| SooperKanoon Citation | sooperkanoon.com/75311 |
| Court | Income Tax Appellate Tribunal ITAT Jaipur |
| Decided On | Nov-15-2006 |
| Judge | V Gandhi, R Syal, J S B.P., S Chandra, I Sudhir, S |
| Reported in | (2007)106ITD80(JP.) |
| Appellant | Indian Shaving Products Ltd. |
| Respondent | Dy. C.i.T. (Asstt.) Spl. Range-2 |
The assessee also created investment allowance reserve to the tune of Rs 28,54,316/- by crediting the reserve account and debiting the profit and loss account. This is clear from the assessment order where the above amount has been specifically disallowed and added back.
4. A perusal of the assessment order further reveals that claim of investment allowance was disallowed by the Assessing Officer by holding that the same was not permissible on enhanced cost due to enhancement of liability because of fluctuation of foreign currency rate. The investment allowance was to be allowed in the year in which machinery was installed and the same was not admittedly done in the year under consideration nor the present year was the immediately succeeding year in which machinery and plant was first put to use. Accordingly the claim was rejected.
5. The assessee impugned the action of the Assessing Officer in appeal and relied upon direct decision of Calcutta High Court in the case of CIT v. Century Enka Ltd. 196 ITR 447 and other decisions noted by the learned CIT (Appeals) in para 2.2 of his order. The learned CIT (Appeals) upheld the assessment order with the following remarks: 2.3 I have considered the facts of the case and the submissions of the AR. As regards the foreign exchange liability of Rs 1,79,80,075/- it is seen that on facts there is no dispute that the amount has been paid in a year subsequent to the year in which the asset was purchased, installed and used. The provisions of Section 32A provided that the deduction shall be allowed in respect of the previous year in which the machinery or plant was installed or was first put to use or it put to use in the immediately succeeding previous year then in respect of that previous year a sum by way of investment allowance equal to 20% of the actual cost of the plant and machinery to the assessee will be allowed. These conditions have not been satisfied in the case of the appellant for the year under consideration. None of the case laws are similar on facts to the case of the appellant and hence no assistance can be derived by the appellant from the various case laws cited by the A.R. As such the appellant has rightly been denied the investment allowance in respect of difference in foreign exchange rates incurred for the plant and machinery obtained in the earlier years.
6. Being aggrieved the assessee carried the matter in appeal before the Appellate Tribunal. After hearing both the parties, learned Accountant Member was of the view that the issue was fully covered in review of the assessee by the following decisions: The learned Accountant Member further observed that the only dissenting view taken in the case of CIT v. Windsor Foods Ltd. 235 ITR 249 was overruled in the case of CIT v. Gujarat State Fertiliser Co. Ltd. 259 ITR 526 (Guj.)(FB). He also referred to decision of Special Bench in favour of the assessee. The decisions cited on behalf of Revenue were held to be not applicable as they related to claim of development rebate, for which an exception was found to be created in Section 43A(2) of the Income-tax Act. Investment allowance, permissible Under Section 32A was not excluded from proviso of Section 43A as development rebate Under Section 33 was excluded. It was further held that the assessee had created investment allowance reserve in its accounts and there was no dispute on it. The learned Accountant Member accordingly allowed appeal of the assessee on this claim.
7. The learned Judicial Member did not agree with the learned Accountant Member although he also held that decision of Full Bench in the case of Gujarat Sate Fertilizer Co. Ltd. (supra) was applicable to the case. Certain portion of the decision was extracted in his order wherein it is stated "section 43A provides that the figure of actual cost of an asset of the assessee stands modified in the previous year in which the exchange rate fluctuation took place, all other consequences would flow by adopting that year and the figure of actual cost as the starting point." It is further extracted that an assessee claiming investment allowance on modified figure of actual cost will be required to fulfil requisite condition like creation of reserve to the specified extent in the year of such change of figure of actual cost.
Learned Judicial Member further observed as under for remitting the matter back to the file of the Assessing Officer: Further, it was mentioned that the period of carry forward for the purpose of eight years shall have to be computed from the year in which the additional liability has been incurred. The assessee would be entitled to claim the additional investment allowance provided such foreign currency fluctuation takes place within the period of eight years from the expiry of the previous year in which the asset in question was first installed and first used as stated in Section 32A(3). It was also cautioned that if the assessee had already availed the full investment allowance before the date of fluctuation on the basis of the cost earlier worked out then the assessee will not get any additional allowance on account of any fluctuation in the rate of foreign exchange which takes place after the expiry of the period of eight years.
6. Thus, the Hon'ble Gujarat High Court has laid down the condition as mentioned above regarding the schedule of payment etc. etc. These facts are not clear from the record in the instant case. Nowhere, the AO or the CIT (A) have discussed these aspects which are essential to consider the claim of the assessee. neither the schedule nor the enhanced value or the repayment schedule have been mentioned in the record. When it is so, then I am of the view that matter needs a fresh adjudication by the AO to examine the additional liability on the date of actual payment of loan as per schedule etc. specially when CIT (A) has observed that "the conditions have not been satisfied in the case of appellant for the year under consideration". I am also of the view that after having the clear facts, occasion will arise regarding the applicability of the ratio laid down by higher courts.
7. Thus, I modify both the orders of the lower authorities and restore the order back to the AO to decide the claim of the assessee denovo after providing a reasonable opportunity to the assessee in the light of above discussion.
8. On account of above difference, the matter has come before me as a Third Member. It was fixed for hearing and both the parties have been heard. Learned Counsel appearing for the assessee submitted that observations made by the learned Judicial Member are factually wrong.
The assessee had furnished printed Third Annual Report to the Assessing Officer covering period 1.7.1987 to 31.3.1989 relevant to the assessment year under consideration. In the said report complete detail of facts and circumstances was given. It is reiterated that commercial production in this case had started in March, 1986 and investment allowance was being claimed on liability enhanced on account of fluctuation in foreign exchange taken as loan for purchase of machinery and plant. In this connection, he drew my attention to page 7 of the paper book filed before the Bench. The written down value of plant and machinery as on Ist day of the year was shown at Rs 5,43,78,599. The assessee had shown addition to machinery and plant at 1,80,96,636 representing liability enhanced due to fluctuation of foreign exchange rates. On the above value of the machinery depreciation was claimed by the assessee (including enhanced cost due to fluctuation in foreign exchange) and the same was duly allowed by the revenue as claimed. On page 8 of the paper book, schedule of depreciation and investment allowance claimed has been was furnished. The assessee has pointed out figures of addition "due to foreign exchange fluctuation difference on foreign currency loans". Figures of addition in machinery and plant were given on page 8 whereas that of Dies & Moulds are given on page 9 of the paper book. On page 12, Schedule XVI, the assessee has given complete detail of revaluation of machinery absorbing foreign exchange fluctuation rates difference. As on 1.7.1988, assessee was liable to pay Rs 2,46,56,040 in US dollors and Dutch Mark (DM) but assessee's liability increased to Rs 3,16,34,354 upto 30^th June,1988 on account of fluctuation of foreign exchange currency rates as per details furnished on this page. There was thus additional liability of Rs 69,78,314. On account of further increase in valuation of DM after 1.7.1987 there was further increase of liability of Rs 95,03,449. Thus total increase in liability was to the tune of Rs 1,64,81,763. Out of the above, increase in liability on account of spares not admissible was Rs 6,32,908/-. Thus enhancement in liability due to machinery and plant has been worked out at Rs 1,58,48,855 (Rs 1,64,81,763 - Rs 6,32,908 ).
The chart further explains increase in liability between 1.7.1988 to 31.3.1989 on account of increase in rate of DM and pounds which worked out to Rs 21,31,220. Thus complete detail of increase in liability disclosed to the Bench is shown in the above Schedule as under:Machinery between 1.7.1988 to 31.3.1989 Rs 21,31,220 ---------------- It is, therefore, wrong to say that figures of increase of liability were not made available on record.
9. The learned Counsel for the assessee further submitted that in the printed balance sheet filed before the Assessing Officer, it was duly disclosed that liability existing as on the last date of the previous year relevant to assessment year 1987-88 ( immediately preceding assessment year ) was fully wiped off before the end of the period relevant to the assessment year 1989-90 i.e. before 31.3.1989. In this connection, learned Counsel drew my attention to page 38 where under Schedule - 3 foreign currency loan and interest accrued thereon is shown to be fully cleared in the period under consideration. Entries are as under: It is thus duly shown that loan payable by the assessee was discharged and paid in the period under consideration. The learned Counsel for the assessee further submitted that all these facts regarding discharge of much higher liability due to foreign exchange fluctuation in the period under consideration were not disputed by the Assessing Officer or by CIT (Appeals). The revenue authorities disallowed the claim on the ground that the investment allowance was to be allowed only in the year in which machinery was installed or in the year machinery was purchased or in the immediately succeeding year. There was no dispute that assessee had discharged higher liability on account of foreign exchange fluctuation on loans utilized for purchase of machinery and plant. The objections raised by the revenue authorities were contrary to the provisions of Section 43A of Income-tax Act and matter stood fully covered in favour of the assessee as per the direct decisions of four High Courts referred to in the order of learned Accountant Member. The learned Judicial Member was not justified in raising doubts on facts which were fully established and accepted by the revenue authorities.
Some of the observations of learned Judicial Member contrary to law.
The learned Counsel further drew my attention to decision of Hon'ble Bombay High Court in the case of Associated Bearing Co. Ltd. v. CIT 286 ITR 341 wherein again a view has been taken that investment allowance is to be allowed on increased liability due to change in rate of exchange in the year in which higher liability is discharged by the assessee. All the conditions for claiming the allowance were fully satisfied. The learned Counsel for the assessee accordingly supported the impugned order of the learned Accountant Member.
10. The learned Departmental Representative Shri Sharma supported the impugned order of the learned Judicial Member. It was argued that investment allowance was totally withdrawn as per Sub-section (8) of Section 32A of Income-tax Act w.e.f. the date specified in the Notification which was issued on 12.6.1986. The allowance was re-introduced w.e.f. 1.4.1989 through the introduction of Sub-section (8B) in Section 32A. But " then as per the above sale section, it was to be allowed only on plant and machinery acquired after 31.3.1987 and before 1.4.1988. There was no evidence on record that assessee had purchased machinery in the period mention in Sub-section (8B) of Section 32A. Thus whether provision of Sub-section (8B) are applicable in this case or not, has not been examined and is far from clear. There is no answer on record when the assessee installed the machinery and was first allowed investment allowance. At any rate, impact of Sub-sections (8) and (8B) was required to be seen in the present case.
It was further submitted that decision of Hon'ble Full Bench of Gujarat High Court in the case of Gujarat State Fertilizer Co. Ltd. (supra) was not applicable as the same related to assessment year 1977-78, 1978-79 and 1979-80 and not to assessment year 1989-90 before me. The question of application of Sub-sections (8) and (8B) was not considered by the Hon'ble Full Bench or by any other Court. Evidence relating to liabilities of the assessee and higher liability discharged due to fluctuation of foreign exchange was not clear in this case. Question relating to satisfaction of conditions envisaged by Section 32A was not examined by the revenue authorities and investment allowance could not be allowed unless satisfaction was recorded that all the conditions of Section 32A were satisfied. It was also submitted that there was no reason why Section 43A should be applied in the case of development rebate and not in the case of investment allowance when both the provisions are to serve the same purpose. It was further not clear as to why assessee had claimed investment allowance at 20% of additional liability when he should have claimed it at 25%. Having regard to various doubts as above, the learned Judicial Member was justified in remitting the case to the file of the Assessing Officer for re-examination. The Assessing Officer, on re-examination, would allow the claim as per law and there is no loss to the assessee. The learned Departmental Representative accordingly supported the order of the Judicial Member.
11. I have given careful thought to the proposed orders of my learned brothers, facts and circumstances of the case and arguments advanced by both the parties. The learned Accountant Member, in the proposed order, has observed that assessee was entitled to claim investment allowance Under Section 32A read with Section 43A on the enhanced liability towards cost of machinery due to fluctuation of foreign exchange rates in the year under consideration and the matter was fully covered in favour of assessee by the decisions of various Courts. Let be, therefore, have a look at the decisions considered by the learned Accountant Member.
In the case of CIT v. Century Enka Ltd. 196 ITR 447, their Lordship of Calcutta High Court, after taking into account provisions of Section 32A and 43A of Income-tax Act, held as under as per the head note: Where machinery is purchased from a foreign country on a deferred payment basis or by obtaining a loan repayable in foreign currency, any additional amount payable due to periodical fluctuation in the currency rate in respect of foreign currency forms part of the actual cost for allowing investment allowance. Section 43A(2) of the Income-tax Act, 1961, only excludes the provisions of Section 43A(1). Thus, where the contract itself stipulates repayment in foreign currency, the actual cost of the asset must be computed on the value of the foreign currency. Therefore, anything which goes into that repayment, that is to say, any cost (due to change in the value of foreign currency) which actually goes in repaying the debt, must form part of "actual cost", as contemplated by Section 43(1).
One of the conditions for allowance of the investment allowance as contained in Section 32A (4) (ii) is that the assessee has created an 'investment allowance reserve account" equal to 75 per cent of the amount of investment allowance to be actually allowed. As a result of the amendments made in Section 32A in 1990 with retrospective effect from April 1, 1976, such reserve can be created in any previous year in respect of which the deduction is to be allowed under Section 32A(3) or any earlier previous year not being a previous year earlier to the year in which the ship or aircraft, was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use. The explanation to Section 32A (4) enjoins upon the Assessing Officer to afford an opportunity to the assessee by a notice in writing to make good the deficiency in the reserve. In such a case, the assessee may make good the deficiency by transferring the deficit amount, in the accounting year the assessee gets the notice (or in the immediately preceding year if the accounts for that year have not been finalized), to the reserve account. On doing so, the assessee shall be entitled to get allowance for the larger amount.
In the case of CIT v. Chengalvarayan Coop. Sugar Mills Ltd. 242 ITR 440, their Lordship after considering provisions of Section 32A and overall impact of Section 43 A held as under: There can, therefore, be no manner of doubt that the investment allowance which is required to be allowed on the actual cost of machinery or plant, is required to be allowed on the amount by which that actual cost has increased by reason of variation in the rate of exchange as between Indian currency and foreign currency, where the said acquisition is from a foreign country. The fact that the additional liability for the assessee arose in the year subsequent to the date of installation does not come in the way of the investment allowance being allowed to the assessee. Section 43A(1) of the Act refers to the amount by which the liability of the assessee is so increased or reduced "during the previous year". The increase in the liability of the assessee during the previous year on account of the change in the rate of exchange is part of the actual cost of the machinery acquired from a foreign country and the assessee is entitled to investment allowance on the additional cost.
The majority decision of Full Bench of Gujarat High Court in the case of CIT v. Gujarat State Fertilizers Co. Ltd. 259 ITR 526, after elaborate discussion of the relevant statutory provision and case laws, including impact of "Notwithstanding anything contained in any other provision of this Act..." (emphasis supplied) in Section 43A laid down the law as under: In the light of this position of law, once Section 43A of the Act provides that the figure of actual cost of an asset to the assessee stands modified in the previous year in which the exchange rate fluctuation took place, all other consequences would flow by adopting the said year and the said figure of the actual cost as the starting point. In other words, an assessee claiming investment allowance on such modified figure of the actual cost will be required to fulfil the requisite condition like creation of reserve to the specified extent in the year of such change in the figure of actual cost. The period of carry forward for the purpose of eight years shall have to be computed from the said year and similarly the period of utilization of the investment allowance reserve shall have to be computed from the said year. This would of course be only in relation to the enhanced cost of the asset i.e., the deduction would be available to the extent of 25 per cent of the enhanced cost, reserve will have to be created to the extent of 75 per cent of the enhanced cost.
The provision of Section 32A of the Act nowhere provides that investment allowance cannot be allowed beyond the year of acquisition/ installation/ first put to use where the actual cost stands modified due to application of Section 43A of the Act. On the contrary there are inherent indications in the scheme of Section 32A of the Act which go to show that an assessee can claim deduction of a higher amount of investment allowance on fulfillment of the statutory condition prescribed. The creation of reserve and allowance have been linked with availability of sufficient profits.
Sub-section (4) provides for creation of investment allowance reserve account had specifically stipulates that the same could be created not only in the previous year in respect of which a deduction is to be allowed under Sub-section (3) but it could be any earlier previous year but the cut-off point would be the previous year in which an asset was acquired or installed or first put to use. In other words, in any of the years subsequent to such year an assessee would be permitted to pass necessary entries by debiting profit an loss account and crediting the reserve account and what is more material is such entries are relatable to the profits and gains of the previous year which would be a subsequent year. Similarly, the Explanation to Sub-section (4) also gives an indication that an Assessing Officer may permit an assessee to credit further amounts to be investment allowance reserve account out of the profits and gains of the previous year in which the Assessing Officer serves the assessee with the notice to do so.
Thus, on an overall consideration of the schema of Section 32A of the At, it is abundantly clear that the Legislature did not envisage any relating back to the year of acquisition/installation/ first user but has provided for creation of reserve and allowance in a subsequent year being aware of the settled legal position that reopening of accounts is unknown to income-tax. This position is clear from the decision of the case Arvind Mills Ltd. (Hon'ble Supreme Court) wherein at page 262 of the reports the apex court has referred to two of its earlier decisions in the case of CFIT v. A. Gajapathy Naidu and CIT v. Swadeshi Cotton and Flour Mills P. Ltd. . In fact, the court has also taken note of the fact that the said principle has subsequently been recognized by the amendment to the Companies Act, 1956.
In relation to Section 43A of the Act, the apex court has stated thus (page 270 of 193 ITR): It lays down, firstly, that the increase or decrease in liability should be taken into account to modify the figure of actual cost and secondly that such adjustment should be made in the year in which the increase or decrease in liability arises on account of the fluctuation in the rate of exchange .... As we have discussed above, the provisions of Sub-section (1) apply to the present case and the increased liability should be taken as 'actual cost' within the meaning of Section 43A(1). All allowances including development rebate or depreciation allowance or the other types of deductions referred to in the subsection would therefore have to be based on such adjusted actual cost. But then Sub-section (2) intercedes to put in a caveat. It says that the provisions of Sub-section (1) should not be applied for purposes of development rebate. The effect is that the adjusted actual cost is to be taken as the actual cost for all purposes other than for grant of development rebate.
Hence, once Sub-section (1) of Section 43A of the Act comes into play and the increase in liability is taken as the actual cost within the meaning of Section 43(1) of the Act. the effect is that such adjusted actual cost has to be taken as the actual cost for all purposes other than development rebate and all allowances would have to be based on such adjusted actual cost. Therefore, the assessee would be entitled to investment allowance on the figure of enhanced actual cost.
12. Having considered the aforesaid decisions, I am of view that learned Accountant Member was fully justified in allowing relief to the assessee. There is sufficient material on record that assessee became liable to pay enhanced liability on foreign loans utilized for purchase of machinery due to fluctuation in foreign currency rates. The assessee had also created necessary reserve as required by the statutory provision and same was debited in the profit and loss account and disallowed by the Assessing Officer in the assessment order. On the question of payment of additional cost due to fluctuation of foreign exchange rates, the assessee had raised ground of appeal No. 1 as under: The assessee company had imported Plant & Machinery and taken foreign currency loans from financial institutions to finance the same. The foreign currency loans were re-paid during the year and foreign exchange fluctuations on the same was debited to actual cost of asset as provided under Section 43A of the Income-tax Act, 1961.
In view of the above, the additions to Plant & Machinery were eligible for investment allowance.
The aforesaid claim was accepted by the learned CIT (Appeals with following observations in para 2.3 as under: ...As regards the foreign exchange liability of Rs 1,79,80,075/-. it is seen that on facts there is no dispute that the amount has been paid in a year subsequent to the year in which the asset was purchased, installed and used.
As rightly observed by the learned CIT (Appeals), the claim was not disputed even by the Assessing Officer. However, Assessing Officer, as also CIT (Appeals) did not allow investment allowance as according to them the same could be allowed only in the year in which machinery or plant was installed or put to use or if it was put to use in the immediately succeeding year, than in that year. About this, learned Judicial Member in the concluding part of para 6 of his proposed order, has directed that the Assessing Officer must examine the claim specially when CIT (Appeals) has observed that conditions were not satisfied in the case of the appellant in the year under consideration.
However, to hold as above is to totally ignore the provisions of Section 43A and decisions of Hon'ble High Courts cited supra including Full Bench decision of Hon'ble Gujarat High Court. In the light of above decisions, how can it be held that investment allowance would be allowed in the above years and not in the relevant year in which the liability enhanced due to exchange rate fluctuation was paid? The learned Judicial Member has taken a contradictory views one by purporting to follow decision of the Full Bench of Gujarat High Court and simultaneously and specially referring to the observations of CIT (Appeals) which are contrary to provisions of Section 43A as interpreted by various High Courts.
The other objection of learned Judicial Member that schedule of payment is not made clear on record and A.O. or the CIT (A) have not discussed this aspect of the matter. Therefore, the remand was considered necessary. I have already reproduced observation of learned CIT (A) where question of payment of enhanced liability of Rs 1,79,80,075/- specifically mentioned is not disputed. Amount of investment allowance reserve debited in the profit & loss account was disallowed. I have further referred to the calculation of enhanced liability due to foreign exchange fluctuation available on record. Even depreciation was allowed on enhanced "cost" due to fluctuation as is clear from depreciation chart and assessment order, allowing the depreciation to the. assessee.
The learned Judicial Member has rightly noted that claim of additional amount of investment allowance is to be allowed on modified figure of actual cost in terms of Section 43A. However, a doubt is raised by him whether the claim was made in 8 years in which investment allowance can be carried forward. These observations, to my mind, are totally unjustified. The plant and machinery of the assessee was set up in March, 1986 as is clear from the audited accounts filed by the assessee before the Assessing Officer. The claim on enhanced liability was made in the third year of business of the assessee, and no such objection was raised by the A.O. or by the CIT (Appeals) at any stage of proceedings. Therefore, wherefrom and how this objection has been raised, is not clear at all. The learned Judicial member should have seen the audited accounts of the assessee which were part of the record of the Assessing Officer. Without looking at the relevant record and following observations of the learned CIT (Appeals) which are unsustainable under the law a remand to the Assessing Officer for fresh adjudication and for further enquiry has been directed. All the conditions as already observed including creation of investment allowance reserve, discharge of enhanced liability etc. were fully satisfied in this case. Having regard to clear statutory provisions and facts and circumstances of the case, where the cost of machinery and plant got enhanced due to fluctuation in foreign exchange rates, the assessee was entitled to investment allowance on the modified or enhanced cost of machinery in the year under consideration. The assessee has fulfilled all the conditions to claim the allowance as per material available on record. The learned Judicial Member, in my humble opinion was not justified in holding that the mater should be sent back to the Assessing Officer for fresh adjudication. A remand can not be ordered for the sake of remand. It is a discretion required to be exercised judicially as per facts and circumstances of the case. The learned Accountant Member had proposed a sound order with which I agree.
13. The learned Departmental Representative during the course of hearing before me had raised certain additional arguments, in addition to reasons given by the learned revenue authorities and Judicial Member in the orders under consideration. The argument that claim is to be allowed only in the year in which plant or machinery are installed or in the next year as provided in Section 32A, has been considered and rejected above in the light of various decisions cited supra.
The learned Departmental Representative further argued that investment allowance was withdrawn by insertion of Sub-section (8) in Section 32A of Income-tax Act. It was provided that it shall not be allowed in respect of any ship, aircraft or any machinery installed after such date as may be specified in the Notification. No Notification was produced before me but it is stated that in the Notification dated 12.6.1986, it is provided that machinery or plant installed after 12.6.1986 shall not be entitled to any investment allowance. It was further submitted that w.e.f. 1.4.1987, Sub-section (8B) was inserted in Section 32A permitting investment allowance on machinery or plant acquired after 31.3.1987 but before 1.4.1988. It was prayed that case of the assessee is to be examined in the light of above statutory provisions.
14. I do not find any merit in above submission of learned Departmental Representative. In the first place these submissions were not taken by the A.O., CIT(A) or even before the Tribunal. The controversy is not raised in the two differing orders of learned Members referred to me Under Section 255(4) of the Income-tax Act. If claim of assessee was contrary to Sub-sections (8) or(8B) of Section 32A, then not only additional but even investment allowance allowed originally was required to be withdrawn. But there is not a whisper about above in the orders of Assessing Officer or CIT (Appeals). There is nothing to support the arguments of the learned Departmental Representative.
Therefore, this plea based on amended provision cannot be permitted to be raised. Even otherwise the plea is without any substance as there is evidence in record that commercial production of assessee started in March, 1986. The investment allowance on modified figure is to be allowed on the basis of provisions of Section 43A of Income-tax Act which is clearly applicable in the year under consideration as admitted and agreed to by both the learned Members of the Tribunal.
15. It was further contended that assessee has not proved that investment allowance is being claimed on machinery and plant which is owned by the assessee and used for purposes of business. This plea is also without any substance. As stated above, depreciation on enhanced liability due to fluctuation on foreign exchange rate has been duly allowed to the assessee as is evidence from the chart produced by the assessee and referred to above. Therefore, there can be no dispute that machinery was owned by the assessee and used for purposes of business.
The contention raised is without any substance.
16. It was further claimed that provision of Section 43A is not applicable to the allowance of development rebate which is similar to investment allowance. If development rebate cannot be allowed, then on same reasoning investment allowance on additional modified cost cannot be allowed. This question has been considered by Courts and rejected.
In the Statute, different treatment is given to investment allowance and development rebate. Therefore, argument of learned Departmental Representative cannot be accepted.
Having considered all the arguments of learned Departmental Representative carefully, I do not find any force in them. Accordingly the order of learned Accountant Member is upheld and is required to be followed.
17. Before close, I would like to refer to certain pertinent observations made by the higher courts.
In the case of CIT v. Manick Sons 74 ITR 1, their Lordship of Supreme Court observed as under: ... the Income-tax Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power conferred by that subsection is wide, but it is still a judicial power which must be exercised in respect of matters that arise in the appeal and according to law.
The Tribunal in deciding an appeal before it must deal with questions of law and fact which arise out of the order of assessment made by the Income-tax Officer and the order of the Appellate Assistant Commissioner. It cannot assume powers which are inconsistent with the express provisions of the Act or its scheme.
In the case of Hindusthan Sanitary Ware and Industries Ltd. v. CIT.Calcutta 114 ITR 85, Justice Sabyasachi Mukharji as his- Lordship then was, observed as under: ...As the nature of the order to be passed in any particular case is a matter of discretion of the Tribunal. But these are judicial powers and will have to be exercised judicially. Judicial discretion must be governed by rule, not humour - it must be legal as well as regular. The grounds of such exercise must, therefore, appear either from the order or the reasonings of the Tribunal in its decision or in an appropriate case implicitly from the decision made by the Tribunal in the background of the contentions raised before it.
Their Lordship held on the facts and in the circumstances of the case the Tribunal was not justified in making order of remand. Finality of tax litigation is a cardinal principle to be borne in mind in the exercise of judicial discretion.
In the case of CIT v. Harikishan Jethalal Patel 168 ITR 472. Hon'ble Gujarat High Court through Justice A.M. Ahmadi as his Lordship then was, observed as under: ... It is obvious from the demand made before the Appellate Tribunal that the Revenue desires to examine the genuineness of the firm and the transaction on fresh facts, not the existing facts, for the existing facts do not even remotely create any doubt regarding the genuineness of the firm and/or the transaction. The question then is, whether, in these circumstances, it would be permissible to grant a second innings to the Revenue to introduce new facts for the purpose of deciding the genuineness of the firm and/or the transaction. The material on record at present does not create any doubt regarding the genuineness of the firm and/or the transaction.
What the Revenue desires is an opportunity for a shot in the dark without there being any foundational facts on record. A mere fishing inquiry is contemplated on remand in the hope of digging out material which would throw a doubt on the genuineness of the firm and/or the transaction.
18. With utmost respect, I say that above principles are also attracted to the case in hand. The matter should now be placed before regular Bench for disposal in accordance with law.
On difference of opinion between the Members who originally heard appeal, we hereby state the point on which we differ and refer the matter to the Hon'ble President of the Income Tax Appellate Tribunal for further appropriate action: Whether on the facts and in the circumstances of the case, the claim for investment allowance on account of additional liability arising to the assessee due to fluctuation in the exchange rate, is to be allowed or restored to the ld AO for fresh adjudication, when all the conditions of Section 32A stand complied with? As there is a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to the Hon'ble President of the Income Tax Appellate Tribunal with a request that the following question may be referred to a Third Member or pass such orders as the Hon'ble President may kindly decide: Whether on the facts and in the circumstances of the case, the claim of the assessee for Rs. 35,96,015/- can be accepted/recognised under Section 32A.1. This appeal by the assessee arises out of the order passed by the ld. CIT (A) on 7-2-1996 in relation to the assessment year 1989-90.
1. Under the facts and circumstances of the case Learned Commissioner of Income-tax (Appeals), Rajasthan - 2, Jaipur has erred in confirming the rejection of claim of assessee under Section 32-A to the extent of Rs. 35,96,015/-.
2. Under the facts and circumstances of the case, Learned Commissioner of Income-tax (Appeals), Rajasthan-2, Jaipur has erred in confirming the disallowance of that part of entertainment expenditure which pertains to the employees of the assessee company and is not covered by Section 37 (2A). Learned Commissioner of Income-tax (Appeals) has held these expenditure also as covered by Section 37 (2A) and ignored the past history of the case of allowing the expenditure pertaining to employees under Section 37(1).
3. Under the facts and circumstances of the case, Learned Commissioner of Income-tax (Appeals), Rajasthan-2, Jaipur has erred in not giving any direction in relation to ground No. 8 of the appeal before her relating to disallowance of liabilities for superannuation fund and gratuity Rs. 4,97,312/- and Rs. 1,62,548/- respectively.
3. Apropos the first ground, the ld. A.O noted that the assessee had claimed investment allowance amounting to 38,04,143/- on the investments made in plant and machinery. It was found that the allowance was claimed on the additions resulting from foreign exchange fluctuations. The ld. A.O. negatived the claim of the assessee under Section 32A for this amount. In the first appeal, the ld. CIT (A) allowed the partial relief to the tune of Rs. 2,08,128/- on account of fresh purchase of machinery worth Rs. 10,30,639/- during the year under consideration As regards the balance amount of Rs. 35,96,015/- representing the investment allowance oh account of foreign exchange fluctuations was not allowed.
4. Before us the ld. Counsel for me assessee contended that the claim was allowable as the assessee company was following mercantile system of accounting under the mandatory provisions of the Companies Act, 1956. While inviting our attention towards the provisions of Section 43 A read with Section 32A, it was urged that the claim was admissible.
Reliance was placed on several decisions in support of the claim for deduction. In the opposition, the ld. DR strongly supported the order passed by the first Appellate Authority. She placed reliance on the case of South India Shipping Corporation v. ACIT in support of her contention.
5. Having regard to the above submissions and perusal of materials on record in the light of precedents cited at the bar, it is obvious that the impugned claim for deduction under Section 32A arose on account of the fluctuations in the foreign currency rate, as a result of which, the amount payable got enhanced and resultantly the cost of assets was boosted up. There are several decisions entitling the assessee to investment allowance in such a situation where the cost of assets gets enhanced due to the fluctuations of exchange rate. The prominent amongst these decisions are 242 ITR 440 (Madras), 196 ITR, 447 (Kolkata). The only decision disentitling the assessee to investment allowance in such a situation was that of Hon'ble Gujrat High Court in case of CIT v. Windsor Foods Ltd. which has also been overruled by the Full bench judgment of the same High Court in a recent case of C I T v. Gujrat State Fertilizer Co. Ltd. (.
We further find that there is a decision of special bench of the Delhi Tribunal in the case of Oil & Natural Gas Corporation Limited v. D CIT taken note of in (2003) 85 ITD 85 (Cal) (TM) related upon by the ld AR, deciding the issue in favour of the assessee. The decision relied upon by the ld. DR is not applicable in view of the fact that it was rendered in the context of the development rebate for which an exception has been created in Section 43 A (2) itself providing that the provisions of Section 43A (I) shall not be considered in computing the actual cost of assessee's assets for the purpose of deduction on account of development rebate under Section 33. We find that the investment allowance has not been specifically excluded from the purview of Section 43A and accordingly the decision rendered in 116 ITR 819 (Madras) is confined only to the development rebate and hence cannot be applied to the investment allowance as is the case under consideration. There is no quarrel that the assessee had created investment allowance reserve in its books of account which has not been disputed by the authorities below. The assessee in its written submissions before the ld. C I T(A), copy placed before us on Page 1 of the Paper Book has clearly mentioned the fact of creation of necessary reserve in its account books. In view of this discussion, we overturn the finding in the impugned order to this extent. This ground is allowed.
6. The second ground relates to the claim for deduction from entertainment expenses. Briefly stated the facts of the case are that the assessee claimed a sum Rs. 40,219/- out of total entertainment expenses of Rs. 1,34,064/-, being 30% as attributable to the participation of the employees of the company in accompanying the guests for entertainment. No deduction was allowed by the ld. A.O. The ld. C I T (A) allowed deduction of Rs. 8,750/- on this count. After considering the rival submissions and perusing the relevant materials on record, it is seen that the Tribunal in assessee's own case for assessment year 1990-91 had allowed deduction at 20% on account of participation by the employees. Respectfully following the precedent, we allow the claim of the assessee partly by holding that the deduction should be restricted to 20%.
7. The last ground is directed against the order of the ld. C I T (A) in which the ground No. 8 raised by the assessee was not adjudicated upon. We restore this issue to the file of the ld. C I T(A) for disposal of this ground in accordance with law after allowing a reasonable opportunity of being heard to the assessee.
1. This appeal is filed by the assesses against the CIT(A)'s order dated 7.2.96 for the assessment year 1989-90. The assessee has come up before the Tribunal with three grounds of appeal. My ld. Brother has drafted the order. I agree with the order pertaining to ground Nos. 2 and 3. But I have different opinion in regard to ground No. 1, which runs as under: Under the facts and circumstances of the case ld. Commissioner -of Income-tax (Appeals), Rajasthan-2, Jaipur has erred in confirming the rejection or claim of assessee under Section 32-A to the extent of Rs. 35,96,015/- 2. From the record it appears that the assessee has claimed the investment allowance to the extent of Rs. 38,04,143/-. The AO has disallowed (para 3 of his order) the entire claim of the assessee on the ground mat increase in cost arising out of the foreign exchange fluctuation has not arisen in the year of installation of plant and machinery. Investment allowance can be allowed only in the year of its installation.
3. The CIT (A) has observed in his order that the provisions of Section 32A provided that the deduction shall be allowed in respect of the previous year in which the machinery or plant was installed or was first put to use or if pot to use in the immediately succeeding previous year, then in respect of that previous year, a sum by way of investment allowance equal to 20% of the actual cost of plant and machinery to the assessee will be allowed. These conditions have not been satisfied in the case of assessee and as such the claim of the assessee has been rightly denied by the AO. However, as regards the claim for investment allowance in respect of fresh purchase of machinery worth Rs. 10,30,639/-, investment allowance was allowed by the CIT (A) to the tune of Rs. 2,08,128/-. Finally, the CIT (A) has restricted the disallowance to Rs. 38,04,143 - 2,08,128 -Rs. 35,96,015/-.
4. My ld. Brother has deleted the said disallowance by heavily relying on the ratio laid down by Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Fertilizer Co. Ltd., 259 ITR 526. It was observed by ld Accountant Member mat the impugned claim for deduction under Section 32-A arose on account of the fluctuations in the foreign currency rate, as a result of which, the amount payable got enhanced and resultantly the cost of assets was boosted up. It was further observed that the provisions of Section 43A(1) shall not be considered in computing the actual cost of assessee's assets for the purpose of deduction on account of development rebate under Section 33. The investment allowance has not been specifically excluded from the provisions of Section 43A and accordingly the decision rendered in 116 TTR 819 (Madras) is confined only to development rebate and hence cannot be applied to the investment allowance as is the case under consideration.
5. In the case of Gujarat State Fertilizer Co. Ltd. (supra) on which the ld brother has heavily relied, the Hon'ble Gujarat High Court observed that - In view of Section 43A, the additional amounts went to enhance the actual cost of the plant and machinery. Once Section 43A provides that the figure of actual cost of an asset of the assessee stands modified in the previous year in which the exchange rate fluctuation took place, all other consequences would flow by adopting that year and the figure of actual cost as the starting point An assessee claiming investment allowance on such modified figure of the actual cost will be required to fulfil the requisite conditions like creation of reserve to the specified extent in me year of such change in the figure of actual cost.
Further, it was mentioned that the period of carry forward for the purpose of eight years shall have to be computed from the year in which the additional liability has been incurred. The assessee would be entitled to claim the additional investment allowance provided such foreign currency fluctuation takes place within the period of eight years from the expiry of the previous year in which the asset in question was first installed and first used as stated in Section 32A(3). It was also cautioned mat if the assessee had already availed the full investment allowance before the date of fluctuation on the basis of the cost earlier worked out (hen the assessee will not get any additional allowance on account of any fluctuation in the rate of foreign exchange which takes place after the expiry of the period of eight years.
6. Thus, the Hon'ble Gujarat High Court has laid down the condition as mentioned above regarding the schedule of payment etc. etc. These facts are not clear from the record in the instant case. Nowhere, the AO or the CIT(A) have discussed these aspects which are essential to consider the claim of the assessee, neither the schedule nor the enhanced value or the repayment schedule have been mentioned in the record. When it is so, then I am of the view that matter needs a fresh adjudication by the AO to examine the additional liability on (he date of actual payment of loan as per schedule etc. specially when CIT (A) has observed that "the conditions have not been satisfied in the case of appellant for the year under consideration. I am also of the view that after having the clear facts, occasion will arise regarding the applicability of the ratio laid down by higher court 7. Thus, I modify both the orders of the lower authorities and restore the order back to the AO to decide the claim of the assessee denovo after providing a reasonable opportunity to the assessee in the light of above discussion.