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August 5, 2022

Additional depreciation on capitalisation of forex loss is not allowed

by CA Shivam Jaiswal in Income Tax

Additional depreciation on capitalisation of forex loss is not allowed

Facts and Issues of the case

The assessee company is engaged in the manufacture of automobile components filed its return of income for the assessment year 2010-11 admitting total income of Rs. Nil. During financial year relevant to assessment year 2010-11, the assessee company claimed additional depreciation @ 20% u/s.32 (1) (iia) of the Act, in respect of new plant and machinery purchased and put to use. As per facts brought on record by the Assessing Officer, the assessee claims to have purchased new plant and machinery amounting to Rs,15,14,14,515/-, which includes a sum of Rs.3,16,52,752/- being value of exchange rate fluctuation loss on plant and machinery purchased during earlier years prior to financial year 2009-10 and capitalised u/s.43A of the Act. The Assessing Officer has allowed depreciation on new plant & machinery acquired and installed during the year, however, rejected additional depreciation claimed on capitalisation of exchange loss on plant & machinery purchased and installed during the earlier period.

Observations by the Court

The court has heard both the parties, perused material available on record and gone through orders of the authorities below. In this case, there is no dispute with regard to fact that the assessee has purchased new plant & machinery prior to financial year 2009-10 relevant to the assessment year 2010-11. The assessee had claimed additional depreciation contemplated u/s.32 (1) (iia) of the Act, in subsequent financial year on capitalised value of forex loss incurred on plant & machinery purchased during earlier financial year.

According to the assessee, loss incurred on foreign fluctuation loss incurred for acquisition of plant & machinery should be capitalised to cost of asset as per provisions of section 43A of the Act, and once loss incurred by the assessee goes to increase W.D.V of new plant & machinery, then, the assessee is entitled for additional depreciation as per provisions of section 32(1) (iia) of the Act.In this case, the assessee has claimed additional depreciation as per provisions of section 32(1)(iia) of the Act, on capitalised value of forex loss incurred on acquisition of plant & machinery during earlier financial years by taking clue from provisions of section 43A of the Act.

In our considered view, arguments of the assessee is misplaced, because as per provisions of section 32(1) (iia) of the Act, the assessee is entitled for additional depreciation only in the year of acquisition and installation of new plant & machinery, but not for subsequent financial years. Although, provisions of section 43A of the Act allows capitalisation of forex loss incurred on acquisition of plant & machinery outside India to cost of assets, but said additional cost can only be eligible for normal depreciation as per provisions of section 32(1) of the Act, but not for additional depreciation as contemplated under section 32(1) (iia) of the Act.

Therefore, we are of the considered view that the assessee is not entitled for additional depreciation on capitalised portion of forex loss incurred on plant & machinery acquired and installed during earlier financial year for the impugned assessment year.

Conclusion

Additional depreciation on capitalised portion of forex loss incurred on plant & machinery acquired and installed during earlier financial year for the current assessment year is not allowed.

Daeseung-Autoparts-India-Pvt.Ltd-Vs-ACIT-OSD-ITAT-Chennai

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