ITAT allows All Appeals of FMI Automotive Components on Foreign Exchange Loss, Capital Expenditure & Insurance Claims [Read Order]

The Income Tax Appellate Tribunal (ITAT) at Delhi Bench rejected an appeal filed by Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi dated May 30, 2024 for the Assessment Year 2017-18. The appeal was raised broadly on six grounds claiming that the NFAC has erred in law.

As per the Revenue, represented by Rajesh Kumar Dhanesta, NFAC wrongly allowed the appeal of the assessee by deleting various additions made by the Assessing Officer (AO) owing to reasons such as disallowance of foreign exchange loss on account of plant and machinery, static balance of capital creditors, and insurance claim being considered as revenue receipt.

The assessee company is a subsidiary of M/s Futaba Industrial Co. Ltd. During the course of assessment proceedings, the assessee was asked to explain the difference of Rs.591 Lakhs in the value of addition of Plant & Equipment as per Note 4 of Financial Statement and as per clause 18 of TAR. In its response, the assessee filed a reply informing that the difference of Rs.591 Lakhs is on account of Foreign Exchange fluctuation included while preparing the Fixed Assets Schedule for Tax Audit report. The assessee also made submissions substantiating exchange in fluctuation. Following this, the AO disallowed the same and added to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and Commissioner of Income Tax (Appeals) deleted the addition.

The Bench, consisting of Satbeer Singh Goadara (Judicial Member) and S. Rifaur Rahman (Accountant Member), took up the grievances as enumerated in the appeal one after the other and put forth observations subsequently. With respect to ground no. 1, it was observed that as per section 43A of the Income Tax Act, 1961, when there is increase in liability due to exchange fluctuation in the case of capital assets, the same has to be capitalized by increasing the value of fixed assets and assessee had acted accordingly. With respect to ground no. 2, the Bench observed that the assessee had already offered to tax and there is no requirement to disallow the same in this year. With respect to ground no. 3, it was observed that the expenses are only revenue in nature as the repairs and replacement expenditure do not create new asset or enhance the value of the existing assets.

Taking up ground nos. 4 and 5 together, the Bench opined that the Assessing Officer cannot resort to ad hoc disallowance without pointing out specific defects. It was further added that the books of the assessee were already audited and certified by a third party, and the same cannot be rejected without bringing on record the specific reason for resorting to adhoc disallowance.

After dismissing most grounds, it was lastly held with respect to ground no. 6 that if the assessee claimed the insurance which was reimbursed to the extent of damages, the same cannot be treated as income of the assessee. As a result, the findings of the Commissioner of Income Tax (Appeals) were sustained.

The appeal filed by the Revenue was dismissed conclusively.

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