THE DCIT, CIRCLE-2(1), GUNTUR, Guntur V. M/s Maddi Lakshmaiah & Co., Guntur

ITA 422/VIZ/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8973 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BHUPAL REDDY
• Keywords: Capital asset; Business income; Depreciation; Additional depreciation; Question of law; Speculation loss; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 37(1); 43(5)

Judgement Text

ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.422/VIZAG/2012 ( / ASSESSMENT YEAR:2009-10) DCIT, CIRCLE - 2(1), GUNTUR MADDI LAKSHMAIAH & CO. LTD. , GUNTUR [PAN NO. AABCM4998B ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M. BHUPAL REDDY, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 01.05.201 7 / DATE OF PRONOUNCEMENT : 05.05.2017 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A), GUNTUR DATED 13.9.2012 AND IT PERTAINS TO T HE ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF TOBACCO PROCESSING, EXPO RT AND WAREHOUSING ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 2 FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 21.10.2009 ADMITTING TOTAL INCOME OF ` 10,71,04,320/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURN ISHED BOOKS OF ACCOUNTS AND OTHER RELEVANT INFORMATION AS CALLED F OR. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER CALLED AS 'THE ACT') ON 31.12.2011 DETERMINING THE TOTAL INCOME OF ` 21,48,46,051/-, INTER-ALIA MAKING ADDITIONS TOWARDS DISALLOWANCE OF SPECULATIVE LOSS FROM FOREIGN EXCHANGE DERIVATIVES, DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS AND DISALLOWANCE OF ADDITIONAL DEPRECIATION. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSES SEE HAS FILED ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE FURTHE R CONTENDED THAT THE A.O. WAS ERRED IN TREATING PREMIUM CHARGES ON FC FO RWARD CONTRACTS/UNDERLYING OPTIONS AS SPECULATIVE IN NATU RE, IGNORING THE FACT THAT THE ASSESSEE HAS ENTERED INTO FORWARD CONTRACT S TO HEDGE THE LOSS IN CURRENCY MOVEMENT WITH ITS BANKERS. THE ASSESSE E FURTHER SUBMITTED THAT IT HAS ENTERED VARIOUS FORWARD CONTRACTS TO HE DGE THE CURRENCY TO MITIGATE THE POSSIBLE LOSS IN FLUCTUATION IN CURREN CY IN ITS NORMAL COURSE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 3 OF BUSINESS AND THE TOTAL VALUE OF FORWARD CONTRACT S DOES NOT EXCEED THE UNDERLYING EXPOSURE IN THE FORM OF EXTERNAL BORROWI NGS. THE ASSESSEE FURTHER CONTENDED THAT IN SO FAR AS LOSS DUE TO FOR EIGN EXCHANGE FLUCTUATION, IT HAS CONVERTED ITS EXISTING TERM LOA NS BORROWED FROM INDIAN BANKS INTO FOREIGN CURRENCY LOAN TO REDUCE T HE COST OF INTEREST. IN THE PROCESS, IT HAS INCURRED LOSS DUE TO INCREAS ED DOLLAR RATE AND THE RESULTANT LOSS HAS BEEN DEBITED TO EXCHANGE LOSS AC COUNT. AS REGARDS DISALLOWANCE OF ADDITIONAL DEPRECIATION, THE ASSESS EE SUBMITTED THAT IT IS IN THE BUSINESS OF PROCESSING AND EXPORT OF TOBACCO WHICH INVOLVES PROCESSING OF RAW TOBACCO LEAVES INTO STEM TOBACCO BY THRESHING AND CUTTING INTO DIFFERENT SIZES REQUIRED FOR EXPORTING , WHICH AMOUNTS TO MANUFACTURE, THEREFORE, ELIGIBLE FOR ADDITIONAL DEP RECIATION. 4. THE CIT(A) AFTER CONSIDERING THE RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO RELIED UPON CERTAIN JUDICIAL PREC EDENTS, DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF PREMIUM CHARGES ON FC FORWARD CONTRACTS/UNDERLYING OPTIONS. THE CI T(A) FURTHER OBSERVED THAT IN SO FAR AS LOSS ON FOREIGN EXCHANGE FLUCTUATIONS, IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS AVAILED INDI AN CURRENCY TERM LOANS FOR THE PURPOSE OF CONSTRUCTION OF SOFTWARE T ECHNOLOGY PARK AND AFTER SOME TIME, THE INDIAN CURRENCY LOANS WERE CON VERTED INTO FOREIGN CURRENCY TERM LOANS. SOME OF THE LOANS WERE OBTAIN ED BY ASSESSEE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 4 COMPANY FOR THE PURPOSE OF WORKING CAPITAL IN INDIA N RUPEES AND FOREIGN CURRENCY AS WELL. THE CIT(A) FURTHER OBSER VED THAT SINCE THE ASSET HAS BEEN ACQUIRED IN INDIA AND ALSO THE LOANS WERE BORROWED IN INDIAN CURRENCY AND SUBSEQUENTLY CONVERTED INTO FOR EIGN CURRENCY LOANS, THE PROVISIONS OF SECTION 43A OF THE ACT HAS NO APP LICATION TO THE FACTS OF THE ASSESSEES CASE. WITH THESE OBSERVATIONS, DIRE CTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF LOSS ON FOREIGN CURRENCY FLUCTUATION. IN SO FAR AS DISALLOWANCE OF ADDITION AL DEPRECIATION, OBSERVED THAT DRYING AND THRESHING OF TOBACCO LEAVE S IS MANUFACTURE AND ACCORDINGLY, ENTITLED FOR ADDITIONAL DEPRECIATI ON. THE CIT(A) FURTHER OBSERVED THAT THE HONBLE HIGH COURT OF MADRAS, IN THE CASE OF CIT VS. PREMIER TOBACCO PACKERS PVT. LTD. REPORTED IN (2006 ) 284 ITR 222, HELD THAT DRYING AND THRESHING OF TOBACCO AMOUNTS TO MAN UFACTURING ACTIVITY. THEREFORE, FOLLOWING THE DECISION OF HONBLE HIGH C OURT OF MADRAS, HELD THAT THE ACTIVITY OF THE ASSESSEE IS AMOUNTS TO MAN UFACTURE AND HENCE, ELIGIBLE FOR ADDITIONAL DEPRECIATION, ACCORDINGLY, DIRECTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS ADDITIONAL DEPRECIATI ON. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE U S. ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 5 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF PREMIUM CHARGES ON FC FORWARD CONTRACTS/UNDERLYI NG OPTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ASKE D THE ASSESSEE TO FURNISH THE DETAILS OF PREMIUM CHARGES ON FC FORWAR D CONTRACTS WITH NECESSARY DETAILS. IN RESPONSE TO NOTICE, THE ASSE SSEE HAS FILED DETAILS OF FORWARD CONTRACTS ENTERED INTO WITH ICICI BANK M UMBAI ALONG WITH OPTION NUMBER, CONTRACT, PAY OUT, TRADE DATE, EXPIR ATION DATE, SETTLEMENT DATE, MODE OF PAYMENT, ETC. THE ASSESSE E FURTHER CONTENDED THAT IT HAS ENTERED INTO FORWARD CONTRACT S TO MITIGATE THE POSSIBLE LOSS IN CURRENCY MOVEMENT AND TOTAL VALUE OF FORWARD CONTRACTS DOES NOT EXCEED TOTAL UNDERLYING EXPOSURE IN FOREIG N CURRENCY. THE ASSESSEE FURTHER CONTENDED THAT IT HAS BORROWED FOR EIGN CURRENCY TERM LOANS AND TO HEDGE THE FOREIGN CURRENCY TERM LOANS, ENTERED INTO FORWARD CONTRACTS TO MITIGATE THE LOSS ARISING IN C OURSE OF CURRENCY MOVEMENT AND THE RESULTANT LOSS HAS BEEN TREATED AS PREMIUM CHARGES ON FC FORWARD CONTRACTS. THE ASSESSEE FURTHER SUBM ITTED THAT IT HAS TREATED THE GAIN ON FORWARD CONTRACTS AS ITS INCOME AND THE LOSS HAS BEEN TREATED AS EXPENDITURE. IT IS FURTHER SUBMITT ED THAT IT IS FOLLOWING ACCOUNTING STANDARD-11 ISSUED BY THE ICAI AS PER WH ICH, THERE IS NO DISTINCTION IS MADE BETWEEN ITEMS OF CAPITAL IN NAT URE OR REVENUE IN NATURE AND ANY LOSS ON ACCOUNT OF FLUCTUATION IN CU RRENCY HAS TO BE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 6 TREATED AS ITEM OF PROFIT OR LOSS. IT WAS FURTHER SUBMITTED THAT IT IS VERY APPARENT FROM THE FACT THAT THE FORWARD CONTRACTS A RE MEANT ONLY TO HEDGE OR TO RECOVER A CRYSTALISED LOSS ONLY THOUGH THE CORRECT SIZE OF THE FORWARD CONTRACTS THROUGHOUT THE YEAR IS MORE THAN THE EXPOSURE OF THE COMPANY. THE SIZE OF FORWARD CONTRACTS ARE CO-RELA TABLE TO THE THEN EXISTING EXPORT AT ANY POINT OF TIME IN THE YEAR, T HEREFORE, THE A.O. WAS ERRED IN HOLDING THAT THE TOTAL VALUE OF FORWARD CO NTRACTS ARE EXCEEDS THE VALUE OF UNDERLYING EXPOSURE TO FOREIGN CURRENCY. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED LOSS INCURRED ON FORWARD CONTRACTS FOR THE REASON THAT THE LOSS CLAIMED BY THE ASSESSEE IS A SPECULATIVE L OSS, WHICH CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE INCOME F ROM BUSINESS. THE A.O. WAS OF THE OPINION THAT THE TRANSACTION ENTERE D BY THE ASSESSEE WITH ITS BANKERS IS FOR THE PURPOSE OF TRADING IN C URRENCY, BUT NOT FOR THE PURPOSE OF HEDGING CURRENCY TO MITIGATE FLUCTUATION IN CURRENCY. THE A.O. FURTHER WAS OF THE OPINION THAT THOUGH THE ASS ESSEE CLAIMS TO HAVE HEDGED THE EXPOSURE IN THE FORM OF EXTERNAL BORROWI NGS, ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IN THE FORM OF CO NTRACT DETAILS PROVES THAT IT IS IN TRADING OF CURRENCY BY REPETITIVE TRA NSACTIONS BY ENTERING INTO NUMBER OF FORWARD EXCHANGE CONTRACTS. THEREFORE, I T CANNOT BE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 7 CONSIDERED THAT THE ASSESSEE IS HEDGING ITS FOREIGN CURRENCY EXPOSURE TO MITIGATE THE POSSIBLE LOSS IN FOREIGN CURRENCY. AC CORDING TO THE A.O., THE LOSS INCURRED BY THE ASSESSEE IS A SPECULATIVE LOSS , WHICH CANNOT BE SET OFF AGAINST BUSINESS INCOME. THE A.O. FURTHER OBSE RVED THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS BANKERS ARE NOT FULFILLING THE CONDITIONS LAID DOWN IN EXPLANATIONS TO SECTION 43(5)(D) OF THE ACT, THEREFORE, OPINED THAT THE LOSS CANNOT BE ALLOWED AS A DEDUCTION. 7. BEFORE, WE GO INTO THE FACTS OF THE CASE, LET US UNDERSTAND THE TERMS OF FORWARD CONTRACTS, SPECULATIVE TRANSACTION S, HEDGING, FOREIGN EXCHANGE LOSS AND TREATMENT OF SUCH LOSS IN THE BOO KS OF ACCOUNTS OF THE ASSESSEES. A FORWARD CONTRACT IS AN AGREEMENT BETWEEN AN ENTERPRISE AND A BANKER TO PURCHASE OR SALE A PARTI CULAR QUANTITY OF CURRENCY FOR A MUTUALLY AGREED PRICE AT A PARTICULA R DATE. THESE FORWARD CONTRACTS ARE USED BY THE EXPORTERS TO HEDGE AGAINS T ADVERSE CURRENCY MOVEMENTS. HEDGING IS DEFINED AS TO ENTER INTO TRA NSACTIONS TO REDUCE THE RISK OF ADVERSE MOVEMENT OF CURRENCY. ANY PERS ON HAVING EXPOSURE TO FOREIGN CURRENCY, MAY ENTER INTO HEDGING TO FIX HIS COST AND PROFITS AT A PARTICULAR LEVEL. THEREFORE, FORWARD CONTRACT ME ANS ENTERING INTO AGREEMENT WITH BANKERS TO HEDGE THE CURRENCY FLUCTU ATIONS TO MITIGATE THE LOSS IN THE COURSE OF IMPORT/EXPORT BUSINESS. ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 8 8. FORWARD EXCHANGE CONTRACTS AND TREATMENT OF ANY PROFIT/LOSS ARISING ON CANCELLATION OR RENEWAL OF SAID CONTRACT S HAS BEEN DEALT BY AS-11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTA NTS OF INDIA. AS PER AS-11, ANY FORWARD EXCHANGE CONTRACTS ENTERED TO HE DGE THE FOREIGN CURRENCY EXPOSURE TO MITIGATE UNEXPECTED LOSS WITH ITS IMPORT/EXPORT BUSINESS HAS TO BE REGARDED AS BUSINESS LOSS AND IN COME AS THE CASE MAY BE. IN CASE OF SUCH FORWARD EXCHANGE CONTRACT IS NOT IN THE NATURE OF HEDGING, THEN SUCH LOSS SHOULD BE IGNORED. SIMI LARLY, THE PROVISIONS OF SECTION 43(5) OF THE ACT, DEFINES THE TERM SPECU LATIVE TRANSACTIONS, TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURC HASE OR SALE OF ANY COMMODITY, INCLUDING STOCK AND SHARES IS PERIODICAL LY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPTS. SUB CLAUSE (A) TO SECTION 43 (5) OF THE ACT, EXCLUDES CERTAIN TRANSACTIONS WITHIN THE MEANING OF SPECULATIVE TRANSACTION. ACCORDING TO SUB-SECTION (A), A CONTR ACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON I N THE COURSE OF HIS BUSINESS TO HEDGE AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOO DS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM. A PLAIN READING OF SUB CLAUSE (A) TO SECTION 43(5) OF THE ACT, MAKES IT CLEAR THAT ANY F ORWARD EXCHANGE CONTRACTS ENTERED INTO IN THE BUSINESS OF IMPORT/EX PORT OF GOODS TO ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 9 HEDGE THE POSSIBLE FLUCTUATION IN FOREIGN CURRENCY, THEN SUCH TRANSACTIONS ARE KEPT OUTSIDE THE PURVIEW OF THE DE FINITION OF SPECULATIVE TRANSACTIONS. THEREFORE, TO SEE WHETHER A PARTICUL AR TRANSACTION IS A SPECULATIVE TRANSACTION OR A MERE HEDGING TRANSACTI ON, THE UNDERLYING EXPOSURE IN THE NATURE OF EXPORT TURNOVER IS NECESS ARY TO THE EXTENT OF VALUE OF FORWARD EXCHANGE CONTRACTS. 9. THE TREATMENT TO BE MOOTED OUT TO FOREIGN CURREN CY ITEMS AS PER THE AMENDED AS-11 OF ICAI NOTIFIED BY THE CENTRAL G OVERNMENT U/S 211(3C) OF THE COMPANIES ACT, DOES NOT MAKE ANY DIS TINCTION BETWEEN ITEMS OF CAPITAL NATURE AND REVENUE NATURE, BOTH AR E REQUIRED TO BE RECOGNISED IN THE PROFIT & LOSS ACCOUNT. IN VIEW O F THE AFORESAID AMENDMENT, THERE EXIST A DIVERGENCE VIEWS ON THE TR EATMENT TO BE GIVEN IN THE BOOKS OF ACCOUNTS AND IN THE INDIAN TA X LAWS. FURTHER, WITH AN INCREASED FLOW OF INBOUND/OUTBOUND TRANSACTIONS AND THEIR COMPLEX DYNAMIC STRUCTURING, THE TAX TREATMENT OF FOREIGN E XCHANGE HAS BEEN A GREAT LITIGATION AND VARIOUS COURTS HAVE DISCUSSED THE SAME IN DETAIL. EXCHANGE FLUCTUATION DIFFERENCE AND TAX TREATMENT O F THE CAPTIONED ISSUE WAS DISCUSSED AT LENGTH IN THE RECENT LAND MARK RUL ING OF HONBLE SUPREME COURT, IN THE CASE OF CIT VS. WOODWORD GOVER NOR INDIA PVT. LTD. 312 ITR 254, WHEREIN THE HONBLE SUPREME COURT BY RELYING UPON EARLIER JUDGEMENT IN THE CASE OF SUTLUZ COTTON MILL S LTD. VS. CIT (116 ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 10 ITR 1) OBSERVED THAT THE LAW, THEREFORE NOW BE TAKE N TO BE WELL SETTLED THAT WHERE PROFIT OR LOSS ARISES TO ANY PERSON ON A CCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HE LD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD OR DINARILY BE A TRADING PROFIT OR LOSS, IF THE FOREIGN CURRENCY IS HELD BY THE PERSON ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULA TING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FO REIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS A FIXED CAPITAL, SUCH PROF IT OR LOSS SHOULD BE OF CAPITAL NATURE. FURTHER IN THE AFORESAID RULING OF THE APEX COURT ALSO AFFIRMED THE PRINCIPLE LAID DOWN IN THE RULING OF C IT VS. DEMPO AND COMPANY PVT. LTD. 206 ITR 291, WHEREIN IT WAS HELD THAT A LOSS ARISING IN THE PROCESS OF CONVERSION OF FOREIGN CURRENCY, W HICH IS PART OF TRADING ASSET OF THE ASSESSEE IS A TRADING LOSS AS ANY OTHE R LOSS. IN DETERMINING THE TRUE NATURE AND CHARACTER OF THE LOSS, THE CASE WHICH OCCASIONED THE LOSS IS IMMATERIAL. WHAT IS MATERIAL IS WHETHER TH E LOSS HAS OCCURRED IN THE COURSE OF CARRYING ON THE BUSINESS OR IS INCIDE NTAL TO IT. IF THERE IS A LOSS IN THE TRADING ASSET, IT WOULD BE A TRADING LO SS WHATEVER BE ITS CAUSE BECAUSE IT WOULD BE A LOSS IN THE COURSE OF CARRYIN G ON THE BUSINESS. FOR DETERMINING WHETHER DEVALUATION LOSS IS REVENUE LOSS OR CAPITAL LOSS WHAT IS RELEVANT IS THE UTILIZATION OF THE AMOUNT A T THE TIME OF DEVALUATION AND NOT THE OBJECT FOR WHICH THE CURREN CY IS OBTAINED. ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 11 THEREFORE, ONCE LOSS INCURRED ON ACCOUNT OF FLUCTUA TION IN FOREIGN CURRENCY, WHETHER IT IS ON ACCOUNT OF CAPITAL OR RE VENUE, THEN SUCH LOSS SHALL BE ALLOWED AS BUSINESS LOSS UNLESS IT IS IN T HE NATURE OF SPECULATION LOSS. 10. COMING TO THE FACTS OF THE PRESENT CASE. IN TH IS CASE, THE ASSESSEE IS INTO THE BUSINESS OF PROCESSING AND EXP ORT OF TOBACCO. THE ASSESSEE ALSO IS INTO THE BUSINESS OF WAREHOUSING. THE ASSESSEE HAS PURCHASED A SOFTWARE PARK AT NAVI MUMBAI FROM M/S. MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION LIMITED FOR WHIC H IT HAS BORROWED CERTAIN TERM LOANS FROM BANKS. SUBSEQUENTLY, THOSE TERM LOANS WERE CONVERTED INTO FOREIGN CURRENCY LOANS FOR THE PURPO SE OF REDUCING INTEREST COST. THE ASSESSEE ENTERED INTO FORWARD E XCHANGE CONTRACTS TO HEDGE THE UNDERLYING EXPOSURE IN THE FORM OF EXTERN AL BORROWINGS TO MITIGATE THE POSSIBLE LOSS IN FLUCTUATION OF CURREN CY. IN THE PROCESS, IT HAS INCURRED LOSS, WHICH HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT UNDER THE HEAD PREMIUM CHARGES ON FC FORWARD CONTRACTS. THE TOTAL FORWARD CONTRACTS ENTERED INTO WITH THE BANKERS, DOES NOT E XCEED THE VALUE OF UNDERLYING EXPOSURE TO FOREIGN CURRENCY AT ANY POIN T OF TIME. WE FURTHER OBSERVED THAT THE FORWARD CONTRACTS ENTERED BY THE ASSESSEE DOES NOT FALLS WITHIN THE DEFINITION OF SECTION 43( 5)(D) OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN DISALLOWING ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 12 PREMIUM CHARGES ON FC FORWARD CONTRACTS ON THE GROU ND THAT THE LOSS INCURRED BY THE ASSESSEE IS A SPECULATIVE LOSS, WHI CH FALLS U/S 43(5)(D) OF THE ACT. THE CIT(A) AFTER CONSIDERING THE RELEVANT PROVISIONS OF THE ACT AND ALSO RELIED UPON CERTAIN JUDICIAL PRECEDENTS, D IRECTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS PREMIUM CHARGES. WE D O NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE INCLIN ED TO UPHOLD THE CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE RE VENUE. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO ` 7,92,51,868/-. THE A.O. DISALLOWED FOREIGN EXCHANGE FLUCTUATION LOSS O N THE GROUND THAT THE LOSS INCURRED BY THE ASSESSEE IS A CAPITAL LOSS, WH ICH CANNOT BE ALLOWED AS A REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS INCURRED EXCHANGE LO SS MAINLY ON ACCOUNT OF REPAYMENT OF TERM LOAN WHICH IS IN THE N ATURE OF CAPITAL EXPENDITURE, THEREFORE, ANY LOSS ARISING OUT OF SUC H REPAYMENT OF LOAN CANNOT BE CONSIDERED AS REVENUE EXPENDITURE. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS INCURRED EXCHANGE LOSS DUE TO RISE IN DOLLAR RATE, WHICH HAS BEEN TREATED AS FOREIGN EXCHANGE FLUCTUAT ION LOSS. THE ASSESSEE FURTHER CONTENDED THAT IT HAS PURCHASED A SOFTWARE TECHNOLOGY PARK AT NAVI MUMBAI, FOR WHICH IT HAS BORROWED CERT AIN TERM LOANS AS WELL AS WORKING CAPITAL LOANS. SUBSEQUENTLY, THESE LOANS HAVE BEEN ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 13 CONVERTED INTO FOREIGN EXCHANGE LOANS TO REDUCE THE HIGHER INTEREST COST TO THE COMPANY. IN THE PROCESS, IT HAS INCURRED EX CHANGE LOSS DUE TO ADVERSE MOVEMENT OF DOLLAR, WHICH RESULTED IN EXCHA NGE LOSS WHICH HAS BEEN CONSIDERED AS REVENUE IN NATURE. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. HAS DISALLOWED SAID LOSS U/S 43A OF T HE ACT, BY ASSUMING THAT THE ASSESSEE HAS ACQUIRED THE ASSET FROM A COU NTRY OUTSIDE INDIA FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION. THE ASSESSEE FURTHER CONTENDED THAT THE COMPANY HAS ACQUIRED AN ASSET IN INDIA AND ALSO BORROWED TERM LOANS FROM INDIAN BANKS TO FINANCE TH E ACQUISITION OF ASSETS, THEREFORE, THE PROVISIONS OF SECTION 43A OF THE ACT HAS NO APPLICATION. IN SO FAR AS LOSS INCURRED ON WORKING CAPITAL LOAN, IT IS SUBMITTED THAT IT HAS BORROWED WORKING CAPITAL LOAN FROM INDIAN BANKS FOR THE PURPOSE OF BUSINESS AND THE SAME HAS BEEN C ONVERTED INTO FOREIGN CURRENCY LOANS TO REDUCE INTEREST COST, THE REFORE, THE A.O. WAS COMPLETELY ERRED IN TREATING SAID LOSS AS LOSS INCU RRED ON ACCOUNT OF CAPITAL EXPENDITURE. 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTUAL MATRIX WHICH LEADS TO THE ADDITION ARE THAT THE ASSESSEE HAS ACQUIRED INFORMATION TECHNOLOGY PARK NAMED M.L. TOW ERS AT NAVI MUMBAI FROM M/S. MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 14 LIMITED DURING THE FINANCIAL YEARS 2001 TO 2005. T HE ASSESSEE COMPANY HAS ENTERED INTO AN AGREEMENT ON 17.11.2000 WITH MI DC FOR ACQUISITION OF SUCH INDUSTRIAL PARK AND HAS SPENT AN AMOUNT OF ` 57,74,40,193/-. TO FINANCE THE SAID ACQUISITION OF THE ASSET, THE A SSESSEE HAS BORROWED FUNDS FROM BANKS AND ALSO FROM OTHER CONCERNS. SUB SEQUENTLY, THESE RUPEE LOANS HAVE BEEN CONVERTED INTO FOREIGN CURREN CY TERM LOANS TO REDUCE THE BURDEN OF HIGHER INTEREST TO THE COMPANY . IN THE PROCESS, IT HAS INCURRED LOSS DUE TO ADVERSE MOVEMENT OF CURREN CY WHICH RESULTED IN EXCHANGE LOSS. THE ASSESSEE HAS TREATED THE SAI D LOSS AS FOREIGN EXCHANGE LOSS ON FLUCTUATION AND DEBITED TO THE PRO FIT & LOSS ACCOUNT. WHENEVER THE ASSESSEE GETS GAINS, THE SAME HAS BEEN TREATED AS REVENUE IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE HAS FOLLOWED AS-11 ISSUED BY THE ICAI, WHICH DEALS WITH TREATMENT OF T HE EFFECTS OF CHANGE IN FOREIGN EXCHANGE RATES IN THE BOOKS OF ACCOUNTS, WHICH SUGGEST THAT ANY DIFFERENCE IN EXCHANGE RATE HAS TO BE DEALT AS ON THE CLOSING DATE IN ITS BOOKS OF ACCOUNTS, ACCORDINGLY, THE ASSESSEE HA S RECOGNISED THE LOSS ARISED DUE TO ADVERSE MOVEMENT OF CURRENCY IN ITS B OOKS OF ACCOUNTS. 13. THE TREATMENT TO BE MOOTED OUT TO FOREIGN CURRE NCY ITEMS AS PER THE AMENDED AS-11 OF ICAI NOTIFIED BY THE CENTRAL G OVERNMENT U/S 211(3C) OF THE COMPANIES ACT, DOES NOT MAKE ANY DIS TINCTION BETWEEN ITEMS OF CAPITAL NATURE AND REVENUE NATURE, BOTH AR E REQUIRED TO BE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 15 RECOGNISED IN THE PROFIT & LOSS ACCOUNT. IN VIEW O F THE AFORESAID AMENDMENT, THERE EXIST A DIVERGENCE VIEWS ON THE TR EATMENT TO BE GIVEN IN THE BOOKS OF ACCOUNTS AND IN THE INDIAN TA X LAWS. FURTHER, WITH AN INCREASED FLOW OF INBOUND/OUTBOUND TRANSACTIONS AND THEIR COMPLEX DYNAMIC STRUCTURING, THE TAX TREATMENT OF FOREIGN E XCHANGE HAS BEEN A GREAT LITIGATION AND VARIOUS COURTS HAVE DISCUSSED THE SAME IN DETAIL. EXCHANGE FLUCTUATION DIFFERENCE AND TAX TREATMENT O F THE CAPTIONED ISSUE WAS DISCUSSED AT LENGTH IN THE RECENT LAND MARK RUL ING OF HONBLE SUPREME COURT, IN THE CASE OF CIT VS. WOODWORD GOVER NOR INDIA PVT. LTD. 312 ITR 254, WHEREIN THE HONBLE SUPREME COURT BY RELYING UPON THE EARLIER JUDGEMENT IN THE CASE OF SUTLUZ COTTON MILLS LTD. VS. CIT (116 ITR 1) OBSERVED THAT THE LAW, THEREFORE NOW BE TAKE N TO BE WELL SETTLED THAT WHERE PROFIT OR LOSS ARISES TO ANY PERSON ON A CCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HE LD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD OR DINARILY BE A TRADING PROFIT OR LOSS, IF THE FOREIGN CURRENCY IS HELD BY THE PERSON ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULA TING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FO REIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS A FIXED CAPITAL, SUCH PROF IT OR LOSS SHOULD BE OF CAPITAL NATURE. FURTHER IN THE AFORESAID RULING OF THE APEX COURT ALSO AFFIRMED THE PRINCIPLE LAID DOWN IN THE RULING OF C IT VS. DEMPO AND ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 16 COMPANY PVT. LTD. 206 ITR 291, WHEREIN IT WAS HELD THAT A LOSS ARISING IN THE PROCESS OF CONVERSION OF FOREIGN CURRENCY, W HICH IS PART OF TRADING ASSET OF THE ASSESSEE IS A TRADING LOSS AS ANY OTHE R LOSS. IN DETERMINING THE TRUE NATURE AND CHARACTER OF THE LOSS, THE CASE WHICH OCCASIONED THE LOSS IS IMMATERIAL. WHAT IS MATERIAL IS WHETHER TH E LOSS HAS OCCURRED IN THE COURSE OF CARRYING ON THE BUSINESS OR IS INCIDE NTAL TO IT. IF THERE IS A LOSS IN THE TRADING ASSET, IT WOULD BE A TRADING LO SS WHATEVER BE ITS CAUSE BECAUSE IT WOULD BE A LOSS IN THE COURSE OF CARRYIN G ON THE BUSINESS. FOR DETERMINING WHETHER DEVALUATION LOSS IS REVENUE LOSS OR CAPITAL LOSS WHAT IS RELEVANT IS THE UTILIZATION OF THE AMOUNT A T THE TIME OF DEVALUATION AND NOT THE OBJECT FOR WHICH THE CURREN CY IS OBTAINED. THEREFORE, ONCE LOSS INCURRED ON ACCOUNT OF FLUCTUA TION IN FOREIGN CURRENCY, WHETHER IT IS ON ACCOUNT OF CAPITAL OR RE VENUE, THEN SUCH LOSS SHALL BE ALLOWED AS BUSINESS LOSS UNLESS IT IS IN T HE NATURE OF SPECULATION LOSS. 14. THE PROVISIONS OF SECTION 43A OF THE ACT, DEALS WITH TREATMENT OF CHANGES IN RATE OF EXCHANGE OF CURRENCY, WHERE AN A SSESSEE HAS ACQUIRED ANY ASSET, IN ANY PREVIOUS YEAR FROM A COU NTRY OUTSIDE INDIA FOR THE PURPOSE OF BUSINESS OR PROFESSION, AND IN CONS EQUENCE OF A CHANGE IN THE RATE OF EXCHANGE DURING ANY PREVIOUS YEAR AF TER THE ACQUISITION OF SUCH ASSET, THERE IS AN INCREASE OR DECREASE IN THE LIABILITY OF THE ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 17 ASSESSEE AS EXPRESSED IN INDIAN CURRENCY AT THE TIM E OF MAKING PAYMENT TOWARDS THE WHOLE OR A PART OF THE COST OF THE ASSE T OR TOWARDS REPAYMENT OF THE WHOLE OR A PART OF THE MONIES BORR OWED BY HIM FROM ANY PERSON, DIRECTLY OR INDIRECTLY IN ANY FOREIGN C URRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET ALONG WITH INTER EST, IF ANY SHALL BE ADJUSTED TO THE COST OF THE ASSET. A PLAIN READING OF SECTION 43A OF THE ACT, MAKES IT CLEAR THAT THE SAID PROVISIONS IS APP LICABLE ONLY WHEN THE ASSESSEE HAS ACQUIRED AN ASSET FROM A COUNTRY OUTSI DE INDIA FOR THE PURPOSE OF ITS BUSINESS OR PROFESSION. THE SAID SE CTION DOES NOT APPLY WHEN THE ASSET IS ACQUIRED IN INDIA. THEREFORE, TO APPLY THE PROVISIONS OF SECTION 43A OF THE ACT, TO DEAL WITH CHANGES IN RATE OF EXCHANGE OF CURRENCY, ONE HAS TO UNDERSTAND WHETHER THE SAID AS SET HAS BEEN ACQUIRED WITHIN INDIA OR OUTSIDE INDIA AND THE ASSE SSEE HAS BORROWED ANY MONEY FROM ANY PERSON FOR THE PURPOSE OF ACQUIS ITION OF ANY ASSET FROM A COUNTRY OUTSIDE INDIA. 15. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS ACQUIRED THE ASSET IN INDIA A ND THE ACQUISITION OF SUCH ASSET HAS BEEN FINANCED OUT OF TERM LOANS BORR OWED FROM INDIA BANKS. THOUGH THE ASSESSEE SUBSEQUENTLY CONVERTED INDIAN CURRENCY LOAN INTO FOREIGN CURRENCY LOANS FOR THE PURPOSE OF REDUCING COST OF INTEREST, THESE LOANS CANNOT BE CONSIDERED AS FOREI GN CURRENCY LOANS ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 18 ACQUIRED FOR THE PURPOSE OF ACQUIRING AN ASSET FROM A COUNTRY OUTSIDE INDIA. THEREFORE, WE ARE OF THE VIEW THAT THE PROV ISION OF SECTION 43A, OF THE ACT HAS NO APPLICATION TO THE FACTS OF THE P RESENT CASE. 16. THE ASSESSEE HAS INCURRED EXCHANGE LOSS DUE TO RISE IN DOLLAR RATE, WHICH HAS BEEN TREATED AS REVENUE IN NATURE. THE A SSESSEE HAS ACQUIRED TERM LOANS IN FOREIGN CURRENCY AND REPAID THE SAID LOAN IN INSTALMENTS OVER A PERIOD. THE DIFFERENCE BETWEEN OPENING BALANCE OF THE LOAN AND CLOSING BALANCE OF THE LOAN AS ON THE DATE OF BALANCE SHEET HAS BEEN ARRIVED AT BY MULTIPLYING THE RATE OF EXCH ANGE AS ON THAT DATE, WHICH RESULTS IN EXCHANGE LOSS. SIMILARLY, THE ASS ESSEE HAS CONVERTED ITS WORKING CAPITAL LOAN INTO FOREIGN CURRENCY LOAN FOR THE PURPOSE OF REDUCING INTEREST COST. IN THE PROCESS, IT HAS INC URRED EXCHANGE LOANS DUE TO ADVERSE MOVEMENT OF CURRENCY, WHICH RESULTED IN EXCHANGE LOSS. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN TREATING EXCHANGE LOSS INCURRED BY THE ASSESSEE DUE TO ADVER SE MOVEMENT OF CURRENCY AS CAPITAL IN NATURE, WHICH IS NOT ALLOWAB LE U/S 37(1) OF THE ACT. THE CIT(A) AFTER CONSIDERING THE RELEVANT PROVISION S OF THE ACT, HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NO T FIND ANY ERROR IN THE ORDER OF THE CIT(A), HENCE, WE INCLINED TO UPHO LD THE CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE REVENUE. ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 19 17. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED U/S 32(IIA) OF T HE ACT. THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF ` 25,79,898/- ON THE PLANT AND MACHINERY ACQUIRED DURING THE FINANCIAL YEAR. THE A .O. HAS DENIED THE BENEFIT OF ADDITIONAL DEPRECIATION ON THE GROUND TH AT THE ACTIVITY OF DRYING AND THRESHING OF TOBACCO LEAVES IS NOT A MAN UFACTURING ACTIVITY, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR ADDITIO NAL DEPRECIATION UNDER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT. IT I S THE CONTENTION OF THE ASSESSEE THAT IT IS IN THE BUSINESS OF DRYING AND T HRESHING OF TOBACCO LEAVES, WHICH AMOUNTS TO MANUFACTURE, THEREFORE, IT IS ELIGIBLE FOR ADDITIONAL DEPRECIATION AS PER THE PROVISIONS OF SE CTION 32(IIA) OF THE ACT. IN SUPPORT OF HIS ARGUMENTS, RELIED UPON THE DECISI ON OF HONBLE HIGH COURT OF MADRAS, IN THE CASE OF CIT VS. PREMIER TOB ACCO PACKERS PVT. LTD. REPORTED IN (2006) 284 ITR 222. 18. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE A.O. HAS DISALLOWED ADDITIONAL DEP RECIATION CLAIMED BY THE ASSESSEE, ON THE GROUND THAT THE ACTIVITY OF DR YING AND THRESHING OF TOBACCO DOES NOT AMOUNT TO MANUFACTURE WHICH IS ELI GIBLE FOR ADDITIONAL DEPRECIATION UNDER THE PROVISIONS OF SECTION 32(IIA ) OF THE ACT. THE CIT(A) BY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT, IN THE CASE OF CIT VS. PREMIER TOBACCO PAKCERS PVT. LTD. ( 2006) 284 ITR 222, ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 20 HELD THAT DRYING AND THRESHING OF TOBACCO LEAVES IS MANUFACTURE AND ACCORDINGLY, ENTITLED FOR ADDITIONAL DEPRECIATION A S PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT. THE RELEVANT PORTION O F THE CIT(A) ORDER IS EXTRACTED BELOW: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPEL LANT, GONE THROUGH THE ORDER OF THE AO AND HEARD THE AR I N PERSON BESIDES PERUSING ALL OTHER MATERIAL AVAILABLE ON RE CORD. THE AO HAS NOT ALLOWED THE APPELLANTS CLAIM ON THE GROUND THAT DRYING AND THRESHING OF TOBACCO LEAVES CANNOT BE CALLED MA NUFACTURING ACTIVITY, HENCE THE CLAIM OF ADDITIONAL DEPRECIATIO N WAS NOT ALLOWED AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT . THUS, IF DRYING AND THRESHING OF TOBACCO COULD BE SHOWN AS MANUFACT URING, THEN THERE SHOULD NOT BE ANY PROBLEM FOR THE AO TO ACCED E TO THE REQUEST OF THE APPELLANT. IN THIS CONTEXT, I AM RE MINDED OF THE CASE OF CIT VS. PREMIER TOBACCO PAKCERS (P), REPORT ED IN (2006) 284 ITR 222 (MAD), WHEREIN THE SAME QUESTION OF WHE THER DRYING AND THRESHING OF TOBACCO AMOUNTS TO MANUFACTURING A CTIVITY? AND IT WAS ANSWERED IN FAVOUR OF THE APPELLANT. IN THIS CASE THE APPELLANT IS ENGAGED IN THE ACTIVITY7 OF PROCESSING TOBACCO FOR OTHERS, WHICH IS KNOWN AS THRASHING. IN THE RETURN FILED, ENTIRE INCOME WAS CLAIMED DEDUCTIBLE UNDER SECTION 80HH, A S ITS ACTIVITY IS MANUFACTURING OR PRODUCTION. THE AO DISALLOWED T HE CLAIM. BUT ON APPEAL, THE CIT(A) FOLLOWING THE EARLIER ORDER O F THE TRIBUNAL, ALLOWED THE APPEAL AND ANSWERED THE ISSUE IN FAVOUR OF THE APPELLANT. HENCE, THE REVENUE WENT IN APPEAL TO TH E TRIBUNAL, WHICH HAS CONFIRMED THE ORDER OF THE CIT(A) FOLLOWI NG ITS EARLIER ORDER ON WHICH HAS CONFIRMED THE ORDER OF THE CIT(A ) FOLLOWING ITS EARLIER ORDER ON THE GROUND THAT THE APPELLANTS AC TIVITY FALLS WITHIN THE PURVIEW OF THE MANUFACTURE OR PRODUCTION AND DI SMISSED THE APPEAL OF THE REVENUE. AGGRIEVED BY THE SAID ORDER OF THE TRIBUNAL, THE REVENUE HAS REFERRED THE ABOVE MATTER AND RAISED THE SUBSTANTIAL QUESTIONS OF LAW THAT WHETHER, IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT I N HOLDING THAT THE APPELLANT IS ENTITLED TO DEDUCTION UNDER S. 80H H? THE HIGH COURT AFTER HOLDING THAT THE ISSUE INVOLVED IN THE ABOVE QUESTION IS COVERED BY THE DECISION OF THE SUPREME COURT RENDE RED IN ASPIN WALL & CO. LTD. VS. CIT, REPORTED IN (2001) 251 ITR 323 (SC), DISMISSED THE REFERENCE. IT IS IMPORTANT TO NOTE H ERE THAT THE APEX COURT IN THE CASE LAW CITED ABOVE HAS OBSERVED THAT CONVERSION OF THE RAW BERRY INTO COFFEE BEANS WAS A MANUFACTURING ACTIVITY AND THE APPELLANT WAS, THERE FORE, ENTITLED TO THE INVESTMENT ALLOWANCE UNDER S. 32A. IN VIEW OF T HE FOREGOING ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 21 CONLUSION, THE COURT DID NOT FIND ANY ERROR IN THE ORDER OF THE TRIBUNAL AND FURTHER OBSERVED THAT NO QUESTION OF L AW MUCH LESS A SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N AND ACCORDINGLY, THE APPEAL WAS DISMISSED. IN LIGHT OF THE FOREGOING, I DO NOT HAVE ANY HESITATION TO HOLD THAT DRYING AND THRASHING OF TOBACCO LEAVES IS MANUFACTURE AND ACCORDINGLY ENTIT LED FOR ADDITIONAL DEPRECIATION AND THE ASSESSING OFFICER I S DIRECTED ACCORDINGLY. 19. THE FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO BRING ON RECORD ANY CONTRARY DECISION WHICH IS IN FAVOUR OF THE REV ENUE TO COUNTER THE FINDINGS OF THE CIT(A). THEREFORE, WE ARE OF THE VI EW THAT THE ACTIVITY OF DRYING AND THRESHING OF TOBACCO LEAVES AMOUNTS TO M ANUFACTURE, WHICH IS ELIGIBLE FOR ADDITIONAL DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(IIA) OF THE ACT, ACCORDINGLY DIRECTED THE A.O. T O ALLOW ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 5 TH MAY17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 05.05.2017 VG/SPS ITA NO.422/VIZAG/2012 MADDI LAKSHMAIAH & CO., GUNTUR 22 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), GUNTUR 2. / THE RESPONDENT M/S. MADDI LAKSHMAIAH & CO. LTD ., CHIRALA ROAD, CHILAKALURIPETA. 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM