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TMI Blog1984 (2) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... o such increase only in respect of the instalments which were payable during the year of account and not in respect of the entire liability. He directed the ITO to allow the claim for depreciation only with reference to the loan instalments payable in the year of account. 2. Several contentions were raised by the assessee in the course of the revision proceedings which have been reproduced by the Commissioner in the impugned order at para 2 thereof as under : " (i) By virtue of section 43A of the Act, the sum of Rs. 68.88 lakhs represents increase in the cost of the asset on which depreciation has rightly been allowed. (ii) Since the department has not allowed the increase due to fluctuation of foreign exchange rate as a revenue loss, the ITO was correct in adding it to the cost and allowing depreciation on it. (iii) Since the assessment order was the subject-matter of appeal, no revision under section 263 is possible. (iv) The company has been debiting the cost of the vessel and crediting the loan account whenever the foreign exchange has gone adverse at the close of the financial year. It has similarly decreased the cost of the asset as and when the foreign exchange has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doctrine of merger would operate to preclude the revisional jurisdiction of the Commissioner under section 263. Shri Mehta's reliance on the case of Mandsaur Electric Supply Co. Ltd. is of no avail, since in that case that the Commissioner had sought to do under section 263 was to set aside the assessment order in its entirety which included matters which had been the subject-matter of appeal before the Commissioner (Appeals). It was in those circumstances that their Lordships were pleased to hold that the Commissioner had no jurisdiction to set aside the assessment order. Respectfully following the ruling of the Madhya Pradesh High Court in the case of R.S. Banwarilal, which has followed the law as laid down by the Supreme Court in the case of CIT v. Amritlal Bhogilal Co. [1958] 34 ITR 13 and State of Madras v. Madurai Mills Co. Ltd. AIR 1967 SC 681 and the ruling of the Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570, we hold that there is no force in the contention raised on behalf of the assessee and that the jurisdiction exercised by the Commissioner under section 263 was valid and proper. 6. Turning now to the merits of the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of each accounting year for the purposes of drawing up a true and correct position of its state of affairs in the final accounts. Only then would the balance sheet and profit and loss account reflect the correct position of the business. In order to achieve this end, what the assessee did was to measure its outstanding liability on the loan account in terms of rupees at the rate of exchange prevalent as on the last day of the accounting year. The result naturally was a variation in the liability according to the fluctuation in the value of the rupee in terms of the rate of exchange of the rupee with the foreign currencies. If the value of the rupee fell, so would the outstanding liability increase ; equally, if the value of the rupee had risen, so would its liability be reduced. The assessee would write up or write down its liability accordingly. Thus, for the year under consideration as against its liability brought forward as on the first day of the accounting year, i.e., on 1-7-1973, there was an increase in the liability as on the closing day of the accounting year, i.e., 30-6-1974, to the tune of Rs. 68,88,221. In the next year, on the same basis, there was a reductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple that the assessee was entitled to its claim within the meaning of section 43A, but he has whittled down the claim to the liability arising in respect of the installments payable for the year of account for which we find no justification. It would appear that the Commissioner equated the liability of the assessee with the amount of the instalments payable during the year of account. But in doing so, he appears to have ignored the fact that what had already accrued as a liability to the assessee was the full amount payable on the foreign loans. Payment by instalments was only a mode of repayment, but that had no bearing on the accrual of the liability. As already brought out in this order, according to the mercantile system adopted by the assessee, it was the full amount of the accrued liability which had to be accounted for and which represented the cost of the assets, i.e., the ships. Shri K.A. Sathe, the learned departmental representative, has sought to overcome this flaw in the reasoning of the Commissioner by raising the contention that in determining the actual cost of the asset with reference to which alone depreciation allowance had to be computed, the particular metho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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