DCIT, New Delhi V. M/s. Pragati Paper Industries Ltd, New Delhi

ITA 928/DEL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52468 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Keywords: Depreciation; Additional depreciation
• Section: 43B

Judgement Text

ITA NO. 928/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 928/DEL/2009 A.Y. : 2004-05 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), ROOM NO. 415, 4 TH FLOOR, C.R. BUILDING, NEW DELHI VS. M/S PRAGATI PAPER INDUSTRIES LTD. 10/5, EAST PATEL NAGAR, NEW DELHI (PAN/GIR NO. : AABCP7684H) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. K. SAMPATH, ADV. DEPARTMENT BY : S MT. PRATIMA KAUSHIK, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 19.12. 2008 PERTAINING TO ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 9,13, 216/- BEING THE DISALLOWANCE OUT OF DEPRECIATION CLAIMED DUE TO EXCH ANGE RATE FLUCTUATION. 3. ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND PRODUCTION OF NEWS PRINT AND CREAM WOVE PAPER. ASSESSING OFFICER OBSERVED THAT AS PER THE INFORMA TION GIVEN IN NOTES OF ACCOUNTS THE ASSESSEE HAS INCREASED THE WDV OF THE ASSETS ON 31.3.2004 BY AN AMOUNT OF ` 22,82,542/ - ON ACCOUNT OF FLUCTUATION IN THE EXCHANGE RATE. ASSE SSING ITA NO. 928/DEL/2009 2 OFFICER FURTHER HELD THAT THE DEPRECIATION CLAIME D BY THE ASSESSEE ON ACCOUNT OF INCREASE IN THE VALUE OF ASSETS DUE TO F OREIGN EXCHANGE FLUCTUATION IS BEING DISALLOWED TO THE ASSESSEE ON THE GROUND THAT THE EXCHANGE RATE KEEPS ON CHANGING CONTINUOUSLY AND T HE WDV OF THE ASSETS WILL INCREASE TO THE EXTENT THE ASSESSEE A CTUALLY PAYS THE AMOUNT ON ACCOUNT OF PREVAILING EXCHANGE RATE WHICH MEANS THE DEPRECIATION ON THE EXCHANGE FLUCTUATION CAN BE A LLOWED TO THE ASSESSEE ON ACTUAL PAYMENT AND NOT ON THE PREVAILING EXCHANGE RATE AS ON THE CLOSING DAY OF THE FINANCIAL YEAR. IN THIS REGARD RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE SUPREME C OURT REPORTED IN 231 ITR 285 IN THE CASE OF C.I.T. VS. TATA IRON AND STEEL LTD. (1998) WHERE THE APEX COURT HELD THAT FLUCTUATION IN RATE OF FOREIGN EXCHANGE RESULTING IN GAIN OR LOSS WHILE REPAYING INSTALMENT S OF FOREIGN LOAN WILL NOT ALTER THE COST OF INCURRED FOR PURCHASE OF ASSE T FOR COMPUTING DEPRECIATION. THE VIEW OF THE DEPARTMENT IS FORTI FIED BY THE LETTER OF CBDT TO ASSESSING OFFICER BEARING NO. 228/31/91/IT A-II DATED 5.5.1993 WHERE THE OPINION OF THE MINISTRY OF LAW HAS BEEN GI VEN STATING THAT THE IMPACT OF EXCHANGE FLUCTUATION SHOULD BE CONSID ERED ONLY AT THE TIME OF REPAYMENT AND THE INTERMEDIARY FLUCTUATION WOULD NOT BE RELEVANT. KEEPING IN VIEW THESE FACTS, DEPRECIATI ON AMOUNTING TO ` 5,70,635/- BEING 25% OF ` 22,82,542/- IS BEING DISA LLOWED AND ADDED TO THE TAXABLE INCOME. FURTHER DURING THE YEAR, THERE IS A CLAIM OF ADDITIO NAL DEPRECIATION @ 15% IN TERMS OF THE PROVISIONS OF SE CTION 32(1)(IIIA). SINCE THE CLAIM OF NORMAL DEPRECIATION DUE TO EXCHAN GE RATE FLUCTUATION HAS BEEN DISALLOWED IN FOREGOING PARAG RAPHS THEN THE CLAIM OF ADDITIONAL DEPRECIATION @ 15% ON SUCH E NHANCED WDV UNDER THE PROVISIONS OF SECTION 34(1)(IIIA) IS ALSO NOT ALLOWABLE. ITA NO. 928/DEL/2009 3 ACCORDINGLY, THE CLAIM OF ADDITIONAL DEPRECIATION AMO UNTING TO ` 3,42,581/- BEING 15% OF ` 22,82,542/- IS BEING DISA LLOWED AND ADDED TO THE TAXABLE INCOME. THUS, THE TOTAL ADDITION ON ACCOUNT OF DISALLOWANC E OF DEPRECIATION ON ACCOUNT OF EXCHANGE RATE FLUCTUATIO N WORKS OUT TO ` 9,13,216/- (` 570635 + ` 342581). 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) ASSESSEE MADE THE FOLLOWING SUBMISSIONS:- 'ASSESSEE COMPANY HAS AVAILED THE TERM LOAN FACILITY FROM CANARA BANK TO THE EXTENT OF ` 17.60 CRORE WHICH WA S LATER ON CONVERTED INTO FOREIGN CURRENCY LOAN AND THEREAFTER THE SAID LOAN WAS RECONVERTED TO INDIAN CURRENCY LOAN. COPY OF SA NCTION LETTER IS ENCLOSED AS PER ANNEXURE 'A'. FURTHER ASSESSEE C OMPANY HAS FOLLOWED THE CLAUSES OF TERMS OF THE LOAN SO CONVER TED AND ENTERED INTO FORWARD CONTRACT OF SALE/PURCHASE OF F OREIGN CURRENCY AS A RESULT NET FOREIGN CURRENCY FLUCTUATION OF `. 22.82 LACS ARISES. THE FUND SO AVAILED BY THE ASSESSEE COMPANY WAS UTIL IZED FOR COMPLETING THE TOTAL PROJECT. PART OF THE AMOUNT WAS U TILIZED FOR IMPORTED MACHINE ALSO. FLUCTUATION IN THE CURRENCY WAS RECONVERTED AFTER EVERY SIX MONTHS. ALL THE DETAILS HAVE FURNISHED BEFORE THE ASSESSING OFFICER. DURING THE YEAR UNDER ASSESSMENT TOTAL DEBIT ON ACCO UNT OF ROLL OVER MADE SIX MONTHLY IS AMOUNTING TO ` 91,63,298/- AND THE CREDIT ON ACCOUNT OF ROLL OVER WAS ALLOWED ` 68,80, 756/-. REMAINING AMOUNT OF ` 22,82,542/- IS CAPITALIZED UND ER HEAD PREOPERATIVE EXPENSES. THE PLANT WAS MADE OPERATIVE ON 18.02.2004 THEREFORE, PART OF THIS EXPENDITURE CAPI TALIZED UNDER ITA NO. 928/DEL/2009 4 HEAD PLANT AND MACHINERY AND BUILDING ALSO AND OTHE R RESPECTIVE ASSET THEREFORE, THIS DEBIT IS NOT ON ACCOUNT OF FO REIGN CURRENCY FLUCTUATION, BUT IT IS ACTUAL PAYMENT TO THE BANK TH EREFORE, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE EXCHA NGE RATE KEEPS ON CHANGING CONTINUOUSLY AND WDV OF THE ASSET WILL I NCREASE TO THE EXTENT, THE ASSESSEE ACTUALLY PAYS THE AMOUNT ON THE ACCOUNT OF THE PREVAILING EXCHANGE RATE, IS NOT MAIN TAINABLE. THE OBSERVATION WHICH HAS BEEN MADE BY THE ASSESSING OFFICER IS CORRECT BUT IT APPEARS THAT LD. ASSESSING OFFICER H AS NOT EXAMINED IT THOROUGHLY AND IT HAS LINKED WITH THE ANTICIPATO RY RATE OF THE EXCHANGE ON THE PRESUMPTION THAT LIABILITY IS NOT PA ID BY THE ASSESSEE. HERE CASE IS DIFFERENT, LIABILITY IN QUES TION HAS ALREADY BEEN PAID BY THE ASSESSEE COMPANY AND THEREFORE, THE RE IS NO REASON OF MAKING SUCH DISALLOWANCE. IT WAS ALSO FURTHER SUBMITTED BEFORE THE ASSESSING O FFICER THAT FOREIGN CURRENCY WAS CONVERTED INTO INDIAN CURRENCY AND BY THIS CONVERSION ASSESSEE COMPANY HAS BENEFITED OF THE INT EREST BETWEEN 3 TO 4%. IN THE YEAR UNDER CONSIDERATION ON 8.5.2003, 50% OF THIS TERM LOAN SANCTION AND DISBURSED IN INDI AN CURRENCY IN THE IMMEDIATE LAST YEAR, WAS CONVERTED IN FOREIGN CURRENCY LOAN FOR A MINIMUM PERIOD OF SIX MONTHS DUE TO BENEFI T OF INTEREST RATE. BY THIS CONVERSION ASSESSEE COMPANY WAS BENEFI TED BY 3 TO 4% DUE TO DIFFERENCE IN RATE OF INTEREST. AFTER COMP LETION OF SIX MONTHS, PART OF FOREIGN CURRENCY LOAN WAS AGAIN CONV ERTED INTO INDIAN CURRENCY TERM LOAN AND PARTLY WAS FURTHER ROL LED OVER AND ULTIMATELY LOAN WAS CONVERTED IN INDIAN RUPEE LOAN A S ORIGINALLY SANCTIONED. ITA NO. 928/DEL/2009 5 SECTION 43A IS NOT APPLICABLE IN THE PRESENT CASE. AS THE REQUIREMENT OF SECTION 43A IS THAT THE ASSESSEE MUS T ACQUIRE SOME ASSET FROM ABROAD IN FOREIGN CURRENCY AND THER E SHOULD BE SOME OUTSTANDING AT THE END OF THE YEAR. THE EFFECT OF FLUCTUATION AT THE END OF THE YEAR WILL BE TAKEN IN THE YEAR WH EN FINAL SETTLEMENT HAS TAKEN PLACE. IN THE PRESENT CASE ASS ESSEE COMPANY HAS PURCHASED CERTAIN ASSETS AS PER DETAIL A NNEXED AS PER ANNEXURE 'A' ON PAGE NO.3. TOTAL MACHINERY PURCH ASED DURING THE YEAR IS ` 24,65,26,847/- AGAINST WHICH I MPORTED MACHINERY WAS ONLY FOR ` 4,75,17,552/- INCLUSIVE OF CUSTOM DUTY (SEE DETAIL AT PAGE NO.7). DETAIL OF THE IMPORTED MAC HINE IS ENCLOSED AS PER ANNEXURE 'B' AT PAGE NO.7. WE ARE A LSO ENCLOSING A CHART WHEREIN DATE OF BILL AND DATE OF PAYMENT IS ALSO BEING REFLECTED, AS PER ANNEXURE 'C' AT PAGE NO.8. THE CH ART IT IS VERY MUCH CLEAR THAT NOTHING IS DUE TO PAY ON 31 ST MARCH, 2004 AGAINST IMPORTED MACHINERY. SINCE NO PAYMENT WAS OUTSTANDING ON ACCOUNT OF ACQUISITION OF THE ASSET FROM OUTSIDE IN DIA THEREFORE, THIS SECTION IS NOT APPLICABLE TO THE ASSESSEE COMPA NY. 4.1 CONSIDERING THE ABOVE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ORDER OF THE AO AND SUBMISSIONS MADE BY THE LD. A.R. APPEARING FOR TH E APPELLANT COMPANY. THE FACTS OF THE CASE ARE QUITE PECULIAR AS ORIGINALLY THE MACHINERY WAS IMPORTED AGAINST A LOAN IN INDIAN CURRE NCY. THEREAFTER, THE LOAN WAS CONVERTED INTO FOREIGN CUR RENCY AND ONCE AGAIN IT WAS RECONVERTED INTO INDIAN CURRENCY. THE CLAIM OF THE APPELLANT IS THAT BY DOING SO COMPANY HAS BEEN BENE FITED IN ITA NO. 928/DEL/2009 6 SAVING OF INTEREST EXPENDITURE IN A FLUCTUATING MARK ET OF FOREIGN EXCHANGE. THE ASSESSING OFFICER HAS APPLIED THE PR OVISIONS OF SEC. 43A WHILE DISALLOWING THE EXPENDITURE DUE TO F OREIGN EXCHANGE FLUCTUATION RATE BY PRESUMING THAT THE FOR EIGN CURRENCY LOAN IS OUTSTANDING, WHEREAS THE APPELLANT HAS SUBMI TTED DOCUMENTS INDICATING THAT AT THE END OF RELEVANT FIN ANCIAL YEAR THE FOREIGN CURRENCY LOAN IS NOT OUTSTANDING AS THE SAME HAS BEEN RECONVERTED IN INDIAN CURRENCY. IN SUCH A SCEN ARIO IN MY CONSIDERED OPINION THE PROVISIONS OF SEC. 43A ARE N OT APPLICABLE AS THERE IS NO OUTSTANDING FOREIGN CURRENCY LOAN WH ICH IS THE PRIMARY CONDITION OF THE SAID SECTION. THEREFORE, T HE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT DOES NOT APPEAR JUSTIFIED. ACCORDINGLY, THE SAME IS DELETED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT A SSESSING OFFICER HAS APPLIED THE PROVISIONS OF SECTION 43A WHILE DIS ALLOWING THE EXPENDITURE DUE TO FOREIGN EXCHANGE FLUCTUATION RA TE BY PRESUMING THAT THE FOREIGN CURRENCY LOAN IS OUTSTANDING. WHI LE THE ASSESSEE CLAIM IS THAT WHICH IS SUPPORTED BY DOCUMENTS INDICA TING THAT THE AT THE END OF RELEVANT FINANCIAL YEAR THE FOREIGN CUR RENCY LOAN IS NOT OUTSTANDING AS THE SAME HAS BEEN RECONVERTED IN INDI AN CURRENCY. ASSESSEE HAD AVAILED THE TERM LOAN FACILITY FROM CA NARA BANK OF ` 17.60 CRORE WHICH WAS LATER ON CONVERTED INTO FORE IGN CURRENCY LOAN AND THEREAFTER THE SAID LOAN WAS RECONVERTED TO IN DIAN CURRENCY LOAN. ASSESSEE HAS FOLLOWED THE CLAUSES OF TERMS OF THE LO AN SO CONVERTED AND ENTERED INTO FORWARD CONTRACT OF SALE/ PURCHAS E OF ITA NO. 928/DEL/2009 7 FOREIGN CURRENCY AS A RESULT NET FOREIGN CURRENCY F LUCTUATION OF ` 22.82 LACS ARISES. THE FUND SO AVAILED BY THE ASSESSE E COMPANY WAS UTILIZED FOR COMPLETING THE TOTAL PROJECT. PART OF T HE AMOUNT WAS UTILIZED FOR IMPORTED MACHINE ALSO. FLUCTUATION IN T HE CURRENCY WAS RECONVERTED AFTER EVERY SIX MONTHS. 6.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSION, IT IS CLEAR THAT SECTION 43A IS NOT APPLICABLE AS THERE IS NO OUTSTA NDING FOREIGN CURRENCY LOAN WHICH IS THE PRIMARY CONDITION OF THE SAID SECTION. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMI TY OR ILLEGALITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APP EALS), HENCE, WE UPHOLD THE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 6988 1/- ON ACCOUNT OF DEPOSIT OF EMPLOYEES CONTRIBUTION TO EPF AFTER THE DUE DATE. 8. IN THIS CASE ASSESSING OFFICER FOUND CERTAIN PA YMENTS, TOTALING TO ` 69881/- IN RESPECT OF EMPLOYEES CONTRIBUTION TOWA RDS EPF WERE DEPOSITED BY THE ASSESSEE AFTER THE DUE DATE. ASS ESSING OFFICER OPINED THAT DEDUCTION IS ALLOWABLE U/S 36(1)(VA) O F THE IT ACT, IF THE EMPLOYEES CONTRIBUTION AMOUNT IS DEPOSITED IN THE GOV ERNMENT ACCOUNT WITHIN THE STIPULATED DUE DATE. ACCORDIN GLY, ASSESSING OFFICER TREATED A SUM OF ` 69881/- AS INCOME OF T HE ASSESSEE U/S 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE ACT. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE ISSUE WAS COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF KUBE R HINGES (P) LTD. VS. ITO, WHEREIN IDENTICAL ISSUE WAS CAME UP BEFORE THE TRIBUNAL AND IT WAS HELD THAT BOTH THE EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION ITA NO. 928/DEL/2009 8 PAID BEFORE THE DUE DATE U/S 139(1) ARE ALLOWABLE DEDUCTION. ACCORDINGLY, LD. COMMISSIONER OF INCOME TAX (APPEALS ) DELETED THE ADDITION. 10. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT O F THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. [ 2009] 319 ITR 306 (SC). IN THIS CASE, HONBLE APEX COURT ELABORATELY ANALYSED SCHEME OF SECTION 43B AND HELD THAT AMOUNTS WHICH FALL IN THE REALM OF SECTION 43B HAVE TO BE ALLOWED SO FAR AS THEY ARE ACTUALLY PAID UPTO THE DATE OF FILING OF RETURN. 11.1 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/8/2011 UPO N CONCLUSION OF HEARING. SD/- SD/- [ [[ [C.L. SETHI C.L. SETHI C.L. SETHI C.L. SETHI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 11/8/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES