TaxTMI 
TaxTMI 
2016 (7) TMI 1264
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.... 6,50,763 Annexure-4.3 4. Projects (58,86,271) Annexure-4.4 2,97,31,341 Schedule of Loss on Foreign Exchange Fluctuation (Annexure 4.2) Details Amount (Rs.) Loss on FCL of Karur Vysya Bank 8,83,209 Loss on FCL of BOI 29,40,000 Loss on Ereiz Transaction 3,02,532 Loss on FCL of Karur Vysya Bank 11,00,165 Gain on FCL of Karur Vysya Bank (5,12,687) Los on FCL of AXIX Bank 4,27,673 Loss on FCL of BOI 15,75,000 Exchange Loss on FCL 9,70,586 Provision for Loss on FCL of Union Bank upto March,08 4,39,429 Provision for Loss on FCL of Union Bank upto March,08 3,33,308 Provision for Loss on FCL of Karur Vysya Bank upto March,08 5,158 Loss on FCL of Union Bank 3,28,696 Provision for Loss on FCL of Bank of India upto March,08 12,95,000 Loss on FCCB Issue 2,50,94,109 TOTAL 3,51,94,109 3. It can be seen from the aforesaid break up of loss on foreign exchange fluctuation that a sum of Rs. 2,50,94,109/- had been claimed as a loss on foreign exchange fluctuation on FCCB Issue by the assessee. During the previous year the assessee had issued Foreign Currency Convertible Bonds (FCCB). As on the last date of the previous year, due to for....
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....on convertible portion of partly convertible debentures were allowable as revenue expenditure irrespective of the fact that the date of conversion after six months fell within the same year. Further, it has been held by Hon'ble Rajasthan High Court in the case of CIT -vs.- Secure Meters Ltd (2010) 321 ITR 611 (Raj) that debentures when issued are a loan, and whether it is convertible or non convertible does not militate against the nature of the debenture and therefore, the expenditure incurred would be admissible as revenue expenditure. The SLP filed by the Department against the aforesaid case was rejected by the Hon'ble Supreme Court vide SLP No. CC 10548/2009. Following the decision of Rajasthan High Court in Secure Meters(supra) Hon'ble Mumbai ITAT in the case of Mahindra & Mahindra -vs.- ClT (2010) 36 SOT 348 (Mum) has held that expenditure incurred on account of foreign currency convertible bonds (FCCB) would be admissible as revenue expenditure. In view of the above judicial pronouncements, the assessee has claimed the said expenses as allowable revenue expenditure in computing total income chargeable to tax. Further, at the time of remittance of money in ....
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....eedings. The assessee placed reliance on the following judicial pronouncements in support of his contentions referred to above :- i) Malabar Industrial Co. Ltd vs CIT243 ITR 83(SC) ii) CIT vs G.M.Mittal Stainless Steel Pvt. Ltd. 263 ITR 255(SC) iii) CIT vs Gabriel India Ltd. 203 ITR 108(Bom) 9. Apart from the above the assessee also submitted that even on merits the action of the AO in allowing deduction on account of loss on account of foreign exchange fluctuation was correct. 10. The CIT however, was not convinced with the reply given by the assessee. He was of the view that as per the decision of the Hon'ble Supreme Court in the case of CIT vs Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC) it has been laid down that loss due to foreign exchange fluctuation is allowable as revenue expenditure provided the foreign currency transaction is on account of revenue item. According to CIT in the case of the assessee the loss due to foreign exchange fluctuation in foreign currency relate to transactions on capital item and therefore expenditure was capital in nature and not allowable as deduction to the assessee. He therefore held that the order of AO was erroneous. Thereafter th....
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.... treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. It was pointed out that similar view was taken by Hon'ble Jurisdictional High court in CIT -vs.- J.L.Morrision (India) Ltd. (2014) 366 ITR 0593 (Cal). It was submitted that FCCB is in the nature of debt and has been duly accounted as 'Unsecured Loan' in the Balance Sheet following accounting principles. It was submitted that the Hon'ble Mumbai Tribunal in Mahindra & Mahindra Limited -vs.- ACIT (2014) 29 ITR (Trib) 95 (Mum) has held that since issue of premium payable on FCCBs has been held to be revenue in nature, similarly the difference in the exchange which has resulted in loss on re-valuation of loan liability in the form of FCCB, has also to be given similar treatment thereby allowing such loss as revenue expenditure. Hence, debenture or FCCBs issued, whether convertible into shares at a future date is in the nature of loan and cannot be treated as capital raised by the assessee. Accordingly, the expenditure or loss incurred on issuance of any debt is allowable while computing Total income. Attention was drawn to the decision of t....