2018 (12) TMI 515

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.... for consideration in this appeal. The first issue is with regard to claim of Rs. 98,98,784/- towards exchange fluctuation loss. The second ground is with regard to additional depreciation of Rs. 1,24,922/-. According to the Ld. representative, the assessee availed a term loan of Rs. 2.6 Crores on 31.03.2006 from City Union Bank for acquiring the business of M/s Singaravelar Spinning Mills Private Limited, Sathyamangalam, Erode District. Subsequently, the said loan was converted into foreign currency loan on 11.09.2007. According to the Ld. representative, the interest on the said loan was fully allowed by the Assessing Officer as revenue expenditure. However, the loss claimed by the assessee due to fluctuation in foreign currency was disal....

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....ng to the Ld. D.R., in the case before the Apex Court in Woodward Governor of India (P.) Ltd. (supra), the loan was borrowed for revenue purpose. Therefore, the Apex Court found that when the loan was taken for revenue purpose, the loss arising out of fluctuation in the rate of foreign currency is allowable as business expenditure under Section 37(1) of the Act. In the case before us, according to the Ld. D.R., the loan was borrowed for the purpose for acquiring an capital asset, therefore, the loan was taken for capital purpose and not for revenue purpose. Hence, the judgment of Apex Court in Woodward Governor of India (P.) Ltd. (supra) may not be applicable to the facts of this case. Therefore, according to the Ld. D.R., the CIT(Appeals) ....

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.... the cost of raising money for purchase of the asset and the cost of the asset are two different and independent transactions. Therefore, for the purpose of depreciation, the cost of asset cannot be reduced or increased due to exchange rate fluctuation. 6. This issue was also considered by the Pune Bench of this Tribunal in Cooper Corporation Pvt. Ltd. (supra). After referring to Section 43A of the Act which provides for capitalization of such losses arising out of fluctuation in foreign currency on acquisition of capital asset outside India, the Pune Bench found that it may not be applicable for acquisition of asset in India. Referring to Accounting Standard - 11, the Pune Bench found that the loss or gain arising from conversion of liab....

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....ears the character of revenue expenditure. Similarly, decision of the Apex Court in the case of Tata Iron and Steel Co. Ltd. (supra) also weighs in favour of the assessee. We also note that reliance placed by the CIT(A) on Elecon Engineering Co. Ltd. (supra) is misplaced. The decision concerns applicability of S. 43A in the facts of that case and thus clearly distinguishable. 11. For the aforesaid reasons, in the absence of applicability of section 43A of the Act to the facts of the case and in the absence of any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the Assessee in accordance with generally accepted accounting practices and mandatory accounting standards noti....