TaxTMI 
TaxTMI 
2011 (11) TMI 467
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.... foreign currency rates?" 2. The respondent-assessee is a company and the assessment year involved is 1989-90. 3. The Assessing Officer while computing investment allowance under Section 32A of the Income Tax Act, 1961 (the Act, for short) has held that the addition of Rs.1,76,175/- to the plant and machinery under Section 43A for computing investment allowance on account of foreign exchange rate prevailing on the last date of the financial year was improper and not permissible under the Act. Foreign exchange rate fluctuations as stipulated under Section 43A cannot be taken into consideration for computing investment allowance. 4. On first appeal filed by the assessee, the order of the Assessing Officer was upheld. 5. On further ....
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....ench decision in Commissioner of Income Tax versus Gujarat State Fertilizers Company Limited, (2003) 259 ITR 526 in which it was held that investment allowance is allowable on actual cost or adjusted cost as enhanced due to fluctuation in exchange rate of the foreign currency. The ratio of the said judgment was examined by the Supreme Court in Gujarat Siddhi Cement Limited (supra). The specific issue examined was whether while computing investment allowance under Section 32A, foreign exchange fluctuation in terms of Section 43A can be taken into consideration and accordingly accounted. The Supreme Court referred to an earlier decision in Commissioner of Income Tax versus Arvind Mills Limited, (1992) 193 ITR 255 (SC), wherein it has been obs....
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....ay be that the Legislature intended to give a different treatment to development rebate from depreciation and other allowances because the allowance of development rebate can result in an assessee claiming allowances exceeding the original cost. It may be that the Legislature thought that, though development rebate was intended to promote development of industries, this could not be allowed at the cost of the foreign exchange resources of the country which are also depleted when there is an increase in liability due to devaluation of the currency. It is unnecessary to attribute any particular reason for the provision when the language of the section is otherwise plain and unambiguous. We do not think that, in face of the language of sub-sec....
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....n currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (1) of section 43, or the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35 or in section 35A or....
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....enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, 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 under this sub-section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein." After the substitution by the Finance Act, 2002, with effect from April 1, 2003, the position is quiet different. In the instant case, as rightly submitted by learned counsel for the Revenue, the Commissioner of Income-tax (Appeals) recorded a categorical finding....
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.... in the rate of exchange subsequent to the acquisition of assets in foreign currency. The section mandates that at any time there is change in the rate of exchange, the same may be given effect to by way of adjustment of the carrying cost of the fixed assets acquired in foreign currency. But for Section 43-A which corresponds to Para 10 of AS 11 such adjustment in the carrying amount of the fixed assets was not possible, particularly in the light of Section 43(1). The unamended Section 43-A nowhere required as condition precedent for making necessary adjustment in the carrying amount of the fixed asset that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation. The words used in the u....