Commissioner Of Income Tax-Ii, Chandigarh v. M/S Punjab Anand Industries, Mohali

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 583 of 2008 Date of decision: 26.7.2013 Commissioner of Income Tax-II, Chandigarh -----Appellant Vs. M/s Punjab Anand Industries, Mohali ----Respondent CORAM:- HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON'BLE MR. JUSTICE JASPAL SINGH Present:-Ms. Urvashi Dhugga, Senior Panel Counsel for the appellant.appellant. Ms. Radhika Suri, Advocate for the respondent. Ajay Kumar Mittal,J. 1.This appeal has been preferred by the revenue undersection 260A of the Income Tax Act, 1961 (in short, “the Act”)against the order dated 29.1.2008 passed by the Income Tax AppellateTribunal, Chandigarh Bench 'A', Chandigarh (for brevity, “the ITAT”)in ITA No.293/Chandi/2007, for the assessment year 1993-94,claiming following substantial question of law:- “Whether on the facts and circumstances of the case theHon'ble Tribunal was right in law in allowing deductionunder Section 32A with regard to the additional liabilityincurred towards the cost of the plant and machinery onaccount of fluctuation in foreign exchange ratesubsequent to the year in which plant and machinery has been installed.” 2. Briefly, the facts as narrated in the appeal necessary foradjudication of the controversy involved, may be noticed. The assesseecompany purchased certain machinery in the assessment year 1987-88.Due to fluctuation in the foreign exchange rates in the assessmentyears 1991-92 to 1993-94, liability of the assessee got enhanced. Theassessee claimed investment allowance in respect of enhanced cost onaccount of currency fluctuations in the assessment year 1993-94. TheAssessing Officer vide order dated 1.3.2002, Annexure A.1 disallowedthe claim on the ground that in terms of section 32A of the Act,investment allowance was to be allowed on actual cost of plant andmachinery in the year in which it was acquired or immediatelysucceeding previous year, if plant and machinery is first put to be usedin the succeeding year. Aggrieved thereby, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) [CIT(A)] who videorder dated 5.1.2007, Annexure A.2 deleted the disallowances made bythe Assessing Officer. Not satisfied with the order passed by the CIT(A), the revenue filed an appeal before the ITAT. The ITAT vide orderdated 29.1.2008, Annexure A.3 rejected the revenue's appeal on thebasis of order passed in assessee's own case for the assessment year1994-95 in ITA No.707/CHD/2000 dated 31.5.2006. Hence the presentappeal. 3. Learned counsel for the revenue submitted that unless theamount was actually paid on account of exchange rate fluctuation bythe assessee, benefit of the same should not have been allowed to theassessee as has been done by the ITAT. Relying upon decision of the Apex Court in Commissioner of Income Tax v. Lucas T. V.S.Limited,(2008) 297 ITR 429, Assistant Commissioner of Income Tax v.Elecon Engineering Co. Limited, (2010) 322 ITR 20 and KarnatakaHigh Court in Commissioner of Income Tax. v. Wipro FinanceLimited, (2010) 325 ITR 672, it was urged that Section 43A of theAct was amended by Finance Act, 2002 w.e.f 1.4.2003 which wasclarificatory in nature and, therefore, the same was applicable toassessment years prior thereto as well. 4.On the other hand, learned counsel for the assesseebesides supporting the order passed by the ITAT, on the strength ofdecision of the Apex Court in Commissioner of Income Tax. vs.Woodward Governor India (P) Limited, (2009) 312 ITR 254, thisCourt in CIT v. Arihant Cotsyn Limited, (2010) 327 ITR 142,Calcutta High Court in Century Enka Ltd v. Assistant (2010)323 ITR86 and this Court in Commissioner of Income Tax, Ludhiana II v. M/s Oswal Spinning and Weaving Mills Limited, GT Road,Ludhiana, ITA No.12 of 2005, decided on 8.5.2012, contended that inview of Section 43A of the Act as it existed at the relevant time, theassessee was entitled to the benefit thereunder. 4.On the other hand, learned counsel for the assesseebesides supporting the order passed by the ITAT, on the strength ofdecision of the Apex Court in Commissioner of Income Tax. vs.Woodward Governor India (P) Limited, (2009) 312 ITR 254, thisCourt in CIT v. Arihant Cotsyn Limited, (2010) 327 ITR 142,Calcutta High Court in Century Enka Ltd v. Assistant (2010)323 ITR86 and this Court in Commissioner of Income Tax, Ludhiana II v. M/s Oswal Spinning and Weaving Mills Limited, GT Road,Ludhiana, ITA No.12 of 2005, decided on 8.5.2012, contended that inview of Section 43A of the Act as it existed at the relevant time, theassessee was entitled to the benefit thereunder. 5. After hearing learned counsel for the parties, we do notfind any merit in the appeal. 6. Section 43A of the Act was inserted by Finance (No.2)Act, 1967 with effect from 1.4.1967. At the relevant time,it readsthus:- “43A. Special provisions consequential to changes inrate of exchange of currency – (1) Notwithstandinganything contained in any other provision of this Act, where an assessee has acquired any asset from a countryoutside India for the purposes of his business orprofession and,in consequence of a change in the rate ofexchange at any time after the acquisition of such asset,there is an increase or reduction in the liability of theassessee as expressed in Indian currency for makingpayment towards the whole or a part of the cost of theasset or for repayment of the whole or a part of themoneys borrowed by him from any person, directly orindirectly, in any foreign currency specifically for thepurpose of acquiring the asset (being in either case theliability existing immediately before the date on whichthe change in the rate of exchange takes effect), theamount by which the liability aforesaid is so increased orreduced during the previous year shall be added to, or, asthe case may be, deducted from, the actual cost of theasset as defined in clause (1) of section 43 or the amountof expenditure of a capital nature referred to in clause(iv) of sub section (1) of section 35 or in section 35A orin clause (ix) of sub section (1) of section 36, or, in thecase of a capital asset (not being a capital asset referredto in section 50), the cost of acquisition thereof for thepurposes of section 48, and the amount arrived at aftersuch addition or deduction shall be taken to be the actualcost of the asset or the amount of expenditure of a capitalnature or, as the case may be, the cost of acquisition ofthe capital asset as aforesaid.Explanation 1: xxxxxxxx” 7. The scope of the aforesaid provision was succinctlyanalysed by the Apex Court in Woodward Governor India (P)Limited's case (supra) as under:- “33. As stated above, what triggers the adjustment inthe actual cost of the assets, in terms of unamendedsection 43A of the 1961 Act is the change in the rate of exchange subsequent to the acquisition of asset inforeign currency. The section mandates that at anytime there is change in the rate of exchange, the samemay be given effect to by way of adjustment of thecarrying cost of the fixed assets acquired in foreigncurrency. But for section 43A which corresponds topara 10 of AS-11 such adjustment in the carryingamount of the fixed assets was not possible,particularly in the light of section 43(1). Theunamended section 43A nowhere required ascondition precedent for making necessary adjustmentin the carrying amount of the fixed asset that thereshould be actual payment of the increased/decreasedliability as a consequence of the exchange variation.The words used in the unamended section 43A were“for making payment” and not “on payment” whichis now brought in by amendment to section 43A videFinance Act, 2002.” 8. In order to appropriately adjudicate the controversy, the amendment brought about to Section 43A of the Act by Finance Act2002 effective from 1.4.2003 may also be noticed, which reads thus:- 8. In order to appropriately adjudicate the controversy, the amendment brought about to Section 43A of the Act by Finance Act2002 effective from 1.4.2003 may also be noticed, which reads thus:- “43A. Notwithstanding anything contained in anyother provision of the Act, where an assessee hasacquired any asset in any previous year from acountry outside India for the purposes of his businessor profession and, in consequence of a change in therate of exchange during any previous year after theacquisition of such asset, there is an increase orreduction in the liability of the assessee as expressedin Indian currency (as compared to the liabilityexisting at the time of acquisition of the asset) at thetime of making payment. (a) towards the whole or a part of the cost of theasset; or (b) towards repayment of the whole or a part ofthe moneys borrowed by him from any person,directly or indirectly, in any foreign currencyspecifically for the purpose of acquiring the assetalongwithinterest,ifany,the amount by which the liability as aforesaid isso increased or reduced during such previous yearand which is taken into account at the time ofmaking the payment, irrespective of the method ofaccounting adopted by the assessee, shall beadded to, or, as the case may be, deducted from -xxxxxxxxxxxxxxxx” 9. According to amended Section 43A of the Act, anyaddition to and deduction from the actual cost of a capital assetresulting from exchange fluctuation shall be only at the time of actualdischarge of the liability and not to be adjusted with reference toamount payable and outstanding at the end of each year on the basisof mercantile system of accounting. It has further been provided thatmethod of accountancy being followed by the assessee would not berelevant. Any adjustment which has already been allowed as adeduction prior to 1.4.2003 shall not be allowed again on account ofexchange fluctuation at the time of actual payment. 10. The Apex Court in Woodward Governor India (P) limited,'s case(supra) dealt with similar issue for years prior to theassessment year 2003-04 and held that the amendment of Section 43Aby the Finance Act 2002 with effect from 1.4.2003 would beapplicable prospectively with the following observations:- “34. Lastly, we are of the view that the amendment ofsection 43A by the Finance Act, 2002 w.e.f Ist April, 2003is amendatory and not clarificatory. The amendment is in complete substitution of the section as it existed priorthereto. Under the unamended section 43A adjustment tothe actual cost took place on the happening of change inthe rate of exchange whereas under the amended section43A the adjustment in the actual cost is made on cashbasis. This is indicated by the words 'at the time of makingpayment'. In other words, under the unamended section43A, 'actual payment' was not a condition precedent formaking necessary adjustment in the carrying cost of thefixed asset acquired in foreign currency, however, underamended section 43A w.e.f Ist April, 2003; such actualpayment of the decreased/enhanced liability is made acondition precedent for making adjustment in the carryingamount of the fixed asset. This indicates a completestructural change brought about in Section 43A, vide theFinance act, 2002. Therefore, the amended section isamendatory and not clarificatory in nature.” 11. As noticed above, the Hon'ble Apex Court in Woodward 11. As noticed above, the Hon'ble Apex Court in Woodward Governor India (P) Limited's case (supra) held that amendment toSection 43A by Finance Act, 2002 w.e.f 1.4.2003 was amendatoryand not clarificatory. In other words, it would mean that it shall beprospectively effective from 1.4.2003 and the cases relating to earlierassessment years would be governed by unamended Section 43A ofthe Act. Once that is so, the present appeal which relates to theassessment year 1993-94, the same would be governed by theunamended provisions of Section 43A of the Act. It is held that theassessee was entitled to exchange rate fluctuation in respect offoreign currency in the assessment year in question as it wasfollowing mercantile system of accountancy. 12. Adverting to the judgments relied upon by learned ITA No.583 of 2008 counsel for the revenue, suffice it to notice that the judgments reliedupon in Lucas T. V.S.Limited,'s case (supra), Elecon EngineeringCo. Limited's case (supra) and Wipro Finance Limited's case (supra)do not advance the case of the revenue being on individual factsituation involved therein. 13.Accordingly, the substantial question of law raised in thisappeal is answered against the revenue. 14.Consequently, the appeal is dismissed. (Ajay Kumar Mittal) Judge July 26, 2013 'gs' (Jaspal Singh) Judge