Foreign exchange fluctuation capitalization adjusts asset cost for exchange rate variation on payment.

Where exchange-rate movement alters an assessee's liability in Indian currency on payment for an imported business asset, the variation in liability is computed as A = B - C (B: payment in Indian currency at payment; C: liability in Indian currency at acquisition), excluding parts met by others. That variation is added to or deducted from the asset's tax-recognised value-actual cost, capital expenditure, or cost of acquisition-and, if a forward contract with an authorised dealer covers the liability, the contract rate governs computation for the covered portion.

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