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AS 11 Vs IT Act and Companies Act

kalyan (Manager - Accounts) (99 Points)

29 June 2010

A company is excercising the option of capitalising the exchange rate differences in foreign currency loan taken for depreciable capital asset. (actual cost when purchased is RS 10000)

As on 31-03-2010, it got a profit of RS 1000 (decrese in loan liability) on account of exchage fluctuation.

Now, as per Companies Act, the Company has reduced the Gross block of Fixed Asset as on 31-03-2010. and depreciation is calculated accordingly. (Reduced Gross block is Rs. 9000 and depreciation will be calculated on 9000 on SLM basis)

Then real problem comes with IT Act, Can the company reduce the WDV of Capital Asset and claim the depreciation on the reduced amount ( by taking it as reduction in actual cost).(Should it claim depn on Rs 10000 or Rs 9000)

if yes, please give reference to Section of IT Act and case laws if any.

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3 Replies

V.Ganapathy Subramanian (Dy Manager Accounts) (62 Points)
Replied 01 July 2010

No need to give effect as per IT act, nothing is specified in IT act

Amir (Learner) (4016 Points)
Replied 01 July 2010

Hi,

Pls see Sec 43A

43A. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment—

(a) towards the whole or a part of the cost of the asset; or

(b) towards 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 along with interest, if any,

the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from—

(i) the actual cost of the asset as defined in clause (1) of section 43; or

(ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35; or

(iii) the amount of expenditure of a capital nature referred to in section 35A; or

(iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or

(v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48,

and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:

kalyan (Manager - Accounts) (99 Points)
Replied 01 July 2010

Originally posted by : V.Ganapathy Subramanian
	No need to give effect as per IT act, nothing is specified in IT act

S. 43A : Actual cost – depreciation – exchange rate fluctuation - (S. 32)
Assessee is entitled to adjust the actual cost of the imported capital assets acquired in foreign, currency, on account of fluctuation in the rate of exchange at each of relevant balance sheet dates pending actual payment of varied liability for the assessment years prior to the amendment in section 43A, w.e.f. 1st April 2003.
Oil & Natural Gas Corporation Ltd. vs. CIT (2010) 36 DTR 345 (SC)

As per above case law.. it seems effect should be given even under IT Act.