Foreign exchange gain or loss on capital assets

This query is : Resolved

Sanjana (Querist)
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12 July 2012 Two Capital Assets Purchased from outside India on 01 Jan, 2012 for $5000 & $ 10,000 respectively when the Excbange Rate was $1=Rs. 50

$ 5,000 of Asset 1 was paid on Mar 1, 2012 when the Exchange Rate was $1 - Rs. 52 and $ 10,000 relating to Capital Asset 2 still being unpaid as at Mar 31, 2012 when the rate of exchange was $1= Rs. 54.

In the Profit and Loss Account of the company, as per the Statutory books, Foreign Exchange Loss stood at Rs. 50,000, Realized Foreign Exchange Loss being Rs. 10,000 ($5,000*2) and Unrealized Foreign Exchange Loss being Rs. 40,000 ($10,000*4). What would be the impact of the above loss while Computation of Income as per the Income Tax Act.

Hitendra Jain

Hitendra Jain (Expert)
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12 July 2012 Section 43A deals with such situation.

As far as $ 10000 asset is concerned since payment is still due no effect shall be made on account of cost / expenditures.

For $ 5000 assets the original cost ($ 5000 x50 = INR 2,50,000.00) shall be increased by INR 10,000.00.
If asset is stock in trade then expenditure regarding purchase / acquisition shall be increased by INR 10,000.00.

Except above the whole loss on foreign exchange shall be ignored.