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TMI Blog2008 (5) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation, has to be worked out with reference to the cost incurred at the time of purchase of the plant and machinery and additional amount paid through instalments. In other words, differential amount payable in future instalments should not be taken into consideration. In this regard he observed, in the order for the assessment year 1995-96, as under: "At the outset it can be stated that the Ministry of Law has clarified vide their clarification dt. 11th Oct., 1984 at point No. 10 as under: 'We are also of the opinion that the payment giving rise to increase or decrease at the time of repayment would be increase or decrease of capital nature. Intermediary fluctuations in the rate of exchange would not be relevant.' Secondly, as regards to the general principle quoted by the Authorised Representative of the assessee, it can be pointed out that to allow capitalization of loss accruing on account of exchange fluctuations on the outstanding liability is inadmissible as the entire consideration or payment is not due in the relevant assessment year. The computed additional liability is only a notional figure and unless payment effected it has no sanctity and the assessee's per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed mercantile system of accounting, the cost of the asset has to be determined on accrual basis irrespective of the actual dates of payment. 5. Aggrieved, the Revenue is in appeal before us. The learned counsel appearing on behalf of the assessee strongly supported the order passed by the first appellate authority. He placed reliance upon the clarification issued by the Ministry of Law to submit that any intermediary fluctuations in the rate of exchange would be of no relevance for the purpose of determining the actual cost of an asset. The notional liability may vary on a day-to-day basis and the exchange rate fluctuation as on the last day of the accounting year would lead to an anomalous situation inasmuch as the assessee who defaults in payment may enjoy enhanced depreciation even though he is otherwise not entitled to such claim, because so far as such assessee is concerned, the actual cost is a cost which was paid by it. He then adverted our attention to the decision of the Hon'ble Andhra Pradesh High Court, in CIT vs. Jeyapore Sugars Co. Ltd. (1989) 175 ITR 627 (AP), referred to by the learned CIT(A). to submit that the Hon'ble Court had no occasion to deal with specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration for determining the actual cost of the asset. B. The arguments advanced by both the parties in respect of appeals of earlier assessment years are applicable to the year under consideration also. 9. An additional issue arises out of the order passed by the CIT(A) for the asst. yr. 2002-03, i.e., whether unabsorbed depreciation of the asst. yr. 1994-95 can be carried forward to the year 2003-04. Sec. 32(2) of the Act has undergone several changes; w.e.f. 1st April, 1997 the section was amended whereby the liberty granted to the assessee to treat the unabsorbed depreciation as current year's depreciation of next year and so on was curtailed and the status of unabsorbed depreciation was brought on par with unabsorbed losses of the earlier years, but w.e.f. asst. yr. 2002-03 the legislature kept in mind the growth of industry and the problems faced by them and accordingly revived the earlier provisions of permitting an assessee to carry forward the depreciation for being set off in the subsequent years by treating it as current year's depreciation. According to the AO, the period of eight years expires for the asst. yr. 2003-04 and therefore did not carry forward the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the first issue, it is noticed that the decisions cited by the learned Departmental Representative are with reference to the claim of investment allowance and there is no direct decision in favour of the Revenue with regard to the allowability of depreciation on the enhanced cost. As against this, the assessee placed reliance upon the decision of the Hon'ble Gujarat High Court in the case of New India Industries Ltd. wherein the Court considered identical issue and by relying upon the decision of the apex Court in the case of Arvind Mills Ltd. the Court observed as under: ".....In our opinion, the contention raised on behalf of the Revenue that the liability to pay the price of the asset arose only when the instalments became due and payable cannot be accepted for the reason that we are considering a provision which is made, inter alia, for the purpose of determining the allowability of depreciation allowance. If the assessee becomes the owner of the machinery and starts using the same, it would become entitled to depreciation allowance. It is for the purpose of working out the amount of depreciation that one has to look at the cost of the asset in respect of which depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the entitlement to carry forward depreciation pertaining to the asst. yr. 1994-95. The provisions as applicable for the asst. yr. 1994-95 do not restrict carry forward of depreciation for any specified period and as per the provisions as they existed then, the depreciation carried forward from the earlier years has to be treated as current year's depreciation in which event, the depreciation of the asst. yr. 1994-95 has to be treated as the current year's depreciation for the asst. yr. 1995-96 and so on. However, by virtue of the amendment to the provisions w.e.f. 1st April, 1997 carried forward depreciation is available for set off only for a period of eight years and the CBDT has clarified the amended provisions by stating that the limitation of eight years shall start from the asst. yr. 1997-98 by which the assessee would be entitled to carry forward the unabsorbed depreciation upto the asst. yr. 2004-05. However, by the Finance Act, 2001 w.e.f. 1st April, 2002, the old provisions were revived by dispensing with the restriction of eight years for carry forward and set off of unabsorbed depreciation. As on 1st April, 2002 the assessee's right to carry forward the depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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