TMI Blog2008 (1) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... the increase in the liability on account of fluctuation in rate of foreign exchange in respect of foreign-exchange denominated capital liability had to be worked out on the basis of the rate of foreign exchange on the last date of the previous year. It was further pointed out that the position which emerges, from a large number of decisions of various High Courts is that the assessee is permitted to rework the actual cost and the depreciation, as the case may be, as a result of fluctuation in the rate of foreign exchange. Therefore, it was held that in the capital account cases, where the cost of asset has been either paid fully or in part prior to fluctuation in the rate of foreign exchange, the cost of the asset would correspondingly be permitted to be re-worked for the purposes of re-payment, depreciation or investment allowance, as the case may be, with reference to the rate prevailing on the last date of the financial year in which the fluctuation occurs. Respectfully following this decision, ground no. 1 is dismissed. 3. Ground no. 2 is against the finding of the learned CIT(A) in which deleted the addition of ₹ 33,61,975/-, made on account of product development exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the expenditure has to be considered from the consideration whether, it enlarged profit yielding capacity or increased the efficiency of the business? It was held that the expenditure was incurred to enable the assessee to remain competitive in the market and to retain its market share. Such an advantage does spill over to future also, but that is not conclusive of the matter for holding that the expenditure was capital in nature. Relying on the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Vs. CIT, 124 ITR 1, Alembic Chemical Works Co. Ltd. Vs. CIT, 177 ITR 377 and Bombay Navigation Co. (P) Ltd. Vs. CIT, 56 ITR 52, it was held that the expenditure was revenue in nature. When confronted with the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT, (1997) 225 ITR 802, the learned Counsel pointed out that in that case the benefit of the money raised by that assessee was available over a period of time and that is why the Hon'ble Court held that although the assessee incurred the liability to pay the discount in the year of issue of debentures, a benefit over a number of years was secured. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the treatment in the books if not conclusive of the matter as also whether the test of enduring benefit alone was also not conclusive in coming to a conclusion in the matter. The assessee company did not derive any benefit in the capital field by incurring the expenditure. Therefore, the expenditure was held to be revenue in nature. Further, he relied on the order of Hon'ble ITAT, Delhi Bench, Delhi in the case of Honda Siel Cars India Ltd., in IT A Nos. 3688 and 3689(Del)/2005 for assessment years 2001-02 and 2002-03 dated 21.7.2006, a copy of which was placed in paper book from pages 41 to 46. In that case, the expenditure of ₹ 63,07,099/- incurred by the assessee for launch of a new model of car was held to be revenue in nature. He also relied on the order of Hon'ble ITAT, Amritsar Bench, in the case of Dy. CIT Vs. Max India Ltd., (2006) 105 TTJ 1002 where product development expenses were held to be revenue in nature. He also relied on the order of Hon'ble ITAT, Delhi Bench C , Delhi in the case of Silicon Graphic Systems (I)(P) Ltd. Vs. Dy. CIT (2007) 106 TTJ 1153, in which it was held that expenditure on advertisement, publicity and trade shows wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. 7.1 In this connection, it is mentioned in the assessment order that the assessee had claimed loss of ₹ 15,48,650/- on cancellation of forward contract relating to foreign exchange liability. The assessee filed a lengthy explanation in this behalf. However, the loss was capital in nature, in view of the order of ITAT, New Delhi (Special Bench) in the case of Appollo Tyres Ltd. Vs. ACIT, 268 ITR (AT) page 1. It may be mentioned here that in that case, a foreign exchange forward contract was taken for the purpose of hedging any loss arising out of fluctuation in the rate of foreign exchange required for the purpose of import of machinery. Looking to the provision contained in section 43A, it was held that gain accruing on cancellation of the contract represented capital receipt. 7.2 Before the learned CIT(A), it was agitated that the contract was taken to minimize the risk arising out of fluctuation of the rate of foreign exchange in relation to import of raw-material, components and spare-parts. There was also import of capital goods amounting to ₹ 15.37 lakh, but there was no loss in respect of this transaction as arrangement was to make the payment on pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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