Foreign exchange fluctuation loss on year-end restatement remains deductible, with the claim sent back for fresh factual examination.

Foreign exchange fluctuation loss on year-end restatement of outstanding foreign currency liabilities was discussed as a deductible business item where it is accounted for under the mercantile system and consistent accounting standards. The Tribunal noted that the assessee had filed invoices, debit notes, working sheets and exchange fluctuation details, but these materials were not properly examined by the tax authorities. The matter was therefore remanded for fresh consideration of the supporting documents and submissions, with the disallowance not finally sustained. The assessment was set aside only to the extent necessary for re-examination of the foreign exchange loss claim.

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Issues: Whether the disallowance of foreign exchange fluctuation loss claimed on year-end restatement of outstanding foreign currency liabilities was sustainable, and whether the matter required fresh adjudication in light of the assessee's documentary submissions.

Analysis: The assessee claimed foreign exchange loss arising from reinstatement of closing balances of foreign currency liabilities at the balance sheet date, supported by invoices, debit notes, working sheets and exchange fluctuation details. The record showed that these submissions were placed before the tax authorities, but the assessment and DRP directions proceeded largely on the premise that sufficient details and business justification were not furnished. The Tribunal noted that the assessee had responded to the notices and that the material on record was not properly examined. It also referred to the settled principle that exchange fluctuation loss on year-end restatement, when accounted for under the mercantile system and consistent accounting standards, is a deductible business item, but the factual foundation had to be re-examined on the material actually filed.

Conclusion: The disallowance was not finally sustained and the matter was remanded to the Assessing Officer for fresh consideration of the assessee's submissions and supporting documents.

Final Conclusion: The assessment was set aside to the extent necessary for fresh examination of the foreign exchange loss claim, and the appeal succeeded only for statistical purposes.

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