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TMI Blog2008 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery was the dispute. 3. Respondent (hereinafter referred to as the 'assessee') claimed increased amount as deduction as investment allowance on account of increase in the cost of plant and machinery on account of exchange rate fluctuation. The assessing officer disallowed the claim on the ground that plant and machinery in respect of which there has been increase were installed in the earlier years. Therefore, there is no scope for provision for investment allowance in the year under assessment. It referred to the letter of the assessee dated IT/JAM/95-96/1226 dated 16.2.1996 making such claim. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) (in short 'CIT(A)'). The disallowance made by the assessing officer was upheld by the CIT(A) on the ground that no arguments were advanced and no factual details were furnished regarding the alleged fluctuation on account of foreign exchange rate. The matter was carried in further appeal by the assessee before the Income Tax Appellate Tribunal, Rajkot (In short 'Tribunal') which allowed the claim placing reliance on a decision of the Gujarat High Court in Commissioner of Income Tax v. Gujarat Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have a bearing on the issue before us and may be extracted here : "1. As regards the point that the additional rupee liability in regard to assets imported before but installed after the date of devaluation would, in any case, be treated as forming part of the actual cost of the asset for the purpose of allowance of development rebate under the existing law the interpretation of the Government on legal position is different. It is that the actual cost of the asset in such a case will be reckoned at the cost on the date on which the legal ownership in the assets passed to the assessee, i.e., the cost as calculated in accordance with the pre-devaluation rate of foreign exchange. 2. The Government agrees that for the purpose of the calculation of depreciation allowance, the cost of capital assets imported before the date of devaluation should be written off to the extent of the full amount of the additional rupee liability incurred on account of devaluation and not what is actually paid from year to year. The proposed legal provision in the matter is intended to be framed on this basis."(Emphasis Added) 18. We also find it difficult to find substance in the second argument of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctuation in the rate of exchange. 19. The result of the above discussion is that once the language of Sub-section (1) is attracted to a particular case, Sub-section (1) applies. Once Sub-section (1) is attracted, its application is excluded, qua development rebate, by the operation of Sub-section (2). 22. Nor is there any in-appropriateness of statutory language as urged. As we have discussed above, the provisions of Sub-section (1) apply to the present case and the increased liability should be taken as 'actual cost' within the meaning of Section 43A(1). All allowances including development rebate or depreciation allowance or the other types of deductions referred to in the sub-section will therefore have to be based on such adjusted actual cost. But then Sub-section (2) intercedes to put in a caveat. It says that the provisions of Sub-section (1) should not be applied for purposes of development rebate. The effect is that the adjusted actual cost is to be taken as the actual cost for all purposes other than for grant of development rebate. Read thus, there is no difficulty in the application of the language of the section to the present case. There is no inappropriateness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rate of exchange of currency- (1) Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of the asset or for 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 (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (I) of section 43, or the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35 or in section 35A or in clause (ix) of sub-section ( ..... 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