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2016 (2) TMI 266 - AT - Income TaxForeign exchange gain taxability - restatement of foreign currency loan - foreign currency loan which has been recognized in the profit and loss account in accordance with Accounting Standard 11 (AS 11) issued by the Institute of Chartered Accountants of India (ICAI) - Held that:- The Loan agreement clearly mentions that the loan is meant for general corporate purposes only which means it is meant for revenue account. If it is meant for any capital investment, then the loan agreement would have been differently worded specifying the purpose of making the investments and in which case, the loan would be categorized as a specific purpose loan. But in the instant case, it is mentioned as general corporate purposes meaning – that the loan is meant for general business purposes of the assessee. The amounts advanced to Usha Martin Telematics Ltd is meant for business purposes of the assessee and has to be construed as amounts lent in the ordinary course of business only . The business of the assessee itself is making investments in other companies. We hold that just because no interest income is derived in this transaction, the character of the transaction for business purposes (i.e the loan utilization on revenue account) would not change. Hence the argument of the Learned AR that the utilization of borrowings is made on capital account is not appreciated. Once this is lost, then the decision of Woodward Governor case (2009 (4) TMI 4 - SUPREME COURT ) would automatically come into play on which point, the counsels of both the sides are agreeable. The concept of prudence has been considered in the judgement of supreme court in Woodward Governor case. Once the utilization of borrowings are held to be on revenue account, then the resultant exchange gain or loss at the end of the year due to restatement of foreign currency loan would automatically take the revenue receipt / expenditure as the case may be. However, we find that the assessee had incurred exchange losses due to restatement of the subject mentioned foreign currency loan at the end of the year in subsequent assessment years and had not claimed as deduction as it is notional in nature in line with the consistent stand taken by the assessee. In this regard, we deem it fit and appropriate in the interest of justice and fair play, to give directions to the Learned AO to grant deduction of notional exchange loss in the subsequent assessment years to be in consonance with our findings hereinabove. Otherwise, it would only result in revenue trying to blow hot and cold simultaneously. Accordingly, the ground raised by the revenue is allowed subject to the direction contained hereinabove.
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