JUDGMENT
Mukul Shrawat, Judicial Member
1. The Assessee is in appeal arising out of the order of CIT(A)-I, Mumbai dated 22/3/93 and raised and raised two issues, first in respect of disallowance of carried forward losses of unabsorbed depreciation and investment allowance reserve under Section 115J(2) and second, claim of depreciation on foreign exchange rate difference.
2. Apropos Ground No. 1, the claim of the assessee was that deduction on account of depreciation and investment allowance should be allowed for the year under consideration only to the extent it was necessary to reduce the income to the level of the income computed under Section 115J. The A.O has not accepted the said claim of the assessee and made an observation that the provisions of Section 115J(2) of IT Act were explicit on the subject which would not effect the determination of amount in relation to the previous year to be carried forward to the subsequent years. Being aggrieved, assessee went in appeal and ld. CIT(A) has endorsed the view taken by the A.O. How the assessee in further. In appeal before us.
3. On behalf of the assessee ld. A.R., is Arathi (SIC) Vissanji appeared and stressed that this issue now stand covered by the decision of Gauhati High Court in the case of Lallacherra Tea, 239 ITR 611 and (SIC) Tea Estate 247 (SIC) in favour of the assessee wherein it was held that the amount over which tax paid under Section 115J could not be deducted from the carried forward (SIC).She has further added that the total income computed under the normal provisions of the IT Act should be reduces to the level of the income computed under Section 115J over which the assessee has paid tax and then the balance of unabsorbed amount of such allowance should be allowed to be carried forward for adjustments in subsequent years. She has further submitted that if intention of the legislature was to restrict the amount of carried forward of the allowance then it would have been enacted a deeming fiction in express words but as such no deeming (SIC) has been (SIC), hence it is erroneous to interpret Sub-section 2 of Section 115J which would lead to unjust result without any rational justification. She has also referred a decision of (SIC) Bench Mumbai. In ITA No. 4049/Bom/92 dated 31/12/2001 of /s Gujrat Propack Ltd.
4. On the other hand (SIC) has also cited a decision of (SIC) (India) Ltd., 242 ITR of Karnataka High Court and the (SIC) of Suryalatha Spinning Mills Ltd. 223 ITR 713 of Andhra Pradesh High Court.
5. After considering the rival submissions we are of the opinion that the issue raised has been discussed in detail by the Tribunal in the case of Locrom (Protective) Limited by ‘D’ Bench, Mumbai in ITA No. 4049/Bom/92 dated 6/2/2001. We have also found that the case of M/s. (SIC) Motors Ltd. ‘E’ Bench Mumbai bearing ITA No.3784 to 3786/Mum/95 as per order dated 4/2/2000 and in the case of M/s. Gujrat Propack Ltd. this issue has been decided in favour of the assessee. Though there are (SIC) decisions of the High Courts as cited above by both the parties but either interpretation is subject to controversy. However, after the insertion of 115J(3) the old provision of Section 115J(2) has again find place which indicates that the assessee is entitled for certain benefits. Moreover, it is a settled law that the decision which are beneficial to the assessee should be followed as it was held in the case of Vegetable Products, 88 ITR 192 and Kuluvalley Transport, 77 ITR 518. With these observations we hereby direct to allow the claim to the assessee by reversing the order of ld. CIT(A). Therefore, this issue is decided in favour of the assessee.
6. Apropos Ground No. 2, the A.O has per assessment order has referred that the assessee has claimed depreciation to the extent of Rs. 2,54,98,014/- which included depreciation on exchange difference in respect of loans taken for acquisition of plant and machinery. The assessee has informed that the exchange rate difference was accounted on actual repayment of the balance loan amount but the liability had been calculated at the rates prevailing on the last date of the previous year. On the other hand, the A.O was of the opinion that the liability in respect of exchange difference was not accrued on actual repayment and it was only a notional increase in assessee’s liability which could not be said to be crystalised liability and was only a contingent liability which was subject to fluctuation. He has further added that the depreciation could be allowed only on the increased cost calculated when the loan could be actually repaid and since the liability was not calculated on actual repayment but was only a notional calculation, therefore, no depreciation was held to be allowed on such increased liability for repayment of loan taken in foreign exchange for the purchase of plant and machinery. Being aggrieved, the assessee went in appeal.
7. In first appeal ld. CIT(A) has referred one of its own order in assessee’s case for the assessment year 88-89 dt. 27/1/93 and held that since the fats of the case for this year were identical, therefore, following the finding given in the said appeal order the contention of the assessee was rejected. Being aggrieved, the assessee is further in appeal.
8. On behalf of the assessee ld. A.R has narrate (SIC) facts and argued that the liability was accrued because the liability payable in foreign exchange currency on the last day of the accounting year has necessarily to be valued at the rate of exchange rate prevailing on that day and such rate being higher the difference was to be added to the actual cost of the asset since the assessee is maintaining mercantile system of account. In support she has cited the decision of Bombay High Court in the case of Padamje Pulp & Paper Mills, 210 ITR 97 and Karnataka High Court in the case of HMT Ltd. (No. 1), 203 ITR 811.
9. On behalf of the revenue ld. D.R has relied upon the decisions of the authorities below.
10. After considering the fats of the case and the decisions cited we are of the opinion that this issue is covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of Padamje Pulp & Paper Mills (supra) wherein it was held that in view of Section 43A the additional liability on account of exchange rate fluctuation with reference to the amount of loan outstanding on the last day of accounting period at the then prevailing exchange rate had to be added to the actual cost of the machinery for the purpose of computation of depreciation for that year. Respectfully following the decision of Hon’ble Bombay High Court, we decide this issue in favour of the assessee by reversing the order of ld. CIT(A).
11. In the result, the appeal of the assessee is allowed.
V.D. Wakharkar, Accountant Member
12. I have perused the order proposed by my ld. brother, I agree with the conclusion drawn by my ld. brother in para 10 of his order relating to ground No. 2. However, I am inclined to differ from the decision proposed relating to ground No. 1.
13. Sub-section (2) of Section 115J provides that nothing contained in Sub-section (1) shall effect determination of the amounts to be carried forwarded to the subsequent years in relation to unabsorbed depreciation, unabsorbed investment allowance and unabsorbed losses etc. The exact operation of this provision has been explained by certain illustrations given in para 36.5 of the CBDT Circular No. 495 dated 22.09.1987. These illustrations and the plain reading of the Section 115J(2) make it clear that the computation of unabsorbed reliefs to be carried forwarded remains unaffected by the provisions of Section 115(J). This means that the book profit, which is brought to tax does not go to increase the unabsorbed reliefs, which are carried forward.
14. In the present case the assessee wanted deduction on account of depreciation and investment allowance to be allowed to the extent it was necessary to reduce the income to the level of the income computed under Section 115J. This claim in my opinion was against the provisions of Section 115J.
15. The Hon’ble Andhra Pradesh High Court in the case of Suryalatha Spinning Mills Ltd. (1997) (223 ITR 713), held that notional income taxed under Section 115J(1) has to be ignored while carrying forward unabsorbed reliefs. The said decision of the Hon’ble Andhra Pradesh high Court reproduces the Boards Circular and illustrations given therein. The Hon’ble High Court came to the conclusion that Sub-section (2) of Section 115J cannot be interpreted to permit the assessee company to carry forward unabsorbed loses or unadjusted allowances of an amount equal to the taxed income. An identical ratio has been laid down by Hon’ble Karnataka High Court in the case of Widia reported at 242 ItR 678. A contrary view has been expressed by Hon’ble Guwahati High Court in the case of Lallacherla Tea Co. (1999) (239 ITR 611).
16. The Hon’ble Supreme Court in the case of Gurupada Magdum (129 ITR 440), observed at page 447 that even assuming that two interpretations are reasonably possible, the Court must prefer interpretation which advances the legislature intent. I would therefore, respectfully follows, the ratio laid down by the Hon’ble Andhra Pradesh High Court and Karnataka High Court and uphold the action of the Assessing Officer and the ld. CIT(A) on ground No. 1 relating to Section 115J(2).
17. The assessee’s appeal on ground No. 2 is accordingly rejected.