TMI Blog2002 (2) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... determined during the year under appeal only and hence, following the Accounting Standards (AS 11), she ought to have allowed depreciation and Investment Allowance on the enhanced capitalised value of the Plant Machinery'. 3. From the grounds raised and the arguments advanced, the only issue arising in this appeal is in relation to allowance of depreciation and investment allowance on the enhanced cost due to additional liability incurred for purchase of plant and machinery due to fluctuation in the foreign exchange rate. 4. The appellant-company had imported certain machinery by obtaining a loan in Foreign Exchange from Foreign Institutions. While the Plant and Machinery had been installed and put into use in an earlier year, the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned departmental representative argued that the repayment of the loan is rescheduled and hence no part of the loan is repayable during the year. The liability which is required to be discharged at a future date, increase in the liability due to fluctuation in the foreign exchange rate depends upon the exchange rate prevailing at the time of repayment and hence contingent in nature. The CIT(A), was, therefore, justified in dismissing the appeal of the assessee. We have given our considered thought to the issue on hand, the facts of the case and the decisions relied upon by the counsels. The facts arc undisputed. The sum arrived at Rs. 1,17,22,640 for the increase in the liability due to the difference in the foreign exchange rate in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added to the actual cost of asset as defined in section 43(1) of the Income-tax Act, 1961. The depreciation under section 32 is to be allowed with reference to the actual cost. The actual cost for this purpose is defined under section 43(1) of the Act. 11. It therefore, follows that when the actual cost defined in section 43(1) is to be increased by the additional liability due to fluctuation in the foreign exchange rate in respect of loans taken in foreign currency, the depreciation is also required to be allowed thereon. This view has been held by the Hon'ble Karnataka High Court in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374. This view has been further followed in the following cases: 1. Tata Hydro Electric Supply Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the Appellate Tribunal is right in law in allowing investment allowance on the enhanced cost of assets due to fluctuations in foreign currency rates and accordingly directing the Income-tax Officer to recompute the investments allowance and grant the deductions?" The Hon'ble Karnataka High Court held by simply stating as under:- "The first question is covered by the decision of this court in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374. Following the said decision, the first question is answered in the affirmative and against the revenue." On reading of the aforesaid decision in the case of Motor Industries Co. Ltd, we find that the issue involved therein was in respect of depreciation and not investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in nature like depreciation. 16. Section 43 starts with the words "in sections 28 to 41 and in the section unless the context otherwise requires actual cost means......... The Explanation to section 32A(B)(1) defines what is the actual cost for the purpose of granting of investment allowance under section 32A. Section 43(A) requires the additional liability incurred due to fluctuation in the foreign exchange rate in respect of the loan taken for acquiring any assets to be incurred in the actual cost for the purpose of section 43(1). Giving logical meaning the cost is required to be arrived at in the year when the assets are acquired or first put to use when the claim under-section 32A is to be allowed. The cost is thereafter, immateri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to concur with the arguments of the learned authorised representative that the additional claim for investment allowance is allowable as per the decision of the Hon'ble Karnataka High Court in Widia (India) Ltd.'s case. 20. On the other hand, we are fortified in our view by the decision of the Hon'ble Gujarat High Court in the case of CIT v. Windsor Foods Ltd. [1999] 235 ITR 249. 21. In the result, the assessee's claim for investment allowance under section 32A in respect of additional cost clue to fluctuation ill the foreign exchange rate, in respect of foreign exchange liability incurred for acquiring certain plant and machinery is not allowable. 22. In the result, the appeal is partly allowed. - - TaxTMI - TMITax - Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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