- (1.) THIS Income Tax Appeal of M/s Modi Zerox Ltd-assessee appellant under 260-A of the Income Tax Act, 1961 (in short, the Act) arises out of order dated 23.7.1999 passed by the Income-Tax Appellate Tribunal, Delhi Bench 'C', New Delhi in ITA No. 6444/Del of 1992 for the assessment year 1989-90. The Tribunal confirmed the order passed by the Appellate Authority.
(2.) THE assessee-appellant is a Public Limited Company. It is engaged in the business of manufacturing photocopying machines and consumables. For the assessment year 1989-90 the relevant accounting period was between 1.5.1987 to 31.3.1989 (i.e. 23 months). The assessee appellant declared income of Rs. 5, 90, 95, 734/-, with brought forward losses under various heads amounting to Rs. 8, 36, 62, 936/-. The income under Section 115-J of the Act was declared at Rs. 7, 66, 47, 675/-. The assessment was made under Section 143 (3) of the Act at profits of Rs. 7, 66, 47, 675/- under Section 115-J of the Act. The Deputy Commissioner of Income Tax (Assessment), Special Range, Meerut by his order dated 20.2.1992 computed net profits as per profit and loss account at Rs. 10, 08, 78, 955/-. After allowing depreciation and misc. deferred revenue expenses the net profit was calculated at Rs. 8, 97, 55, 440/-. The inadmissible expenses were computed at Rs. 1, 32, 07, 321/- and after allowing deductions of the claim of bad debts, custom duty, excise duty, duty disallowed in the previous year, Section 35D and depreciation and taking into account the brought forward loss at Rs. 6, 90, 92, 303/-, the appellant assessee was assessed at Nil income. The assessee-appellant preferred an appeal, which was allowed on 14.7.1992. The Deputy Commissioner of Income Tax (Assessment) Special Range-I, Meerut filed an appeal against the appellate order, which was partly allowed on 23.7.1999. The assessee has preferred this appeal on the following substantial questions of law:- "1. Whether the Tribunal was right in law in holding that the appellant was not entitled to claim of investment allowance under Section 32-A of the Act with reference to the actual cost of assets as enhanced by the sum of Rs. 48, 83, 326? 2. Whether the Tribunal was right in law in holding that the claim of investment allowance under Section 32-A read with Section 43-A of the Act was not allowable on increase in the actual cost of assets due to foreign exchange fluctuations taking place subsequent to the year (s) in which the assets had been installed and put to use? 3. Whether the Tribunal was right in law in holding that deduction under Section 80 HHC is to be allowed with reference to section 80 AB and not as per the calculation under Section 80 HHC (3) read with Explanation (iii) of Section 115-J of the Act? 4. Whether the Tribunal was right in not accepting the contention that in view of the overriding effect of section 115-J, section 80AB had no application in determining the amount deductible under Explanation (iii) of section 115-J of the Act? 5. Whether the Tribunal was right in law in holding that interest under section 234-B and 234-C was leviable on the appellant even though its taxable income was determined under section 115-J and it had no taxable income under the normal provisions of the Act in view of brought forward losses? Question nos. 1 and 2
(3.) SHRI Rupesh Jain, assisted by Shri R.R. Agarwal submits that the Assessing Officer did not accept the assessee's claim for investment allowance on increase in the actual cost of assets due to foreign exchange fluctuation taken place during the relevant previous year amounting to Rs. 48, 83, 326/- on the reasoning that Section 43A (2) of the Act restricts the grant of investment allowance on the increased cost of assets, due to foreign exchange fluctuation, and since the assets in respect of which fluctuation had already been taken place, were already installed and put to use in earlier years, there was no question of allowing the investment allowance on foreign exchange fluctuation taking place subsequently in the relevant previous years. The CIT (A) followed Southern Asbestos Cement Ltd vs. DCIT, 38 ITD 449 by Madras Tribunal and directed the AO to allow investment allowance on the actual cost of the assets arising out of fluctuation in the foreign exchange in the year under consideration, provided other formalities as per Act are complied with. The Tribunal reversed the order of CIT (A) and restored the order of AO on the ground that the issue was decided by Ahmedabad Special Bench of the Tribunal in the case of Lakhanpal International vs. ITO, 69 ITR 9 in which the decision of Andhra Pradesh High Court in CIT vs. Windsor Foods Ltd 99 Taxman 355 was followed. Shri Jain has relied upon a Full Bench decision of Gujarat High Court in CIT v. Gujarat State Fertilizers 259 ITR 526 (Guj) (FB); CIT v. Gujarat Siddhi Cement Ltd 307 ITR 393 (SC). He submits that the provisions of Section 32-A do not provide that investment allowance cannot be allowed beyond the object of acquisition/installation/first put to use, where the actual cost stands modified due to the application of Section 43-A. The Scheme of Section 32-A goes to show that an assessee can claim deduction of a higher amount of investment allowance on fulfillment of statutory conditions prescribed. The scheme of Section 32-A did not envisage relating back to the year of acquisition/installation/first user, but has provided for creation of reserve and allowance in a subsequent year, being aware of the settled legal position that reopening of accounts is unknown to income tax. Section 43-A overrides other provisions of the Act. It operates on an event, which happens after the deduction of acquisition of the estate and takes into account the increase/reduction in the liability for making payment towards the whole or part of the cost of the estate. The amount, by which the liability is increased or reduced, should go on to add or to reduce from the actual cost of the asset under Section 43 (1). Such changed figure is to be taken the actual cost of the asset. The increase or reduction in the liability has to take place only in the year of fluctuation and it does not relate back to the year of acquisition/installation/first user. The Full Bench of the Gujarat High Court, overruled the opinion expressed in CIT v. Windsor Foods Ltd (1999) 235 ITR 249 (Guj) on this point. The Full Bench observed at page 545 of the report as follows:- "The scope and ambit of sub-section (1) of section 43A has been made very clear by the Supreme Court in the case of CIT v. Arvind Mills Ltd (1992) 193 ITR 255, wherein the Supreme Court referred to the Notes on Clauses of the Finance Bill by which section 43-A was introduced and also the clarificatory letter dated January 4, 1967, issued by the Ministry of Finance. After considering all the relevant aspects, the apex court has held that the increase or decrease in liability arising on account of the fluctuation in the foreign exchange rate should be taken into account to modify the figure of actual cost and that such adjustment should be made in the year in which the increase or decrease in the liability arises on account of fluctuation in the rate of exchange. The apex court specifically observed that the adjusted actual cost is to be taken as the actual cost for all purposes other than for grant of development rebate. In our view, therefore, the decision of the apex court in CIT v. Arvind Mills Ltd (1992) 193 ITR 255, far from helping the case of the Revenue, supports the case of the assessee on the limited issue that additional investment allowance is allowable if the cost of the asset increases on account of fluctuation in foreign exchange rate in subsequent years. We also find considerable force in the submission of learned counsel for the assessee that sub-section (1) of section 43A also grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate even in case of some other one time allowances like those for scientific research under section 35 (1) (iv) or for acquisition of patent rights under section 35A." ;