TMI Blog2023 (3) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43A of the Act to the facts of the case and in the absence of any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the assessee in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAI and also in conformity with CBDT notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices been brought to our notice. Otherwise also, in the light of fact that the conversion in foreign currency loans which led to impugned loss, were dictated by revenue considerations towards savings interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under s. 37(1) of the Act. The order of the CIT(A) sustaining the disallowance is not called for and is thus reversed. In the result, the ground no. 1 is allowed. Loss incurred by the assessee in foreign currency exchange is allowable as revenue expenditure and is a revenue loss for which the assessee is entitled to deduction as revenue expenditure . In the absence of any finding that the loan ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2CA(1) of the Act to the Transfer Pricing Officer (TPO for short) for computation of arms length price in relation to the international transactions of the assessee and also made an addition on the foreign exchange losses on ECB loan, amounting to Rs.2,28,63,345/-. The A.O. also made an addition of Rs.29,28,34,962/- on account of loss on derivative contracts . The assessee raised an objection before the ld. DRP, challenging the various additions made by the A.O. and after disposing of the objections, the A.O. passed the final assessment order as per the proposal of the ld. DRP. The assessee has challenged the impugned addition before us. 4. Ground no. 1 raised by the assessee is general in nature and ground no. 2 pertains to the disallowance of foreign exchange losses, upward adjustment of Rs.2,28,63,345/- on account of foreign exchange losses on ECB loan. It is observed that the assessee has availed ECB loan from Canara Bank for an amount of USD 40 million (INR Rs.234,54,29,000/-) during FY 2014-15 at an average exchange rate of Rs.58.8 per USD, for the purpose of refinancing the existing rupee borrowings from ICICI Bank, Axis Bank Ltd. and Aditya Birla Group. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and the assessee further stated that the said expenditure incurred by the assessee are allowable as per section 37 of the Act. The assessee had tabulated the details of the loss on long term monetary item and the amortization of the same which are tabulated as below: Loss on Long Term Monetary Item Loan Amount Canara Bank ECB USD USD Rate INR New Loan Distributed on 19.05.14 3,00,00,000 58.3983 1,75,19,49,000 New Loan Disbursed on 19.05.14 1,00,00,000 59.3380 59,33,80,000 Total loan 4,00,00,000 58.6332 2,34,53,29,000 Repaid on 30.09.2014 10,00,000 61.5775 6,15,77,500 Repaid on 30.03.2015 10,00,000 62.57500 6,25,75,000 Closing balance 3,80,00,000 62. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that the said foreign exchange fluctuation loss as per mercantile system of accounting was claimed as revenue loss . 9. The learned Departmental Representative (ld. DR for short) for the Revenue, on the other hand, contended that the said loan was obtained for refinancing the already existing capital expenditure loans received in rupees from 3 other banks. The ld. DR further contended that the said foreign exchange loss is to be a capital loss, which has to be capitalized to the cost of the asset and relied on the decision of Sutlej Cotton Mills Ltd. (supra). The ld. DR relied on the decision of the lower authorities. 10. Heard the rival submissions and perused the material on record. It is observed that the assessee has incurred a loss of Rs.147,572,500/- on foreign exchange loss and the same was amortized for the term period of the loan. The assessee company had stated that the said loan was not for the purpose of acquisition of assets or for expansion of the project, as the same was completed before the conversion of the loans and the capital asset was also put to use, prior to the said conversion. 11. From the submission made by both sides, it is evident tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in conformity with CBDT notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices been brought to our notice. Otherwise also, in the light of fact that the conversion in foreign currency loans whih led to impugned loss, were dictated by revenue considerations towards savings interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under s. 37(1) of the Act. The order of the CIT(A) sustaining the disallowance is not called for and is thus reversed. In the result, the ground no. 1 is allowed. 13. From the above observation, and by respectfully following the decisions cited herein above, we are of the view that the loss incurred by the assessee in foreign currency exchange is allowable as revenue expenditure and is a revenue loss for which the assessee is entitled to deduction as revenue expenditure . In the absence of any finding that the loan obtained by the assessee is utilized for the purpose of accruing assets, we hold that the said loan was availed for the purpose of reducing the cost of interest, which is an allowable expenditure u/s. 37(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve contracts are to be valued at the yearend in accordance with the accounting standards and the provision is made by recognizing marked to market losses . The assessee has relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Woodward Governor India (P.) Ltd. (supra) Dy. CIT vs. Kotak Mahindra Investment Ltd. [2013 35 taxmann.com 225 vide order dated 03.05.2013, wherein it was held that marked to market losses arising out of derivative contract is allowable even in case where there is no actual loss. It also held that the derivative contracts are not merely contingent in nature where the profit or loss is computed as per the day to day market value. The assessee also relied on the assessee s case for A.Ys. 2011-12 and 2012-13 in ITA No. 701 702/Mum/2018 vide order dated 16.11.2018. The A.O., on the other hand, relied on the decision of the Hon'ble Apex Court in the case of Sutlej Cotton Mills Ltd. (supra), which held that the foreign currency exchange whether profit or loss is of capital nature. It is to be noted that the said decision relied on by the A.O. is distinguishable on facts and is not applicable to the present case in hand. We would also l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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