Section 43A - Special provision consequential to changes in rate of exchange - Income Tax - Ready Reckoner - Income Tax

Section 43A :- Special provision consequential to changes in rate of exchange Section 43A applies only in respect of assets acquired from a country outside India through a loan in foreign currency or foreign supplier s credit. Section 43A shall not apply where an asset is purchased in India through a foreign currency loan. The adjustments referred to in Section 43A shall be made only in the previous year in which actual payment is made to the foreign supplier towards the whole or a part of the cost of the asset; or towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, The amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from - (i) the actual cost of the asset as defined in clause (1) of section 43 ; or (ii) the amount of expenditure of a capital nature referred to in clause (iv) of section 35(1) ; or (iii) the amount of expenditure of a capital nature referred to in section 35A ; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of section 36(1) ; or (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50 ) for the purposes of section 48 , and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid: In Summary The adjustment referred to in Section 43A shall be as under: Amount actually paid to foreign supplier or towards foreign currency loan for acquiring the asset minus Amount recorded in books of account. The above adjustment if positive shall be added to WDV of Block of assets and if negative shall be subtracted from the WDV of Block of asset. Explanations 'Rate of exchange' means the rate determined by the Central Government for conversion of Indian currency to foreign currency or vice-versa 'Foreign and Indian currency have the meanings as per section 2 of the FEMA, 1999 . where any part or whole of the liability is not met by the assessee but by any other person, then the liability so met shall not be taken into account for this section. Capitalization is not a must For the applicability of section 43A, it is enough that increase in liability must relate to the capital asset and it would not make any difference as to whether the assessee capitalises the said increase in liability or not.