Tribunal Upholds Assessee's Forex Loss Deduction Decision

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of foreign exchange fluctuation loss claimed by the assessee, amounting to Rs. 80,68,000. The Tribunal found that the loss was a trading liability recorded in accordance with AS-11 and consistent with various judicial precedents, including decisions in ONGC Ltd v. DCIT and Sutlej Cotton Mills Ltd. v. CIT. The revenue's appeal was dismissed as they failed to provide contrary case law, and the assessee's claim for deduction was supported by relevant court decisions, resulting in the dismissal of the appeal.

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Issues Involved:
1. Disallowance of foreign exchange fluctuation loss.

Summary:

Disallowance of Foreign Exchange Fluctuation Loss:

The revenue filed an appeal against the CIT(A)'s order which deleted the disallowance of foreign exchange fluctuation loss of Rs. 80,68,000. The assessee had claimed this loss based on the conversion of liability as of 31-3-2003. The Assessing Officer disallowed the deduction, considering it a provision created without actual incurrence.

On appeal, the CIT(A) deleted the addition, observing that the foreign exchange transactions were recorded as per the exchange rate on the transaction date, and differences were adjusted in the P&L account. The CIT(A) cited various judgments, including ONGC Ltd v. DCIT, Sutlej Cotton Mills Ltd. v. CIT, and others, to support that the loss was not an unascertained liability but a consistent policy in line with AS-11.

Before the Tribunal, the revenue could not provide any contrary case law. The assessee relied on the Delhi High Court's decision in CIT v. Woodward Governor India (P.) Ltd., which supported the claim for deduction on account of foreign exchange fluctuation loss.

The Tribunal considered various judicial decisions, including Oil & Natural Gas Corpn. Ltd. v. Dy. CIT, Dy. CIT v. Maruti Udyog Ltd., Jt. CIT v. Abbot Laboratories (India) Ltd., and Bharat Heavy Electricals Ltd.'s case, which upheld the allowability of loss due to foreign exchange fluctuation as a trading liability.

The Tribunal also referred to the Supreme Court's decision in Sutlej Cotton Mills Ltd.'s case, which distinguished between trading and capital losses based on whether the loss was in respect of a trading asset or a capital asset.

In conclusion, the Tribunal upheld the CIT(A)'s order, finding no error in the conclusion that the assessee was entitled to claim the deduction. The appeal filed by the revenue was dismissed.

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