Investment allowance allowed on exchange fluctuation liability linked to capital borrowing for equipment purchase

Investment allowance was held admissible where exchange fluctuation liability arose directly from repayment of the principal borrowed to acquire capital equipment. The Gujarat HC followed the binding Full Bench view and answered the reference in favour of the assessee, treating the fluctuation loss as sufficiently connected with the capital borrowing used for the equipment purchase. The question was therefore answered in the affirmative and against the Revenue.

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Issues: Whether the assessee was entitled to investment allowance in respect of liability arising from fluctuation in exchange rates relatable to repayment of the principal amount borrowed for purchase of capital equipment.

Analysis: The issue was answered by following the Full Bench view that where the exchange fluctuation liability is directly relatable to repayment of the principal amount borrowed for acquiring capital equipment, the assessee is entitled to investment allowance. The reference was decided in accordance with that binding view.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.

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