TMI Blog2019 (11) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined by the Hon ble Supreme Court was as to whether the additional liability due to exchange rate fluctuation was a liability. The Hon ble Supreme Court held that the expression expenditure as used in s. 37 may, in the circumstances of a particular case, cover an amount which is really a loss even though the said amount has not gone out from the pocket of the assessee. The Court explained that the word paid in s. 43(2) means actually paid or incurred according to the method of accounting on the basis of which profits or gains are computed under s. 28/29 and that Sec. 37(1) has to be read with ss. 28, 29 and 145(1). Therefore, loss suffered by the assessee in respect of a revenue liability on account of exchange difference as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th these appeals is as to whether the CIT(A) was justified in directing the AO to allow the claim for deduction on account of foreign exchange fluctuation loss as a result of restatement of the Assessee s liability as on the last date of the previous year, without there being an actual payment or settlement. 3. As far as ITA No. 2548/Bang/2018 for Assessment Year 2012-13 is concerned, the department has filed a letter seeking to withdraw the aforesaid appeal for the reason that the tax effect in the aforesaid appeal is lesser than ₹ 50,00,000/- and therefore such appeals are not maintainable in view of the CBDT s Circular No.17/2018 dated 08.08.2019. Consequently, ITA No.2548/Bang/2018 is dismissed. 4. As far as 2547/Bang/2018 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds that may be urged. 5. The assessee is a company engaged in the business of manufacturing / marketing and distribution of apparels under the brand of Levis Strauss Co., USA. During the previous year, the assessee incurred foreign exchange losses pertaining to Revenue items in relation to intercompany payables/receivables. The assessee in this regard claimed deduction of a sum of ₹ 4,64,12,201/- on account of loss due to adverse foreign exchange fluctuation. The AO noticed that out of the aforesaid foreign exchange claimed by the assessee, a sum of ₹ 3,22,63,323/- was foreign exchange gain / loss not on account of actual settlement or payment but on account of reinstatement of the payables and receivables as on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT s instruction No.17/2008 dated 26.11.2008 wherein the CBDT laid down that under section 37 of the Income Tax Act, 1961 ( Act ), only accrued or ascertained liability is an admissible deduction. A contingent liability cannot constitute a deductible expenditure. For all the above reasons, the AO refused to allow the deduction claimed by the assessee. 7. On appeal by the assessee, the CIT(A) allowed the deduction claimed by the assessee for the following reasons:- 5.3. I have carefully considered the AO's observations and above arguments of the Appellant, the issue is accordingly adjudicated as under:- It is apparent that the Appellant follows the mercantile system of accounting. During the year, the Appellant has stated) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. The learned DR placed reliance on the order of the AO. The learned Counsel for the assessee reiterated its submissions made before the CIT(A) and relied on the order of the CIT(A). 9. We have given careful consideration to the rival submissions. We find that the foreign exchange loss claimed by the assessee was on account of reinstatement of the liability of the assessee as on the last date of the previous year. It is no doubt true that there has been no actual payment and at the time of ultimate settlement, there may not be a loss also. Nevertheless, AS 11 of ICAI requires such liability also to be reflected in the financial statements. The Hon ble Supreme Court considered all these aspects in the case of CIT(A) Vs. Woodwar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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