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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, VICE- & SHRI G.MANJUNATHA
order of the learned CIT(A)-1, Chennai dated 29.03.2018 and pertains to assessment year 2014-15.
The assessee has raised following grounds of appeal:-
“1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.
2. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of premium paid on forward contracts of Rs.2,56,81,316/- to cover the exchange fluctuations on the repayment of foreign currency loans on the ground that it is capital in nature.
3. Without Prejudice to the above ground, if the expense/loss incurred on forward contracts is considered as a capital expenditure, the CIT(Appeal) ought to have allowed the same to be added to the cost of the concerned capital asset and allowed depreciation on the same following the Order of Hon’ble Income Tax Appellate Tribunal, Chennai in Appellant’s own case for 2013-14.”
The appeal filed by the assessee in has been disposed off by the Tribunal vide its order dated 20.11.2019 and decided ground no.2 taken by the assessee challenging disallowance of premium paid on forward contracts to cover the exchange fluctuations on the repayment of foreign currency loans as capital in nature.
However, by an inadvertent error, ground no.3 taken by the assessee making an alternative plea that in the event expenses/loss incurred on forward contract is considered as capital expenditure, then the same to be added to the cost of concerned capital asset and allow depreciation on the same, following order of the Tribunal in assessee’s own case for assessment year 2013-14. The assessee has filed Miscellaneous Application against order of the Tribunal dated 20.11.2019. The Tribunal vide its order dated 14.06.2021 in M.P. No.28/Chny/2020 recalled order of the Tribunal dated 20.11.2019, qua, ground no.3 to adjudicate the issue on merits.
Therefore, the present appeal is posted for hearing to adjudicate ground no.3 alone.
The learned AR for the assessee, at the time of hearing, submitted that issue of treatment of capital loss as capital in nature and added to the cost of asset for the purpose of depreciation is covered in favour of the assessee by the decision of Hon’ble Jurisdictional High Court of Madras in assessee’s own case for assessment year 2013-14 in Tax Appeal No.345 of 2020, where the Hon’ble High Court of Madras affirmed order of the Tribunal in allowing capitalization of loss/expenses on account of fluctuation in foreign currency on account of repayment of foreign currency loan and added back to the cost of concerned asset for the purpose of depreciation.
The learned DR, on the other hand, fairly agreed that the issue is squarely covered in favour of the assessee by the decision of Hon’ble High Court of Madras in assessee’s own case for the assessment year 2013-14.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that alternative claim made by the assessee to capitalize loss on foreign currency loan to concerned assets and claim of depreciation has been decided in favour of the assessee by the Tribunal in assessee’s own case for assessment year 2013-14 in dated 16.06.2017, where the Tribunal by following decision of ITAT., Bangalore Bench in the case of JSW Steel Ltd Vs. ACIT (2010)
133 TTJ 742 held that the assessee is entitled to depreciation on the enhanced value of cost of asset including capitalization of foreign currency loss incurred on fluctuation of currency in repayment of foreign currency loan. Further, the Hon’ble High Court of Madras has affirmed findings of the Tribunal in assessee’s own case for assessment year 2013-14 in TCA No.345 of 2020 dated 16.10.2020, where it has held that loss suffered in foreign currency fluctuations would definitely increase cost of project to the extent of loss suffered by the assessee and enhanced cost is eligible for depreciation as applicable under law. The relevant findings of the Hon’ble High Court of Madras are as under:-
“6. We are not agreeable with this contention raised by the Revenue on account of the fact that though initially the loan was borrowed by the assessee from State Bank of India in Indian Currency, subsequently, the loan was converted into a Foreign Currency loan and the assessee has paid the premium of Rs.1.9 lakhs and mark the premium paid over a period of three years and one-third of premium to the extent of Rs.36,33,333/-. Therefore, 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 in T.C.A.No.171 of 2019. 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. Therefore, We find that the Tribunal was right in allowing the plea of depreciation raised by the assessee.”
In this view of the matter and by respectively following the decision of Hon'ble Jurisdictional High Court of Madras in assessee’s own case for the assessment year 2013-14, we are of the considered view that the assessee succeeds in its alternative plea of capitalization of loss/expenses to the concerned asset and claim of depreciation. Therefore, we direct the Assessing Officer to allow claim of the assessee to capitalize loss incurred on fluctuation of currency in repayment of foreign currency loan to concerned capital asset and allow depreciation as per law.
In the result, appeal filed by the assessee is allowed in terms of our observations hereinabove.
Order pronounced in the open court on 9th August, 2021