Section 43A: Spl Prov Consequent to change in Forex Rate

This query is : Resolved

Pradeep Kumar (Querist)
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14 March 2009 An assessee engaged in manufacturing had imported a Plant/Machinery from Japan. The amount to be paid was sourced out of a Loan taken from SIDBI Bank. However, the Payment was to be made by SIDBI directly to the Foreign Supplier in 4 equal Installments. The Loan was taken by the assessee in Indian Rupees. On every due date the Bank would pay the Supplier the decided amount in Japanese Yen and would debit the Loan account of the Assessee in its books at the rate prevailing on the date of Payment.
When the asset entered India, it was booked at the forex rate of the date when it entered India. However, during the course of the Installments the Indian Ruppe depreciated against the Japanese Yen and as a Result the SIDBI Bank had paid a sum more than what the assessee had booked in its books for the Cost of the Asset.
Now the question is whether Section 43A is applicable?
Since the Clause 2 of Sec 43A sayz that the loan should have been taken in Foreign currency which in this case does not hold good. Since the loan was taken in Indian rupee.
Clause 1 of Section 43A gets attracted if the assessee has made the payment towards the cost of the asset.
In my opinion Section 43A in totality does not get attracted. Anyways the assessee has had to suffer the loss on account of depreciating Rupee, all i am thinking is that can we reduce his loss to the extent of Tax. ie 30.9% of the Diffrential amt.

CA LOKESH KASAT, FCA, M.Com

CA LOKESH KASAT, FCA, M.Com (Expert)
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14 March 2009 Dear pradeep,
Where the whole or part of the liability is not met by assesse due to exchange rate fluctuation and met by sme other person then no adjustment can be made.

If in your case, as you are saying assessee as incurred a loss, means he is bearing a loss due to fluctuation, so should do the adjustment accordingly.

43A can be applicable if assessee has entered into forward exchange contract with bank.