2022 (4) TMI 382

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....Loss on foreign currency transaction: 1. The learned CIT(A) erred on facts and in law in upholding disallowance of foreign exchange fluctuation loss of Rs. 3,43,34,294 considering it as capital expenditure in nature. 1.1. The learned CIT(A) failed to appreciate the fact that the foreign exchange fluctuation loss of Rs. 3,43,34,294 was incurred on loan taken for purchase of capital assets in India and therefore the provisions of Section 43A are not applicable. 1.2. The learned CIT(A) failed to appreciate the fact that the purpose of loan was to reduce interest cost which is a revenue expenditure and therefore the foreign currency fluctuation loss on such loan is also revenue in nature. 1.3. The learned CIT....

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....ed to be made, then proportionate disallowance should be made in terms of provisions of section 43A of the Act. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to him, loss incurred by the assessee on account of fluctuation in foreign currency is capital in nature, because the assessee company had borrowed loans from external source for the purpose of acquiring capital asset. Therefore, disallowed loss and added back to the total income. The assessee carried the matter in appeal before first appellate authority, but could not succeed. The learned CIT(A) for the reasons stated in his appellate order dated 19.12.2018 rejected arguments of the assessee and sustained additions made ....

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....assessee that in the subsequent assessment year, the Assessing Officer has made proportionate disallowance in respect of loss pertaining to loans taken for acquiring capital asset. 5. We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the assessee has incurred exchange loss on account of foreign currency loan availed from external sources. The Assessing Officer has disallowed total loss incurred on account of exchange fluctuation by holding that it is in the nature of capital loss. It was the argument of the assessee before us, that the assessee has borrowed foreign currency loans for the purpose of acquiring capital asset as ....