2010 (3) TMI 81 - SC - Income Tax

Business expenditure under section 37(1) – Revenue Expenses – The Appellant, a public sector undertaking, was engaged in capital intensive exploration and production of petroleum products for which it had to heavily depend on foreign loans to cover its expenses both capital and revenue, and for payment to non resident contractor in foreign currency for various service rendered. The Appellant revalued its foreign exchange loan in foreign exchange on revenue account, on capital account and for general purposes outstanding as on March 31, 1991 and claimed the difference between their respective amount in Indian currency as revenue loss under section 37(1), in respect of loans used in revenue account. It also treated the similar difference in foreign exchange as an increased liability under section 43A. Held that- (i) the losses claimed by the appellant on account of fluctuation in the rate of foreign exchange as on the date for balance sheet was allowable as expenditure under section 37(1). (ii) That the appellant was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates, pending actual payment of the liability under section 43A, prior to its amendment by finance act, 2002.