Case Law Details
Aesseal India Pvt. Ltd. Vs ITO (ITAT Pune)
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 claims were turned down by both the Assessing Officer as well as ld. CIT(A). Before us, the pleading for allowance as revenue expenditure was withdrawn by the ld. AR of the assessee. Therefore, the only issue surviving for our consideration is whether such loss can be capitalized to the actual cost of the assets for the purpose of depreciation. The principal objection for allowance of claim is that it is only notional loss and therefore the same cannot be recognised either for the purpose of allowance of revenue expenditure or capitalization. This objection is no longer tenable in law in the light of the dictum of the Hon’ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. (supra) wherein the Hon’ble Apex Court had quoted with approval of the decision of the Hon’ble Madhya Pradesh High Court in the case of M. P. Financial Corporation vs. CIT, 165 ITR 765 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. The Hon’ble Apex Court further observed that the decision of the Hon’ble Madhya Pradesh High Court in the case of M. P. Financial Corporation (supra) was approved by the Hon’ble Apex Court in the case of Madras Industrial Investment Corpn. Ltd. vs. CIT, 225 ITR 802.
The next issue which comes up for our consideration is 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. The Hon’ble Supreme Court in the case of CIT vs. Arvind Mills Ltd., 193 ITR 255 had categorically held that the adjustments in the actual cost on account of increase or decrease in liability in the repayment of foreign loan should be taken into account. The Parliament had enacted the provisions of section 43A of the Act w.e.f. 4.1.1967 to provide for adjustments in the actual cost of the assets pursuant to change in the foreign currency exchange rate. The Institute of Chartered Accountant of India had also issued Accounting Standard-11 which also provides for adjustments in carrying cost of the fixed asset acquired in foreign currency due to foreign exchange fluctuation in each balance sheet. Thus, the unamended provisions of section 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.
We hold that the necessary adjustments should be made to the actual cost of assets on account of loss consequent to foreign currency fluctuation rate as there is no dispute that ECB loans are utilized for the purpose of acquisition of asset in India. Accordingly, we direct the Assessing Officer to allow necessary adjustment to the actual cost of the asset.
FULL TEXT OF THE ITAT JUDGEMENT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
