Foreign exchange loss and PF/ESI compliance rules: revenue FCCB losses were allowed, but late employees' contributions stayed disallowed.

Foreign exchange fluctuation loss on FCCB borrowings used for business purposes was treated as a real revenue loss and not a notional item, so the disallowance failed; the corresponding adjustment to book profit under section 115JB also fell away. Employees' contribution to PF and ESI paid after the statutory due dates remained inadmissible despite payment before the return filing date, because section 36(1)(va) requires compliance with the prescribed deposit deadlines. A reassessment addition for the same foreign exchange loss already disallowed in the original assessment could not be sustained, as it resulted in a duplicate addition.

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Issues: (i) whether amortised foreign exchange loss on FCCB borrowings was deductible as revenue expenditure and could be excluded from book profit under section 115JB; (ii) whether employees' contribution to PF and ESI paid after the statutory due dates but before filing the return was allowable; (iii) whether the reassessment addition of foreign exchange fluctuation loss already disallowed in the original assessment could be sustained.

Issue (i): whether amortised foreign exchange loss on FCCB borrowings was deductible as revenue expenditure and could be excluded from book profit under section 115JB.

Analysis: The loss arose from foreign currency fluctuation in respect of FCCBs used for business borrowing. The Tribunal applied the settled principle that exchange fluctuation loss on a revenue account liability is a real expenditure and not a notional item merely because it is recognised on balance-sheet date. It also noted that the Revenue's contention of capital character was not supported by any specific finding that the borrowings were taken for acquiring capital assets in India. Since the same claim had been accepted in the assessee's own earlier years and the accounting treatment followed the relevant notification, the disallowance could not survive. As the normal income addition was deleted, the corresponding adjustment to book profit under section 115JB also failed.

Conclusion: The disallowance of FCCB foreign exchange amortisation was deleted, and the consequential book profit adjustment was also deleted, in favour of the assessee.

Issue (ii): whether employees' contribution to PF and ESI paid after the statutory due dates but before filing the return was allowable.

Analysis: The Tribunal applied the binding rule that employees' contribution retains its distinct character under section 36(1)(va) and must be deposited within the prescribed statutory due dates. Payment before the due date for filing the return does not cure the default. In view of the Supreme Court ruling and the jurisdictional High Court's decision, the assessee's remittance beyond the statutory due dates remained inadmissible.

Conclusion: The disallowance of employees' contribution to PF and ESI was upheld, against the assessee.

Issue (iii): whether the reassessment addition of foreign exchange fluctuation loss already disallowed in the original assessment could be sustained.

Analysis: The Tribunal held that the original assessment and the reassessment are separate proceedings, and the reassessment could not licate an addition already made in the original assessment merely because the assessee had not challenged that original disallowance. Since the impugned reassessment addition was based only on the existence of the earlier disallowance and resulted in double addition, it was unsustainable.

Conclusion: The reassessment addition of foreign exchange fluctuation loss was deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded only on the foreign exchange loss issues, while the disallowance of employees' contribution to PF and ESI was sustained; the matter was therefore disposed of partly in favour of the assessee.

Ratio Decidendi: Foreign exchange fluctuation loss on revenue borrowings is deductible when it represents a real business loss, consequential book profit adjustments cannot survive once the underlying disallowance is deleted, employees' contributions to welfare funds must be deposited within the statutory due dates to be deductible, and reassessment cannot be used to duplicate an addition already made in the original assessment.

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