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2018 (3) TMI 1821 - AT - Income TaxGain on account of foreign exchange fluctuation reduced from the cost of assets as per the provisions of section 43(1) - scope of AS-11 - Reducing the claim of depreciation by concluding that the notional foreign exchange rate fluctuation, which is adjusted to the value affixed assets in the books of accounts to comply with the requirement of AS.11, need to be adjusted from the value of fixed assets for computing depreciation under Income Tax Rules also by applying the provisions of Section 43A of the Income Tax Act, even though the assets were not acquired from a country outside India, is against the principles of law on taxation - HELD THAT:- 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 view of revision made in AS-11, now treatment shall be as per revised AS-11 (2003). Exchange gain or loss on foreign currency fluctuations in respect of foreign currency loan acquired for acquisition of fixed asset should be allowed as revenue expenditure. However, in the Preamble of AS-11 (Revised 2003), it was stated that the Revised Standard supersedes AS-11 (1994) except that in respect of accounting for transactions in foreign currencies entered into by the reporting enterprise before the date of AS-11 (2004) comes into effect, AS 11 (1994) will continue to be applicable. In the present case, though the assessee took the plea before the lower authorities that AS-11 is applicable, the lower authorities has not at all examined it and straightaway applied the provisions of sec. 43A. In our opinion, sec. 43A is only relating to the foreign exchange rate fluctuation in respect of assets acquired from a country outside India by using foreign currency loans which is not applicable to the indigenous assets acquired out of foreign currency loans. Hence, the AO has to bifurcate the foreign exchange fluctuation in respect of foreign currency loan used for assets acquired outside India and the indigenous assets and apply provisions of sec. 43A or AS-11(2003) accordingly. Revised Standard supersedes AS 11 (1994), except that in respect of accounting for transactions in foreign currencies entered into by the assessee before the date of AS-11 (2004) comes into effect, AS-11 (1994) will continue to be applicable. With this observation we remit this issue to the file of the Assessing Officer for his fresh consideration.
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