Assistant Commissioner of Income-tax, V. M/s. Spicer India Ltd., Pune

ITA 1886/PUN/2013

• Counselvise Citation: 188624514 RSA 2013
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 18-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: R D ONKAR
• Keywords: Reopening of assessment; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1886/PN/2013 (ASSESSMENT YEAR : 2003-04) THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE . APPELLANT VS. SPICER INDIA LTD., 29, MILESTONE, PUNE NASHIK ROAD, KURULI, TA KHED, PUNE 410501 PAN: AAECS1869C . RESPONDENT ASSESSEE BY : SHRI R.D. ONKAR DEPARTMENT BY : SMT. M.S. VERMA DATE OF HEARING : 14-10-2014 DATE OF PRONOUNCEMENT : 20-10-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGA INST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DA TED 23.07.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.12.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 147 OF THE INCOME-TAX ACT , 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL. 1. WHETHER THE ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE REOPENING OF ASSESSMENT IN THIS CASE WAS NOT VALID WHEN THE ASSESSEE HAS NOT MADE F ULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. 2. WHETHER THE ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE C OMPANY HAS MADE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS NECESSAR Y FOR ASSESSMENT WHEN THE EXCHANGE GAIN OF RS.45,21,379 ON ACCOUNT O F REDUCTION OF LIABILITY TOWARDS ACQUISITION OF FIXED ASSETS WAS N OT REFLECTED IN THE BOOKS OF ACCOUNT FOR THE PURPOSE OF DEPRECATION AS PER INCOME TAX, THEREBY CLAIMING EXCESS DEPRECIATION OF RS.11,30,35 5/-. ITA NO.1886/PN/2013 SPICER INDIA LTD 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F DEPRECIATION OF RS. 11,30,345/-, WHEN THE ASSESSEE WAS LIABLE TO REDUCE RS. 45,21,379/- DUE TO EXCHANGE GAIN FROM THE COST OF MACHINERY AND SUBSEQUENT DEPRECATION ON IT. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE RES PONDENT ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND, INTER ALIA, IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF AXLES AND PROPELLER SHAFTS AND ASSEMBLIES. INITIALLY, AN ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 31.03.2006. SUBSEQUENTLY, THE ASSESSI NG OFFICER FORMED A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX ESCAPE D ASSESSMENT WITHIN THE MEANING OF 147/148 OF THE ACT. THE ASSESSING OFFIC ER WAS OF THE BELIEF THAT THE GAIN ON FOREIGN EXCHANGE CONVERSION OF THE LOAN LIABILITIES CORRESPONDING TO THE FIXED ASSETS AMOUNTING TO RS.45,21,379/- WAS NO T REFLECTED IN THE COST OF FIXED ASSETS AND THEREFORE, IT HAS RESULTED IN EXCE SS DEPRECIATION OF RS.11,30,345/-. ACCORDINGLY, THE ASSESSMENT WAS RE -OPENED U/S 147/148 OF THE ACT IN ORDER TO DENY THE EXCESSIVE CLAIM OF DEP RECIATION TO THE EXTENT OF RS.11,30,345/-. IN THE ENSUING PROCEEDINGS U/S 147 /148 OF THE ACT, THE ASSESSING OFFICER DISALLOWED DEPRECIATION TO THE EX TENT OF RS.11,30,345/- ON THE GROUND THAT THE COST OF MACHINERY OUGHT TO HAVE BEEN REDUCED A SUM OF RS.45,21,379/- REPRESENTING FOREIGN EXCHANGE GAIN A S ON YEAR END AND THEREBY, RESULTING IN A LOWER CLAIM OF DEPRECIATION TO THE EXTENT OF RS.11,30,345/-. 4. BEFORE THE CIT(A), ASSESSEE CHALLENGED THE VALID ITY OF THE PROCEEDINGS INITIATED U/S 147/148 OF THE ACT AS ALSO THE DISALL OWANCE OF DEPRECIATION AMOUNTING TO RS.11,30,345/-. THE CIT(A) HAS UPHELD BOTH THE PLEAS OF THE ASSESSEE AND ACCORDINGLY, THE REVENUE IS IN APPEAL BEFORE US. ITA NO.1886/PN/2013 SPICER INDIA LTD 5. IN THIS BACKGROUND, THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD TAKEN FOREIGN CURRENCY LOAN FOR FINANCING ITS FIXED ASSET S. THE ASSESSEE IS FOLLOWING MERCANTILE METHOD OF ACCOUNTING. AT THE END OF EAC H YEAR, THE FOREIGN CURRENCY LOAN LIABILITY IS CONVERTED INTO INDIAN RU PEES AND IN DOING SO, AS ON 31.03.2013, THERE WAS A UNREALIZED FOREIGN CURRENCY GAIN OF RS.45,21,379/-. AS PER THE REVENUE, THE AFORESAID SUM OUGHT TO HAVE REDUCED THE COST OF FIXED ASSETS AND THEREFORE, THE DEPRECIATION SHOULD HAVE BEEN ALLOWED ON SUCH REDUCED COST OF FIXED ASSETS. THE CIT(A) HAS DISAGREED WITH THE ASSESSING OFFICER ON ACCOUNT OF PROVISIONS OF SECTI ON 43A OF THE ACT. SECTION 43A OF THE ACT DEALS WITH THE INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN INDIA CURRENCY ON ACCOUNT OF CHANGES IN THE RATE OF EXCHANGE OF CURRENCY. SECTION 43A OF THE ACT HAS B EEN AMENDED W.E.F. 01.04.2013 I.E. FROM A.Y. 2003-04 TO PRESCRIBE THAT THE ADJUSTMENT OF FOREIGN CURRENCY FLUCTUATIONS IN RESPECT OF FOREIGN CURRENC Y BORROWINGS TAKEN FOR ACQUIRING FIXED ASSETS IS TO BE MADE TO THE COST OR THE WDV OF FIXED ASSETS ONLY AT THE TIME OF MAKING PAYMENT I.E. ON CASH BAS IS AND NOT ON ACCRUAL BASIS FOR THE PURPOSES OF INCOME TAX. IN THE PRESENT CAS E, THE IMPUGNED GAIN ON FOREIGN CURRENCY FLUCTUATIONS IS A NOTIONAL GAIN IN AS MUCH AS IT HAS RESULTED ON ACCOUNT OF TRANSLATION OF FOREIGN LOAN LIABILITY AT THE END OF THE YEAR ON ACCRUAL BASIS. THE FOREIGN EXCHANGE GAIN IS NOT AS A RESUL T OF ACTUAL PAYMENT MADE BY THE ASSESSEE. THEREFORE, THE AFORESAID GAIN CAN NOT BE ADJUSTED TOWARDS THE COST OF THE FIXED ASSETS. ACCORDINGLY, THERE I S NO JUSTIFICATION FOR THE ASSESSING OFFICER TO HAVE REDUCED THE DEPRECIATION ALLOWANCE CORRESPONDING TO THE AFORESAID EXCHANGE GAINS. THE CIT(A) IN OUR VIEW, MADE NO MISTAKE IN NEGATING THE STAND OF THE ASSESSING OFFICER AND IT IS WELL SUPPORTED THE ORDER OF CIT(A) BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. REPORTED IN (2009 ) 312 ITR 254 (SC). THUS, ON THIS ASPECT, WE AFFIRM THE STAND OF THE CI T(A) AND ACCORDINGLY, REVENUE FAILS. ITA NO.1886/PN/2013 SPICER INDIA LTD 6. SINCE WE UPHELD THE STAND OF THE CIT(A) IN DELET ING THE DISALLOWANCE OF DEPRECIATION, THE OTHER GROUNDS RAISED BY THE REVEN UE CHALLENGING THE ORDER OF THE CIT(A) IN INVALIDATING THE INITIATION OF THE PROCEEDINGS U/S 147/148 OF THE ACT IS RENDERED ACADEMIC AND THE SAME IS NOT BEING ADJUDICATED FOR THE PRESENT. 7. IN THE RESULT, WE AFFIRM THE ULTIMATE CONCLUSION OF THE CIT(A) ALBEIT ONLY WITH RESPECT TO THE SETTING ASIDE OF THE DISALLOWAN CE OF DEPRECIATION AMOUNTING TO RS.11,30,345/-. 8. RESULTANTLY, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE, DATED: 20 TH OCTOBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-V, PUNE 4) THE CIT-V, PUNE 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE