TMI Blog2005 (6) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee in respect of the amount claimed by the assessee as addition to the cost of asset used for research and development purpose on account of exchange fluctuation for foreign currency loan taken for purchase of such assets and which remained outstanding on the last date of the previous year. On appeal by the assessee, the CIT(A) held that the deduction be allowed to the assessee only at the time of actual payment of the said liability. The assessee is presently in appeal before us. 4. Similar ground has been canvassed by the assessee in ground No.6 which is in relation to investment allowance. The said ground reads as under: "That the CIT(A) erred on facts and in law in not holding that investment allowance was admissible to the appellant in respect of addition to plant and machinery made on account of foreign exchange fluctuations, during the financial years 1990-91 to 1993-94, on foreign currency loan taken for plant and machinery installed and put to use before 1st April, 1990." 5. On this issue, the brief background is that the assessee claimed investment allowance after enhancing the actual cost of the asset on notional basis because of exchange rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o supported by the two recent decisions in the case of CIT vs. Gujarat State Fertilizers Co. Ltd. (2003) 179 CTR (Guj)(FB) 266 : (2003) 259 ITR 526 (Guj)(FB), and Southern Asbestos Cement Ltd. vs. CIT (2003) 179 CTR (Mad) 516 : (2003) 259 ITR 631 (Mad). 9. We have considered the rival submissions in the light of the material placed before us and also the precedents referred to. There is no dispute that the provisions of s. 43A are attracted in the instant case. Sec. 43A provides that where there is an increase or reduction in the liability of the assessee; as expressed in Indian currency for making a payment towards whole or part of the cost of assets or for repayment of moneys borrowed, the amount by which the liability is so increased or decreased during a previous year, shall be added or deducted from the actual cost of the asset. After considering the provisions of s. 43A, the Tribunal in ITA No. 5772/Del/1995 in the assessee's own case, came to the conclusion that investment allowance was allowable to the assessee on account of increased liability towards repayment of loan for the purchase of machinery in terms of fluctuation in the rate of foreign currency. The Tribunal, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of duty drawback and was covered under s. 28(iiic) of the Act and deduction under s. 80HHC was available in respect thereof." 11. In brief, the facts are that the assessee during the previous year had availed rebate of custom duty for import of components against advance licence issued under the Import and Export (Control) Act, 1947 used for manufacture of motorcycle amounting to Rs. 66,29,757. The assessee considered the aforesaid amount for the purposes of claiming deduction under s. 80HHC as profits and gains of business. The assessee contended before the AO that the said amount fell within s. 28(iiic) of the IT Act. However, the AO held that the aforesaid claim was not admissible under s. 28(iiic) as the same covered only custom or excise duty repaid or repayable as drawback against expenditure under Customs and Central Excise Duty Drawback Rules, 1971. The AO, therefore, denied benefit of deduction under s. 80HHC on the said amount by following the stand of the earlier years. It was held that the said benefit accruing to the assessee was not liable to be considered as income from business and the same was excluded while computing deduction under s. 80HHC. On appeal pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such benefit, it is relevant to note that the custom duty incurred by the assessee normally enters into the cost of production. The cost of production of the finished goods normally comprises of the cost of procurement of material, expenses on production and other statutory levies including custom duty incurred for manufacture of finished goods. In terms of the advance license scheme, the assessee would be eligible to import raw materials without payment of duty. If it is so done, the absence of custom duty would result in lower production costs, thereby enabling the assessee to achieve higher margin of profit. This higher margin of profit can, by no stretch of imagination, be construed as different from 'profits of business'. When expenditure on custom duty is considered as an expenditure so as to reduce the profits of business, the rebate or the absence of the same for whatever reasons, cannot be treated differently. The resultant gain would retain the character of the 'business income'. Thus, in case where the assessee gets a rebate on custom duty, thereby having lower cost of production and the sales are exported out ofIndia, the character of the resultant higher profit cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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