TaxTMI 
TaxTMI 
2017 (9) TMI 2067
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....diture, showed all the characteristics as a revenue expenditure, as consistently followed in the previous years. 4. For that the CIT(A) failed to appreciate that the addition is against the principles laid in the Accounting Standard 16 issued by the Institute of Chartered Accountants of India in treating the loss on account of foreign Exchange. 5. For that the CIT(A) did not take into consideration the submissions made by the Assessee. 3. The brief facts of the case are that the assessee had charged to the P&L A/c a sum of Rs.31,12,150/- under the head "Foreign Exchange Fluctuation". It was stated that the foreign exchange loss claimed on account of difference in foreign exchange rate arises primarily due to the restatement of the "External Commercial Borrowing (ECB) loan" from the parent company on 21.09.2011 just prior to the conversion of the loan into equity shares. It was observed that the parent Emile Egger & CIE SA, Switzerland had advanced the money during the period i.e. between February and November, 2006. The total remittance amounting to Rs.3,24,982.65 Euros was said to be External Commercial Borrowing in the FIRCs of the banker M/s.Kotak Mahindra B....
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....f capital expenditure, still the loan was obtained for acquiring the capital asset. He further drew our attention to AS-16 issued by ICAI to highlight the cause and effect of the Forex loss and absorption of interest on borrowing cost. He submitted that it was clearly stated therein that in a situation where interest on ECB and forex fluctuation on ECB are considered in tandem, the unabsorbed interest, meaning the difference between normal interest and the ECB interest, if any, at one hand, and the foreign exchange loss on the other, shall be absorbed as interest on borrowing. According to him, as per AS-16, no capitialization is required of the interest after commencement of the business and hence no capitialization is warranted at no point of time. The ECB is restated in immediate two years prior to the year in contention and all mandatory AS have been followed and stated so. The ld.A.R relied on the following case laws in favour of assessee. 1. in the case of Principal Commissioner Of Income Tax & Ors. vs. Nitrex Chemicals India Ltd. & Ors in (2016) 96 CCH 0285 Del.HC wherein held that:- "The ECB loan/advance was an old one and treatment of the foreign ex....
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....dward Governor India Pvt. Ltd. [2009] 312 ITR 254. It has been, inter alia, held that the expression "expenditure" in Section 37(1) of the Act connotes "what is paid out" and what has gone irretrievably. But the word "expenditure" used in context of Section 37(1) would also cover,,loss? even though the said amount had not gone out from the pocket of the assessee. The said provision was a residuary provision extending the allowance to items of business expenditure, not covered by Section 30 to 36 of the Act. Reference was made to Section 28 and 29 read with Section 145(1) of the Act, and it was observed that accounts maintained in the normal course of business should be taken as correct unless there were strong and sufficient reasons for their unreliability. Thus, the profits and gains? of the previous year were required to be computed with regard to the relevant Accounting Standards. The reference also made to Accounting Standard-11, which deals with the effects of foreign exchange fluctuations, and it was accordingly observed as under: "21. In conclusion, we may state that in order to find out if an expenditure is deductible the following have to be taken into account (I)....
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....arly mentioned to use it as a working capital to finance the activities of the company. As held by the hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1, foreign currency fluctuation loss is allowable as deduction if the foreign currency is held on revenue account or as trading asset or as part of circulating capital employed in the business. As regards the year of allowability, the claim has to be allowed on the basis of restatement of the liability on the balance-sheet date as held by the hon'ble Supreme Court in the case of Woodward Governor India (P.) Ltd. (supra). Thus the claim of the assessee is allowable. In case there is gain in a year and the assessee has not offered it to tax, the Revenue is free to take action under law. In these years, admittedly there is loss which is allowable as deduction. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and allow the claim of the assessee." 6.3 Further Sutlej Cotton Mills Ltd. in (1979) 116 ITR 1(SC) wherein held that: "Loss on devaluation of currency is a trading loss if it is a loss arising to assessee on conversion of foreign currency into anot....
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.... to support its contention of having advances loans denominated in foreign currency to its foreign AE in UAE for business/trade purposes and its further actual utilization by its foreign AE in UAE for business purposes. The primary onus was on the assessee company to have led cogent evidences to substantiate its plea of grant of said loans to its foreign AE for purposes of trade/business and its actual utilization by foreign AE for business purposes, which the assessee company except for making bald statement could not led cogent evidences to substantiate its above stated contentions. The assessee company on the other hand is charging interest on these loans granted to foreign AE and presumption will arise unless rebutted that that the said loans are in-fact granted on capital field rather than being trading/business advances. In our considered view, this notional loss which arises owing to adverse fluctuation in foreign currency rates as on 31-03-2008 which led to restatement/revaluation of interest bearing loans denominated in foreign currency extended by the assessee company to its foreign AE in UAE and which could not be proved by the assessee company to have been extended for ....