ITA NO. 4333/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 4333/Del/2011
A.Y. : 2006-07
Asstt. Commissioner of Income Tax, vs. M/s Caparo Maturi Limited,
Circle 3(1), 101-104, 1st floor, Naurang House,
New Delhi KG Marg, New Delhi
(PAN/GIR NO. : AAACC6423G)
(Appellant ) (Respondent )
Assessee by : Sh. Veenu Aggarwal & Ms.
Aakansha Gosh, CA
Department by : Sh. K.V.K. Singh, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM
This appeal by the Revenue is directed against the order of the
Ld. Commissioner of Income Tax (Appeals)-IV, New Delhi dated
13.7.2011 pertaining to assessment year 2006-07.
2. The grounds raised read as under:-
i) In the facts and circumstances of the case, the Ld.
CIT(A) has erred in law and on facts in deleting
disallowance of unrealized profit on forward exchange
contract (original addition of ` 143241170/- later
reduced to ` 3338429/- vide order u/s. 154 dated
19.2.2010).
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ii) In the facts and circumstance of the case, the Ld.
CIT(A) has erred in law and on facts in deleting the
addition of ` 14,00,000/- on account of capitalization
of legal and professional charges.
iii) In the facts and circumstances of the case, the Ld.
CIT(A) has erred in law and on facts in deleting
addition of ` 196020/- on account of disallowance of
extra depreciation on computer peripherals/
accessories.
iv) The appellant craves leave for reserving the right to
amend, modify, alter, add or forego any ground(s) of
appeal at any time before or during the hearing of this
appeal.
3. Apropos first issue of deleting disallowance of unrealized profit
on forward exchange contract.
3.1 In this case the AO was of the opinion that the assessee had
unrealized profit on forwarded exchange contract and was accordingly
mentioned in the audit report. The assessee, was confronted on the
issue vide note sheet entry dated 12.11.2008 to which a reply was
submitted on 24.11.2009. In the reply, it was mentioned that in the
A.Y. 2004-05, the assessee had taken some foreign currency loan. This
loan was to be repaid, in foreign currency, after a certain period. To
avoid any loss from any fluctuation of rate, the assessee entered into a
forward contracts with the authorized dealer. Thus, the assessee was
now bound to repay the loan at the prefixed rate on the date of
repayment and in turn the authorized dealer was required to make the
payment of the original loan at the prevailing exchange rate. At the
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end of the instant financial year, the value of Indian currency went
down in comparison to the US dollar which was a foreign currency.
The liability in relation to the loan, therefore, increased. However, due
to the contract, the liability remain fixed. This was in accordance with
the Indian GAP. The ld. AO was dissatisfied with the reply of the
assessee. He was of the belief that since the accounting system
followed by the assessee was mercantile, a sum of ` 14,32,41,170/-
had to be taxed in the hands of the assessee and he proceeded to
make the said addition. Subsequently, in application u/s. 154, the
Assessing Officer retained the addition to ` 33,38,429/- only.
4. Before the Ld. Commissioner of Income Tax (A), it was submitted
that the assessee had covered its possible loss on account of
fluctuation of foreign exchange by hedging the same by way of
forward contract for the same. Assessee further referred to the
Notes on Accounts and submitted that while the assessee had earned
a notional gain of ` 33,38,429/-. It was articulated that this profit had
already been disclosed as `unrealised profit on forward exchange
contracts and financial instruments' in Schedule-VI. It was claimed
that the gain had been offered for tax by crediting into the P&L
account of the company. The reconciliation statement was also filed.
Considering the above, Ld. Commissioner of Income Tax (A) observed
that it is not in dispute that the sum of ` 33,38,429/- had been added
to the income of the assessee, by the Assessing Officer, as it was
following the mercantile system of accounting. Ld. Commissioner of
Income Tax (A) noted that assessee has claimed that the said income
has been reflected in the account filed with the P&L account. In
order to ascertain this fact, attention was drawn to Schedule I enclosed
to the Audited Report. From that Ld. Commissioner of Income Tax (A)
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observed that under `loans and advances', there is an entry which
indicate unrealized profit on forward exchange contracts and financial
instruments to the tune of ` 34,99,274/-. Ld. Commissioner of Income
Tax (A) further observed that it would be reasonable to conclude that
the sum of ` 33,38,429/- which has also been substantiated.
Accordingly, Ld. Commissioner of Income Tax (A) concluded that it is
obvious that the assessee has reflected the said amount in its
accounts and proper reconciliation has been done.
5. Against this order the Revenue is in appeal before us.
6. It has been submitted by the ld. Counsel of the assessee that the
unrealized profit on account of fluctuation in the rate of foreign
exchange on forward contract amounting to ` 33,38,429/- has already
been credited to the profit and loss account and therefore, offered for
tax by the company in its computation of income. Corresponding
entry is also disclosed as `Unrealized Profit on Forward Exchange
Contracts and Financial Instruments' in Schedule 6 "Loans and
Advances". Ld. Counsel of the assessee contended that addition on
account of the same would tantamount to double taxation since the
gain will doubly offered to tax, once by assessee himself and secondly,
by the Assessing Officer.
6.1 Ld. Departmental Representative could not controvert the
aforesaid submissions of the assessee.
7. We have carefully considered the submissions and perused the
records. We find that the Ld. Commissioner of Income Tax (A) has
given a finding that the assessee has already offered the impugned
amount in its audited accounts. Hence, again addition of the same
will lead to double taxation. We find considerable cogency in the
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ITA NO. 4333/Del/2011
submissions of the assessee in this regard. Accordingly, we uphold
the order of the Ld. Commissioner of Income Tax (A) and decide the
issue in favour of the assessee.
8. Apropos issue of deletion of addition of ` 14,00,000/- on account
of capitalization of legal and professional charges.
8.1 On this issue Assessing Officer noted that assessee has booked
the expenditure to the tune of ` 14,00,000/-. In this regard, assessee
was asked to submit the details. The expenditure was said to be
towards consolidated fees for the reading of papers, for settling the
draft for the conference ` 10,00,000/-; die modification CGS `
3,00,000/- and court fees ` 1,00,000/-. The Assessing Officer opined
that assessee had not filed any satisfactory reply justifying the
expenses. He was of the opinion that the same were capital in nature
and hence, not allowable u/s. 37(1). In this regard, Assessing Officer
placed reliance upon the case law of C.I.T. vs. Madras Auto Services (P)
Ltd. [1998] 233 ITR 468 (SC).
9. Before the Ld. Commissioner of Income Tax (A) it was submitted
that in so far as expenditure of ` 10,00,000/- towards consolidated fees
was concerned, it was paid to Advocates in respect of SLP filed before
the Supreme Court. It was further stated that as per Form 16A, the
Advocates had been paid net of ` 18,80,000/- out of which `
10,00,000/- had only been disallowed purely on adhoc basis. In so far
as Die Modification charges are concerned, it was submitted that the
amount of ` 3,00,000/- was paid to technical service providers for
`Die' being used by the company. This was a general and a regular
payment. So far as the payment of ` 1,00,000/- was concerned, it was
stated that this court fee was paid for the SLP as filed. There was no
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enduring benefit. Considering the aforesaid, Ld. Commissioner of
Income Tax (A) observed that it was crystal clear to him that the
payments were made by the assessee in the ordinary course of
business. There was nothing which would suggest that an asset had
come into place which was enduring in nature, considering the fact
that endurance per se is considered to be a determining factor. In
such circumstances, when the expenditure is regular and made
during the ordinary course of business, there is no way it can be taken
as capital in nature. In this regard, Ld. Commissioner of Income Tax
(A) referred to the Hon'ble Jurisdictional High Court decision in the case
of C.I.T. vs. JK Synthetics Ltd. (2009) 222 CTR (Del) 339. Considering
the above, Ld. Commissioner of Income Tax (A) held that the
expenditure of ` 14,00,000/- has to be taken as revenue in nature.
10. Against the above order the Revenue is in appeal before us.
11. We have heard the rival contentions in light of the material
produced and precedent relied upon. It was submitted by the ld.
Counsel of the assessee that the expenses were incurred towards fees
paid to the advocates in respect of Special Leave Petition filed before
the Supreme court of India, die modification charges and payment of
Court fees. Bills in this regard were already submitted to the
Assessing Officer. It was submitted that none of the expense resulted
into upbringing of any asset or giving an advantage for the enduring
benefit of the trade of the assessee. Accordingly, the disallowance of
professional charges by considering them as capital expenditure is not
justified. In this regard, assessee placed reliance upon the following
cases laws:-
- C.I.T. vs. JK Synthetics Ltd. (2009) 309 ITR 371 (Del.)
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- Airport Authority of India vs. C.I.T. (2012) 340 ITR 407
(Del. H.C.)
- C.I.T. vs. Asahi India Safety Glass Ltd. (2011) 203
Taxman 277 (Del. H.C.).
11.1 Ld. Departmental Representative on the other hand relied upon
the order of the Assessing Officer.
11.2 We have carefully considered the submissions. We find that the
expenditure in this regard has been incurred for fee paid to Advocates
in respect of SLP filed before the Supreme Court, die modification
charges and payment of court fees. In this regard, we agree with the
contention of the assessee which was already upheld by the Ld.
Commissioner of Income Tax (A) that assessee had not obtained
benefit of any enduring nature by way of this expenditure. Under the
circumstances, these expenditures which are incurred in the ordinary
course of business have to be allowed to the assessee and the same
cannot be disallowed by treating the same as capital in nature.
Accordingly, we do not find any infirmity in the order of the Ld.
Commissioner of Income Tax (A) and hence, we uphold the same.
12. Apropos issue of deleting the addition on account of disallowance
of extra depreciation on computer peripherals / accessories.
13. On this issue the assessee had claimed 60% as rate of
depreciation on computers. The assessee was confronted that why
the rate should not be reduced to 15%. Assessee's submission in this
regard was not accepted by the Assessing Officer. Assessing Officer
decided to allow depreciation of only 15%. Accordingly, he made the
addition of ` 1,96,020/-.
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14. Before the Ld. Commissioner of Income Tax (A), it was submitted
that the I.T. Rules provide for 60% depreciation on computers. It was
claimed that in fact the computer was an integral system. The
assessee in this regard further relied upon the Delhi Tribunal decision
in the case of ACIT vs. Container Corporation of India in ITA No. 2851
and 3680/Del/2007-Trib. And ITO vs. Samiran Majumdar 98 ITD 119
(Kol. Trib.). It was further claimed that in another group company case,
the Ld. Commissioner of Income Tax (A) had allowed depreciation to
the extent of 60%. Upon consideration of the above, Ld.
Commissioner of Income Tax (A) held that the issue is covered in
favour of the assessee by the Delhi High Court decision in the case of
C.I.T. vs. BSES Rajdhani Powers Ltd. in ITA No. 1266/2010 dated
31.8.2010. Considering the above decision of the Jurisdictional High
Court, the Ld. Commissioner of Income Tax (A) decided the issue in
favour of the assessee and held that the benefit of 60% of depreciation
should be given to the assessee.
15. Against the above order the Revenue is in appeal before us.
16. We have heard the rival contentions in light of the material
produced and precedent relied upon. We find that the Hon'ble
Jurisdictional High Court in the aforesaid case of C.I.T. vs. BSES
Rajdhani Powers Ltd., had held that computer accessories and
peripherals such as, printers, scanners and server etc. form an
integral part of the computer system as they cannot be used without
the computer. Hence, same are the part of the computer system
and entitled to depreciation at the higher rate of 60%. Accordingly,
considering the aforesaid precedent, we do not find any infirmity in the
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order of the Ld. Commissioner of Income Tax (A) and hence, we
uphold the same.
17. In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 06/7/2012.
Sd/- Sd/-
BEDI]
[U.B.S. BEDI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 06/7/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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