Foreign exchange fluctuation loss on revenue account is deductible, and penalty needs independent concealment material.

Foreign exchange fluctuation loss on current account transactions was treated as revenue expenditure because the exchange difference arose on revenue account and Accounting Standard 11 required recognition of such differences as income or expenditure; the addition was deleted. Penalty under section 271(1)(c) was held unsustainable because the survey record contained no corroborative material showing concealment or furnishing of inaccurate particulars, and a mere disallowance did not by itself justify penalty; the penalty deletion was upheld. The Revenue's appeals failed on both the quantum and penalty issues.

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Issues: (i) Whether foreign exchange fluctuation loss on current account transactions was allowable as revenue expenditure and not a notional loss. (ii) Whether penalty under section 271(1)(c) was sustainable in the absence of material found or seized during survey to show concealment or furnishing of inaccurate particulars.

Issue (i): Whether foreign exchange fluctuation loss on current account transactions was allowable as revenue expenditure and not a notional loss.

Analysis: The loss arose from foreign exchange variation on revenue account transactions. The relevant accounting treatment under Accounting Standard 11 required such exchange differences to be recognised as income or expenditure, as the case may be. The record did not show that the transactions were on capital account. The claim was supported by the assessee's current account working and bank correspondence.

Conclusion: The foreign exchange fluctuation loss was allowable as revenue expenditure and the addition was rightly deleted.

Issue (ii): Whether penalty under section 271(1)(c) was sustainable in the absence of material found or seized during survey to show concealment or furnishing of inaccurate particulars.

Analysis: The penalty was founded on the survey declaration alone. No corroborative material found or seized during the survey was brought on record to establish concealment or furnishing of inaccurate particulars. A mere disallowance or addition does not automatically justify penalty.

Conclusion: The penalty was not sustainable and the deletion of penalty was correctly upheld.

Final Conclusion: The Revenue's appeals failed on both the quantum and penalty issues, and the assessee succeeded in retaining relief granted by the first appellate authority.

Ratio Decidendi: Exchange differences on revenue account are deductible when recognised under the applicable accounting standard, and penalty for concealment cannot be sustained without independent material showing concealment or inaccurate particulars.

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