2018 (12) TMI 40 - AT - Income Tax

Disallowance of loss incurred on account of foreign exchange fluctuation - allowable business loss - whether loss claimed to have been sustained in earlier years has nothing to do with the current year s transaction and hence cannot be allowed for the year under consideration - Held that - The assessee has also produced copy of the bank guarantee issued by the Central Bank of India the applications and communication with the Reserve Bank of India for receipt and remittance of foreign exchange and also copies of communication assessee had with Ocean Diamond Inc. The additional evidences now filed goes to the root of the issue and for a proper adjudication of case we admit the same on record. Since the additional evidences are taken on record in the interest of justice and equity the same need to be examined by the AO. Accordingly we remit the issue to the Assessing Officer for de novo consideration. AO shall examine whether the amount of two Million USD was received by the assessee in the past years as trade advance in the course of its business of export of seafood and whether the foreign exchange fluctuation loss incurred by the assessee was on account of repaying the above trade advance. If the foreign exchange loss is on account of repayment of trade advance and is on revenue front necessarily same is to be allowed as business loss. It is ordered accordingly. - Assessee s allowed for statistical purposes.

Summary

Issues:
1. Disallowance of loss claimed due to foreign exchange fluctuation.
2. Allowability of foreign exchange fluctuation loss as a deduction.
3. Consideration of additional evidences by the Tribunal.

Analysis:

Issue 1: Disallowance of loss claimed due to foreign exchange fluctuation
The Assessing Officer disallowed a loss claimed by the assessee on account of foreign exchange fluctuation, amounting to ?1,51,99,504. The Assessing Officer argued that the loss did not relate to the relevant previous year and thus could not be allowed as a deduction. The Assessing Officer emphasized that foreign exchange rates are available daily, and the liability could have been ascertained earlier. The Assessing Officer held that the loss was not admissible as it did not pertain to the relevant previous year. The CIT(A) confirmed this view, stating that the loss was incurred in earlier years and did not relate to the current year's transactions. The CIT(A) further noted that the loss was due to foreign exchange fluctuation corresponding to goods exported in earlier years. The CIT(A) referenced a previous ITAT judgment, stating that such losses should be treated as capital losses if not incurred in the course of earning profits.

Issue 2: Allowability of foreign exchange fluctuation loss as a deduction
The assessee contended that the foreign exchange fluctuation loss incurred during the relevant assessment year was allowable as a business expenditure. The assessee argued that the loss pertained to the carrying on of the business and could only be quantified at the time of repayment of the advance. The Tribunal considered additional evidences provided by the assessee, including financial statements, agreements with Ocean Diamond Inc., bank guarantees, and communications with relevant authorities. Upon reviewing the additional evidences, the Tribunal admitted them on record and remitted the issue to the Assessing Officer for de novo consideration. The Tribunal directed the Assessing Officer to examine whether the loss was on account of repaying a trade advance received in the course of the business and if so, to allow it as a business loss.

Issue 3: Consideration of additional evidences by the Tribunal
The Tribunal acknowledged the additional evidences submitted by the assessee, which were crucial for a proper adjudication of the case. The Tribunal admitted the additional evidences on record in the interest of justice and equity. The Tribunal emphasized the importance of examining the additional evidences to determine the nature of the loss claimed by the assessee. The Tribunal's decision to remit the issue to the Assessing Officer for further consideration was based on the need for a comprehensive evaluation of the facts presented by the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, highlighting the importance of a detailed examination of the foreign exchange fluctuation loss and the necessity of considering additional evidences for a fair decision-making process.