Foreign currency loan treated as capital loss & depreciation allowed on forex rate change portion. Appeal partly allowed. The Tribunal upheld the treatment of the loss from a foreign currency term loan as a capital loss. However, depreciation was allowed on the amount related ...
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Foreign currency loan treated as capital loss & depreciation allowed on forex rate change portion. Appeal partly allowed.
The Tribunal upheld the treatment of the loss from a foreign currency term loan as a capital loss. However, depreciation was allowed on the amount related to the change in foreign exchange rates as part of the asset's cost. The appeal was partly allowed, with the order pronounced in Chennai on June 15, 2022.
Issues: 1. Treatment of loss arising from foreign currency term loan as capital loss instead of revenue. 2. Whether the loss can be considered as part of the cost of the asset for depreciation purposes.
Analysis: 1. The appeal was heard ex-parte as the assessee did not appear despite multiple notices. The main issue was the treatment of the loss from a foreign currency term loan as capital loss instead of revenue. The assessee claimed the loss as revenue expenditure related to financial costs but the AO and CIT(A) considered it as capital expenditure since the loan was used to purchase machinery, a capital asset. The CIT(A) upheld the AO's decision, stating that the loss was capital in nature. The Tribunal affirmed the lower authorities' findings, concluding that the loan for machinery purchase should be treated as a capital loss.
2. The assessee made an alternate claim that if the loss was considered as part of the cost of the asset, depreciation should be allowed on the increased cost. The Tribunal agreed with this alternate claim and directed the AO to allow depreciation on the amount related to the change in foreign exchange rates for the foreign currency term loan converted from a rupee term loan. Therefore, the Tribunal partially allowed the appeal, allowing depreciation on the amount related to the forex loss as part of the asset's cost.
In conclusion, the Tribunal upheld the decision to treat the loss from the foreign currency term loan as a capital loss but allowed depreciation on the amount related to the change in foreign exchange rates as part of the asset's cost. The appeal was partly allowed, and the order was pronounced on June 15, 2022, in Chennai.
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