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2020 (12) TMI 1190 - AT - Income TaxAddition on account of buy back/prepayment of foreign currency convertible bonds (FCCBs) at discount - The assessee had availed Foreign Currency Convertible Bonds (FCCBs) from Europeon Union aggregating US $36 millions - Reason to make the addition is that FCCBs were utilised in increasing the depreciable asset of the assessee company - HELD THAT:- The assessee satisfied the conditions of RBI to buy-back FCCBs. The assessee also proved on record that all the conditions of RBI in this regard have been made by assessee company. Section 41(1) of the I.T. Act would not apply because the amount of FCCBs was not allowed as expenditure or trading liability in earlier year - no addition could be made under section 28(iv) - The assessee is in manufacturing business and has admittedly utilised the FCCBs by increasing the asset of the assessee company and most of them being depreciable asset which fact is also mentioned by the A.O. in the assessment order. Since the FCCBs were raised to use the proceeds for setting-up of new project and this fact is admitted by the A.O. in the assessment order, therefore, assessee used the loan to purchase the capital asset for the company. ITAT, Delhi E-Bench, Delhi in the case of M/s. OK Play India Ltd., [2020 (2) TMI 416 - ITAT DELHI] considering the Judgment of the jurisdictional Delhi High Court in the case of Logitronics P. Ltd., vs., CIT (2011 (2) TMI 12 - DELHI HIGH COURT] and Judgment of Hon’ble Supreme Court in the case of CIT vs.Mahindra & Mahindra Ltd., (supra), decided the identical issue in favour of the assessee [2003 (1) TMI 71 - BOMBAY HIGH COURT]. Disallowance of depreciation - enhanced cost on account of exchange fluctuation in respect of assets acquired in India - HELD THAT:- Assessee purchased the machinery in India from the foreign funds through FCCBs which fact is not disputed by the authorities below. It is, therefore, clear that though 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 apply 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 of the case because option is given to assessee and it provided “Where long term foreign currency monetary items relates to acquisition of depreciable capital asset, the same shall be added/deducted from the cost of the asset and shall be depreciated accordingly over the balance life of the asset.”. It is not in dispute that assessee followed 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. No infirmity 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 same was reduced from the WDV and claim was made accordingly, therefore, assessee is following the AS-11 consistently and as such the same should not have been disputed by the authorities below. The Ld. D.R. has not pointed-out any infirmity in the Order of the Ld. CIT(A) in allowing the depreciation to the assessee as per Law. Addition of returned loss of the exempted unit u/s 10B - HELD THAT:- When the Tribunal has allowed similar claim of assessee in preceding A.Y. 2008-2009 and ultimately in group appeals, the Hon’ble Supreme Court has allowed the claim of assessee, the issue is covered by the aforesaid decisions in favour of the assessee which fact is also accepted by the Ld. D.R. Therefore, there is no infirmity in the Order of the Ld. CIT(A) in allowing the claim of assessee. Addition to the book profit under section 115JB under section 14A - HELD THAT:- As decided in VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] we answer the question referred to us in favour of assessee by holding that the computation under clause( f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962 Disallowance u/s 14A - HELD THAT:- In the case of Joint Investments Pvt. Ltd. [2015 (3) TMI 155 - DELHI HIGH COURT]the Hon’ble Delhi High Court held that “by no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure “incurred by assessee in relation to the tax exempt income.” This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.” It is, therefore, well settled Law that disallowance cannot exceed the exempt income. We, therefore, set aside the Orders of the authorities below and direct the A.O. to restrict the disallowance to ₹ 2,37,896/- only.
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