The Supreme Court remanded the income tax department’s plea back to the Bombay High Court that had allowed Essar Shipping to claim depreciation on foreign exchange loans taken for ship purchase. A bench headed by Chief Justice SH Kapadia while disposing of the department’s plea observed that after the high court dismissed the department’s plea on the ground of delay, Parliament had amended the law vide Finance Act No.14 of 2010.
“In the circumstances, impugned order is set aside and the matter is remitted to the High Court to consider the question of condonation of delay in the light of the amended law. We make it clear that the department will take out Notice of Motion within eight weeks from and will satisfy the high court that there is sufficient cause for condonation of delay.”According to the department, the high court was not right in directing the assessing officer to allow the claim of Essar on account of depreciation on capitalisation of forex fluctuations in respect of foreign currency loans taken for purchase of ship.
Besides, it said the high court was not correct in directing it to allow the claim of the assessee on account of investment allowance on such fluctuations ignoring Section 43A (2) of the Income Tax Act.
Additional Solicitor General B Bhattacharya said Essar had filed tax returns for 1990 declaring net loss at Rs 10.54 crore. It had debited liability arising out of such fluctuations to the cost of ships, he said, adding that under Section 43A what is admissible is only increase in liability at the time of making payment toforeign exchange.
The petition stated that Essar had during 1990 purchased five ships and claimed investment allowance not only on the cost of ships on the date of commissioning but also on the forex fluctuations even after the date of commissioning to the year ending March 1990 on the ground that the liabilities were outstanding.
The actual cost of ships for the purpose for availing benefit for investment allowance was only the actual cost, which was Rs 107.20 crore, as on date of commissioning but addition of subsequent liabilities were not to be included, it added.
The petition said the cost of asset for investment allowance purpose was determined once for all at the time of acquisition and the cost cannot go beyond this.
The department had refused Essar’s claim for depreciation to the extent of Rs 2.14 crore on additional cost of ships amounting to Rs 7.80 crore in 1993. It had also held the assessee ineligible for investment allowance of Rs 1.26 crore.
The Commissioner of Income Tax (CIT) had partly allowed Essar’s appeal holding that such additions to the actual cost should be made only on the actual increase of expenditure incurred by the assessee. However, it didn’t see any justification to interfere withdepreciation calculation adopted by the department.
Besides, CIT held that the benefit of exchange fluctuations in the cost was allowed only by virtue of provision of Section 43A of the Act.
While ITAT allowed claim of deprecation and development allowance on account of forex fluctuations in August 2008, the high court dismissed the Revenue’s appeal on the ground of delay.
Meanwhile, the apex court also remanded back to the high court another petition filed by the department against bulk drug manufacturer Glaxo India Ltd
