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2023 (4) TMI 1176 - HC - Income TaxPenalty u/s 271(1)(c) - depreciation on account of the increase in the cost of machinery due to foreign currency fluctuation losses - assessee accepted the position that the foreign currency fluctuation losses had to be capitalized, and therefore, logically, depreciation qua the same had to be allowed - Tribunal sustained the view of CIT(A) as deleted the penalty - HELD THAT:- The record shows that the respondent/assessee could not have claimed the loss on account of foreign currency as deductable expenditure, in view of the provisions of Section 43A of the Act. This provision, broadly, mandates adjustment in the cost of an asset, depending on whether there was an increase or a reduction in the liability of the assessee at the time of making payment, on account of changes in the rate of exchange.It appears that this aspect emerged during scrutiny. Assessee, as rightly pointed out accepted this position, without demur, even before the assessment order was passed, and accordingly, claimed depreciation on the increased cost of plant and machinery ,qua which foreign currency fluctuation loss had been incurred. The record shows that the respondent/assessee had preferred the appeal with CIT(A) only vis-a-vis that aspect of the assessment order whereby depreciation had not been granted by the AO. As noted by the CIT(A) while dealing with the penalty order passed by the DCIT there was in fact no advantage accruing to the respondent/assessee in claiming foreign currency fluctuation loss as deductable expenditure, given the fact that it had unobserved losses. Clearly, assessee, as noted even by the CIT(A), could not have gained anything by claiming foreign currency fluctuation loss as deductable expenditure, as it would have only added to the existing burgeoning losses. At worst, in the instant case, the petitioner’s action could be construed as one where it sought to make a claim which was unsustainable in law. That by itself, in the given circumstance, would not call for imposition of penalty, as once the error was pointed out by the AO, the respondent/assessee made a course correction before the assessment order was passed. The law on the issue of penalty is a well traversed course, both by this court as well as by the Supreme Court. (See Commissioner of Income Tax, Ahmedabad v. Reliance Petroproducts Pvt. Ltd. [2010 (3) TMI 19 - SUPREME COURT] and Taneja Developers and Infrastructure Ltd. [2021 (4) TMI 275 - DELHI HIGH COURT]. It is only the application of law which has occurred in the facts and circumstances of the case. No substantial question of law
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