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TMI Blog1991 (5) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order, did not accept the assessee's claim. On appeal, the Commissioner of Income-tax (Appeals) held that the Income-tax Officer was justified in rejecting the assessee's claim as no material had been placed by the assessee before him to justify the granting of investment allowance of Rs. 4,04,741, and the assessee had not created any reserve as prescribed in the Act. In the appeal filed by the assessee, the Tribunal held that the assessee was entitled to investment allowance. It directed the Income-tax Officer to give the assessee an opportunity of creating a reserve before allowing the investment allowance. At the hearing before us, Mr. Bajoria, learned counsel appearing for the assessee, has contended that, in this case, additional liability was incurred due to variation in the rate of exchange relating to foreign loan liability and, in view of the several judgments of this court, such liability has to be added to the cost of acquisition of the asset and investment allowance is allowable on the additional amount of liability. He has also submitted that the Tribunal was right in directing the Income.-tax Officer to give the assessee an opportunity of creating a reserve be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such added cost. The provisions of section 43A of the Income-tax Act, 1961, would apply in a case where an assessee has acquired any capital asset from abroad for the purpose of his business or profession, on credit or on deferred payment terms, or against a loan in foreign currency, and the whole or a part of the cost of such asset or of the loan in foreign currency is outstanding as on the date on which there is a change in the rate of exchange of currency. In such a case, where, in consequence of the change in the rate of exchange of currency, there is an increase or reduction in the assessee's liability as expressed in Indian currency for payment of the whole or a part of the cost of the asset or of the loan in foreign currency, the original actual cost, to the assessee of the machinery or plant or other capital asset, is required to be increased or reduced, as the case may be. A contention was raised as to whether, for the purpose of determining the actual cost of an asset on which depreciation allowance is admissible and also its written down value, depreciation allowance alone or depreciation as well as development rebate would be calculated with reference to the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrency that additional liability may arise depending on the rate of conversion. If such an additional liability, in the course of conversion of the Indian currency into foreign currency, is treated as a liability arising in the course of carrying on of the business and is allowed as a deduction, the question of such liability being added to the cost of the asset and allowing depreciation or investment allowance on such additional liability may not arise at all. The next question is with regard to the creation of the reserve for allowing the investment allowance. One of the conditions for allowance of the investment allowance as contained in section 32A(4)(ii) is that the assessee has created an "investment allowance reserve" equal to 75 per cent. of the amount of investment allowance to be actually allowed. Such a reserve is created by debiting such amount in the profit and loss account of any previous year in respect of which the deduction is to be allowed under section 32A(3) or any earlier previous year not being a previous year earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee came up by way of a special leave petition against the order of rectification contending that (i) it would be futile to proceed by way of appeal and reference since the authorities and the High Court would feel bound by [1989] 177 ITR 193 ; (ii) that the words "75 per cent. of the investment allowance actually allowed" in section 32A(4)(ii) meant that the reserve had to be created in the year when the investment allowance was to be allowed and not in any other year where, due to loss, the investment allowance was not allowed ; and (iii) that, to this extent, the decision in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193, needed reconsideration. Thereafter, the Supreme Court, by an order dated March 19, 1990, has granted special leave and directed the resultant appeal to be listed before a larger Bench of three judges. The Finance Act, 1990, has amended section 32A(ii) retrospectively from April 1, 1976, i.e., from the assessment year 1976-77. It provides that the investment allowance reserve account for an amount equal to 75 per cent. of the investment allowance to be actually allowed is to be created by debiting such amount to the profit and loss account of any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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