Treatment of loss due to foreign exchange fluctuations

[Sanjeev Sharma]

There was a loss on account of Foreign Exchange Fluctations on restatement of Foreign currency loan taken for purchase of Land, Building and Machinery ( indegenous) for a manufacturing project. How will it be treated in Income tax ??

[Rama Krishana]

I am not an expert but wish you to put your views and understanding first so that the same may be discussed further.

[Sanjeev Sharma]

Perplexed at your comments. I find nothing in Income tax Act which applies to this situation. Sec 43A also does not apply to this, being indegenous machinery. I had a problem and that is the reason for this query. If you know, I would appreciate your reply to the query.

[Rama Krishana]

I hope your issue would be solved with the help of Supreme Court decision reported in 2009 -TMI - 32906 - SUPREME COURT - in this case, supreme court has allowed the deduction on account of foreign exchange fluctuation. In this case, a detailed discussion on cost u/s 43A has been made and reasoned decision has been delivered.

[Sanjeev Sharma]

You mean Woodworth case. That does not apply to this situation.It says loss on account of revenue a/c and on account of capital a/c. Loss on account of revenue a/c is allowed as an expense. We have loss on account of capital a/c. In 43A situation, it is capitalised. In non 43A situation, will it be entirely disallowed ??

AI Summary

Query on Tax Treatment of Forex Losses on Foreign Loans for Capital Assets, Seeking Clarification Beyond Section 43A. A participant raised a query regarding the treatment of losses from foreign exchange fluctuations on a foreign currency loan used to purchase land, buildings, and indigenous machinery for a manufacturing project, questioning its treatment under income tax law. One respondent suggested referring to a Supreme Court decision that allowed deductions for such losses. However, the original poster noted that the case cited involved revenue account losses, whereas their situation involved capital account losses, questioning if these would be entirely disallowed in non-Section 43A situations. The discussion remains unresolved.