HEIDELBERGCEMENT INDIA LTD.(FORMERLY KNOWN AS INDORAMA CEMENT LTD.), MUMBAI V. THE ACIT RG. 10(3), MUMBAI

ITA 2336/MUM/2010

• Counselvise Citation: 233619914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 07-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 147; 148; 10; 143(3)

Judgement Text

1 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI H HH H BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI J SUDHAKAR REDDY, AM & J SUDHAKAR REDDY, AM & J SUDHAKAR REDDY, AM & J SUDHAKAR REDDY, AM & VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 2336/MUM/2010 2336/MUM/2010 2336/MUM/2010 2336/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2004 2004 2004 2004- -- -05 0505 05 ) )) ) HIDELBERGCEMENT INDIA LTD(FORMERLY KNOWN AS INDORAMA CEMENT LTD) VILLEGE KHAR KARAVI PO GADAB, TALUKA PEN DIST RAIGAD MAHARASHTARA 402 107 VS THE ASST COMMR OF INCOME TAX RANGE 10(3)), MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAACI 2389D AAACI 2389D AAACI 2389D AAACI 2389D A SSESSEE BY SHRI F V IRANI REVENUE BY SHRI R S SRIVASTAV PER VIJAY PAL RAO, JM PER VIJAY PAL RAO, JM PER VIJAY PAL RAO, JM PER VIJAY PAL RAO, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 2.2.2010 OF THE CIT(A) ARISING FROM THE ORDER REL ATING TO AY 2004-05. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN ITS APPEAL: I) THE LD CIT(A) HAS ERRED IN CONFIRMING THE REOPEN ING OF THE ASSESSMENT PROCEEDINGS U/S 147 OF THE ACT, AS VALID THROUGH TH ERE WAS ADDITIONAL MATERIAL WHICH WAS NOT DISCLOSED IN THE ORIGINAL SC RUTINY PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION. II) THE LD CIT(A) HAS ERRED IN CONFIRMING THE REOPE NING OF THE ASSESSMENT PROCEEDINGS THROUGH THE ORIGINAL ORDER MADE U/S 143 (3) OF THE ACT CONTAINED THE DETAILED NOTE OF THE ALLOWANCE OF THE SAID FLUCTUATION. III THE LD CIT(A) HAS ERRED IN CONFIRMING THE ADDIT IONS OF RS. 99,78,719/- TOWARDS FOREIGN EXCHANGE GAIN WHICH IS NOTHING BUT THE NOTIONAL GAIN ACCOUNTED FOR IN TERMS OF ACCOUNTING STANDARD 11 IS SUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IV) THE LD CIT(A) HAS ERRED IN CONFIRMING THE ADDIT IONS OF RS. 99,78,719/- BASED UPON THE DECISION IN THE CASE OF WOODWARD GOV ERNOR INDIA PVT LTD AS REPORTED IN 312 ITR 254 WITHOUT CORRELATING THE FACTS OF THE CASE TO THE CASE OF THE APPELLANT. 2 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) 3 THE GROUNDS NOS 1 & 2 RELATE TO VALIDITY OF REOPE NING OF THE ASSESSMENT. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ORIGI NAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 29.9.2006 DETERMINING THE TOTAL LOSS AT RS. 4,95,28,863/-. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY ISSUIN G NOTICE U/S 148 ON 17.2.2009 ON THE GROUND THAT THE ASSESSEE HAS REDU CED AN AMOUNT OF RS. 1,00,38,101/- ON ACCOUNT OF FOREIGN EXCHANGE FL UCTUATION GAIN FROM THE INCOME AND FAILED TO ADD BACK THE SAID AMOUNT IN TH E TOTAL INCOME WHICH RESULTED INTO UNDER ASSESSMENT. IN THE REASSESSMEN T, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 99,78,719/- TOWARDS FOREIGN EXCHANGE GAIN. THE ASSESSEE HAS CHALLENGED THE REASSESSMENT AS WELL AS VALIDITY OF REOPENING OF THE ASSESSMENT BEFORE THE CIT(A) WHICH WAS DISMISSED VI DE THE IMPUGNED ORDER. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE REOPENING IS BASE ON CHANGE OF OPINION. HE HAS REFERRED THE REAS ONS FOR REOPENING OF THE ASSESSMENT AT PAGE 42 OF THE PAPER BOOK AND SUBMITT ED THAT THE ASSESSING OFFICER MADE A DETAILED ENQUIRY AND EXAMINED ABOUT THE FOREIGN EXCHANGE FLUCTUATION AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION GAIN AS WELL AS LOSS, THE ASSE SSING OFFICER ACCEPTED THE SAME. THUS, REOPENING OF THE ASSESSMENT BASED ON T HE SAME ISSUE IS NOTHING BUT CHANGE OF OPINION. THE LD AR HAS REFERRED THE REPLY OF THE ASSESSEE TO THE QUERY MADE BY THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS GIVEN THE FULL DETAILS OF WORKING OF FOREIGN EXCHANGE FLUCTUATION EXPENSES IN ANNEXURE L OF THE SAID LETTER WHEREIN THE ASSESSEE HAS COMPUTED THE WORKING OF NOTIONAL GAIN ON FLUCTUATION RATE ON ICICI TERM LOA N AT RS. 1,06,01,410/- AND AFTER 3 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) ADJUSTING THE ACTUAL LOSS( ON WORKING CAPITAL FCNR B LOSS FROM SBI) OF RS. 5,63,309/-, THE NET NOTIONAL GAIN HAS BEEN WORKED OUT AT RS. 1,00,38,101/-. SINCE THE NOTIONAL LOSS AS ON 31.3.2004 ON TERM LOA N AND ON CAPITAL ACCOUNT, THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEE. T HE LD AR HAS THEN CONTENDED THAT ONCE THE ASSESSING OFFICER HAS DULY EXAMINED AND VERIFIED THE QUESTION OF FOREIGN EXCHANGE FLUCTUATION, THE ASSES SMENT CANNOT BE REOPENED ON THE SAME ISSUE. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR INDIA LTD REPORTED I N 321 ITR 561 AS WELL AS THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF AVENTIS PHARMA LTD VS ACIT REPORTED IN 323 ITR 570. 4.1 THE LD DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES HAS SUBMITTED THAT IN THE ORIGINAL ASSE SSMENT, THE ASSESSING OFFICER EXAMINED ONLY THE ISSUE OF LOSS ON FOREIGN EXCHANGE FLUCTUATION AND NOT THE ISSUE OF GAIN ON EXCHANGE FLUCTUATION RATE. HE HAS SUBMITTED THAT THE ASSESSEE HAS REDUCED THIS AMOUNT OF RS. 1,00,38,101/- IN THE COMPUTATION OF THE TOTAL INCOME WITH NOTE THAT THE ITEM SEPARATELY TREATED WHEREAS THIS AMOUNT HAS NOT BEEN ADDED BACK SEPARATELY. THUS, THIS ISSUE WAS N OT AT ALL EXAMINED AND DECIDED BY THE AO IN THE ORIGINAL ISSUE. THE LD DR , THUS CONTENDED THAT WHEN NO VIEW WAS TAKEN BY THE ASSESSING OFFICER IN THE ORIG INAL ASSESSMENT, THEN THERE IS NO QUESTION OF CHANGE OF OPINION AT THE TIME OF REO PENING OF THE ASSESSMENT ON THAT ISSUE. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE OR IGINAL ASSESSMENT, THE 4 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) ASSESSING OFFICER MADE AN ENQUIRY REGARDING FOREIG N EXCHANGE FLUCTUATION LOSS, WHICH WAS REPLIED BY THE ASSESSEE HIS VIDE LETTER D ATED 14.9.2006, WHICH WAS REPRODUCED BY THE ASSESSING OFFICER AT PARA 6 OF T HE ORIGINAL ASSESSMENT ORDER AS UNDER: TERM LOAN OF RS. 43.75 CRORES FROM ICICI BANK WAS CONVERTED INTO US $ LOAN IN JANUARY 2004 TO REDUCE THE COST OF BORROWIN G. THE DIFFERENCE OF RATE OF CONVERSION OF LOAN AND THE RATE PREVAILING ON 31 ST MARCH 2004 AMOUNTING TO RS. 1,00,38,100/- WHICH WAS CREDITED T O PROFIT AND LOSS ACCOUNT AS FOREIGN EXCHANGE FLUCTUATION. THIS COMPR ISES OF RS. 1,06,01,410/- AS NOTIONAL GAIN OF FOREIGN EXCHA NGE FLUCTUATION AND RS. 5,63,310/- AS ACTUAL LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ON THE PAYMENT TO BANK. THUS, RESULTING IN THE NET GAIN OF RS. 1,00,38,100/-AS SHOWN IN THE GROUPINGS OF PROFI T AND LOSS ACCOUNT. ON FURTHER VERIFICATION IT WAS NOTICED THAT ONE OF THE INSTALMENT WAS DUE IN THE MONTH OF MARCH 2006 ON WHICH THE COMPANY HAS MADE A GAIN OF RS. 59,382/-. ACCORDINGLY CLAIM OF LOSS OF RS. 5,6 3,310/- AS CLAIMED IN THE COMPUTATION OF TOTAL INCOME UNDER THE HEAD OF CRYST ALLIZED FOREIGN EXCHANGE LOSS WILL STAND REDUCED TO RS. 5,03,928/-. 5.1 IT IS EVIDENT FROM THE EXPLANATION GIVEN BY THE ASSESSEE VIDE LETTER DATED 14.9.2006, AS PRODUCED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT THAT THE AMOUNT OF RS. 1,00,38,100/- WAS SHOWN BY THE AS SESSEE AS NOTIONAL GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WITH RESPEC T TO THE TERM LOAN LIABILITY. THE ASSESSING OFFICER, AFTER CONSIDERED THE REPLY H AD MADE THE ADDITION WITH RESPECT TO RS. 59,382/- ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION LOSS. THUS, IT IS CLEAR THAT THE ASSESSING OFFICER, AT THE TIME OF RE ASSESSMENT, WAS SATISFIED WITH THE REPLY GIVEN BY THE ASSESSEE REGARDING THE NOTIO NAL GAIN ON FOREIGN EXCHANGE FLUCTUATION BECAUSE THE GAIN WAS ON CAPITAL ACCOUNT . SUBSEQUENTLY, THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT AFTER RECORDING THE REASONS AS UNDER: FROM THE COMPUTATION OF TOTAL INCOME, IT IS SEEN T HAT YOU HAVE REDUCED AN AMOUNT RS. 1,00,38,101/- ON ACCOUNT OF EXCHANGE FLUCTUATION GAIN FROM THE INCOME, BEING THE ITEM CONSIDERED SEPARATE LY. HOWEVER, YOU 5 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) HAVE FAILED TO ADD BACK THE SAME TO THE TOTAL INCOM E, WHICH HAS RESULTED INTO UNDERASSESSMENT OF INCOME TO THE TUNE OF RS. 1 ,00,38,101/- 5.2 THE ISSUE OF FOREIGN EXCHANGE FLUCTUATION GAIN THOUGH WAS NOT SPECIFICALLY ADDRESSED IN THE ORIGINAL ASSESSMENT, HOWEVER, THE SAID ISSUE WAS CONNECTED WITH THE EXCHANGE LOSS CLAIMED BY THE ASSESSEE AND FINALLY THE ASSESSEE WORKED OUT THE NET NOTIONAL GAIN AS PER ANNEXURE L TO THE REPLY. THE DETAILS OF EXCHANGE RATE FLUCTUATION HAS BEEN GIVEN BY THE ASSESSEE AS PER 31-A OF THE PAPER BOOK BEING ANNEXURE L AS UNDER; DETAIL OF EXCHANGE RATE FLUCTUATION FOR THE YEAR 20 03 DETAIL OF EXCHANGE RATE FLUCTUATION FOR THE YEAR 20 03 DETAIL OF EXCHANGE RATE FLUCTUATION FOR THE YEAR 20 03 DETAIL OF EXCHANGE RATE FLUCTUATION FOR THE YEAR 20 03- -- -04 (ASSESSMENT YEAR 2004 04 (ASSESSMENT YEAR 2004 04 (ASSESSMENT YEAR 2004 04 (ASSESSMENT YEAR 2004- -- -05) 05) 05) 05) I) NOTIONAL GAIN ON EXCHANGE RATE FLUCTUATION ICICI TERM LOAN A. BALANCE AS ON 31.3.2004 US $ 90,99,922.80 X RS. 1.165 10601410 ORIGINAL RATE 45,385 ATE AS ON 31.3.2004 44,220 DIFFERENCE 1,165 LESS ACTUAL LOSS ON WORKING CAPITAL FCNRB LOSS FROM SBI, FORT 563309 NET NOTIONAL GAIN 10038101 5.3 THUS, IT IS CLEAR THAT THE ISSUE OF LOSS ON FO REIGN EXCHANGE FLUCTUATION WITH RESPECT TO THE WORKING CAPITAL LOAN IS PART AND PAR CEL OF THE ENTIRE EXCHANGE RATE FLUCTUATION WORKING WHEREIN THE ASSESSEE HAS WORKE D OUT THE NET NOTIONAL GAIN AT RS. 1,00,38,101/-. ONCE THE ASSESSING OFFICER CONSIDERED AND EXAMINED THE ISSUE OF FOREIGN EXCHANGE FLUCTUATION AS MANIFEST FROM THE ORIGINAL ASSESSMENT ORDER, THE ASSESSMENT COMPLETED U/S 143(3) CANNOT B E REOPENED ON THE SAME ISSUE BY TAKING A DIFFERENT VIEW. THE HONBLE SUPR EME COURT IN THE CASE OF KELVINATOR INDIA LTD (SUPRA) HAS HELD THAT CONCEPT OF CHANGE OF OPINION HAS NOT 6 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) BEEN OBLITERATOR BY VIRTUE OF AMENDMENT OF SEC 147 OF THE I T ACT. SIMILARLY, THE JURISDICTIONAL HIGH COURT IN THE CASE OF AVENTIS PH ARMA LTD (SUPRA) HAS OBSERVED AS UND 14. THE VIEW WHICH WE HAVE TAKEN OF THE PROVISIONS OF S. 147 IS CONSISTENT WITH THE LAW LAID DOWN BY THE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LTD. (2010) 228 CTR (SC) 488 : (2010) 34 DTR (SC) 4 9 : (2010) 320 ITR 561 (SC). THE SUPREME COURT HAS HELD THAT: '...THEREFORE, POST-1ST APRIL, 1989, POWER TO REOPE N IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATI ON TO THE WORDS REASON TO BELIEVE FAILING WHICH WE ARE AFRAID S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE RE ASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE AO HAS N O POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSM ENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEH ALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSE SSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CH ANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTER 1ST APRIL, 1989, AO HAS POWER TO REOPEN, PROVIDED T HERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS E SCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LINK WI TH THE FORMATION OF THE BELIEF.' 15. BEFORE CONCLUDING, IT WOULD BE NECESSARY TO REC ORD TWO FURTHER SUBMISSIONS WHICH HAVE BEEN URGED ON BEHALF OF THE ASSESSEE. THE FIRST SUBMISSION IS BASED ON THE PROVISO TO S. 147 WHICH PROVIDES THAT THE AO MAY ASSESS OR REASSESS SUCH INCOME WHICH IS CHARGEA BLE TO TAX AND HAS ESCAPED ASSESSMENT, OTHER THAN INCOME INVOLVING MAT TERS WHICH ARE THE SUBJECT-MATTER OF ANY APPEAL, REFERENCE OR REVISION . COUNSEL FOR THE ASSESSEE SUBMITTED THAT AGAINST THE ORDER OF ASSESS MENT, THE ASSESSEE HAD FILED AN APPEAL BEFORE THE CIT(A). THE GROUNDS IN THE APPEAL SPECIFICALLY INCLUDE A CHALLENGE TO THE ORDER OF AS SESSMENT ON THE GROUND THAT THE AO, ERRED IN DISALLOWING DEPRECIATION OF R S. 64.62 LAKHS BY HOLDING THAT THE SAME REPRESENTED DEPRECIATION ON OBSOLETE ASSETS WHICH ARE NOT USED IN BUSINESS AND INCLUDED IN THE WDV OF THE BLO CK OF ASSETS. SIMILARLY, ANOTHER POINT IN THE APPEAL IS THAT THE AO ERRED IN DETERMINING LONG-TERM CAPITAL GAINS ARISING ON THE SALE OF PHASE III LAND AT MULUND TO THE EXTENT OF RS. 10.66 CRORES. THE CONTENTION IS THAT IN VIEW OF THE PROVISO TO S. 147, THE AO IS PRECLUDED FROM REOPENING THE ASSESSMENT O N AN ISSUE WHICH IS THE SUBJECT-MATTER OF A PENDING APPEAL. THE SECOND SUBMISSION WAS BASED ON S. 120 OF THE ACT AND IT WAS URGED THAT SINCE TH E ORIGINAL ORDER OF 7 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) ASSESSMENT WAS PASSED BY THE ADDL. CIT, RANGE 8(1), MUMBAI, IT WAS NOT WITHIN THE JURISDICTION OF THE ASSTT. CIT, WHO IS A SUBORDINATE AUTHORITY, TO REOPEN THE ASSESSMENT. 16. FOR THE REASONS ALREADY INDICATED, ON THE QUEST ION AS TO WHETHER THE AO HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED AS SESSMENT WITHIN THE MEANING OF S. 147, WE HAVE COME TO THE CONCLUSION T HAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO TO HOLD SO AND THAT THE REASONS RECORDED FOR REOPENING THE ASSESSMENT CONSTITUTE A MERE CHAN GE OF OPINION. IN THE CIRCUMSTANCES, IT IS NOT NECESSARY TO DECIDE UPON T HE ADDITIONAL SUBMISSIONS WHICH HAVE BEEN URGED ON BEHALF OF THE ASSESSEE AS NOTED EARLIER. 6 IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS THE JURISDICTI ONAL HIGH COURT (SUPRA) WE HOLD THAT THE REOPENING OF THE ASSESSMENT IS NOT SU STAINABLE BEING BASED ON CHANGE OF OPINION. ACCORDINGLY, WE HOLD THAT THE RE OPENING OF THE ASSESSMENT IS INVALID. 7 GROUND NOS. 3 & 4 RELATE TO THE ISSUE ON MERIT. 8 THE GAIN ON FOREIGN EXCHANGE FLUCTUATION WITH RE SPECT TO THE TERM LOAN HAS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V WOODWARD GOVER NOR INDIA P LTD REPORTED IN 312 ITR 254. SINCE THERE IS NO DISPUTE IN THE CASE IN HAND THAT THE ALLEGED GAIN IS ONLY ON TERM LOAN; THEREFORE, THE SAME CANNOT BE TREATED AS GAIN ON REVENUE ACCOUNT IN VIEW OF THE DECISION OF THE HONBLE SUPR EME COURT CITED SUPRA. EVEN, THE ADJUSTMENT IN THE ACTUAL COST OF THE ASSET IS N OT PROVIDED UNDER THE AMENDED PROVISIONS OF SEC. 43A AS ON THE DATE OF BALANCE SH EET BECAUSE. AS PER THE AMENDED PROVISIONS OF SEC. 43A, THE ADJUSTMENTS IN THE ACTUAL COST IS MADE ON CASH BASIS. THE HONBLE SUPREME COURT HAS OBSERVED IN PARA 33 AND 34 IN THE CASE CITED SUPRA AS UNDER: 33. AS STATED ABOVE, WHAT TRIGGERS THE ADJUSTMENT I N THE ACTUAL COST OF THE ASSETS, IN TERMS OF UNAMENDED S. 43A OF THE 1961 AC T IS THE CHANGE IN THE 8 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) RATE OF EXCHANGE SUBSEQUENT TO THE ACQUISITION OF A SSET IN FOREIGN CURRENCY. THE SECTION MANDATES THAT AT ANY TIME THE RE IS CHANGE IN THE RATE OF EXCHANGE, THE SAME MAY BE GIVEN EFFECT TO B Y WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED I N FOREIGN CURRENCY. BUT FOR S. 43A WHICH CORRESPONDS TO PARA 10 OF AS-11 SU CH ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSETS WAS NOT POSSIBL E, PARTICULARLY IN THE LIGHT OF S. 43(1). THE UNAMENDED S. 43A NOWHERE REQ UIRED AS CONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CA RRYING AMOUNT OF THE FIXED ASSET THAT THERE SHOULD BE ACTUAL PAYMENT OF THE INCREASED/DECREASED LIABILITY AS A CONSEQUENCE OF T HE EXCHANGE VARIATION. THE WORDS USED IN THE UNAMENDED S. 43A WERE 'FOR MA KING PAYMENT' AND NOT 'ON PAYMENT' WHICH IS NOW BROUGHT IN BY AMENDME NT TO S. 43A VIDE FINANCE ACT, 2002. 34. LASTLY, WE ARE OF THE VIEW THAT AMENDMENT OF S. 43A BY THE FINANCE ACT, 2002 W.E.F. 1ST APRIL, 2003 IS AMENDATORY AND NOT CLARIFICATORY. THE AMENDMENT IS IN COMPLETE SUBSTITUTION OF THE SECTIO N AS IT EXISTED PRIOR THERETO. UNDER THE UNAMENDED S. 43A ADJUSTMENT TO T HE ACTUAL COST TOOK PLACE ON THE HAPPENING OF CHANGE IN THE RATE OF EXC HANGE WHEREAS UNDER THE AMENDED S. 43A THE ADJUSTMENT IN THE ACTUAL COS T IS MADE ON CASH BASIS. THIS IS INDICATED BY THE WORDS 'AT THE TIME OF MAKING PAYMENT'. IN OTHER WORDS, UNDER THE UNAMENDED S. 43A, 'ACTUAL PA YMENT' WAS NOT A CONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CARRYING COST OF THE FIXED ASSET ACQUIRED IN FOREIGN CURRENCY, HO WEVER, UNDER AMENDED S. 43A W.E.F. 1ST APRIL, 2003 SUCH ACTUAL PAYMENT O F THE DECREASED/ENHANCED LIABILITY IS MADE A CONDITION PR ECEDENT FOR MAKING ADJUSTMENT IN THE CARRYING AMOUNT OF THE FIXED ASSE T. THIS INDICATES A COMPLETE STRUCTURAL CHANGE BROUGHT ABOUT IN S. 43A VIDE FINANCE ACT, 2002. THEREFORE, THE AMENDED SECTION IS AMENDATORY AND NOT CLARIFICATORY IN NATURE. ACCORDINGLY, THE ISSUE ON MERIT IS ALSO DECIDED IN FAOVUR OF THE ASSESSEE. 9 IN VIEW OF THE ABOVE, WE DECIDE THE ISSUE IN FAVO UR OF THE ASSESSEE. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 13 TH , DAY OF MAY 2011. SD/- SD/- ( (( ( J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 13 TH MAY 2011 RAJ* 9 ITA NO. 2336/MUM/2010 (ASST YEAR 2004-05 ) COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI