1999 (4) TMI 63 - HC - Income Tax

Court allows investment allowance on increased cost due to exchange rate fluctuation

The court ruled in favor of the assessee, stating that the Tribunal erred in denying the investment allowance on the increased cost due to exchange rate ... Investment Allowance, Actual Cost, Foreign Exchange Issues Involved:1. Investment allowance u/s 32A on increased cost due to exchange rate fluctuation u/s 43A.2. Applicability of Supreme Court's decision in CIT v. Arvind Mills Ltd. to investment allowance.Summary:Issue 1: Investment Allowance u/s 32A on Increased Cost Due to Exchange Rate Fluctuation u/s 43AThe assessee-company, engaged in manufacturing telephone cables, acquired plant and machinery from outside India. For the assessment year 1989-90, the assessee increased the cost of plant and machinery by Rs. 25,00,493 due to exchange rate fluctuation as per section 43A and claimed depreciation and investment allowance on the increased cost. The Assessing Officer denied both claims due to no actual remittance to the foreign supplier. The Commissioner of Income-tax (Appeals) upheld this decision. The Tribunal allowed depreciation but denied investment allowance, citing section 43A(2) and the Supreme Court's decision in CIT v. Arvind Mills Ltd. The court found that the Tribunal erred in excluding investment allowance from the ambit of section 43A(1), as sub-section (2) specifically refers only to development rebate, not investment allowance. The court held that the increased liability should be added to the actual cost for all allowances, including investment allowance, except where explicitly excluded by law.Issue 2: Applicability of Supreme Court's Decision in CIT v. Arvind Mills Ltd. to Investment AllowanceThe Tribunal applied the Supreme Court's decision in CIT v. Arvind Mills Ltd., which dealt with depreciation allowance and development rebate, to deny investment allowance. The court noted that while section 43A(1) applies to all allowances based on adjusted actual cost, sub-section (2) excludes only development rebate, not investment allowance. The legislative history shows that investment allowance and development rebate are distinct provisions. The court emphasized that if the Legislature intended to exclude investment allowance from section 43A, it would have explicitly mentioned it in sub-section (2). The court concluded that the Tribunal's reliance on the Supreme Court's decision was misplaced, as the decision did not support excluding investment allowance from section 43A.Conclusion:The court answered the questions in the negative, in favor of the assessee and against the Revenue, stating that the Tribunal's decision to disallow investment allowance was incorrect. The court directed that a copy of the judgment be sent to the Income-tax Appellate Tribunal, Patna Bench, Patna.