TaxTMI 
TaxTMI 
2019 (11) TMI 857
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....s is as to whether the CIT(A) was justified in directing the AO to allow the claim for deduction on account of foreign exchange fluctuation loss as a result of restatement of the Assessee's liability as on the last date of the previous year, without there being an actual payment or settlement. 3. As far as ITA No. 2548/Bang/2018 for Assessment Year 2012-13 is concerned, the department has filed a letter seeking to withdraw the aforesaid appeal for the reason that the tax effect in the aforesaid appeal is lesser than Rs. 50,00,000/- and therefore such appeals are not maintainable in view of the CBDT's Circular No.17/2018 dated 08.08.2019. Consequently, ITA No.2548/Bang/2018 is dismissed. 4. As far as 2547/Bang/2018 for Assessment Year ....
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....e grounds that may be urged. 5. The assessee is a company engaged in the business of manufacturing / marketing and distribution of apparels under the brand of Levis Strauss & Co., USA. During the previous year, the assessee incurred foreign exchange losses pertaining to Revenue items in relation to intercompany payables/receivables. The assessee in this regard claimed deduction of a sum of Rs. 4,64,12,201/- on account of loss due to adverse foreign exchange fluctuation. The AO noticed that out of the aforesaid foreign exchange claimed by the assessee, a sum of Rs. 3,22,63,323/- was foreign exchange gain / loss not on account of actual settlement or payment but on account of reinstatement of the payables and receivables as on the last dat....
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....y cannot constitute a deductible expenditure. For all the above reasons, the AO refused to allow the deduction claimed by the assessee. 7. On appeal by the assessee, the CIT(A) allowed the deduction claimed by the assessee for the following reasons:- "5.3. I have carefully considered the AO's observations and above arguments of the Appellant, the issue is accordingly adjudicated as under:- It is apparent that the Appellant follows the mercantile system of accounting. During the year, the Appellant has stated) shown unrealised foreign exchange loss of Rs. 3,22,63,323 on restatement of outstanding trade payables and receivables in foreign currency (such as import of goods, services and export of services etc.) which i....
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....ul consideration to the rival submissions. We find that the foreign exchange loss claimed by the assessee was on account of reinstatement of the liability of the assessee as on the last date of the previous year. It is no doubt true that there has been no actual payment and at the time of ultimate settlement, there may not be a loss also. Nevertheless, AS - 11 of ICAI requires such liability also to be reflected in the financial statements. The Hon'ble Supreme Court considered all these aspects in the case of CIT(A) Vs. Woodward Governor (2009) 312 ITR (P.) Ltd. (2011) 200 Taxman 179. The first aspect examined by the Hon'ble Supreme Court was as to whether the additional liability due to exchange rate fluctuation was a liability. The Hon'bl....