DCIT Rg. - 3(1), MUMBAI V. M/s. AKAI IMPEX LTD., MUMBAI

ITA 4321/MUM/2005

• Counselvise Citation: 432119914 RSA 2005
• Duration Of Justice: 6 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 10-08-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 09-06-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Assessee Lawyers: N O N E
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4321/MUM/2005 (ASSESSMENT YEAR: 1998-1999) DY. COMMISSIONER OF INCOME - TAX, RANGE 3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-20 VS. M/S. AKAI IMPEX LTD. 401/405, DALAMAL HOUSE, J. BAJAJ ROAD, NARIMAN POINT, MUMBAI-21 (APPELLANT) (RESPONDENT) ITA NO.4322/MUM/2005 (ASSESSMENT YEAR: 1999-2000) DY. COMMISSIONER OF INCOME - TAX, RANGE 3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-20 VS. M/S. AKAI IMPEX LTD. 401/405, DALAMAL HOUSE, J. BAJAJ ROAD, NARIMAN POINT, MUMBAI-21 (APPELLANT) (RESPONDENT) & ITA NO.4323/MUM/2005 (ASSESSMENT YEAR: 2000-2001) DY. COMMISSIONER OF INCOME - TAX, RANGE 3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-20 VS. M/S. AKAI IMPEX LTD. 401/405, DALAMAL HOUSE, J. BAJAJ ROAD, NARIMAN POINT, MUMBAI-21 (APPELLANT) (RESPONDENT) PAN: AABCA 1953 C APPELLANT BY : SHRI GOLI SRINIWAS RAO RESPONDENT BY : NON E DATE OF HEARING : 11.08.2011 DATE OF PRONOUNCEMENT : 26. 08.2011 ORDER ITA NO.4321 TO 4323/MUM/2005 M/S. AKAI IMPEX LTD. 2 PER R. S. PADVEKAR, JM: THIS BATCH OF THREE APPEALS ARE FILED BY THE REVEN UE CHALLENGING THE RESPECTIVE IMPUGNED ORDERS OF THE LD. CIT (A)-XXVII , MUMBAI FOR THE ASSESSMENT YEARS 1998-99, 1999-2000 AND 2000-2001. THE ISSUE AS WELL AS FACTS ARE IDENTICAL AND HENCE, THIS BATCH OF APPEAL S IS DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE FIRST ISSUE IS IN RESPECT OF DISALLOWANCE OF THE INTEREST MADE BY THE A.O. ON THE BORROWED CAPITAL FOR THE MANUFACTURING UNIT AND THE SAME WAS DELETED BY THE LD. CIT (A). IN RESPECT OF THIS ISS UE, THE AO MADE THE FOLLOWING DISALLOWANCES:- ASSESSMENT YEAR DISALLO WANCE OF INTEREST 1998 - 1999 ` 2,38,87,378/ - 1999 - 2000 ` 59,91,000/ - 2 000 - 2001 ` 15,20,93,274 / - 3. BRIEFLY STATED FACTS AS NOTE BY THE AUTHORITIES BELOW ARE AS UNDER. THE ASSESSEE HAS SET UP A POY MANUFACTURING UNIT IN SIL VASA. IN THE ASSESSMENT YEAR 1998-99, THE ASSESSEE HAD CLAIMED INTEREST EXP ENDITURE OF `. 2,38,87,378/-. THE ASSESSEE EXPLAINED THAT THE SAID INTEREST PERTAINS TO THE ASSESSEES POY PROJECT AT SILVASA. THE ASSESSEE HAS BEEN SINCE FROM ASSESSMENT YEAR 1995-96 IN THE PROCESS OF SETTING U P A NEW MANUFACTURING PROJECT AT SILVASA. IN THE SAID PROJECT, THE ASSESS EE HAD SET UP THREE UNITS, ONE TO MANUFACTURE POY, THE SECOND TO TEXTURISE THE POY AND THIRD FOR KNITTING. THE ASSESSEE HAD CAPITALISED FIVE LINES O UT OF A TOTAL TWELVE LINES OF ITS TEXTURISING UNIT IN THE ASSESSMENT YEAR 1996-97 AND ALL THE FOURTEEN KNITTING LINES. IT WAS STATED THAT FIVE LINES WERE CAPITALISED IN 1996-97 ON THE ITA NO.4321 TO 4323/MUM/2005 M/S. AKAI IMPEX LTD. 3 BASIS OF COMMERCIAL PRODUCTION OF THE TEXTURISING P LANT WHICH WAS STARTED DURING THAT YEAR. THE ASSESSEE HAD ALSO CAPITALISED ALL ITS FOURTEEN KNITTING LINES IN THE ASSESSMENT YEAR 1996-97 ON THE BASIS T HAT THE COMMERCIAL PRODUCTION HAS STARTED. IN THE ASSESSMENT YEAR 1998 -99, THE ASSESSEE HAS STATED THAT THE TRIAL RUN OF POY LINES HAD STARTED ON 16.09.1997 AND COMMERCIAL PRODUCTION HAD ALSO STARTED ON THE SAME DATE. THE ASSESSEE CLAIMED THAT THE UNIT SET UP AT SILVASA IS AN EXPAN SION OF THE ASSESSEES EXISTING BUSINESS AND HENCE, ALL THE EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. ALTERNATIVELY IT WAS CLAIMED THAT THE ENTIRE PLANT INCLUDING THE POY PLANT HAS STARTED FUNCTIONING FROM THE ASSESSME NT YEAR 1998-99, AND AS THE COMMERCIAL PRODUCTION HAS ALREADY BEEN STARTED, THE ENTIRE EXPENDITURE IS ALLOWABLE. IT APPEARS THAT IDENTICAL DISALLOWANCE W AS ALSO MADE IN THE ASSESSMENT YEARS 1995-96 AND 1996-97. IN RESPECT OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION, THE AO NEGATED THE CONTENTIO N OF THE ASSESSEE BY OBSERVING THAT AS THERE WAS NO POWER SUPPLY, SO THE RE CANNOT BE THE COMMERCIAL PRODUCTION. AN ASSESSEE IS CLAIMING THE EXPENDITURE ON THE BASIS OF TRIAL PRODUCTION ONLY. THE AO MADE ENTIRE DISALL OWANCE OF `. 2,38,87,378/-. 4. IN THE ASSESSMENT YEAR 1999-2000 ON THE IDENTICA L REASONING, THE AO MADE THE DISALLOWANCE OF THE INTEREST EXPENDITURE O F `. 59,91,000/- (THE INTEREST EXPENDITURE OF `. 12,18,10,411/- DISALLOWED U/S.43B) AND SAME WAY IN THE ASSESSMENT YEAR 2000-01, `. 15,20,93,274/-. IN THIS YEARS, THE AO HAS GIVEN THE REASON THAT ENTIRE INTEREST REMAINS UNPAI D AND HENCE THE SAME IS DISALLOWED U/S.43B. WITHOUT PREJUDICE AO ALSO GAVE ANOTHER REASONING THAT THE INTEREST ON OUTSTANDING CANNOT BE ALLOWED FOR T HE REASON THAT THE PROJECT AT SILVASA IS DISTINCT AND SEPARATE PROJECT. THE AS SESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) IN ALL THE THREE YEARS AND TH E LD. CIT(A) FOLLOWING THE ORDER OF PREDECESSOR FOR THE ASSESSMENT YEAR 1995-96 DELETED THE ADDITION IN ALL THE THREE YEARS. ITA NO.4321 TO 4323/MUM/2005 M/S. AKAI IMPEX LTD. 4 5. THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. CIT (A) FAIRLY CONCEDED WITH THE ORIGINAL DISALLOWANCE MADE IN ASSESSEES OWN CASE ON THE IDENTICAL REASONS IN THE ASSESSMENT YEAR 1995-9 6, WAS DELETED BY THE LD. CIT (A). THE REVENUE CHALLENGED THE ORDER OF THE LD . CIT (A) FOR A.Y. 1995-96 BUT WITHOUT SUCCESS. THE HON'BLE TRIBUNAL CONFIRMED THE ORDER IN THE ASSESSMENT YEAR 1995-96. WE, THEREFORE, FIND NOT RE ASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A), AS THE FACTS ARE IDENTICA L IN ALL APPEALS BEFORE US AS THAT IN THE A. Y. 1995-96 WHERE THE TRIBUNAL HAS CO NFIRMED THE ORDER OF THE LD. CIT(A) ON THE IDENTICAL REASONING. WE ACCORDING LY, DISMISS THE RELEVANT GROUNDS TAKEN BY THE REVENUE IN ALL THE THREE APPEA LS AND CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. WE MAKE IT CLEAR T HAT IN THE A. Y. 2000-01, THE A.O. HAS ALSO GIVEN THE REASON FOR MAKING THE DISAL LOWANCE OF THE INTEREST THAT THE SAME WAS OUTSTANDING AND WAS NOT ALLOWABLE IN VIEW OF THE SECTION 43B. THE SAID FINDING HAS NOT BEEN CHALLENGED BY TH E ASSESSEE. HENCE ON THAT REASON, THE ORDER OF THE LD. CIT (A) BECOME FINAL O N THE ISSUE. 7. THE NEXT ISSUE IS DEPRECIATION OF CAPITALISATION OF FOREIGN EXCHANGE FLUCTUATION PROVISION AND THIS ISSUE ARISES IN THE APPEALS FOR THE ASSESSMENT YEARS 1999-2000 AND 2000-01. THE ASSESSEE MADE THE ADDITION BY THE PROVISION TOWARDS FOREIGN EXCHANGE FLUCTUATION TO THE PLANT AND MACHINERY. THE ASSESSEE HAS BORROWED THE FOREIGN LOAN FOR TEXT URISING MACHINERY WHICH WAS CAPITALISED IN THE BOOKS IN THE ASSESSMENT YEAR 1996-97. THE ASSESSEE EXPLAINED THAT FOREIGN LOAN LIABILITY WAS BEING CAR RIED IN THE BOOKS OF ACCOUNTS AS PER THE RATE PREVALENT ON 31.03.1998 AND 31.03.1 999. THE AO FOLLOWING THE ORDER FOR THE ASSESSMENT YEAR 1998-99 DISALLOWE D THE DEPRECIATION OF `. 67,53,607/- IN THE ASSESSMENT YEAR 1999-2000 AND `. 50,65,205/- IN THE A. Y. 2000-01. WE FIND THAT THOUGH IN THE ASSESSMENT Y EAR 1998-99 ON THIS ISSUE THE AO MADE THE DISALLOWANCE OF `. 3,75,630/-, BUT AS PER THE GROUNDS ITA NO.4321 TO 4323/MUM/2005 M/S. AKAI IMPEX LTD. 5 TAKEN BEFORE THE LD. CIT (A) NO GROUND IS TAKEN ON SAID DISALLOWANCE BY THE ASSESSEE. 8. IN THE ASSESSMENT YEAR 1999-2000, THE LD. CIT(A) HAS DEALT WITH THIS ISSUE WHICH IS AS FOLLOW :- I HAVE CONSIDERED THE FACTS OF THE CASE AND I HAVE ALSO GONE THROUGH THE SUBMISSION MADE BY THE APPELLANT. SECTI ON 43A OF THE I.T. ACT WAS BASICALLY INTRODUCED WITH A VIEW TO RE MOVE THE HARDSHIPS WHICH WERE LIKELY TO BE CAUSED TO THE ASS ESSEE. UNDER THIS SECTION IT IS LAID DOWN THAT THE INCREASE OR D ECREASE IN LIABILITY SHOULD BE TAKEN INTO ACCOUNT TO MODIFY THE FIGURE O F ACTUAL COST AND SECONDLY SUCH ADJUSTMENT SHOULD BE MADE IN THE CONC ERNED YEAR ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE. NO EARLIER YEARS ADJUSTMENTS ARE ALLOWABLE. IF WE GO THROUGH THE CAS E LAWS CITED BY THE ASSESSEE, IT WOULD BE SEEN THAT FOR THE PURPOSE OF CLAIM OF DEPRECIATION, THE APPELLANT HAS TO FIRST ENSURE THA T THIS ADJUSTMENT IS MADE IN THE YEAR OF FLUCTUATION AND THEREAFTER O NLY THE APPELLANT WILL BE ENTITLED TO DEPRECIATION. THE DEPRECIATION IS TO BE ALLOWED ON THE ASSET ONLY. ACCORDINGLY, I DIRECT THE AO TO OBT AIN THE DETAILS FROM THE ASSESSEE REGARDING THE EXCHANGE RATE FLUCT UATION DURING THE YEAR UNDER CONSIDERATION AS ON THE LAST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION AND GRANT DEPRECATION ON THE ASSET ACCORDINGLY. HOWEVER , THE AO WILL ALSO ENSURE THAT THE DEPRECIATION IS GRANTED ONLY I N RESPECT OF THOSE ASSETS, WHICH HAVE BEEN PUT TO USE. THE APPELLANT G ETS RELIEF SUBJECT TO MY DISCUSSION MADE ABOVE. 9. IN OUR OPINION THE ORDER OF THE LD. CIT (A) HAS TO BE CONFIRMED. SECTION 43A ALLOWS THE ASSESSEE TO MAKE THE ADJUSTMENT IF T HE FOREIGN LOAN IS BORROWED FOR THE ACQUISITION OF THE CAPITAL ASSETS AND DUE TO THE FLUCTUATION IN THE FOREIGN CURRENCY RATE THERE IS INCREASE OR DECR EASE IN THE LIABILITY THEN THE ASSESSEE IS PERMITTED TO MAKE THE ADJUSTMENT. THE I SSUE IS FAIRLY COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF NEW INDIA INDUSTRIES LTD. VS. CIT (203 ITR 933). IN THE SAID CASE, ITA NO.4321 TO 4323/MUM/2005 M/S. AKAI IMPEX LTD. 6 THE HON'BLE HIGH COURT OF GUJARAT FOLLOWED THE PRIN CIPLES LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS. ARVIND MILLS LTD. 193 ITR 255. WE FIND THAT THE ORDER OF THE LD. CIT (A) ON THIS ISSUE FOR BOTH THE YEARS IS CONFORMITY IN LAW AND NO INTERFERENCE IS REQUIRED. 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF AUGUST, 2011. SD/- SD/- ( P.M. JAGTAP ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 26 TH AUGUST, 2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. CITY-III, MUMBAI 4. CIT (A)-XVII, MUMBAI. 5. THE DR, H- BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI