2018 (2) TMI 867 - AT - Income Tax

Foreign exchange loss treated as revenue expenditure under Income-tax Act, 1961

The Tribunal allowed both appeals, holding that the loss on foreign exchange fluctuation should be treated as revenue expenditure under Section 37(1) of ... Disallowance of loss on foreign exchange fluctuation - allowable busniss expenditure - Held that:- The issue of loss on foreign exchange fluctuation was examined by this Tribunal for assessment year 2012-13 in the assessee's own case. Placing reliance on the judgment of Apex Court in Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT) this Tribunal found that the loss suffered by the assessee on foreign exchange fluctuation has to be allowed under Section 37(1) of the Act. We hold that the loss suffered by the assessee on foreign exchange fluctuation has to be allowed under Section 37(1) of the Act. - Decided in favour of assessee Issues: Disallowance of loss on foreign exchange fluctuation.Analysis:The appeal involved a common issue of disallowance of loss on foreign exchange fluctuation for assessment years 2013-14 and 2009-10. The assessee contended that the loss should be allowed as revenue expenditure under Section 37(1) of the Income-tax Act, 1961, citing a previous Tribunal order and the judgment of the Apex Court in CIT v. Woodward Governor India (P) Ltd. (2009) 312 ITR 254. The Tribunal noted that the loss on foreign exchange fluctuation had been examined previously in the assessee's case for the assessment year 2012-13, where it was held that such losses should be allowed under Section 37(1) of the Act based on the Woodward Governor India case. The Tribunal emphasized the principle established by the Apex Court that the term 'expenditure' in Section 37 may cover an amount that is essentially a 'loss' even if it has not physically left the assessee's possession. Therefore, the Tribunal held that the loss suffered by the assessee on foreign exchange fluctuation should be allowed as per the Woodward Governor India judgment, setting aside the orders of the lower authorities and deleting the additions made by the Assessing Officer for both assessment years.In summary, the Tribunal allowed both appeals filed by the assessee, concluding that the loss on foreign exchange fluctuation should be treated as revenue expenditure under Section 37(1) of the Income-tax Act, 1961, based on the precedent set by the Apex Court in CIT v. Woodward Governor India (P) Ltd. The Tribunal's decision was grounded in the interpretation that the term 'expenditure' in Section 37 encompasses losses, even if they have not been physically paid out by the assessee. This ruling overturned the disallowance made by the lower authorities and emphasized the consistency required in tax treatment regarding foreign exchange gains and losses.