[CIT v. Gujarat Siddhi Cement Ltd., (2008) 307 ITR
393 (SC)]
The 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 the
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 February 16, 1996, making such claim. The assessee preferred an
appeal before the Commissioner of Income-tax (Appeals). The disallowance made
by the Assessing Officer was upheld by the Commissioner of Income-tax
(Appeals) 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 Tribunal, which allowed the claim, placing reliance on a decision
of the Gujarat High Court in CIT v. Gujarat State Fertilizers Co. Ltd.,
(2003) 259 ITR 526. The Revenue preferred an appeal u/s. 260A of the Act
before the High Court. By the impugned judgment the High Court upheld the view
of the Tribunal referring to the judgment of Gujarat Fertilizer’s case (2003)
259 ITR 526 (Guj.).
On an appeal, the Supreme Court referred to its judgment in
CIT v. Arvind Mills, (1992) 193 ITR 255 (SC) in which it was held that
where the provisions of Ss.(1) apply, the increased liability should be taken
as ‘actual cost’ within the meaning of S. 43A(1). All allowances including
development rebate or depreciation allowance or other types of deductions
referred to in the sub-section would therefore have to be based on such
adjusted actual cost. But then Ss.(2) intercedes to put in a caveat. It says
that the provisions of Ss.(1) should not be applied for purposes of
development rebate.
The Supreme Court further held that on a bare reading of
the provision, i.e., S. 43A(1), the position is clear that it relates
to the fluctuation in the previous year in question. If any extra benefit is
taken the same has to be taxed in the year when the liability is reduced as
provided in terms of S. 41(1)(a), Explanation 2. Therefore, whenever there is
fluctuation in any previous year, S. 43A(1) comes into play.
The Supreme Court noted that after the substitution by the
Finance Act, 2002, with effect from April, 1 2003, the position however was
quiet different. But in the instant case, the Commissioner of Income-tax
(Appeals) recorded a categorical finding that no argument was advanced and no
details were given. In the aforesaid background the Supreme Court felt that it
would be appropriate to grant opportunity to the assessee to establish the
factual position relating to fluctuation in the foreign exchange rate. For
that limited purpose, the Supreme Court remitted the matter to the Tribunal to
consider whether the assessee is justified in claiming deduction in the
background of S. 43A(1), as it stood then.
