IN THE ITAT CHENNAI BENCH ‘C’
Deputy Commissioner of Income-tax (LTU)
Versus
Hyundai Motor India Ltd.
IT Appeal Nos. 1987 & 1988 (Mds.) of 2011
C.O. No. 43 (Mds.) of 2012
[ASSESSMENT YEARS 2004-05 & 2005-06]
SEPTEMBER 25, 2012
ORDER
Vikas Awasthy, Judicial Member
The present appeals, i.e., I. T. A. No. 1987/Mds/2011 relevant to the assessment year 2004-05 and I. T. A. No. 1988/Mds/2011 relevant to the assessment year 2005-06 have been filed by the Department impugning two separate orders of the Commissioner of Income-tax (Appeals), LTU, dated September 23, 2011 for the respective assessment years. The assessee has also filed cross-objection impugning the order of the Commissioner of Income-tax (Appeals) relevant to the assessment year 2005-06.
I. T. A. No. 1987/Mds/2011 :
2. The brief facts of the case are that the assessee-company is engaged in the manufacture and trading of passenger cars and vehicle components. For the assessment year 2004-05 the assessee filed its return of income on October 30, 2004 declaring total income of Rs. 5,08,72,14,630. The case of the assessee was selected for scrutiny and assessment under section 143(3) was completed on December 29, 2006 determining the total income at Rs.5,48,34,61,386.
3. Aggrieved against the assessment order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), LTU impugning the assessment order dated December 29, 2006. During the pendency of the said appeal, the Assessing Officer issued notice under section 148 on March 17, 2009. The Assessing Officer vide letter dated June 5, 2009 gave reasons for reopening the assessment which are reproduced hereunder :
“In the Schedule 4 (fixed asset) of the balance-sheet additions made during the year is Rs. 14,33,133 thousands. This is the net of Rs.1,44,897 thousands pertaining to gains from foreign exchange rate fluctuation on loans taken to acquire the fixed asset. The assessee has claimed a deduction of Rs. 2,42,957 thousands from the profit as per the profit and loss account in the computation statement towards research and development capital expenses under section 35.
Actual cost of addition during the year as per income-tax depreciation statement is Rs. 13,35,053 thousands and the assessee has deducted a sum of Rs. 1,46,04,383 from the actual cost of the asset while computing depreciation under section 32 whereas the assessee has made a profit of Rs. 1,44,897 thousands from foreign exchange rate fluctuation on loans taken to acquire the fixed assets. Hence, the assessee has not reduced the entire gain on fluctuation gain for the purpose of computation of depreciation as per the Income-tax Act. Further, if the profit on foreign exchange rate fluctuation on loans pertains to the fixed assets which is used for research and development purpose on which deduction under section 35 was claimed, as per section 43A of the Act, the assessee can claim deduction only to the extent of Rs. 11,26,65,180 (Rs. 24,29,57,797 – Rs. 13,02,92,617) under section 35 of the Income-tax Act, whereas the assessee has claimed entire research and development capital expenses as deduction including the gain on foreign exchange rate fluctuation.
2. It is seen from the profit and loss account that the assessee-company debited on account of Rs. 2,04,81,35,000 towards royalty and technology transfer fee. Out of the total amount, the royalty paid was to the tune of Rs. 1,93,97,95,716 as detailed below :
