The Commissioner Of Income Tax v. M/S National Hydroelectric Power

ITA No. 274 of 2006 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH The Commissioner of Income Tax Versus M/s National Hydroelectric Power ITA No. 274 of 2006 Date of Decision: 17.12.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant.Mr. Piyush Kaushik, Advocate for the respondent. ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 against the order of IncomeTax Appellate Tribunal, Delhi Bench 'F' passed in ITA No.1496/Delh/2003 dated 27.10.2004 for the assessment year 1998-99,claiming following substantial question of law:- “Whether Hon'ble ITAT has erred in law in confirmingthe order of the CIT (A) in deleting the disallowanceof depreciation of Rs.585.75 lacs claimed by theassessee on capitalization of the effect of thefluctuation in the rate of foreign exchange on theoutstanding liability, though no amount was actually paid during the year?” 2.The Assessing Officer partly disallowed the claim fordepreciation calculated on the basis of increased value of the assets ofthe assessee on account of fluctuation of foreign exchange rates. Onappeal, the CIT(A) upheld the plea of the assessee as follows:- “4.3From the above judgment of the Special Benchof Delhi, ITAT, it is clear that change in the value ofasset because of fluctuation in foreign currency is nota contingent liability. The appellant company isfollowing mercantile system of accounting andfollowing the accounting standard issued by ICAJ.The Chamera project has already started theoperation and the assets of the project are in use.Therefore, keeping the aforesaid facts and the legalposition as enunciated by Delhi ITAT (Special Bench)the AO was not justified in disallowing the claim ofthe appellant and accordingly the disallowance ofRs.585.75 lacs made by the AO is hereby deleted.The appellant succeeds on this ground.” The Tribunal affirmed the said finding. 3.We have heard learned counsel for the parties. 4.Learned counsel for the revenue does not dispute that theview taken by the Tribunal is in consonance with the view taken by theHon'ble Supreme Court in Commissioner of Income-Tax v.Woodward Governor India P. Ltd. [2009] 312 ITR 254(SC) and Oiland Natural Gas Corporation Ltd. v. Commissioner of Income-Tax ITA No. 274 of 2006 [2010] 322 ITR 180 (SC). Following earlier judgment in CIT v. ArvindMills Ltd. [1992] 193 ITR 255 (SC), it was held that increase ordecrease in liability in the repayment of foreign loan should be takeninto account to modify the figure of actual cost in the year in which theincrease or decrease in liability arises on account of fluctuation in therate of exchange. This has to be done irrespective of the date of actualpayment in foreign currency. 5.In view of above, the question claimed on behalf of therevenue is answered against the revenue. 6.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 17, 2010gbs (AJAY KUMAR MITTAL)JUDGE