TMI Blog2020 (12) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of designs and drawings, manufacture mechanical seals and sealing systems. The return of income for the assessment year 2012-13 was filed on 30.11.2012 declaring a loss of ₹ 10,07,16,727/- and it was revised on 28.11.2013 at a loss of ₹ 6,71,79,039/-. After processing the said return of income u/s. 143(1) of the Income Tax Act, 1961 ( the Act for short), the case was selected for scrutiny assessment, the assessment was completed by the Dy. Commissioner of Income Tax, Circle- 1(1), Pune ( the Assessing Officer for short) vide order dated 27.03.2015 passed u/s. 143(3) of the Act at loss of ₹ 8,51,93,118/-. While doing so, the Assessing Officer had disallowed the claim for allowance of loss of ₹ 1,54,21,582/- on account of fluctuation in the foreign exchange rate on External Commercial Borrowing (ECB) loan claimed by the assessee as revenue expenditure. The relevant facts in this regard as follows : The appellant had availed ECB loan acquisition of assets in India. During the previous year relevant to the assessment year under consideration, the assessee incurred a loss on account of fluctuation in foreign exchange currency rate on the reinstatement of EC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd., 312 ITR 254 (SC) submitted that the loss arising on account of reinstatement of ECB loan on the date of balance sheet should go to add to the cost of actual asset for the purpose of depreciation. 8. On the other hand, the ld. CIT-DR placed reliance on the orders of the lower authorities. 9. We heard the rival submissions and perused the material on record. The only issue that arises for our consideration is 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 of the Act. Admittedly, it is an undisputed fact that the ECB loan was availed by the appellant-company for the purpose of acquiring the assets in India. The loss arising consequent upon on the fluctuation, in foreign currency rate is recognized in the books of account by debiting to the Profit Loss Account and the same was claimed as revenue expenditure. Alternative plea was also made for capitalization of such loss in order to determine the actual cost under the provisions of section 43(1) of the Act. Both the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43A of the Act provides for the adjustment has to be carried out in the actual cost of the assets on account of change in the rate of exchange. The provisions of section 43A of the Act were amended by the Finance Act, 2002 w.e.f. 1.4.2003 to provide that for making the necessary adjustments in the carrying cost of the fixed asset there should be actual cost, on increase or decrease of liability as a consequence of exchange variation infact actual payment of liability. But on plain reading of the provisions of section 43A of the Act, it is clear that 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. The Hon'ble Supreme Court in the case of Arvind Mills Ltd. (supra) observed as under:- We may now turn to the second question posed earlier and consider the position on general principles. So far as depreciation allowance is concerned, the position is perhaps a little simp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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