C I T vs. M/S PUNJAB ANAND INDUS.

ITA/583/2008HC Punjab & HaryanaPHHC01080589200826 July 2013Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE JASPAL SINGH8 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Punjab Anand Industries, purchased machinery in assessment year 1987-88. Due to foreign exchange rate fluctuations between assessment years 1991-92 and 1993-94, the assessee's liability for the cost of this machinery increased. The assessee claimed investment allowance under Section 32A for this enhanced cost in assessment year 1993-94. The Assessing Officer disallowed the claim, stating that investment allowance is allowed on the actual cost in the year of acquisition or the immediately succeeding year. The CIT(A) deleted the disallowance. The revenue appealed to the ITAT, which upheld the CIT(A)'s order. The revenue has now appealed to the High Court against the ITAT's order for assessment year 1993-94.

What did the High Court hold?

The High Court held that the appeal raised a substantial question of law concerning the allowability of investment allowance on additional liability due to foreign exchange fluctuations. The Court noted that Section 43A of the Act, as it existed prior to its amendment by the Finance Act, 2002, did not require actual payment of the increased liability as a condition precedent for adjustment. The Apex Court in Woodward Governor India (P) Limited's case had held that the amendment by the Finance Act, 2002, was amendatory and not clarificatory, meaning it applied prospectively from 1.4.2003. Therefore, for the assessment year 1993-94, the unamended Section 43A was applicable. The assessee, following the mercantile system of accountancy, was entitled to the benefit of exchange rate fluctuation. The judgments relied upon by the revenue were distinguished based on their individual fact situations. Accordingly, the substantial question of law was answered against the revenue, and the appeal was dismissed.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was right in law in allowing deduction under Section 32A regarding the additional liability incurred towards the cost of plant and machinery due to foreign exchange rate fluctuation subsequent to the year of installation. (Mixed question of law and fact, concerning Section 32A and Section 43A of the Income Tax Act, 1961). Assessee's contentions: Relied on Section 43A as it existed at the relevant time, citing Apex Court in Commissioner of Income Tax vs. Woodward Governor India (P) Limited, this Court in CIT v. Arihant Cotsyn Limited, Calcutta High Court in Century Enka Ltd v. Assistant, and this Court in Commissioner of Income Tax, Ludhiana II v. M/s Oswal Spinning and Weaving Mills Limited. Revenue's contentions: Argued that the benefit should not be allowed unless the amount was actually paid on account of exchange rate fluctuation. Relied on Apex Court in Commissioner of Income Tax v. Lucas T. V.S.Limited, Assistant Commissioner of Income Tax v. Elecon Engineering Co. Limited, and Karnataka High Court in Commissioner of Income Tax. v. Wipro Finance Limited, contending that Section 43A, amended by Finance Act, 2002 w.e.f. 1.4.2003, was clarificatory and applicable retrospectively.

Which sections of the Income-tax Act were involved?

Section 32A,Section 43A,Section 43(1),Section 35,Section 35A,Section 36(1)(ix),Section 50,Section 48,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 583 of 2008 Date of decision: 26.7.2013 Commissioner of Income Tax-II, Chandigarh -----Appellant Vs. M/s Punjab Anand Industries, Mohali ----Respondent CORAM:- HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present:- Ms. Urvashi Dhugga, Senior Panel Counsel for the appellant. Ms. Radhika Suri, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 29.1.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (for brevity, “the ITAT”) in ITA No.293/Chandi/2007, for the assessment year 1993-94, claiming following substantial question of law:- “Whether on the facts and circumstances of the case the Hon'ble Tribunal was right in law in allowing deduction under Section 32A with regard to the additional liability incurred towards the cost of the plant and machinery on account of fluctuation in foreign exchange rate subsequent to the year in which plant and machinery has been installed.” 2.

The order continues below.

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