TMI Blog2016 (9) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 case as set out above , we dismiss the appeal filed by the assessee company - Decided against assessee. - I.T.A. No. 986/Mum/2013 - - - Dated:- 17-8-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee Company : Shri Mihir Shah For The Revenue : Shri A. Ramachandran ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee company, being ITA No. 986/Mum/2013, is directed against appellate order dated 28th December, 2012 passed by learned Commissioner of Income Tax (Appeals)- 2, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 21st December, 2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143 (3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be debited/ credited to the profit loss account. The assessee company relied on the decision of the Hon ble Supreme Court in the case of CIT v. Woodward Governor India (P) Ltd., (2009)312 ITR 254(SC) and submitted that any loss arising on conversion of foreign currency liability at the year end is allowable as revenue loss . The assessee company has a trading interest in its foreign AE and hence the loan receivable from its foreign AE is a trade investment. The assessee company submitted that the foreign exchange loss accounted for in the profit loss a/c is laid out and expended wholly and exclusively for the purposes of the business of the assessee company and hence, allowable u/s 37(1) of the Act. The A.O. observed from the copy of foreign exchange loss ledger account filed during the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act that the assessee company had debited foreign exchange loss of ₹ 15,66,857/- on account of fluctuation in exchange rate in respect of value of loan advanced to its associate concern M/s Likproof Construction LLC. The valuation of foreign currency loan to associate concern as per balance sheet date on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loss of ₹ 15.66 lacs arising consequent upon the revaluation/restatement of such loan as at the yearend should be allowed as expense u/s 37(1) of the Act. The AO had disallowed the said claim of foreign exchange loss on the ground that as per proviso to Section 43A of the Act any adjustment to the cost on account of foreign exchange is allowable only on settlement/payment of the liabilities and the loss is only a notional loss and the loss is not on account of any trading liability but it is related to loan liability. The assessee company submitted that proviso to Section 43A of the Act is not applicable in the instant case as there is no liability incurred by the assessee company for acquisition of any asset for which liability is incurred for acquisition of asset from a country outside India consequent to change in foreign exchange rate during any previous year after acquisition of such asset. Rather the assessee company has given loan to its foreign AE and not borrowed any sum from its foreign AE, hence, the provisions of section 43A of the Act is not applicable. The assessee company relied upon the decision of Hon ble Supreme Court in the case of CIT v.Woodword Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of Hon ble Supreme Court in the case of CIT v. Woodward Governor India (P.) Ltd., (2009) 312 ITR 254(SC) and submitted that the decision of this case is applicable to assessee company s case. The ld. Counsel also relied on the decision of the Tribunal in the case of M/s ETP International Private Limited v. ITO in ITA No. 6506/Mum/2011 for the assessment year 2007-08 vide orders dated 29th August, 2012. He submitted that the interest income earned by the assessee company on these loans denominated in foreign currency are duly included as business income in return of income filed with the Revenue and due taxes have been paid. 9. The ld. D.R., on the other hand, relied on the orders of authorities below. 10. We have considered the rival contentions and also perused the material available on record including case laws relied upon by both the parties. We have observed that the assessee company has incorporated an associated company (AE) in UAE in Emirates of Dubai namely Likproof Construction LLC for undertaking construction work. Memorandum and Article of Association of said foreign AE i.e. UAE company Likproof Construction LLC filed by the assessee company is plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is charging interest on these loans granted to foreign AE and presumption will arise unless rebutted that that the said loans are in-fact granted on capital field rather than being trading/business advances. In our considered view, this notional loss which arises owing to adverse fluctuation in foreign currency rates as on 31-03-2008 which led to restatement / revaluation of interest bearing loans denominated in foreign currency extended by the assessee company to its foreign AE in UAE and which could not be proved by the assessee company to have been extended for trade/business purposes , the presumption shall arise that loan is on capital field until the same is rebutted by the assessee company and hence the said notional loss arising on restatement/revaluation of foreign currency loans as on the date of Balance Sheet as on 31-03-2008 due to adverse foreign exchange fluctuations cannot be allowed as deduction u/s 37(1) of the Act while computing income of the assessee chargeable to tax under the Act. The decision of Hon ble Supreme Court in the case of Woodword Governor India Private Limited(supra) and decision of Mumbai Tribunal in ETP International Private Limited(supra) re ..... 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