TaxTMI 
TaxTMI 
2009 (1) TMI 427
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....ting from increase in the liability to repay the foreign currency loans increased for purchase of such plant and machinery? 2. In this matter the assessment year involved is 1988-89. The learned Tribunal held that under section 43A of the said Act the claim of investment allowance is not allowable. Mr. Khaitan appearing in support of thisappeal drew our attention to section 43A which is quoted hereunder: "43A.(1) Notwithstanding anything contained in any other provisions of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such assets, there is an increase or reduction in....
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.... the court held that where a machinery is purchased from a foreign country on a deferred payment basis or by obtaining a loan repayable in foreign currency, any additional amount payable due to periodical fluctuation in the currency rate in respect of foreign currency forms part of the actual cost for allowing investment allowance. Section 43A(2) of the Income-tax Act, 1961, only excludes the provisions of section 43A(1). Thus, where the contract itself stipulates repayment in foreign currency, the actual cost of the assets must be computed on the value of the foreign currency. Therefore, the amount so paid for repayment, that is to say, any cost due to change in the value of foreign currency which actually goes in repaying the debt, must f....
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.... or not. Only if any additional liability is incurred on the date of repayment due to change in the rate of conversion, such liability will be added to the cost of the capital asset and benefit of depreciation and investment allowance will be allowed on such added cost." 4. Consequently, the court after taking into account the facts of the said case came to the conclusion that the assessee would be entitled to investment allowance on such sum as may be found to represent any additional liability on the date of actual payment of the loan arising due to fluctuation in the rate of conversion and the Income-tax Officer shall allow the assessee an opportunity of creating reserve in respect of such additional sums eligible for investment allowan....
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....ture of a capital nature referred to in clause (iv) of sub-section (1) of section 35 ; or (iii) the amount of expenditure of a capital nature referred to in section 35A ; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36 ; or (v) the cost of acquisition of a capital asset (nor being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:" 6. In our considered opinion the same has been amended in the light of the situat....
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....eld that there is nothing in the language of sub-section (1) of section 43A which makes it inapplicable to a case where the change in the magnitude of the liability consequent on a change in the rate of exchange occurs during the very previous year in which the asset has been acquired. Thus, the court concluded the question that section 43A provides also for a case in which the assessee has completely paid for the plant and machinery in foreign currency prior to the date of devaluation but the variation of exchange rate affects the liability of the assessee for repayment of the whole or part of the monies borrowed by him from any person, directly or indirectly, in any foreign currency for the purpose of acquiring the asset. In the circumsta....
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....cision subsequent thereto but the hon'ble Supreme Court held in favour of the assessee and allowed the appeal. 9. In the light of the said decision Mr. Khaitan submitted that the appellant is entitled to get the benefit of the said difference and should be permitted to get the investment allowance on the increased cost. Mr. Khaitan also cited the decisions reported in New India Industries Ltd. v. CIT [ 1993] 203 ITR 933 (Guj), Padamjee Pulp and Paper Mills Ltd. v. CIT [1994] 210 ITR 97 (Born), CIT v. Motor Industries Co. Ltd. (No. 2) [1998] 229 1TR 137 (Karn), Associated Bearing Co. Ltd. v. CIT [ 286 ITR 341 (Born), CIT v. Woodward Governor India P. Ltd. [2007] 294 hR 451 (Delhi). In all these cases this point has already been dealt with i....