2023 (3) TMI 909

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....der the normal provisions and book profit of Rs.207,43,63,243/- u/s. 115JB of the Act. The assessee revised its return of income dated 16.05.2016, declaring total income of Rs.14,61,44,220/- under the normal provisions and book profit at Rs.207,42,63,243/- u/s. 115JB of the Act. The assessee's case was selected for scrutiny and the A.O. made a reference u/s. 92CA(1) of the Act to the Transfer Pricing Officer (TPO for short) for computation of arms length price in relation to the international transactions of the assessee and also made an addition on the foreign exchange losses on ECB loan, amounting to Rs.2,28,63,345/-. The A.O. also made an addition of Rs.29,28,34,962/- on account of 'loss on derivative contracts'. The assessee raised an objection before the ld. DRP, challenging the various additions made by the A.O. and after disposing of the objections, the A.O. passed the final assessment order as per the proposal of the ld. DRP. The assessee has challenged the impugned addition before us. 4. Ground no. 1 raised by the assessee is general in nature and ground no. 2 pertains to the disallowance of foreign exchange losses, upward adjustment of Rs.2,28,63,345/- on account of fore....

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....rred for the business activity of the assessee and had to be allowed as 'expenditure'. The same was not considered by the AO. The assessee further contended that the foreign exchange losses incurred on financial instruments are for the assessee's business and are not akin to that of the forex loans as per section 43A of the Act which is a fictional provision and the assessee further stated that the said expenditure incurred by the assessee are allowable as per section 37 of the Act. The assessee had tabulated the details of the loss on long term monetary item and the amortization of the same which are tabulated as below: Loss on Long Term Monetary Item Loan Amount - Canara Bank ECB USD USD Rate INR New Loan Distributed on 19.05.14 3,00,00,000 58.3983 1,75,19,49,000 New Loan Disbursed on 19.05.14 1,00,00,000 59.3380 59,33,80,000 Total loan 4,00,00,000 58.6332 2,34,53,29,000 Repaid on 30.09.2014 10,00,000 61.5775 6,15,77,500 Repaid on 30.03.2015 10,00,000 62.57500 6,25,75,000 Closing balance 3,80,00,000 62.3355 2,36,87,49,000     Gain /(loss) (14,75,72,500) Amortization of loss on long term monetary item Working as ....

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....ssions and perused the material on record. It is observed that the assessee has incurred a loss of Rs.147,572,500/- on foreign exchange loss and the same was amortized for the term period of the loan. The assessee company had stated that the said loan was not for the purpose of acquisition of assets or for expansion of the project, as the same was completed before the conversion of the loans and the capital asset was also put to use, prior to the said conversion. 11. From the submission made by both sides, it is evident that the assessee has not utilised the said loan for the purpose of acquisition of the assets and was only for the purpose of saving in interest costs. The AO has not controverted this fact and has merely stated that the assessee has availed loan for the purpose of acquisition of capital assets. There is no material evidence to prove this fact. In the absence of the said proof, we can conclude that the purpose of the loan availed by the assessee was to save the interest costs for the loan received from the banks. On perusal of the decisions cited by the ld. AR, it can be observed that the Hon'ble Apex Court has held that a profit or loss on account of fluctuation i....

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....lly following the decisions cited herein above, we are of the view that the loss incurred by the assessee in foreign currency exchange is allowable as 'revenue expenditure' and is a 'revenue loss' for which the assessee is entitled to deduction as 'revenue expenditure'. In the absence of any finding that the loan obtained by the assessee is utilized for the purpose of accruing assets, we hold that the said loan was availed for the purpose of reducing the cost of interest, which is an allowable expenditure u/s. 37(1) of the Act. The addition made on account of the same is directed to be deleted and, therefore, ground no. 2 and its relevant grounds raised by the assessee are allowed. 14. Ground no. 3 pertains to the adjustment of Rs.29,28,34,962/- on account of loss on derivative contracts. It is observed that the assessee has entered into two derivative contracts amounting to Rs.100 crores (Rs.50 crores each) in the nature of interest and principal currency swap transaction where Rs.100 crores was converted into dollar loan at a fixed rate of USD/INR with ICICI Bank. As per the contract, the assessee has converted three months floating libor into the fixed libor rate pertaining to ....