9911796707
TMI Blog2016 (9) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the disallowance of foreign exchange fluctuation loss of Rs. 15,66,857/- arising on revaluation of outstanding loans on the balance sheet date on the ground that same is capital loss and is not allowed as deduction under the Income Tax Act,1961. On the facts and in the circumstances of the case, the disallowance made ought to be deleted." 3. The brief facts of the case are that the assessee company is engaged in waterproofing, restoration and civil contract works for various clients. 4. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act , from the profit and loss account of the assessee company , the A.O. observed that the assessee company has debited an amount of Rs. 12,90,079/ - as foreign exchange loss (net) under the head 'administrative and selling expenses'. The assessee company was required to explain by the AO that how foreign exchange loss in respect of loan to subsidiary company is allowable as revenue expenses. The assessee company in reply submitted that it had granted interest bearing trade advance/ loan to its foreign associated enterprise (AE) in the normal course of its business. The assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities denominated in foreign currency. The A.O. held that in the instant case the foreign exchange loss is computed as notional loss and further more the loss is not on account of any trading liability but it is related to loans advanced to foreign AE. Hence, the claim of notional loss in respect of the loans to subsidiary concern was not allowable as revenue expenditure. The A.O. distinguished the case law cited by the assessee company in the case of CIT v. Woodward Governor India (P) Ltd.(supra) as in that case the outstanding liability related to on account of import of raw materials which is certainly a trading liability. Hence, the A.O. disallowed the claim of foreign exchange loss amounting to Rs. 15,66,857/- claimed by the assessee company as not allowable as per Section 43A of the Act and added the same to the total income of the assessee company vide assessment order dated 21.12.2010 passed by the AO u/s 143(3) of the Act . 5. Aggrieved by the assessment order dated 21.12.2010 passed by the A.O. u/s. 143(3) of the Act , the assessee company filed its first appeal before the ld. CIT(A). 6. Before the ld. CIT(A) , the assessee company submitted that it had in the norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaded that foreign exchange loss of Rs. 15.66 lacs incurred by the assessee company on account of restatement/revaluation of such loan as on 31-03-2008 due to fluctuation of foreign exchange rates be allowed u/s 37(1) of the Act as it is laid out and expended wholly and exclusively for the purposes of the business of the assessee company. The ld. CIT(A) rejected the contentions of the assessee company and observed that the assessee company had advanced money to it's foreign AE. The assessee company could not prove that the money is advanced for any trading purposes. The ld. CIT(A) held that the assessee company had advanced money to it's foreign AE as a loan and any loan given to a person for earning interest income has to be considered as capital asset. The ld. CIT(A) held that the loan granted to the foreign AE is a capital asset and any impairment with regard to money advanced is not allowable as deduction u/s 37(1) of the Act , vide appellate orders dated 28.12.2012 passed by the learned CIT(A). 7. Aggrieved by the appellate orders dated 28.12.2012 passed by the ld. CIT(A), the assessee company filed second appeal before the Tribunal. 8. The ld. Counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange loss amounting to Rs. 15.66 lacs was debited to its P&L account which arose on account of adverse fluctuation in foreign exchange rates as on 31-03-2008 calculated on the outstanding value of the said loans denominated in foreign currency advanced by the assessee company to its foreign AE as on 31-03-2008. We have observed that the assessee company is not able to bring on record cogent material/evidences in support of its claim that business/trade advances/loans were extended by the assessee company to its foreign AE which has been in-fact actually utilized by its foreign AE for business purposes .The copies of Financial Statements of the said foreign AE or any other cogent material/evidences are not placed on records to prove and demonstrate that the assessee company extended trade/business advances to its foreign AE in Emirates of Dubai in UAE and the same were in-fact actually utilized towards business purposes by its foreign AE while consistent finding of fact is recorded by authorities below that the assessee company is not able to demonstrate and prove its contentions that the said interest bearing loans/advances denominated in foreign currency were granted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43A of the Act w.e.f 01-04-2003 by Finance Act 2002 , the adjustment to cost of capital asset acquired out of borrowings in foreign currency for acquisition of capital asset is to be adjusted on payment of foreign exchange liability and not to be adjusted on notional basis merely on fluctuation of foreign exchange rates on the date of Balance Sheet. Similarly, in ETP International Private Limited( supra) , the Tribunal recorded a finding of fact that the money was advanced by tax-payer for business purposes which has been used by foreign AE for the purposes of business and hence relying on the decision of Hon'ble Supreme Court in the case of S A Builders v. CIT( 288) ITR 1(SC) such losses were allowed by the Mumbai Tribunal based on the facts of the case, while in the instant case the assessee company is not able to demonstrate that the loans/advances granted by the assessee company to its foreign AE in Emirates of Dubai in UAE was in the nature of trade/business advances for the purposes of business of the assessee company which has been in-fact actually utilized by its foreign AE for its business purposes. Hence keeping in view the peculiar facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
