE ASSESSEE COULD NOT BE ALLOWED TO CLAIM INTEREST AS REVENUE E XPENDITURE. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT FILE REVISE RETURN TO CLAIM INTEREST AS ITA NO. 1775/KOL/20 10 5 REVENUE EXPENDITURE AND ONLY FILED A LETTER DATED 1 7.02.1995. THE LD. DEPARTMENTAL REPRESENTATIVE RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT [2006] 284 ITR 323 (SC) SUBMITTED THAT THE ASSESSING AUTHORITY HAS NO POWER TO ENTERTAIN A CLAIM FOR DEDUCTION BY ALLOWING AMENDME NT IN THE RETURN FILED WITHOUT A REVISED RETURN. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE ASSESSING OFFICER WAS JUSTIFIED NOT TO CONSIDER THE CLAIM OF THE ASSESSEE AS THE AS SESSEE WANTED TO REVISE THE RETURN BY WAY OF A LETTER WHICH WAS NOT INCONFORMITY WITH THE AFORESAI D DECISION OF THE HONBLE APEX COURT. 11. ON BEHALF OF THE ASSESSEE, LD. AUTHORISED REPR ESENTATIVE SUBMITTED THAT THE AFORESAID DECISION OF THE HONBLE APEX COURT DOES NOT APPLY T O THE FACTS OF THE CASE. HE SUBMITTED THAT HONBLE APEX COURT MADE IT CLEAR IN ITS AFORESAID O RDER OF GOETZE (INDA) LTD. (SUPRA) THAT THE DECISION WAS RESTRICTED TO THE POWER OF THE ASSESSI NG AUTHORITY TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN. IT DID NOT IMP INGE ON THE POWER OF THE APPELLATE TRIBUNAL. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO ORDER OF LD. CIT(A) DATED 07.09.1998, IN THE ORIGINAL GROUNDS OF APPEAL AND S UBMITTED THAT LD. CIT(A) VIDE PARA 13 DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ABOVE CLAIM AND ALLOW THE SAME IF ADMISSIBLE. HE FURTHER SUBMITTED THAT AGAINST THE AFORESAID ORDER OF LD. CIT(A) BOTH THE PARTIES FILED APPEALS BEFORE THE TRIBUNAL AND THE TRIBUNAL IN PARA 8.4, A FTER CONSIDERING THE SUBMISSIONS OF THE PARTIES LAID DOWN THE LAW AND HELD THAT IRRESPECTIVE OF THE FACT THAT THE ASSESSEE CAPITALISED INTEREST IN ITS BOOKS OF ACCOUNT, ASSESSEE IS NOT DEBARRED TO CLAIM INTEREST IF THE BORROWED MONEY IS UTILIZED FOR BUSINESS PURPOSES AND ACCORDINGLY DIRECTED THE ASSE SSING OFFICER TO EXAMINE THE ALLOWABILITY OF INTEREST ON BORROWED MONEY IN THE LIGHT OF THE LEGA L POSITION LAID DOWN BY THE TRIBUNAL. HE REFERRED TO PAGES 74 TO 82 OF THE PAPER BOOK AND RE LEVANT PAGES 79 TO 81 OF THE PAPER BOOK, WHICH IS A COPY OF THE SAID ORDER OF THE TRIBUNAL. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF ABOVE, THE ASSES SING OFFICER EXAMINED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTEREST ON BORROWED CAPI TAL BUT DISALLOWED THE SAME. THAT DISALLOWANCE IS NOT VALID. HENCE, THE PLEA OF THE L D. DEPARTMENTAL REPRESENTATIVE HAS NO MERIT. HE SUBMITTED THAT THE ORDER OF THE LD. CIT(A) TO AL LOW INTEREST ON BORROWED CAPITAL TO THE ASSESSEE BE CONFIRMED. 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES ITA NO. 1775/KOL/20 10 6 AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS EARLIER ORDERS OF THE AUTHORITIES BELOW AND I.T.A.T. (SUPRA). WE HAVE ALSO GONE THROUGH THE CA SES RELIED UPON BY THE LD. REPRESENTATIVES OF THE PARTIES. 13. IN RESPECT OF REVISING THE CLAIM OF THE ASSESSE E BY LETTER DATED 17.02.1995, TO CLAIM INTEREST ON BORROWED FUND AS REVENUE EXPENDITURE IN STEAD OF BEING CAPITALISED AND ALSO TO REVISE DEPRECIATION SCHEDULE BY EXCLUDING DEPRECIATION CLA IMED ON CAPITALISED INTEREST IN THE RETURN OF INCOME, WE AGREE WITH THE LD. AUTHORISED REPRESENTA TIVE FOR THE ASSESSEE THAT THE SAID DECISION OF THE HONBLE APEX COURT OF GOETZE (INDIA) LTD. (S UPRA) DOES NOT APPLY TO THE FACTS OF THE CASE BEFORE US. WE OBSERVE THAT THE HONBLE APEX COURT I N THE SAID ORDER HAS SPECIFICALLY STATED THAT THE POWER OF THE ASSESSING AUTHORITY TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN WAS RESTRICTED TO THE POWERS OF THE ASSESSING AUTHORITY AND DID NOT IMPINGE ON THE POWER OF THE APPELLATE AUTHORITY U/S.254 OF THE INC OME TAX ACT. WE OBSERVE THAT LD. CIT(A) VIDE ITS ORDER DATED 07.09.1998, COPY PLACED AT PAG ES 57 TO 66 OF THE PAPER BOOK, DIRECTED THE ASSESSING OFFICER TO EXAMINE THE CLAIM AND ALLOW IN TEREST UPTO THE DATE OF INSTALLATION OF FIXED ASSETS AS REVENUE EXPENDITURE, IF ADMISSIBLE. WE O BSERVE THAT THE APPEAL WAS FILED BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE PARA 8.4 TO 8.6 OF I TS ORDER DATED 19.07.2002, COPY PLACED AT PAGES 74 TO 82 OF THE PAPER BOOK, HELD THAT THE ASS ESSEE IS ENTITLED FOR DEDUCTION OF INTEREST ON BORROWED AMOUNT TAKEN FOR INSTALLATION OF PLANT AND MACHINERY FOR EXPANSION OF UNITS/INSTALLATION OF FIXED ASSETS AND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ALLOWABILITY OF INTEREST ON BORROWED MONEY IN THE LIGHT OF LEGAL POSITION LAID DOWN THEREIN. WE CONSIDER IT PRUDENT TO REPRODUCE PARA 8.2 TO 8.6 OF THE SAID OR DER OF I.T.A.T. WHICH ARE AS UNDER :- 8 2 DURING THE COURSE OF HEARING OF THE APPEAL BEFORE US, THE LD. A/R OF THE ASSESSEE SUBMITTED THAT THE INTEREST PAID BY THE ASSESSEE ON THE AMOUNT BORROWED FOR THE PURPOSE OF ITS BUSINESS SHO ULD BE ALLOWED AS AN EXPENDITURE U/S. 36(1)(III) OF THE ACT IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAD CAPITALIZED THE SAID INTEREST OR NOT O NCE IT IS ESTABLISHED THAT THE BORROWING WAS FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND THE SAID FACT HAS NOT BEEN DISPUTED BY THE DEPARTMENT. IN RE SPECT OF HIS SUBMISSION THE LD. A.R. OF THE ASSESSEE RELIED ON THE FOLLOWIN G CASES : I) 251 ITR 61 (GUJ) II) 242 ITR 129 (DEL) III) 220 ITR 185 (SC) IV) 236 ITR 471 (SC) V) 78 ITD 1 (AMD.) TM ITA NO. 1775/KOL/20 10 7 8.3 FURTHER, IN SUPPORT OF HIS SUBMISSION THAT EVEN IF THE AMOUNT IS CAPITALIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT , THE ASSESSEE IS ENTITLED TO CLAIM THE EXPENDITURE AS REVENUE AS PER THE LAW, RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BERGER PAINTS (INDIA) LTD. 234 ITR 503. ON THE OTHER HAND, THE LD. D.R. R ELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8.4 WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF T HE PARTIES. WE HAVE ALSO GONE THROUGH THE CASES RELIED UPON BY THE LD. AR. OF THE ASSESSEE. THERE IS NO DISPUTE THAT EVEN IF THE ACQUISITION OF ASSETS IS CAPITAL EXPENDITURE, NO DISALLOWANCE OF INTEREST COULD BE M ADE UNLESS IT IS FOUND THAT BORROWED MONIES WERE NOT USED FOR THE PURPOSE OF ASSESSEES BUSINESS. IF BORROWED MONEY IS USED FOR THE BUSINES S PURPOSES, THE INTEREST IS AN ADMISSIBLE DEDUCTION EVEN IF THE BORROWED MON EY WAS UTILIZED FOR ACQUIRING CAPITAL ASSETS. THE DEPARTMENT IS TO MAKE ENQUIRY AS TO WHETHER THE PAYMENT OF INTEREST WAS IN RESPECT OF CAPITAL B ORROWED FOR THE PURPOSE OF THE ASSESSEES BUSINESS OR NOT. IN THE INSTANT C ASE, THERE IS NO DISPUTE THAT THE CAPITAL WAS BORROWED FOR THE PURPOSE OF TH E BUSINESS OF THE ASSESSEE AND THE INTEREST WAS PAID THEREON. SO LONG AS THE MONEY IS UTILIZED FOR BUSINESS PURPOSE, THE INTEREST HAS TO BE ALLOWE D AS DEDUCTION ACCORDING TO LAW AND THE ASSESSEE IS NOT STOPPED BY THE TREAT MENT GIVEN BY THE ASSESSEE TO IT IN ITS BOOKS OF ACCOUNT. THE SIMILAR ISSUE HAS BEEN EXAMINED BY THE GUJARAT BENCH OF THE TRIBUNAL IN THE CASE OF CORE HEALTH CARE LTD V DCIT 78 ITD 1 (TM), WHEREIN IT WAS HELD THAT MERE F ACT THAT THE INTEREST HAD BEEN CAPITALIZED INITIALLY BY THE ASSESSEE IN I TS BOOKS OF ACCOUNT WOULD NOT DISENTITLE THE ASSESSEE TO CLAIM THE DEDUCTION U/S 36(1)(III) OF THE ACT, IF THE BORROWED MONEY WAS INVESTED IN EXPANSION OF MANUFACTURING UNIT OF THE ASSESSEE BY INSTALLING ADDITIONAL MACHINERIES. IT WAS HELD THAT THE PROVISIONS OF SECTION 145 OF THE ACT COULD NOT OVER RIDE SECTION 5. IF EXPENDITURE IS ALLOWABLE UNDER THE RELEVANT PROVISI ONS OF LAW, THE DEDUCTION COULD NOT BE DENIED BECAUSE THE BOOK KEEP ING ENTRY AND CAPITALIZATION OF SUCH INTEREST HAS BEEN MADE ON TH E BASIS OF THE RECOGNIZED METHOD OF ACCOUNTING AND THE ACCOUNTING STANDARD ISSUED BY ICAI. WHENEVER THE ACCOUNTING STANDARD OR THE SYSTE M OF ACCOUNTING OR THE MANNER OF MAKING BOOK KEEPING ENTRY IS NOT IN C ONFORMITY WITH THE LEGAL POSITION, THE PROVISIONS OF LAW WOULD PREVAIL OVER THE METHOD OF ACCOUNTING OR BOOK KEEPING ENTRY OR ACCOUNTING STAN DARD. 8.5 IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSE SSEE IS ENTITLED FOR THE DEDUCTION OF INTEREST ON THE BORROWED AMOUNT TAKEN FOR INSTALLATION OF PLANT AND MACHINERY FOR THE EXPANSION OF ITS UNIT/I NSTALLATIO OF FIXED ASSETS. 8.6 IN VIEW OF ABOVE, WE HOLD THAT IN RESPECT O F ASSESSMENT YEAR 1992- 93 THE A.O. WILL EXAMINE THE ALLOWABILITY OF INTERE ST ON THE BORROWED ITA NO. 1775/KOL/20 10 8 MONEY IN THE LIGHT OF THE LEGAL POSITION LAID DOWN HEREINABOVE AND ACCORDINGLY THE GROUND NO.8 OF THE APPEAL IS DISPOS ED OF WITH THE ABOVE DIRECTION. AS FAR AS THE ASSESSMENT YEAR 1993-94 IS CONCERNED, WE REVERSE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW GROUN D NO.5 OF THE APPEAL IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE HOLD THAT THE CONTENTION O F THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO MERIT THAT THE CLAIM OF THE ASSESSEE HAS NOT RIGHTL Y BEEN CONSIDERED BY THE LD. CIT(A). 14. FURTHER, WE OBSERVE THAT THE DEPARTMENT HAS NOT CONTENDED THE FACT THAT THE ASSESSEE HAS PAID INTEREST ON BORROWINGS FOR EXPANSION OF THE EX ISTING BUSINESS BY ESTABLISHING A NEW UNIT. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE B ORROWED FUND HAS BEEN UTILIZED BY THE ASSESSEE FOR BUSINESS PURPOSES. THEREFORE, WE UPHOL D THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE IS ENTITLED TO INTEREST ON BORROWED FU ND ON THE ASSETS WHICH WAS INSTALLED DURING THE RELEVANT ASSESSMENT YEAR AS THE ASSESSEE HAS BORROW ED THE AMOUNT FOR THE PURPOSE OF PURCHASE OF FIXED ASSETS FOR EXPANSION OF ITS BUSINESS. WE HOLD THAT THE ABOVE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF C ORE HEALTHCARE LTD. (SUPRA) AND THE CASE OF THE ASSESSEE IS NOT HIT BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF CHALLAPALLI SUGARS LTD.(SUPRA) AS IN THAT CASE THE INTEREST WAS PAID O N BORROWED FUND UTILIZED TO BRING INTO EXISTENCE A FIXED ASSETS WHICH HAS NOT GONE INTO PRODUCTION. IN THAT CASE, THE COMPANY HAD NOT YET STARTED PRODUCTION AND HENCE HAD NOT COMMENCED ANY BUSINESS WHEN IT BORROWED THE AMOUNT. WE ALSO HOLD THAT THE AMENDMENT MADE IN SECTION 36(1)(III) OF THE ACT BY FINANCE ACT 2003 WITH EFFECT FROM 01.04.2004 WILL NOT APPLY TO THE FACTS OF THE CASE BEFORE US AS THE HONBLE APEX COURT HAS HELD IN THE CASE OF CORE HEALTHCARE LTD. (SUPRA) TH AT THE SAID AMENDMENT BE READ AS PROSPECTIVE AND WITH EFFECT FROM 01.04.2004. THE CASE BEFORE US RELATES TO ASSESSMENT YEAR 1992-93. HENCE, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, GROUND NO.1 OF THE APPEAL TAKEN BY THE DEPARTMENT IS REJECTED. 15. IN RESPECT OF GROUND NO.2 OF THE APPEAL, THE AS SESSING OFFICER HAS STATED THAT THE LD. CIT(A) RESTORED THE ISSUE OF INCREMENTAL LIABILITY AND THE ASSESSEES LD. REPRESENTATIVE DID NOT PRESS THE POINT ON THE GROUND THAT THE ISSUE HAD BE EN DECIDED IN THE LATER YEARS. 16. IN THE APPEAL FILED BEFORE THE LD. CIT(A), THE ASSESSEE TOOK ADDITIONAL GROUND AND STATED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 199 4-95 VIDE ORDER DATED 27.06.2003 AND FOR ITA NO. 1775/KOL/20 10 9 ASSESSMENT YEAR 1991-92 VIDE ORDER DATED 23.09.2003 , ITAT, BY FOLLOWING THE DECISION OF THE THIRD MEMBER IN THE CASE OF DCIT VS. ICI (INDIA) LT D. [2003] 85 ITD 85 (CAL.) (TM) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECTED TH E ASSESSING OFFICER TO ALLOW THE INVESTMENT ALLOWANCE IN RESPECT OF INCREMENTAL FOREIGN EXCHANG E LIABILITY DUE TO FLUCTUATION IN RATE OF EXCHANGE. HENCE, THE ASSESSEE TOOK THIS ADDITIONAL GROUND BEFORE THE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE ALLOWED THE CLAIM OF THE ASSESSEE. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBU NAL. 17. AT THE TIME OF HEARING LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE SAME VERY ISSUE, IN ASSESSEES OWN CASE, HAS BEEN CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT FOR ASSESSMENT YEAR 1978-79 REPORTED AT [1992] 196 ITR 447 (CAL.) AND THE HONBLE HIGH COURT HELD THAT THE ASSESSEE WAS NOT ENTITLED TO INVESTME NT ALLOWANCE ON ADDITIONAL LIABILITY ARISING ON ACCOUNT OF VARIATION IN THE RATE OF EXCHANGE RELATI NG TO FOREIGN LOAN LIABILITY. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECI SION OF THIRD MEMBER IN THE CASE OF ICI (INDIA) LTD. (SUPRA) RELATES TO THE CLAIM OF DEPREC IATION ON THE ADDITIONAL LIABILITY ARISING TO THE ASSESSEE ON ACCOUNT OF FLUCTUATIONS IN THE RATE OF EXCHANGE OF RUPEE AND THEREFORE, THE SAID I.T.A.T., THIRD MEMBER DECISION SHOULD NOT BE FOLLO WED VIS-A-VIS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND THAT TOO IN THE CASE OF THE ASSESSEE ITSELF. 18. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIV E FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). HOWEVER, THE LD. AUTHORISED REPRESE NTATIVE FOR THE ASSESSEE CONCEDED THAT THE SAME VERY ISSUE IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 1978-79 HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HONBLE JURISDICTIONAL HIGH COU RT. HOWEVER, THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE THIRD MEMBER, I.T.A.T., KOLKATA BENCHES IN THE CASE OF ICI (INDIA) LTD. (SUPRA) HAS HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION AS WELL AS INVESTMENT ALLOWANCE ON THE ENHANCED LIABILITY IN R ESPECT OF COST OF THE ASSETS CONCERNED INCURRED DUE TO FLUCTUATIONS IN EXCHANGE RATE AFTER CONSIDERING SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA) THE LD. AUTHORISE D REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT I.T.A.T., KOLKATA BENCHES BY FOLLOWING THE SAI D DECISION OF THIRD MEMBER, I.T.A.T. HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSE SSMENT YEARS 1991-92 IN ITA NO. 200/KOL/2003 VIDE ORDER DATED 23.09.2003, COPY PLAC ED AT PAGES 142 TO 147 OF THE PAPER BOOK, ITA NO. 1775/KOL/20 10 10 IN ASSESSMENT YEAR 1994-95 IN ITA NO. 306/CAL/2000 VIDE ORDER DATED 27.06.2003, COPY PLACED AT PAGES 148 TO 154 OF THE PAPER BOOK. THE LD. AUTH ORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THIRD MEMBER, I.T.A.T. CONSIDERED TH E SAID DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CENTURY ENKA LTD. (SUPRA) AND ANOTHER DECISION OF HONBLE KOLKATA HIGH COURT IN THE CASE OF CIT VS. KANORIA CHEMICALS & INDUSTRIES LTD. (1994) 207 ITR 718 (CAL.) AND THEREAFTER DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED T HAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. [2009] 312 ITR 254 (SC), WHILE CONSIDERING THE QUESTION OF ALLOWING ADDITIONAL DEPRECIATION ON ACC OUNT OF ADDITIONAL LIABILITY INCURRED DUE TO EXCHANGE RATE FLUCTUATIONS HAS HELD THAT AS PER SEC TION 43A, AS APPLICABLE PRIOR TO AMENDMENT BY FINANCE ACT, 2002, WITH EFFECT FROM 01.04.2003, IT WAS NOT NECESSARY THAT THERE SHOULD BE ACTUAL PAYMENT OF INCREASED/DECREASED LIABILITY AS A CONSEQUENCE OF EXCHANGE VARIATION FOR MAKING NECESSARY ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSETS. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN V IEW OF AFORESAID DECISIONS, THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 19. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS CITED BEFORE US (SUPRA). 20. IT IS A FACT THAT HONBLE JURISDICTIONAL HIGH C OURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1978-79 (SUPRA) DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING THAT ASSESSEE WOULD BE ENTITLED TO INVESTMENT ALLOWANCE ON ADDITIONAL LIAB ILITY ARISING DUE TO FLUCTUATIONS IN THE RATE OF CONVERSION ON THE DATE OF ACTUAL PAYMENT OF LOAN. H OWEVER, WE OBSERVE THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KANORIA CH EMICALS & INDUSTRIAL LTD. (SUPRA) HAD TAKEN A CONTRARY VIEW AND HELD THAT THE ASSESSEE WAS ENTITL ED TO DEPRECIATION/DEVELOPMENT REBATE ON THE INCREASED VALUE OF PLANT AND MACHINERY ON ACCOUNT O F DIFFERENCE IN THE RATE OF EXCHANGE OF INDIAN RUPEE DURING THE RELEVANT ACCOUNTING YEAR AN D ACTUAL PAYMENT WAS NOT NECESSARY. WE OBSERVE THAT THIRD MEMBER, I.T.A.T. AFTER CONSIDERI NG ABOVE BOTH THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ICI (INDI A) LTD. (SUPRA) HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION AS WELL AS INVESTMENT ALLOWANCE ON THE ENHANCED LIABILITY IN RESPECT OF THE COST OF THE ASSETS CONCERNED DUE TO FLUCTUATIONS IN THE EXCHANGE RATE AS PER METHOD OF ACCOUNTING ITA NO. 1775/KOL/20 10 11 FOLLOWED BY THE ASSESSEE. IN OTHER WORDS, IT WAS HE LD THAT THE CLAIM OF THE ASSESSEE COULD NOT BE DENIED ON THE GROUND THAT THERE WAS NO ACTUAL PAYME NT MADE BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR IN RESPECT OF LIABILITY ACCRUED TO THE ASSESSEE DUE TO FLUCTUATIONS IN EXCHANGE RATE. WE OBSERVE THAT FOLLOWING THE SAID DECISION O F I.T.A.T., THIRD MEMBER (SUPRA), THE SAME VERY ISSUE HAS BEEN DECIDED BY I.T.A.T., KOLKATA BE NCHES IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1991-92 BY ORDER DATED 23.09.2003, COPY PLACED AT PAGES 142 TO 147 OF THE PAPER BOOK, IN ASSESSMENT YEAR 1994-95 VIDE ORDER DATED 27.06.2003 , COPY PLACED AT PAGES 148 TO 154 OF THE PAPER BOOK AND TO WHICH ONE OF US IS A PARTY TO THA T ORDER, IN ASSESSMENT YEARS 1994-95 & 1995- 96 BY ORDER DATED 26.06.2003 IN APPEALS FILED BY TH E DEPARTMENT, COPY PLACED AT PAGES 155 TO 157 OF THE PAPER BOOK AND ONE OF US IS A PARTY TO T HAT ORDER ALSO. IN VIEW OF THE ABOVE FACTS AND ALSO CONSIDERING THE DECISION OF THE HONBLE APEX C OURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA), WE HOLD THAT THERE IS NO IN FIRMITY IN THE ORDER OF THE LD. CIT(A). THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) BY REJECTING GROUND NO.2 OF THE APPEAL TAKEN BY THE DEPARTMENT. 21. IN RESPECT OF GROUND NO.3 OF THE APPEAL TO ALLO W ADDITIONAL DEPRECIATION OF RS.1,89,69,500/- ACCRUED ON ACCOUNT OF VARIATION IN FOREIGN EXCHANGE LIABILITY AND ON ACCOUNT OF DEVALUATION OF RUPEE, WE HOLD THAT THE ISSUE IS SQU ARELY COVERED NOT ONLY BY THE EARLIER ORDERS OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE BUT ALS O BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. (SU PRA) IN FAVOUR OF THE ASSESSEE. WE CONSIDER IT PRUDENT TO REFER PARA 33 & 34 OF THE SAID ORDER WHICH ARE AS UNDER :- 33. AS STATED ABOVE, WHAT TRIGGERS THE ADJUSTMENT IN THE ACTUAL COST OF THE ASSETS, IN TERMS OF UNAMENDED SECTION 43A OF THE 19 61 ACT IS THE CHANGE IN THE RATE OF EXCHANGE SUBSEQUENT TO THE ACQUISITION OF A SSET IN FOREIGN CURRENCY. THE SECTION MANDATES THAT AT ANY TIME THERE IS CHANGE I N THE RATE OF EXCHANGE, THE SAME MAY BE GIVEN EFFECT TO BY WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY. BUT FOR S. 43A WHICH CORRESPONDS TO PARA 10 OF AS-11 SUCH ADJUSTMENT IN THE CARRYING AM OUNT OF THE FIXED ASSETS WAS NOT POSSIBLE, PARTICULARLY IN THE LIGHT OF S. 43(1) . THE UNAMENDED S. 43A NOWHERE REQUIRED AS CONDITION PRECEDENT FOR MAKING NECESSAR Y ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSET THAT THERE SHOULD BE ACTU AL PAYMENT OF THE INCREASED/DECREASED LIABILITY AS A CONSEQUENCE OF T HE EXCHANGE VARIATION. THE WORDS USED IN THE UNAMENDED S. 43A WERE FOR MAKING PAYMENT AND NOT ON PAYMENT WHICH IS NOW BROUGHT IN BY AMENDMENT TO S 43A VIDE FINANCE ACT, 2002. 34. LASTLY, WE ARE OF THE VIEW THAT AMENDMENT OF S . 43A BY THE FINANCE ACT, 2002 W.E.F. 1 ST APRIL, 2003 IS A MENDATORY AND NOT CLARIFICATORY. THE AMENDMENT ITA NO. 1775/KOL/20 10 12 IS IN COMPLETE SUBSTITUTION OF THE SECTION AS IT EX ISTED PRIOR THERETO. UNDER THE UNAMENDED S. 43A ADJUSTMENT TO THE ACTUAL COST TOOK PLACE ON THE HAPPENING OF CHANGE IN THE RATE OF EXCHANGE WHEREAS UNDER THE AM ENDED S. 43A THE ADJUSTMENT IN THE ACTUAL COST IS MADE ON CASH BASIS. THIS IS I NDICATED BY THE WORDS AT THE TIME OF MAKING PAYMENT. IN OTHER WORDS, UNDER THE UNAMENDED S. 43A ACTUAL PAYMENT WAS NOT A CONDITION PRECEDENT FOR MAKING A DJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSET. THIS INDICATES A COMPLET E STRUCTURAL CHANGE BROUGHT ABOUT IN S. 43A VIDE FINANCE ACT, 2002. THEREFORE, THE AMENDED SECTION IS AMENDATORY AND NOT CLARIFICATORY IN NATURE. IN VIEW OF THE ABOVE AND CONSIDERING THE UNAMENDED PROVISIONS OF SECTION 43A AS APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION, WE UPHOLD THE ORDER OF THE LD. CIT(A) BY REJECTING GROUND NO.3 OF THE APPEAL TAKEN BY THE DEPARTMENT. 22. GROUND NO.4 DO NOT REQUIRE ANY SPECIFIC ADJUDIC ATION AS IT IS CONNECTED WITH GROUND NO.2 & 3 OF THE APPEAL. 23. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON. [ C. D. RAO ] [ B. R. MITTAL ] ACCOUNTANT MEMBER JUDICIA L MEMBER DATED : FEBRUARY, 2011. COPY FORWARDED TO THE - 1. DY. COMMISSIONER OF INCOME TAX, CIRCLE-6, KOLKATA. 2. CENTURY ENKA LIMITED, 9/1, R.N. MUKHERJEE ROAD, BIR LA BUILDING, KOLKATA-700 001. 3. CIT(A)- (4) CIT- 5. D.R., I.T.A.T., KOLKATA. [TRUE COPY] BY ORDER DEPUTY/ASSISTANT REGISTRAR (KKC) I.T.A.T., KOLKATA.