Section 43A of the Income Tax Act
Income-tax Act, 2025: s.42
Section 43A of the Income-tax Act, 1961 corresponds to section 42 (Capitalising impact of foreign exchange fluctuation) of the Income-tax Act, 2025.
Read section 42 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 43A is K.C. Builders & Anr. v. ACIT (265 ITR 562), cited in 241 of the 273 judgments on BharatTax that turn on this section.
Leading authorities on Section 43A
When the addition made in the assessment order, on the basis of which a penalty for concealment under section 271(1)(c) is levied, is subsequently deleted, the penalty has no basis and must be cancelled.
Income derived by a non-resident for services related to mineral oil operations, falling under the presumptive taxation regime of Section 44BB, cannot simultaneously be treated as fees for technical services under Section 9(1)(vii). The specific presumptive provisions override the general FTS definition, particularly when DTAA applies.
Disallowance under Section 14A for expenditure incurred to earn exempt dividend income (under Section 10(34)) is permissible. The assessee bears the burden to show the source of funds for acquiring shares, regardless of whether those shares are old or recently acquired.
The actual cost of an asset is distinct from the cost of borrowing money for its purchase. Foreign exchange fluctuations on loan repayment do not alter the asset's actual cost and are not covered by Section 43A.
A difference between a forward contract rate and the exchange rate on the date of entering into the contract for foreign currency is an ascertained and definite liability and thus eligible for deduction.
Expenditures are revenue in nature and deserve to be allowed as deductions if they are for commercial expediency.
The 'book profit' for the purpose of Section 115JA of the Income Tax Act, 1961, is the net profit as shown in the profit and loss account prepared in accordance with the Companies Act, 1956.
The Assessing Officer must first accept the arm's length price (ALP) declared by the assessee for international transactions with associated enterprises. Rejection of the declared ALP is an exception, requiring specific conditions to be met, such as those prescribed under section 92CA(3).
Foreign exchange losses on reinstatement of foreign currency loans are allowable as revenue expenditure, provided they are recognised in accordance with applicable accounting standards. Exchange fluctuation losses attributable to depreciable assets acquired in India may also be allowable expenditure.
