TaxTMI 
TaxTMI 
2018 (3) TMI 1821
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...., is against the principles of law on taxation. ii) As per Section 43A of the Act, the adjustment of the effect of foreign exchange fluctuation rate to the value of fixed assets need to be done only in respect of assets acquired from outside India, that too only on actual payment. In case any asset is purchased locally using foreign currency loan, the subsequent impact of any foreign exchange rate fluctuation on such loan cannot have an impact on the value of fixed assets. When an asset is put to use, the cost of the asset cannot be changed for any change in the value of loan taken for acquiring such asset, except in the case of imported assets, wherein specific treatment is mentioned in section 43A of the Act. iii) The Hon'ble Commissioner of Income Tax has agreed with the conclusion of the Assessing Officer that the special provisions mentioned in section 43A with reference to the assets acquired from outside India need to be applied for the assets acquired locally, needs to be reconsidered. iv) Foreign exchange rate fluctuations are notional figures for reinstating the foreign exchange loans on the date of reporting, to comply with the accounting s....
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....fter the amendment w.e.f. 01-04-2003, such adjustment can be made only when actual payment has been made towards the foreign liability during the year. The assessee company has not made any actual payments during the financial years relevant to asst. years 2004-05 and 2005-06, but has continued to make adjustments in accordance with the old provisions of sec. 43A of the Act. In the above circumstances, the assessee was asked to explain why the depreciation should not be restricted re-computing the WDV of the assets as discussed above. The assessee, vide its letter dated 10-10-2011, stated that the adjustment has been made in accordance with the accounting standard 11 issued by the Institute of Chartered Accountants of India. Though it is mandatory for the Companies to follow the accounting standards, for the purpose of Income tax Act, the provisions of sec. 43A would override the accounting standards. Therefore, based on the above discussion, the depreciation allowed on the following blocks are recomputed as under: Assets WDV as on 10.04.05 Addition Deletion Deprn. Allowed Deprn. allowable Above I80 days Below ....
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.... the case of CIT vs. Woodward Governor (P) Ltd., 210 CTR 354 wherein it was held that the year-end foreign exchange losses are of two different types: i) One in respect of deferred payment liability for assets acquired, and ii) The other in respect of foreign currency held on revenue account, or as a trading asset or as part of circulating capital of the business. The Delhi High Court found that AS-11 required year-end conversion of monetary items at closing foreign exchange rates, and that foreign exchange rate differences were required to be recognized as income or expenses of the period, except in cases of differences arising on repayment of liabilities incurred for purpose of acquiring fixed assets. According to the CIT(A), the Delhi High Court also noted the tests laid down by the Supreme Court in the cases of Sutlej Cotton Mills Ltd. vs. CIT 116 ITR 1 and CIT vs. Tata Locomotive & Engineering Co. Ltd., 60 ITR 405 and by the Bombay High Court in case of CIT vs. V.S. Dempo & Co. (P) Ltd. 206 ITR 291, for determining when foreign exchange losses or gains were of a capital nature, and when they were of a revenue nature. Thus the Delhi High Court held that the....
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....D 37000/- Int on Loan 16,14,510 - Dr SBI C/A Cr 22,69,110 Cr 6,54,600/- 04/01/2005 Part payment of principal repayment of USD 25,000/- 10,89,375/- 21/02/2005 Part payment of principal repayment of USD 1,00,000/- @ 43.85 43,85,250/- 02/03/2005 Part payment of principal repayment of USD 50,000/- @ 43.73 21,86,625/- 16/03/2005 Part payment of principal repayment of USD 75,000/- @ 43.71 32,78,125/- 13/04/2005 Payment of USD 14,400/- @ 43.98 6,33,448/- 05/10/2005 Term loan of NBO closed and balance transferred to UBI term loan of $35,35,309/- 16,76,67,700/- 3.5 The CIT(A) held that the adjustment in the cost of the assets made in A.Y. 2004-05 and 2005-06 that were added back again in the A.Y. 2006-07 as notional decrease in the value of assets was not correct. The CIT(A) held that even if the assessee had not acquired any asset from outside India, the assessee had taken foreign currency loan for acquiring assets, and the change in amount of the loan due to exchange rate fluctuation should be reflected in the cost of the asset, as these assets were acquired by using the foreign currency loan. Therefore, the ....
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..... The Ld. DR relied on the order of the Ld. CIT(A) 6. We have heard the rival contentions and perused the material on record. The question that arises for our consideration is that whether gain on account of foreign exchange fluctuation can be reduced from the cost of assets as per the provisions of section 43(1) of the I.T. Act. As per the provisions of section 43(1) of the Act, actual cost means actual cost of the capital assets of the assessee reduced by that portion of the cost of the capital assets as has been met directly or indirectly by any other person or authority. The section also has Explanations. However, the section nowhere specifies that any gain or loss on foreign currency loans acquired for purchase of indigenous assets will have to be reduced or added to the cost of assets. 6.1 In the case of CIT Vs. Tata Iron and Steel Co. Ltd. (1998) 231 ITR 285 (SC) where it was held that cost of an asset and cost of raising money for purchase of asset are two different and independent transactions and events subsequent to acquisition of assets cannot change price paid for it. Therefore, fluctuations in foreign exchange rate while repaying installments of foreign loan rai....
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....he Accounting Standards prescribed by the Institute of Chartered Accountants have to be followed. Therefore, the reasoning of the authorities, though the claim of the assessee is based on such Accounting Standards of the ICAI while deciding whether receipt of money is taxable or not, that it has to be decided in accordance with the provisions of law and not in accordance with the accounting practice, has no substance as there is no inconsistency between the said accounting practice and any provisions of the Act." 6.3 Further, the nature of expenditure being capital or revenue does not depend on the purpose for which foreign currency loan was obtained or on nature of ultimate utilization of loan amount. The same was also affirmed by Apex court in case of India Cements Limited vs. CIT (1966) (SC) 60 ITR 52. 6.4 It is to be noted that liability to pay or to provide for loss on account of foreign currency fluctuation does not arises at the time of obtaining/raising foreign currency loan but the same was incurred subsequently on devaluation of currency which is an independent event having no control over it by the assessee. The same currency fluctuation may result into gain or los....
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....y, due to foreign exchange balance sheet date which also correspond to treatment given in section 43A. The issue accordingly decided by apex court in the manner laid down in AS-11 (Revised 1994) at Para- 10. 6.7 The revised treatment provided at Para 13 of AS-11 (Revised 2003) is given below: "Exchange differences arising on the settlement of monetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or as expenses in the period in which they arise, with the exception of exchange differences dealt with in accordance with paragraph 15." 6.8 In view of the revision made in AS-11 in 2003, it can be said that treatment of foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets acquired through loan in foreign currency shall required to be given in profit and loss account. Said exchange loss should be allowed as revenue expenditure in view of amended AS-11 (2003). It may be noted that apex court had followed treatment of exchange loss or gain as per AS-11 (1994). In ....