Allahabad H.C : the ITAT is legally justified in allowing the claim of depreciation of Rs.59,48,096/- on Foreign Exchange Fluctuation without appreciating the provisions of Section 43A of the Act and the fact that the Foreign Exchange Fluctuation showed notional fluctuation and varied from year to year

High Court Of Allahabad

CIT vs. Phonex Lamps India Ltd.

Section 43A, 260-A

Asst. Year 1993-94

Bharati Sapru & Neeraj Tiwari, JJ.

Income Tax Appeal No. 246 of 2007

19th February, 2018

Counsel Appeared:

Shubham Agarwal for the Appellant.: Sujeet Kumar, Shashwat Bajpai for the Respondent

BHARATI SAPRU & NEERAJ TIWARI, JJ.

Heard Sri Shubham Agrawal, learned Counsel for the revenue and Dr. Shashwat Bajpai, Advocate assisted by Sri Sujeet Kumar, learned Counsel for the respondent-assessee.

This is an appeal filed by the revenue under Section 260-A of the Income Tax Act, 1961 against an order of the Income Tax
Appellate Tribunal dated 28.04.2006 for the assessment year 1993

94. The questions of law as framed are quoted hereunder:

“1. Whether on the facts and circumstances of the case, the ITAT is legally justified in allowing the claim of depreciation of Rs.59,48,096/- on Foreign Exchange Fluctuation without appreciating the provisions of Section 43A of the Act and the fact that the Foreign Exchange Fluctuation showed notional fluctuation and varied from year to year ?

Whether on the facts and circumstances of the case, the ITAT is legally justified in law in allowing the relief under Section 35D(2)(C)(iv) of the Act, when no such claim was made by the assessee before the Assessing Officer during the assessment proceedings in as much as the expenses claimed were not incurred in connection with the installation of Plant and Machinery or construction of the infrastructure of the Company ?

Whether on the fact and circumstances of the case, the ITAT is legally justified in law in allowing capitalization of expenses, which were incurred on advertisement, salary and wages, travelling and conveyance and staff welfare expenses and not incurred in connection with installation of Plant and Machinery or constructions of infrastructure of Company ?”

Three Substantial Questions of law were framed in this appeal while ultimately it is only question no.3, which is being pressed for reasons that question no.1 has already been decided against the revenue by way of a judgement in the case of CIT v. Woodward Governor India (P) Ltd. reported in (2009) 312 ITR 254 (SC). The question no.2 has also been decided against the revenue by way of several judgements all over India including the case of Autolite India Ltd. vs. CIT reported in (2003) 264 ITR 117 (Raj) in which it has been categorically held that the expenses incurred on issue of public subscription of shares or of debentures of the company, any payment made against commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus would be eligible for benefit of Section 35D. The questions no.1 & 2 are, therefore, decided against the revenue and in favour of the assessee.

Insofar as the question no.3 is concerned, there are concurrent judgements of the CIT as well as that of the Tribunal that any amounts expended by an assessee, which are pre-operative in nature and are in fact made prior to coming in or the existence of the business itself would no doubt be a capital expenditure and, therefore, both the CIT as well as the Tribunal have allowed the assessee to capitalise the expenses made prior to the existence or the formation of the Company and have allowed depreciation on them as capital expenses and rightly so on facts there is no doubt that these amounts, which were expended by the assessee were prior to the setting up of the business and prior to the date when the business ran or started making profits.

Accordingly, question no.3 is also answered in favour of the assessee and against the revenue. In view of the above, this appeal is dismissed. No costs.

[Citation : 406 ITR 550]