TMI Blog2020 (10) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... mium of ₹ 1.9 lakhs and mark the premium paid over a period of three years and one-third of premium to the extent of ₹ 36,33,333/-. It cannot be said that the loan borrowed in Foreign currency is not even remotely connected with the cost of the asset when it is an admitted position that the loan was borrowed for acquiring a capital asset. Therefore, the assessee cannot be put to disadvantage on both grounds. So far as the claim of the assessee that the expenses is Revenue in nature, it was rejected by the Tribunal and we have confirmed the said decision M/S. CONTINUUM WIND ENERGE (INDIA) PVT. LTD. (FORMERLY KNOWN AS M/S. SURAJBARI WINDFARMS DEVELOPMENT PVT. LTD.) [ 2020 (10) TMI 420 - MADRAS HIGH COURT] . So far as the claim for depreciation, the Tribunal rightly took note of the facts of the case and observed that the loss suffered in Foreign Exchange Fluctuations would definitely increase the cost of the project to the extent of loss suffered by the assessee. Tribunal was right in allowing the plea of depreciation raised by the assessee. - Decided against the Revenue. - T. C. A. No. 345 of 2020 - - - Dated:- 16-10-2020 - THE HONOURABLE MR.JUSTICE T.S.SIV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative portion of the judgment reads as follows: 11. Though, on a cursory reading of the said judgment, it appears that it is a case arising under Section 43A of the Act as pointed out by the learned counsel appearing for the appellant, on a closer reading and more particularly the finding rendered in paragraph 8, the Hon'ble Supreme Court, before analyzing Section 43A of the Act, prefaced its judgment in the following manner : 8. Before analysing the Section quoted above, by way of preface, we need to state that exchange differences are required to be capitalized if the liabilities are incurred for acquiring the fixed asset, like plant and machinery. It is the purpose for which the loan is raised that is of prime significance. Whether the purpose of the loan is to finance the fixed asset or working capital is the question which one needs to answer and in order to ascertain that purpose, the facts and circumstances of the case, including the relevant loan agreement and the correspondence between the parties concerned are required to be looked into. In the present case, it appears that the relevant contract and correspondence has not been produced by the assessee. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in capitalizing the exchange fluctuation in respect of the imported machinery totaling ₹ 7,01,15,000/- by invoking Section 43A of the Act by placing reliance on the decision of this Court in the case of ELGI Rubber Products Ltd.(supra). In note 12 of the printed balance sheet, it has been stated that (a) capital work in progress includes exchange fluctuation of ₹ 736.01 lakhs and interest ₹ 35.50 lakhs respectively; (b) the increase in rupee liability on account of outstanding foreign currency loan utilized in respect of acquisition of plant and machinery based on the exchange rate applicable on the date of balance sheet is ₹ 537.58 lakhs (included in capital work in progress). As this relates to borrowed funds, the same has been considered in computing the provision for tax. By referring to note 12 of the printed balance sheet, the first Appellate Authority accepted the view of the Assessing Officer with regard to the applicability of Section 43A of the Act. The contention raised by the assessee that no capital goods were imported against the RBI approved loan and loan had been paid not from export proceeds was rejected, as being contrary to note 12 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough, because even a single significant detail may alter the entire aspect. It was pointed out that in deciding such cases, one should avoid the temptation to decide cases by matching the colour of one case against the colour of an another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. It was held that what is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relationship, inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. In the case of CIT v. Ashok Leyland Ltd. [1969] 72 ITR 137 (Mad), which was affirmed by the Hon'ble Supreme Court in CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549, it was pointed out that the clear-cut dichotomy cannot be laid down in the absence of a statutory definition of capital and revenue expenditure . It was held that the word capital connotes permanency and capital expenditure is, therefore, closely akin to the concept of securing something tangible or intangible property, corporeal or incorporeal rights, so that they could be of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired and the liability existed before the change in the exchange rate takes place. Adjustments in the cost are thus made depending on the fluctuation in the currency rate. Thus the cost of the equipment assumes significance in the matter of working out the depreciation allowance. Referring to the amendment to Section 43A by the Finance Act of 2002, the Supreme Court pointed out that Under the unamended section 43A, adjustment to the actual cost took place on the happening of change in the rate of exchange and the Section did not require as a condition that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation, whereas, under the amended section 43A, the adjustment in the actual cost is made on actual payment. Thus the Section applies where as a result of change in the exchange rate there is a reduction or increase in the liability, that the adjustment of increase or decrease in the liability relating to acquisition of asset on account of the exchange rate fluctuation is reflected as part of the actual cost of the asset acquired in foreign currency and the depreciation is to be allowed accordingly. 19. Learned Standing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of setting up of a project. Therefore, the loss, if any, is on the capital field and cannot be Revenue loss and considered the alternate submission of the assessee with regard to the prayer for depreciation of the enhanced value, in Paragraph 8 of the impugned order, the Tribunal allowed the plea of depreciation by assigning the following reasons. ''8. The assessee now claims alternatively that if it is capital loss, it will definitely go to increase the cost of the project, hence, the assessee shall be given depreciation on the enhanced value of asset. Admittedly, the loan was borrowed for setting up of plant for generation of wind energy, therefore, the loss suffered in foreign exchange fluctuation would definitely go to increase the cost of the project to the extent of loss suffered by the assessee. Hence, as rightly found by the Bangalore Bench of this Tribunal in JSW Steel Ltd., (supra), the assessee is entitled for depreciation on the enhanced value. Accordingly, while confirming the orders of the lower authorities that the loss suffered by the assessee is capital loss, the Assessing Officer is directed to grant depreciation to the assessee as applicable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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