Bombay HC allows Investment Allowance Owing to Exchange Rate Fluctuations [Read Order]
Investment Allowance is allowable for Additional Cost incurred due to Exchange Rate Fluctuations
Bombay High Court – Bombay HC Exchange Rate Fluctuations – Exchange Rate Fluctuations – Bombay HC – Taxscan
Bombay High Court – Bombay HC Exchange Rate Fluctuations – Exchange Rate Fluctuations – Bombay HC – Taxscan
The Bombay High Court has ruled that investment allowance is applicable to exchange rate fluctuations.
The appellant, engaged in the shipping business, acquired a vessel named M/s. M.V. Prabhu Das, paid for in foreign currency via a foreign currency loan. In the filed return of income, under Section 32A as it then stood, the appellant claimed a deduction of 20% of the actual cost of the ship, which was entirely used for business purposes.
Section 32A(3) allows the assessee to carry forward a claim for up to eight years following the assessment year in which the vessel was acquired.
The dispute concerns the investment allowance additionally claimed for the increased cost due to foreign currency exchange rate fluctuations.
The department argued there was no provision for claiming additional investment allowance based on costs from exchange rate fluctuations.
The Income Tax Appellate Tribunal ( ITAT ) referred to the judgement in Khatau Makanji Spinning and Weaving Co. Ltd. vs. Commissioner of Income-Tax, which denied the allowance for exchange rate fluctuations.
The assessee argued that the Khatau Makanji judgement was rendered per incuriam, as seen in the case of Associated Bearing Co. Ltd. vs. Commissioner of Income-Tax, a view later supported in Commissioner of Income-Tax-2 vs. Tata Chemicals Ltd.
The court, considering the provisions of Section 32A and relevant judgments, ruled in favour of the appellant and against the department.
The bench, comprising Justice G. S. Kulkarni and Justice Somasekhar Sundaresan, relied on the Supreme Court decision in Commissioner of Income-Tax vs. Ambika Mills Ltd., which established that investment allowance due to exchange rate fluctuation is allowable.
The court, while allowing the appeal, held that investment allowance must account for exchange rate fluctuations as claimed.
To Read the full text of the Order CLICK HERE
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