2013 (12) TMI 1530 - AT - Income Tax

Disallowance of unrealized foreign exchange loss - whether the said loss is neither on actual loss nor an accrued loss and hence not an allowable loss under the provisions of Income-tax Act? - Held that - The issue stands covered by the decision of the Apex Court in the case of Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT wherein held loss suffered as on the date of balance sheet is an item of expenditure u/s 37(1) Not only the exchange loss on outstanding forward contracts is considered but also exchange gain on outstanding forward contracts is also considered. Hence it is clear that assessee company follows the accounting policies as per AS-11 prescribed by the Institute of Chartered Accountants of India (ICAI). This accounting policy has been consistently followed irrespective of whether it is gain or loss and hence needs to be accepted and the disallowance deleted. - Decided in favour of assessee

Summary

Issues:
Disallowance of unrealized foreign exchange loss for deduction in the assessment year 2009-10.

Analysis:

The only issue before the Appellate Tribunal was the disallowance of a foreign exchange loss amounting to Rs. 20,88,885 claimed by the assessee for the assessment year 2009-10. The Assessing Officer (AO) disallowed this loss, considering it a contingent liability. However, the CIT(A) allowed the deduction, citing the decision of the Apex Court in the case of Woodward Governor India Pvt. Ltd. The CIT(A) noted that the assessee followed the accounting policies as per AS-11 prescribed by the Institute of Chartered Accountants of India consistently, irrespective of gain or loss. The CIT(A) directed the AO to delete the disallowance and allow the claimed amount based on the Supreme Court decision.

The Appellate Tribunal, after considering the arguments, found no infirmity in the CIT(A)'s order. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision. The Tribunal noted that the Revenue failed to provide any material to contradict the CIT(A)'s findings and conclusions. Therefore, the appeal by the Revenue was dismissed, upholding the order passed by the CIT(A).

In conclusion, the Appellate Tribunal upheld the decision of the CIT(A) regarding the disallowance of the unrealized foreign exchange loss for deduction in the assessment year 2009-10. The Tribunal found the CIT(A)'s reasoning consistent with the applicable accounting policies and supported by the Supreme Court decision, leading to the dismissal of the Revenue's appeal.