Treatment of loss due to foreign exchange fluctuations, Income Tax

[Sanjeev Sharma]

There was a loss on account of Foreign Exchange Fluctations on restatement of Foreign currency loan taken for purchase of Land, Building and Machinery ( indegenous) for a manufacturing project. How will it be treated in Income tax ??

Posts / Replies

[Rama Krishana]

I am not an expert but wish you to put your views and understanding first so that the same may be discussed further.

[Sanjeev Sharma]

Perplexed at your comments. I find nothing in Income tax Act which applies to this situation. Sec 43A also does not apply to this, being indegenous machinery. I had a problem and that is the reason for this query. If you know, I would appreciate your reply to the query.

[Rama Krishana]

I hope your issue would be solved with the help of Supreme Court decision reported in 2009 -TMI - 32906 - SUPREME COURT - in this case, supreme court has allowed the deduction on account of foreign exchange fluctuation. In this case, a detailed discussion on cost u/s 43A has been made and reasoned decision has been delivered.

[Sanjeev Sharma]

You mean Woodworth case. That does not apply to this situation.It says loss on account of revenue a/c and on account of capital a/c. Loss on account of revenue a/c is allowed as an expense. We have loss on account of capital a/c. In 43A situation, it is capitalised. In non 43A situation, will it be entirely disallowed ??