TMI Blog2014 (10) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired assets from outside India, therefore the provisions of section 43A which provides for adjustment of rate of exchange in currency to the actual cost has no application in the assessee's case as the provisions of section 43A applies to an assessee who has acquired any asset in any previous year from the country outside India and increase in liability in consequence of any change in the rate of exchange during that previous year after acquisition of such asset. Even the definition of actual cost in section 43A does not provide for any increase or reduction due to exchange rate fluctuation on account of the assessee converting its Indian term loans into foreign currency term loan. The assessee is consistently following the method of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of exchange rate fluctuation in respect of foreign currency term loan claimed as revenue loss. The Assessing Officer while computing the assessment disallowed the said exchange rate fluctuation in respect of foreign currency term loan of ₹ 1.20 crores holding it as a capital loss and not revenue loss. The assessee submitted that it had acquired machinery by taking term loans from the banks and later the assessee converted these term loans into foreign currency loans and accounted for forex gain/loss as revenue in terms of Accounting Standard 11 consistently. Therefore, the assessee contended that loss arising on account of exchange fluctuation is revenue loss. On appeal, the Commissioner of Income-tax (Appeals) sustained the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee also submits that it is in the nature of interest as defined in section 2(22)(e) of the Act. 4. The Departmental representative vehemently supports the orders of the lower authorities in treating foreign currency term loan as capital loss. 5. Heard both sides. Perused the orders of the lower authorities and submissions. The assessee obtained term loans from the Corporation Bank and acquired assets within India. By letter dated June 23, 2007, the Corporation Bank converted the existing three term loans with aggregate outstanding liability of ₹ 7.65 crores into foreign currency term loan at an interest rate of 3 per cent. above three months LIBOR during the assessment year 2009-10 which is under appeal. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. Even the definition of actual cost in section 43A does not provide for any increase or reduction due to exchange rate fluctuation on account of the assessee converting its Indian term loans into foreign currency term loan. The assessee is consistently following the method of showing gain/loss on account of exchange fluctuation as revenue loss following the Accounting Standard 11. As submitted by the counsel, the assessee had in fact shown gain in exchange fluctuation during the assessment year 2008-09 and also in the assessment year 2010-11. In such circumstances, the loss on account of exchange fluctuation cannot be treated as capital loss. The grounds of appeal raised by the assessee are allowed. 6. In the result, the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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