Source: https://taxcaselaw.com/income_tax_case_laws/section-43a/punjab-haryana-h-c-prior-to-1-4-2003-exchange-fluctuation-contemplated-in-section-43a-was-allowable-irrespective-of-actual-payment/
Timestamp: 2019-04-21 18:47:41+00:00

Document:
Ajay Kumar Mittal And Jaspal Singh, JJ.
2. Briefly, the facts as narrated in the appeal necessary for adjudication of the controversy involved, may be noticed. The assessee company purchased certain machinery in the assessment year 1987-88. Due to fluctuation in the foreign exchange rates in the assessment years 1991-92 to 1993-94, liability of the assessee got enhanced. The assessee claimed investment allowance in respect of enhanced cost on account of currency fluctuations in the assessment year 1993-94. The Assessing Officer vide order dated 1.3.2002, Annexure A.1 disallowed the claim on the ground that in terms of section 32A of the Act, investment allowance was to be allowed on actual cost of plant and machinery in the year in which it was acquired or immediately succeeding previous year, if plant and machinery is first put to be used in the succeeding year. Aggrieved thereby, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who vide order dated 5.1.2007, Annexure A.2 deleted the disallowances made by the Assessing Officer. Not satisfied with the order passed by the CIT(A), the revenue filed an appeal before the ITAT. The ITAT vide order dated 29.1.2008, Annexure A.3 rejected the revenue’s appeal on the basis of order passed in assessee’s own case for the assessment year 1994-95 in ITA No.707/CHD/2000 dated 31.5.2006. Hence the present appeal.
3. Learned counsel for the revenue submitted that unless the amount was actually paid on account of exchange rate fluctuation by the assessee, benefit of the same should not have been allowed to the assessee as has been done by the ITAT. Relying upon decision of the Apex Court in CIT v. Lucas T. V.S. Ltd.  297 ITR 429/166 Taxman 164 (SC), Asstt. CIT v. Elecon Engg. Co. Ltd.  189 Taxman 83/3 taxmann.com 2 (SC) and Karnataka High Court in CIT v. Wipro Finance Ltd.  325 ITR 672/ 177 Taxman 521, it was urged that Section 43A of the Act was amended by Finance Act, 2002 w.e.f 1.4.2003 which was clarificatory in nature and, therefore, the same was applicable to assessment years prior thereto as well.
4. On the other hand, learned counsel for the assessee besides supporting the order passed by the ITAT, on the strength of decision of the Apex Court in CIT v. Woodward Governor India (P.) Ltd.  312 ITR 254/179 Taxman 326 (SC), this Court in CIT v. Arihant Cotsyn Ltd.  327 ITR 142/ 183 Taxman 76 (Punj. & Har.), Calcutta High Court in Century Enka Ltd v. Asstt. CIT  323 ITR 86/188 Taxman 382 and this Court in CIT v. Oswal Spg. & Wvg. Mills Ltd., ITA No.12 of 2005, decided on 8.5.2012, contended that in view of Section 43A of the Act as it existed at the relevant time, the assessee was entitled to the benefit thereunder.
5. After hearing learned counsel for the parties, we do not find any merit in the appeal.
“43A. Special provisions consequential to changes in rate of exchange of currency— (1) Notwithstanding anything contained in any other provision 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 asset, there is an increase or reduction in the liability of the assessee as expressed in Indian 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 the 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 in clause (ix) of sub section (1) of section 36, or, in the case of a capital asset (not being a capital asset referred to in section 50), the cost of acquisition thereof 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.
“43A. Special provisions consequential to changes in rate of exchange of currency Notwithstanding anything contained in any other provision of the Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment.
9. According to amended Section 43A of the Act, any addition to and deduction from the actual cost of a capital asset resulting from exchange fluctuation shall be only at the time of actual discharge of the liability and not to be adjusted with reference to amount payable and outstanding at the end of each year on the basis of mercantile system of accounting. It has further been provided that method of accountancy being followed by the assessee would not be relevant. Any adjustment which has already been allowed as a deduction prior to 1.4.2003 shall not be allowed again on account of exchange fluctuation at the time of actual payment.
11. As noticed above, the Hon’ble Apex Court in Woodward Governor India (P) Ltd’s case (supra) held that amendment to Section 43A by Finance Act, 2002 w.e.f 1.4.2003 was mandatory and not clarificatory. In other words, it would mean that it shall be prospectively effective from 1.4.2003 and the cases relating to earlier assessment years would be governed by unamended Section 43A of the Act. Once that is so, the present appeal which relates to the assessment year 1993-94, the same would be governed by the unamended provisions of Section 43A of the Act. It is held that the assessee was entitled to exchange rate fluctuation in respect of foreign currency in the assessment year in question as it was following mercantile system of accountancy.
12. Adverting to the judgments relied upon by learned counsel for the revenue, suffice it to notice that the judgments relied upon in Lucas T. V.S. Ltd,’s case (supra), Elecon Engineering Co. Ltd.’s case (supra) and Wipro Finance Ltd.’s case (supra) do not advance the case of the revenue being on individual fact situation involved therein.
13. Accordingly, the substantial question of law raised in this appeal is answered against the revenue.
14. Consequently, the appeal is dismissed.
This entry was posted in Section 32A, Section 43A and tagged 359 ITR, foreign exchange rate difference, In favour of Assessee, Punjab And Haryana High Court.

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