2018 (12) TMI 515 - AT - Income Tax

Tribunal permits claim for exchange rate loss on foreign currency loan as revenue expenditure

The Tribunal allowed the assessee's claim for exchange rate fluctuation loss on a foreign currency loan as a revenue expenditure under Section 37(1) of ... Claim towards exchange fluctuation loss - whether loss claimed by the assessee on account of foreign exchange fluctuation is allowable under Section 37(1)? - Additional depreciation - Held that:- As carefully gone through the judgment of Apex Court in Tata Iron And Steel Co. Ltd.[1997 (12) TMI 5 - SUPREME COURT] the manner or mode of repayment of the loan has nothing to do with the cost of asset acquired by the assessee for the purpose of business. The Apex Court has also found that even if the borrowed funds were not repaid, it will not alter the cost of the asset. The Apex Court further found that the cost of raising money for purchase of the asset and the cost of the asset are two different and independent transactions. Therefore, for the purpose of depreciation, the cost of asset cannot be reduced or increased due to exchange rate fluctuation. As referring to Section 43A of the Act which provides for capitalization of such losses arising out of fluctuation in foreign currency on acquisition of capital asset outside India COOPER CORPORATION (P.) LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX [2016 (5) TMI 809 - ITAT PUNE] found that it may not be applicable for acquisition of asset in India. Referring to Accounting Standard – 11, the Pune Bench found that the loss or gain arising from conversion of liability at the closing rate should be recognized in the Profit & Loss account for the reporting period. As relying on COOPER CORPORATION (P.) LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX [2016 (5) TMI 809 - ITAT PUNE] Assessing Officer is directed to allow the loss suffered in exchange rate fluctuation on foreign currency loan as revenue expenditure. - Decided in favour of assessee Issues:1. Claim of exchange fluctuation loss2. Additional depreciation claimAnalysis:1. The appeal concerned two main issues: a claim of exchange fluctuation loss and an additional depreciation claim. The assessee availed a term loan in Indian rupees, later converted into a foreign currency loan. The Assessing Officer disallowed the claimed loss due to fluctuation in foreign currency. The Ld. representative argued that similar cases allowed such losses under Section 37(1) of the Income-tax Act, citing relevant judgments. The Departmental Representative contended that since the loan was for acquiring a capital asset, the loss was not allowable as revenue expenditure.2. The Tribunal analyzed the Apex Court's judgment in Tata Iron And Steel Co. Ltd., stating that exchange rate fluctuations do not affect the cost of depreciable assets for depreciation calculation. Referring to the Pune Bench's decision in Cooper Corporation Pvt. Ltd., it noted that losses from currency fluctuation may be recognized in the Profit & Loss account. The Tribunal highlighted the distinction between revenue and capital assets in determining the nature of such losses. It ultimately relied on the Pune Bench's findings to allow the assessee's claim for exchange rate fluctuation loss as a revenue expenditure under Section 37(1) of the Act.3. The Tribunal concluded that the claim of the assessee for the exchange rate fluctuation loss on the foreign currency loan should be allowed as a revenue expenditure, overturning the decisions of the lower authorities. The judgment was based on the Pune Bench's analysis and findings, emphasizing the applicability of Section 37(1) of the Act in this context. As a result, the appeal filed by the assessee was allowed, directing the Assessing Officer to permit the claimed loss suffered due to exchange rate fluctuation on the foreign currency loan as a revenue expenditure.