M/S.Tube Investments Of India Ltd vs The Joint Commissioner Of Income Tax on 21 March, 2014
The learned counsel appearing of the assessee would contend that the only capital goods imported during 1995-96, is to a value of Rs.3,41,42,000/-, and during the current year was Rs.3,59,73,000/-, in all Rs.7,01,15,000/- and in such circumstances, the entire amount cannot be capitalized as per the provisions of Section 43A of the Act. The Assessing Officer pointed out that the assessee was trying to explain away his claim by way of an alternative arguments and it would be rather strange for the assessee to avail a foreign exchange loan and place such funds in intercorporate deposits and other investments and this stand was clearly contrary to the purpose for which the assessee applied for permission to the RBI and the purpose for which, the foreign exchange loan was approved by the RBI. After noticing the accounting policy of the assessee as spelt out in the printed balance sheet in Schedule 14 which stated that exchange difference arising from foreign currency transactions are dealt with in profit and loss account or capitalized, where they relate to fixed assets and plant and machinery acquired through foreign currency loans are capitalized at rate prevalent at the time of purchase, the Assessing Officer took note of the Director's report which pointed out that substantial modernization and expansion was made during the earlier year and the current year, construction work in respect of the export oriented unit was in progress and the trial production was expected to commence during June 1997 and full scale stabilization was expected by the end of 1996-97. Further, the assessee had commissioned its new tube plant at Shirwal, Maharashtra. As already pointed out in the notes to the accounts in paragraph 12 that capital work-in-progress includes exchange fluctuation of Rs.736.01 lakhs and interest Rs.35.50 lakhs and the increase in rupee liability on account of outstanding foreign currency loan utilized in respect of acquisition of plant and machinery based on the exchange rate applicable on the date of balance sheet is Rs.537.58 lakhs including capital work in progress. After taking into consideration, the total value of the imported machinery, the Assessing Officer held that it has to be capitalized as per Section 43A of the Act following the decision in the case of CIT vs. ELGI Rubber Products Ltd, (supra).