The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the assessee entitled to depreciation on exchange fluctuation in respect of assets acquired in India.
The assessee, M/s Paramount Communications Ltd., is a company engaged in manufacturing Power Cable, Jelly Filled Telephone Cables & Optical Fibre Cables. Its finished products are supplied mainly to Government Departments, Railway, DOT/BSNL/MTNL/PSU, MNCs & Other Companies. It filed its return of income on 29.09.2009 declaring nil income. During the course of assessment proceedings, the AO observed that the assessee suffered a total forex loss of Rs.30,21,30,000/- during the year out of which Rs.15,71,07,600/- pertained to non-depreciable assets of Rs.59,43,53,142/- including investment of Rs.24,82,23,001/-.
The AO held that the loss of Rs.12,50,03,577/- pertains to capital asset, it is required to be capitalized in the value of such assets. Further, it relates to non-depreciable assets and therefore benefit of any depreciation on this account also cannot be given to the assessee.
The CIT(A) while relying on various decisions observed that the foreign exchange fluctuation loss would be allowed as a deduction to the assessee if it is in respect of a transaction which had taken place during the relevant year and in respect of exchange rate difference on account of any transaction in the relevant year.
The department has contended that the CIT(A) has erred in upholding disallowance of depreciation of Rs.65,64,364/- related to exchange fluctuations in respect of assets acquired in India from the funds raised through foreign currency convertible bonds (FCCBs).
The Coram of Judicial Member Suchitra Kamble and Accountant Member R.K.Panda held that the assessee is entitled to depreciation relatable to exchange fluctuation in respect of assets acquired in India from the funds raised from FCCBs.
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