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TMI Blog2007 (9) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law, the ld. CIT(A) has erred in holding that the exchange loss on External Commercial borrowings incurred by the assessee on account of fluctuation in foreign currency rate was fait accompli and not a notional one as the assessee was following mercantile system of accounting, contrary to the decision of the Hon ble Madras High Court, in the case of Indian Overseas Bank v. CIT 259 ITR 146, holding that, except, where foreign currency is held as stock-in-trade, there would appear to be no occasion for annual adjustment on account of fluctuation in the foreign exchange rate." 2. The facts of the case are that the assessee-company took a loan (external commercial borrowings) on 16-3-1998 from Lazard Brothers Co. Ltd., UK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative. The Assessing Officer observed that the exchange loss of Rs. 54 lakhs was notional and contingent in nature. The Assessing Officer has accepted the fact that the appellant has been following the mercantile system of accounting consistently. An identical issue came up for consideration before the ITAT, Delhi (Special Bench) in the case of Oil Natural Gas Corpn. Ltd., 261 ITR 1 (AT). The Hon ble Special Bench held that the loss incurred by the assessee was a fait accompli and not a notional one. It is further held by the ITAT that the exchange loss is an admissible deduction on account of mercantile system of accounting. The ITAT also considered the Accounting Standard-11 and the judgment of the Supreme Court in Sutl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the aforesaid decisions are authorities for the proposition that notional or anticipated loss was not allowable even when the external borrowings were utilized in revenue field. He reiterated that such loss would be allowable only in the year in which borrowings were actually repaid. 5. Elaborating his arguments, the learned Departmental Representative submitted that the deduction for any expenditure could not be allowed under section 37 unless it was laid out or expended wholly and exclusively for the purposes of business in that very year in which the deduction was claimed. According to him, it is an admitted position that the assessee has not repaid the external borrowings in the year under appeal and therefore, the impugned expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Authorized Representative supported the order of the CIT(A). He submitted that the decision rendered by a Special Bench of this Tribunal in ONGC s case ( supra ) has since been confirmed by the Hon ble Delhi High Court in its judgment in CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451 and therefore, the decision of the Special Bench should be followed by us. 8. We have heard the parties. There is no evidence before us to show that the loan was either repaid or had become repayable in the year under appeal. In other words, the assessee had neither repaid nor was it required to repay nor had the impugned loan become repayable in the year under appeal. Therefore the submission made by the learned Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not materialize. In our view, similar principle should govern the deductions in respect of the expenses claimed by the assessee. It is the date on which the amount is repaid or becomes repayable in the sense that its repayment is enforceable in law on which the exchange loss, if any, will arise and not before. It is for the aforesaid reasons that we find the submissions of the ld. Departmental Representative to be quite attractive and convincing. However, the fact remains that the issue is squarely covered in favour of the assessee by the decision of a Special Bench of this Tribunal in ONGC s case ( supra ), which has since been confirmed by the Hon ble Delhi High Court in Woodward Governor (India) (P.) Ltd. s case ( supra ). Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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