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2020 (12) TMI 526 - AT - Income TaxDisallowance of Forex loss pertaining to reinstatement of outstanding balance of External Commercial Borrowing (ECB) loan - whether the loss arising out of reinstatement of the ECB loan as on date of balance sheet can be added to the actual cost of asset for the purpose of determining the actual cost u/s. 43A? - CIT-A dismissed the appeal of the assessee by holding that in the absence of specific provisions in Income Tax Act, 1961, the same cannot be allowed either as revenue expenditure or cannot be added to the actual cost for the purpose of depreciation - whether such loss can be capitalized to the actual cost of the assets for the purpose of depreciation? - HELD THAT:- The principal objection for allowance of claim is that it is only notional loss and therefore the same cannot be recognised either for the purpose of allowance of revenue expenditure or capitalization. This objection is no longer tenable in law in the light of the dictum of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. [2009 (4) TMI 4 - SUPREME COURT] wherein the Hon'ble Apex Court had quoted with approval of the decision of M.P. Financial Corporation [1985 (12) TMI 36 - MADHYA PRADESH HIGH COURT] as approved by MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED [1997 (4) TMI 5 - SUPREME COURT] wherein it was held that the term "expenditure" covers even a case of loss even though the said amount has not gone out from the pocket of the assessee. Whether or not the increase or decrease in liability in the repayment of foreign loan should be taken into account to modify the figure of actual costs in the year in which the increase or decrease in liability arises on account of the fluctuation in the rate of exchange? - Provisions of section 43A have application only in the case of imported assets. In the present case, the assets were acquired in India, therefore, the conditions of making actual repayment foreign currency loan is not a condition for making necessary adjustment in the actual cost of the asset. Therefore, the general principles of law would be applicable. As relying on ARVIND MILLS LIMITED [1991 (12) TMI 1 - SUPREME COURT] we hold that the necessary adjustments should be made to the actual cost of assets on account of loss consequent to foreign currency fluctuation rate as there is no dispute that ECB loans are utilized for the purpose of acquisition of asset in India. Accordingly, we direct the Assessing Officer to allow necessary adjustment to the actual cost of the asset.
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