TaxTMI 
TaxTMI 
2006 (10) TMI 184
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.... Rs. 91,86,812 claimed as a deduction in the assessment in computing the business income. The amount was debited in the P&L a/c under the head "Finance charges". Details of the same were filed by the assessee in response to the requisition by the AO from which he noticed that the assessee had taken a loan of US $ 3,000,000 from M/s Silicon Graphics Inc. of USA to meet the working capital requirements, that the loan was due for repayment in August, 1999 but was rolled over for a period of 3 more years, that the liability to repay the loan started from the year 2002, that such loan is repayable in foreign currency (US $) and that there was a loss due to the fall in the exchange rate (fall in the value of Indian rupees vis-a-vis dollars) betwe....
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....have only indicated the broad reasoning given by him. 3. On appeal, the CIT(A) agreed with the AO and confirmed the disallowance and hence the present grounds. 4. We have heard the rival contentions. The assessee took a loan in US $ from M/s Silicon Graphics Inc. ofUSA. The loan was approved by the Government of India (Ministry of Finance, Department of Economic Affairs) by letter dt.27th Aug., 1996. The letter shows that the loan was taken "for financing the working capital requirements". The Exchange Control Department, Import Section, RBI,New Delhiby letter dt.7th Oct., 1996also approved the loan and in the approval letter it was recognized that the loan was taken for working capital requirements. In the quarterly returns filed with th....
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....ven though the time for repayment of the loan has not come, the order of the Special Bench (Delhi) in the case of Oil & Natural Gas Corpn. Ltd. vs. Dy. CIT (2002) 77 TTJ (Del)(SB) 387 : (2003) 261 ITR 61 (Del)(SB)(AT) : (2002) 83 ITD 151 (Del)(SB) provides the answer. In this case, it was held that the loss cannot be called notional since the fall in the exchange rate has already taken place in the accounting year. The Special Bench has also made a reference to the accounting standards (AS-11) in which it has been stated that the long-term liabilities should be restated and the loss should be charged to the P&L a/c of each year. The liability on the date of the balance sheet has to be reckoned in the accounts on the basis of the fluctuation....