M/s KEI Industries Ltd., New Delhi V. DCIT, New Delhi

ITA 688/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6556 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 07-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Rule of consistency; Rule 8D
• Section: 14A; 115JB; 43; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: D NEW DELHI BEFORESHRI O.P. KANT, ACCOUNTANTMEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.688/DEL./2017 ASSESSMENT YEAR: 2013-14 M/S. KEI INDUSTRIES LTD., D-90, OKHLA INDUSTRIAL AREA, PHASE-1, NEW DELHI VS. DCIT, CIRCLE-14(2), NEW DELHI PAN :AAACK0251C (APPELLANT) (RESPONDENT) ORDER PERK.NARASIMHACHARY, JM: AGGRIEVED BY THE ORDER DATED 5/12/2016 IN APPEAL NUM BER DEL/CIT (A)-5/0351/2015-16, PASSED BY THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS)-5, DELHI (LD. CIT(A)) IN THE CA SE OF M/S KEI INDUSTRIES (P) LTD (THE ASSESSEE), FOR THE ASSESSMENT Y EAR 2013-14, ASSESSEE PREFERRED THIS APPEAL. APPELLANT BY SHRI SATYENSETHI, ADV. RESPONDENT BY MS. AMANPREET, SR.DR DATE OF HEARING 25.01.2021 DATE OF PRONOUNCEMENT 25.01.2021 2 ITA NO.688/DEL./2017 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF CABLES, WIRES, STAINLESS STEEL WIRES AND TURNKEY PROJECTS. FOR THE ASSESSMENT Y EAR 2013-14, THEY HAVEHAS FILED THE RETURN OF INCOME ON 25/9/2013 WHICH WAS REVISED ON 25/3/2014 AND AGAIN ON 18/7/2014 DECLARING NIL INCO ME AFTER SETTING OF BROUGHT FORWARD UNABSORBED LOSS AND UNABSORBED DEPRE CIATION AND INCOME AS PER SECTION 115 JB OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AT RS. 43, 25, 68, 392/-. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FROM THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2012-13, LEAR NED ASSESSING OFFICER FOUND THAT THE ASSESSEE IS CAPTILISING EXCHANG E-RATE FLUCTUATION IN RESPECT OF THE MISSIONARY BOT IN INDIA FROM THE FOR EIGN FUNDS RAISED THROUGH FCCBS ECBS/BUYERS CREDIT,REPAYMENT OF THESE LOANS WAS NOT MADE IN THAT YEAR BUT THE ASSESSEE HAS RAISED AN EXTRA LIABILITY ON ACCOUNT OF PREVAILING EXCHANGE RATE AS ON 31/3/2012 AND DURING THE FINANCIAL YEAR 2012-13 THE ASSESSEE ALLOCATED FOREIGN EXCHANGE FLUCTUATION LOSS TO FIX IT ASSETS ACCORDINGLY AND CLAI MED EXTRA DEPRECIATION OF RS. 3, 48, 40, 771/-ON ACCOUNT OF THI S CAPITALISATION. ON THIS ACCOUNT, WHILE FOLLOWING THE EARLIER ORDER FOR THE ASSESSMENT YEAR 2012-13 WHICH WAS SUSTAINED BY THE LD. CIT(A), LEARNE D ASSESSING OFFICER ADDED A SUM OF RS. 3, 48, 40, 771/-BY DISAL LOWING THE EXCESS DEPRECIATION. 4. LEARNED ASSESSING OFFICER FURTHER FOUND THAT DURI NG THE YEAR THE ASSESSEE EARNED DIVIDEND OF RS. 2, 91, 352/-WHICH W AS EXEMPT UNDER SECTION 10 (34) OF THE ACT. LEARNED ASSESSING OFFICER MADE AN 3 ITA NO.688/DEL./2017 OBSERVATION THAT SINCE THE ASSESSEE MADE A DISALLOWANC E SO MOTO UNDER NORMAL PROVISIONS, THE SAME TREATMENT WAS REQUIRED TO B E DONE IN COMPUTATION OF TAX LIABILITY UNDER SECTION 115 JB OF TH E ACT. 5. AGGRIEVED BY SUCH ADDITIONS ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO, BY WAY OF IMPUGNED ORDER DISMISS ED THE SAME, AGAIN FOLLOWING THE DECISION FOR THE ASSESSMENT YEAR 2 012-13. ASSESSEE, THEREFORE, BEING AGGRIEVED BY SUCH AN ORDER IS BEFOR E US IN THIS APPEAL CONTENDING THAT THE VERY BASIS FOR MAKING THE ADDITION, I.E., THE REASONING GIVEN BY THE LEARNED ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2012-13 WAS NOT ACCEPTED BY THE TRIBUNAL IN ASSE SSEES APPEAL AGAINST THE ORDERS OF THE LD. CIT(A) FOR SUCH ASSESSM ENT YEARS AND THEREFORE, THE ADDITIONS HAVE NO LEGS TO STAND.COPY OF THE ORDER DATED 3/12/2020 IN ITA NO. 1433/DEL/2014 AND BATCH OF APPE ALS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, 2011-12 AND 2012-13 IS FILED AND FORMS PART OF THE RECORD. 6. LD. DR REFERRED TO THE RELEVANT PARAGRAPHS IN THE O RDERS OF THE AUTHORITIES BELOW IN JUSTIFICATION OF THE ADDITIONS AND SUSTAINING THE SAME, BUT THERE IS NO DISPUTE AS TO THE PROCEEDINGS IN ITA NO. 1433/DEL/2014 AND BATCH OF APPEALS OR THAT THE SUBJECT MATTER INVOLVED IN SUCH APPEALS AND THE SUBJECT MATTER INVOLVED IN THIS APPEAL BEING THE ONE AND THE SAME. 7. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. THE ISSUES INVOLVED IN THIS APPE AL, NAMELY, THE DEPRECIATION ON EXCHANGE FLUCTUATION ON THE ASSETS ACQU IRED IN INDIA FROM THE FUNDS RAISED THROUGH FOREIGN CURRENCY CONVER TIBLE BONDS 4 ITA NO.688/DEL./2017 (FCCBS) IN TERMS OF SECTION 43 (1) OF THE ACT READ WITH EXPLANATION 8 THERETO AND SECTION 43A OF THE ACT AND SECTION 36 (1)(III ) OF THE ACT AND ALSO THE ADJUSTMENT OF ADDITION UNDER SECTION 14 OF THE ACT IN THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF TH E ACT, ARE RECURRING ONES AND AS A MATTER OF FACT IT WAS DECIDED R IGHT FROM 2009-10 BY THE LD. CIT(A) AS WELL AS THE TRIBUNAL. ASSESSMENT ORDER, AND FOR THAT MATTER THE ORDER OF THE FIRST APPELLATE AUTHORITY ALSO, R EADS THAT THE AUTHORITIES FOLLOWED THE VIEW TAKEN ON THIS ASPECT FOR THE ASSESSMENT YEAR 2012-13. 8. IN RESPECT OF THE ISSUE RELATING TO THE DEPRECIATION ON EXCHANGE FLUCTUATION ON THE ASSETS ACQUIRED IN INDIA FROM THE F UNDS RAISED THROUGH FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) IN TERMS OF SECTION 43 (1) OF THE ACT, ORDER DATED 3/12/2020 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2009-10 AND 2012-13 IN ITA NUMBERS 1433/DEL/2014 AND BATCH OF APPEALS CLEARLY SHOWS THAT THIS ASPECT WAS CONSIDERED IN THE ASSESSMENT YEAR 2009-10 AND SUCH A VIEW WAS FOLLO WED IN THE SUBSEQUENT ASSESSMENT YEARS. RELEVANT OBSERVATION OF T HE TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10 READS THUS,- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A SSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THAT IN ASSESSMENT YEA R UNDER APPEAL, THE ASSESSEE HAD CAPITALIZED A SUM OF RS.27,37,25,941/- ON ACCOUNT OF EXCHANGE RATE FLUCTUATION IN RESPECT OF MACHINERIES BOUGHT IN INDIA FROM THE FOREIGN FUNDS RAISED THROUGH FCCBS. NO REP AYMENT OF LOAN BY WAY OF FCCBS WAS MADE DURING THE YEAR UNDER APPEAL. HOWEVER, INCREASE IN ANY LIABILITY ON ACCOUNT OF PREVAILING EXCHANGE RATE WAS SHOWN IN THE BALANCE-SHEET UNDER THE HEAD 'UNSECURE D LOANS' THE FLUCTUATIONS TO THE EXTENT OF ACQUISITION OF FIXED ASSETS IN INDIA BY UTILISING FCCBS WAS ADDED TO THE ACTUAL COST AND DE PRECIATION CHARGED 5 ITA NO.688/DEL./2017 THEREON. THUS, THE ASSESSEE PURCHASED THE MACHINERY IN INDIA FROM THE FOREIGN FUNDS THROUGH FCCBS WHICH FACT IS NOT DISPU TED BY THE AUTHORITIES BELOW. IT IS, THEREFORE, CLEAR THAT THO UGH SECTION 43A APPLY TO THE ASSETS ACQUIRED FROM ABROAD, STILL THE A.O. WITHOUT JUSTIFICATION APPLIED SECTION 43A FOR MAKING THE DISALLOWANCE OF DEPRECIATION AGAINST THE ASSESSEE. SECTION 43A THUS COULD NOT AP PLY IN THE CASE OF THE ASSESSEE WHICH IS ALSO HELD BY VARIOUS BENCHES OF THE TRIBUNAL IN THE DECISIONS QUOTED ABOVE. ACCOUNTING STANDARD-11 WOULD ALSO APPLY IN THE CASE OF THE ASSESSEE. THE ASSESSEE HAS ALSO EXPLAINED THAT COMPANIES AMENDMENT RULES ALSO APPLY TO THE FACTS O F THE CASE BECAUSE OPTION IS GIVEN TO ASSESSEE AND IT PROVIDED 'WHERE LONG TERM FOREIGN CURRENCY MONETARY ITEMS RELATES TO ACQUISIT ION OF DEPRECIABLE CAPITAL ASSET, THE SAME SHALL BE ADDED/DEDUCTED FRO M THE COST OF THE ASSET AND SHALL BE DEPRECIATED ACCORDINGLY OVER THE BALANCE LIFE OF THE ASSET.'. IT IS NOT IN DISPUTE THAT ASSESSEE FOLLOWE D AS-11 REGULARLY. IN A.Y. 2010-2011 THE LD. CIT(A) ALLOWED SIMILAR CLAIM OF THE ASSESSEE, BUT, THE DEPARTMENT DID NOT FILE ANY APPEAL AGAINST THE SAME ORDER. IN A.Y. 2011-2012 THOUGH THE DEPARTMENT FILED APPEAL B EFORE THE TRIBUNAL ON THIS ISSUE ON ALLOWING DEPRECIATION, BU T, THE SAME HAS BEEN DISMISSED VIDE ORDER DATED 21.10.2019 (SUPRA). THUS , THE LD. CIT(A) WAS BOUND TO FOLLOW RULE OF CONSISTENCY AND SHOULD NOT HAVE TAKEN A CONTRARY VIEW IN A.Y. 2012- 2013. WE RELY UPON THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMISATS UNG 193 ITR 321 (SC) AND EXCEL INDUSTRIES LTD., 358 ITR 295 (SC). T HE ASSESSEE HAS ALSO FOLLOWED COMPANIES RULES, 2009 BECAUSE IT HAS GIVEN OPTION TO THE ASSESSEE TO DO SO. THE DECISION OF MUMBAI BENCH IN THE CASE OF DDIT V. STAUBIL A.G. INDIA BRANCH OFFICE (SUPRA), RELIED UP ON BY THE LD. CIT(A) IS ON IDENTICAL FACTS. THEREFORE, THERE IS NO INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) IN FOLLOWING THE SAME. IT MAY ALSO BE NOTED HERE THAT WHEREVER THERE WAS AN EXCHANGE GAIN TO THE ASSESSEE, THE SAM E WAS REDUCED FROM THE WDV AND CLAIM WAS MADE ACCORDINGLY, THEREF ORE, ASSESSEE IS FOLLOWING THE AS-11 CONSISTENTLY AND AS SUCH THE SA ME SHOULD NOT HAVE BEEN DISPUTED BY THE AUTHORITIES BELOW. 6 ITA NO.688/DEL./2017 9. THE VIEW TAKEN BY THE TRIBUNAL IS FOLLOWED IN ASSE SSEES CASE FOR THE ASSESSMENT YEAR 2012-13. IT IS, THEREFORE, CLEAR THA T THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009-10 AND 2012-13 GOES IN FAVOUR OF THE ASSE SSEE AND IN THE ABSENCE OF ANY CHANGE IS IN THE FACTS ARE IN LAW, WE FIND IT DIFFICULT TO DEVIATE FROM THE SAME OR TO TAKE A DIFFERENT VIEW, MORE PARTICULARLY IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE C ASE OF RADHASOAMI SATSANG 193 ITR 321 (SC) AND EXCEL INDUSTR IES LTD 358 ITR 295 (SC) IN RESPECT OF TAKING CONSISTENT VIEW ON THE SAM E SET OF FACTS IN THE CASE OF THE SAME ASSESSEE. WITH THIS VIEW OF THE MA TTER WE HOLD GROUNDS NO. 2 TO 2.3 IN FAVOUR OF THE ASSESSEE AND DI RECT THE AUTHORITIES TO DELETE THE ADDITION. 10. NOW COMING TO THE ADDITION OF RS. 25, 54, 207/-MAD E UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES A ND CONSEQUENT ADJUSTMENT TO THE BOOK PROFITS ON SECTION 115 JB OF THE ACT, ASSESSEE IS PLACING RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS PRIVATE LTD (2 017) 82 TAXMANN.COM 415, WHICH IN FACT WAS RELIED UPON BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS TO HOLD THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTIO N 115 JB (2) OF THE ACT HAS TO BE MADE WITHOUT RESORTING TO THE COMPUTATIO N AS CONTEMPLATED UNDER SECTION 14A OF THE ACT READ WITH RU LE 8D OF THE RULES. IN VIEW OF THIS SETTLED LEGAL POSITION, AS HAS B EEN FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSE SSMENT YEARS, WE ARE OF THE CONSIDERED OPINION THAT THE ADJUSTMENT OF RS. 25, 54, 207/-TO THE BOOK PROFITS UNDER SECTION 115 JB OF THE ACT IS NOT SUS TAINABLE AND THE 7 ITA NO.688/DEL./2017 SAME HAS TO BE DELETED. GROUNDS NO. 3 AND 3.1 ARE AL SO HELD IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 25 TH DAY OF JANUARY, 2021 IMMEDIATELY AFTER THE HEARING OVER WATCH ABLE MORE IS COMPLETE . SD/- SD/- (O.P. KANT) (K.N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 TH JANUARY, 2021. RK/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI