TaxTMI 
TaxTMI 
2020 (10) TMI 420
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.... "Whether, on the facts and circumstances of the case, the Tribunal was right in law in disallowing the amount of Rs. 36,33,333/- paid towards the premium for hedging foreign exchange fluctuations on loans taken for the purpose of appellant's business is a capital loss by treating it as capital expenditure under Section 43A of the Income Tax Act, 1961, when an asset was purchased within India ?" 4. The assessee is a company engaged in generation of wind energy. For the assessment year under consideration namely AY 2013- 14, the assessee filed a return of income on 31.11.2013 admitting loss to the tune of Rs. 36,45,17,202/-. Subsequently, the case was selected for scrutiny and a notice under Section 143(2) of the Act along with a questionnaire and thereafter, the assessment was completed. In this appeal, we are concerned about the disallowance of the premium paid on forward contract reasoning that the premium paid on forward contracts was to be considered as speculative transaction under Section 43(5) of the Act. 5. Aggrieved by the assessment order dated 05.2.2016, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-1, Chennai-34 [for bre....
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....Vs. Elecon Engineeing Co. Ltd. [reported in (2010) 322 ITR 0020]. 11. Though, on a cursory reading of the said judgment, it appears that it is a case arising under Section 43A of the Act as pointed out by the learned counsel appearing for the appellant, on a closer reading and more particularly the finding rendered in paragraph 8, the Hon'ble Supreme Court, before analyzing Section 43A of the Act, prefaced its judgment in the following manner : "8. Before analysing the Section quoted above, by way of preface, we need to state that exchange differences are required to be capitalized if the liabilities are incurred for acquiring the fixed asset, like plant and machinery. It is the purpose for which the loan is raised that is of prime significance. Whether the purpose of the loan is to finance the fixed asset or working capital is the question which one needs to answer and in order to ascertain that purpose, the facts and circumstances of the case, including the relevant loan agreement and the correspondence between the parties concerned are required to be looked into. In the present case, it appears that the relevant contract and correspondence has not been produced b....
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....in capitalizing the exchange fluctuation in respect of the imported machinery totaling Rs. 7,01,15,000/- by invoking Section 43A of the Act by placing reliance on the decision of this Court in the case of ELGI Rubber Products Ltd.(supra). In note 12 of the printed balance sheet, it has been stated that (a) capital work in progress includes exchange fluctuation of Rs. 736.01 lakhs and interest Rs. 35.50 lakhs respectively; (b) the increase in rupee liability on account of outstanding foreign currency loan utilized in respect of acquisition of plant and machinery based on the exchange rate applicable on the date of balance sheet is Rs. 537.58 lakhs (included in capital work in progress). As this relates to borrowed funds, the same has been considered in computing the provision for tax. By referring to note 12 of the printed balance sheet, the first Appellate Authority accepted the view of the Assessing Officer with regard to the applicability of Section 43A of the Act. The contention raised by the assessee that no capital goods were imported against the RBI approved loan and loan had been paid not from export proceeds was rejected, as being contrary to note 12 of the balance....
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.... because even a single significant detail may alter the entire aspect. It was pointed out that in deciding such cases, one should avoid the temptation to decide cases by matching the colour of one case against the colour of an another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. It was held that what is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relationship, inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. In the case of CIT v. Ashok Leyland Ltd. [1969] 72 ITR 137 (Mad), which was affirmed by the Hon'ble Supreme Court in CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549, it was pointed out that the clear-cut dichotomy cannot be laid down in the absence of a statutory definition of "capital" and "revenue expenditure". It was held that the word "capital" connotes permanency and capital expenditure is, therefore, closely akin to the concept of securing something tangible or intangible property, corporeal or incorporeal rights, so that they could be of a las....
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....asset is acquired and the liability existed before the change in the exchange rate takes place. Adjustments in the cost are thus made depending on the fluctuation in the currency rate. Thus the cost of the equipment assumes significance in the matter of working out the depreciation allowance. Referring to the amendment to Section 43A by the Finance Act of 2002, the Supreme Court pointed out that Under the unamended section 43A, adjustment to the actual cost took place on the happening of change in the rate of exchange and the Section did not require as a condition that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation, whereas, under the amended section 43A, the adjustment in the actual cost is made on actual payment. Thus the Section applies where as a result of change in the exchange rate there is a reduction or increase in the liability, that the adjustment of increase or decrease in the liability relating to acquisition of asset on account of the exchange rate fluctuation is reflected as part of the actual cost of the asset acquired in foreign currency and the depreciation is to be allowed accordingly. 19. Le....