Law:

Section:

Section 43A of the Income-tax Act, 1961 - Special Provisions Consequential to Changes in Rate of Exchange of Currency - Assessment year 1966-67 - Whether increase in liability of an assessee who had imported plant and machinery from abroad, due to devaluation of currency should be added in year in which it increased and depreciation for that year should be computed on basis of increased cost minus depreciation allowed in earlier year - Held, yes - Whether, for purposes of development rebate, any increase or decrease in actual cost consequent on fluctuations in exchange rate should not be taken into account in view of section 43A(2) - Held, yes - Whether section 43A(1) will come into operation only in respect of a year subsequent to year in which asset is acquired - Held, no - Whether section 43A is inapplicable to a case where change in liability due to change in rate of exchange occurs during very previous year in which asset has been acquired - Held, no - Whether section 43A(1) was inserted only to define year in which increase or decrease in liability had to be adjusted - Held, no FACTS Because of the devaluation on 6-6-1966, the assessee's liability, who had imported plant and machinery from abroad, the consideration for which had been fixed in terms of a foreign currency and which had not been fully discharged by the date of devaluation, was enhanced. In this context a question arose as to how this increase in liability had to be (a) accounted for in the books of account of the assessee and (b) taken into account for purposes of depreciation allowance and development rebate allowable to the assessee. HELD On strict accountancy principles the increase or decrease in liability towards the actual cost of an asset arising from exchange fluctuation can be adjusted in the accounts of the earlier year in which the asset was acquired (if necessary, by reopening the said accounts). In that event, the accounts of that earlier year as well as subsequent years will have to be modified to give effect to variations in depreciation allowances consequent on the re-determination of the actual cost. However, though this is a course which is theoretically advisable or…

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