R.K.ABICHANDANI,J. - (1.) C The Tribunal, Ahmedabad has referred the following question for the opinion of this Court under s. 256(1) of the IT Act, 1961. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that notwithstanding the provisions of S. 43A(2), the assessee was entitled to development rebate in respect of the increase in the cost of assets on account of realignment of currency?"
(2.) THE matter pertains to the asst. yrs. 1974 75 and 1976 77. The assessee had paid additional amounts of Rs. 23,26,965 and Rs. 12,10,357 for these two assessment years respectively to M/s Hitachi Ship Building Engineering Co. Ltd., Japan, by way of additional liability on account of fluctuation in the exchange rate. The claim of the assessee for treating this amount as revenue expenditure was rejected by the ITO. The CIT(A) however, allowed the same as revenue expenditure. The Tribunal while accepting the contention of the Revenue that this was not a revenue expenditure upheld the alternative contention raised by the assessee, that the assessee was entitled to development rebate treating the said expenditure to be capital expenditure. The Tribunal in the process was following the decision of this Court in Arvind Mills Ltd. vs. CIT 1976 CTR (Guj) 90 : (1978) 112 ITR 64 (Guj) : TC 29R.739. In Arvind Mills Ltd. (supra), this Court came to the conclusion that the additional liability in respect of the repayment of loan borrowed by the assessee for acquiring imported machinery during the relevant previous year which was incurred as an integral part of the original transaction can legitimately be taken into enhancing the cost of the machinery purchased and it should, therefore, be taken into consideration in determining the actual cost of such machinery to the assessee for the purpose of allowing development rebate under S. 33. It was held that there was no need to resort to S. 43A(1) and the proviso to S. 43A(2) which laid down that the provision of sub s. (1) of S. 43A shall not be taken into account in computing actual cost of an asset for the purpose of deduction on account of development rebate under S. 33, cannot therefore, be pressed into service to deny to the assessee the benefit which was available to it under S. 33 itself. The decision of this Court in Arvind Mills Ltd. (supra) was challenged before the Supreme Court and has been reversed by the decision of the Hon'ble Supreme Court in the case of CIT vs. Arvind Mills Ltd. (1992) 101 CTR (SC) 91 : (1992) 193 ITR 255 (SC) : TC 29R.727, in which while construing the provisions of S. 43A, the Supreme Court held that once Sub S. (1) of S. 43A is attracted, its application qua development rebate was excluded by virtue of the provisions of Sub S. (2) thereof. It was held that the language of this provision was perfectly clear and it was the requirement of the statute that for the purpose of development rebate any increase or decrease in the actual cost as a consequence of fluctuation in exchange rate should not be taken into account. It was held that in the face of the language of S. 43A(2) it would not be right to permit the assessee to claim development rebate on the increase cost. Applying the ratio of the decision of the Hon'ble Supreme Court in CIT vs. Arvind Mills Ltd. (supra), to the present case, we hold that the Tribunal committed an error in coming to the conclusion that notwithstanding the provisions of S. 43A(2), the assessee was entitled to development rebate in respect of the increase in the cost of the assets on account of realignment of currency. The question referred to us is, therefore, answered in the negative in favour of the Revenue and against the assessee. The Reference stands disposed of accordingly with no order as to costs.;