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Issues involved: Appeal against disallowance of exchange fluctuation loss claimed as deduction in computing business income u/s 143(3) of IT Act for asst. yr. 2001-02.
Exchange Fluctuation Loss Disallowance: The assessee, a company trading computer hardware and software, claimed a deduction of Rs. 91,86,812 for exchange fluctuation loss in the assessment of business income. The loss arose due to fall in exchange rate between April 2000 and March 2001 on a US $ 3,000,000 loan from M/s Silicon Graphics Inc. The AO disallowed the claim stating the liability to repay the loan would arise in 2002, the claim was not based on actual repayment, and the loss was not revenue in nature. The CIT(A) upheld the disallowance. However, the ITAT Delhi held that the loan was for working capital requirements, consistent with accounting standard 11 (AS-11), and the loss was on revenue account. Referring to the Sutlej Cotton Mills case, the ITAT directed the AO to allow the claimed loss, citing the Special Bench decision in Oil & Natural Gas Corpn. Ltd. case supporting the treatment of such losses under the mercantile system of accounting. Capital Expenditure Disallowance: Ground No. 4, challenging the disallowance of Rs. 1,57,699 as capital expenditure, was dismissed as not pressed. Ground Nos. 5 and 6 were deemed general and required no decision. The appeal was partly allowed, with the ITAT directing the AO to allow the exchange fluctuation loss claimed by the assessee.
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