TaxTMI 
TaxTMI 
TaxTMI 
2020 (12) TMI 526
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....ke of convenience and clarity, the facts relevant to the appeal in ITA No. 2202/PUN/2017 for assessment year 2012-13 are stated herein. 4. The assessee raised the following grounds of appeal:- "1. The learned CIT(A)-1, Pune erred in law and on facts in confirming the disallowance of Rs. 1,54,21,582 made by the learned AO on account of Forex loss pertaining to reinstatement of outstanding balance of External Commercial Borrowing (ECB) loan. 2. The learned CIT(A)-1, Pune erred in law and on facts in confirming the decision of the learned AO of not treating the foreign exchange difference of ECB loan as an adjustment to interest cost to extent of difference in local currency interest and interest in f....
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.... loss of Rs. 1,54,21,582/- on account of fluctuation in the foreign exchange rate on External Commercial Borrowing (ECB) loan claimed by the assessee as revenue expenditure. The relevant facts in this regard as follows : The appellant had availed ECB loan acquisition of assets in India. During the previous year relevant to the assessment year under consideration, the assessee incurred a loss on account of fluctuation in foreign exchange currency rate on the reinstatement of ECB loan or at balance sheet date being sum of Rs. 1,54,21,582/- claimed as revenue expenditure which was debited to the Profit & Loss Account. During the course of assessment proceedings, it was submitted that the loss on account of reinstatement of ECB loan should be a....
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.... present appeal. During the course of hearing of appeal, the ld. AR for the assessee had withdrawn the grounds no. 1 and 2 challenging the decision of the lower authorities in disallowing the claim for allowance as revenue expenditure being loss arisen on account of reinstatement of outstanding balance of ECB loan. The ld. AR had argued only ground of appeal no. 3 challenging the decision of the lower authorities in disallowing the claim that the loss that had arisen on account of reinstatement of ECB loan should go to add to the actual cost of the asset. The ld. AR placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd., 312 ITR 254 (SC) submitted that the loss arising on a....
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....erefore the same cannot be recognised either for the purpose of allowance of revenue expenditure or capitalization. This objection is no longer tenable in law in the light of the dictum of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. (supra) wherein the Hon'ble Apex Court had quoted with approval of the decision of the Hon'ble Madhya Pradesh High Court in the case of M.P. Financial Corporation vs. CIT, 165 ITR 765 wherein it was held that the term "expenditure" covers even a case of loss even though the said amount has not gone out from the pocket of the assessee. The Hon'ble Apex Court further observed that the decision of the Hon'ble Madhya Pradesh High Court in the case of M.P. Financial ....
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....y adjustments in the carrying cost of the fixed asset there should be actual cost, on increase or decrease of liability as a consequence of exchange variation infact actual payment of liability. But on plain reading of the provisions of section 43A of the Act, it is clear that provisions of section 43A have application only in the case of imported assets. In the present case, the assets were acquired in India, therefore, the conditions of making actual repayment foreign currency loan is not a condition for making necessary adjustment in the actual cost of the asset. Therefore, the general principles of law would be applicable. The Hon'ble Supreme Court in the case of Arvind Mills Ltd. (supra) observed as under:- "We may now turn to th....
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....of depreciation in subsequent years on the basis of the revised cost and there will be no problem." 11. Even the Hon'ble Madras High Court in the case of Southern Asbestos Cement Ltd. vs. CIT, 259 ITR 631 had also followed the Hon'ble Supreme Court's decision in the case of Arvind Mills Ltd. (supra) and in the light of the law laid down by the Hon'ble Supreme Court in the case of Arvind Mills Ltd. (supra), we hold that the necessary adjustments should be made to the actual cost of assets on account of loss consequent to foreign currency fluctuation rate as there is no dispute that ECB loans are utilized for the purpose of acquisition of asset in India. Accordingly, we direct the Assessing Officer to allow necessary adjustme....