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M/s Leo Fasteners Versus The Deputy Commissioner of Income Tax, Pondicherry

2018 (2) TMI 867 - ITAT CHENNAI

Disallowance of loss on foreign exchange fluctuation - allowable busniss expenditure - Held that:- The issue of loss on foreign exchange fluctuation was examined by this Tribunal for assessment year 2012-13 in the assessee's own case. Placing reliance on the judgment of Apex Court in Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT) this Tribunal found that the loss suffered by the assessee on foreign exchange fluctuation has to be allowed under Section 37(1) of the Act. - We .....

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sed by the Commissioner of Income Tax (Appeals), Puducherry, dated 19.06.2017 and pertain to assessment years 2013-14 and 2009-10. Since common issue arises for consideration in these appeals, we heard both the appeals together and disposing of the same by this common order. 2. The only issue arises for consideration is disallowance of loss on foreign exchange fluctuation. 3. Smt. J. Sree Vidya, the Ld.counsel for the assessee, submitted that the CIT(Appeals) by following his own order for the a .....

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to be allowed as revenue expenditure under Section 37(1) of the Income-tax Act, 1961 (in short 'the Act'). 4. We heard Smt. Ruby George, the Ld. Departmental Representative also. As rightly submitted by the Ld.counsel for the assessee, the issue of loss on foreign exchange fluctuation was examined by this Tribunal for assessment year 2012-13 in the assessee's own case. Placing reliance on the judgment of Apex Court in Woodward Governor India (P) Ltd. (supra), this Tribunal found tha .....

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order to reduce the interest liability, the assessee converted the Indian currency loan into foreign currency. Wherever there was a loss, the assessee claimed the same as revenue loss and wherever there was profit, the assessee offered the same as income for taxation. For the year under consideration, the assessee has suffered a loss. The CIT(Appeals) found that the loan was borrowed for the purpose of acquisition of capital asset. Therefore, the interest payable by the assessee has to be capit .....

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re was loss due to foreign exchange fluctuation, the same was claimed as revenue expenditure. The Revenue also taxed the gain on foreign exchange fluctuation as revenue receipt. However, the loss was disallowed. Referring to this stand of the Department, the Apex Court found that the Revenue is adopting double stand. In fact, the Apex Court has observed as follows at para 10 of its order:- 10. As stated above, on the facts in the case of M/s. Woodward Governor India P. Ltd., the Department has d .....

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tment has disallowed the deduction/debit. This fact is important. It indicates the double standards adopted by the Department. 8. The Apex Court finally found that the expression expenditure used in Section 37 of the Act in the circumstances of particular case, cover an amount which is really a loss even though the said amount has not gone out of the assessee. In fact, the Apex Court observed as follows at para 13 of its order:- 13. As stated above, one of the main arguments advanced by the lear .....

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d to have gone irretrievably as it can always come back. According to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-a-vis foreign exchange at or prior to the point of payment, then there would be no question of money having gone irretrievably and consequently, the requirement of expenditure" is not met. Consequently, the additional liability arising on account of fluctuation in the rate of foreign e .....

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ection 37 enjoins that any expenditure not being expenditure of the nature described in sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head " Profits and gains of business" . In sections 30 to 36, the expressions expenses incurred" as well as allowances and depreciation" have also been used. For example, depreciation and allowances are dealt with in section 32. There .....

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