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TMI Blog2014 (8) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature of payment of interest for the loan taken having regard to the nature and type of loan which was taken i.e. FCNR(B) Loan Account. Allowability of foreign exchange loss – Held that:- Following the decision in CIT vs Woodward Governor India (P) Ltd. [2009 (4) TMI 4 - SUPREME COURT] - exchange fluctuation arising on revenue account transaction should be allowed as deductible, expenditure - the expenditure is an allowable expenditure - the expression “expenditure” in Section 37(1) of the Act connotes “what is paid out” and what has gone irretrievably - But the word “expenditure” used in context of Section 37(1) would also cover loss even though the said amount had not gone out from the pocket of the assessee - Decided against revenue. - ITA 471/2014 - - - Dated:- 22-8-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. Rohit Madan, Standing Counsel For the Respondent : Through ORDER Sanjiv Khanna, J (Oral) 1. This appeal by the revenue relates to the Assessment Year 2003-04 raises a singular issue, whether ₹ 49,98,072/- debited in the Profit and Loss Account were covered by Section 43A of Income Tax Act, 1961 (Act, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on loan account. 6. The aforesaid findings were reversed by the Commissioner of Income Tax (Appeals), who observed that the appellant had outstanding 15% Unsecured Redeemable Non-convertible Debentures of ₹ 100 Crores as on 31.03.1999 and these debentures were due for redemption in the financial year 1999-2000 (Assessment Year 2000-01). For repayment of debentures, the respondent-assessee had raised FCNR (B) Loan from banks on 27.01.2000 and loan was utilized for repayment of the debentures. The exercise of taking FCNR(B) Loan had resulted in reduction of financial expenditure as similar borrowing under a normal loan would have resulted in higher interest payment. The details with regard to the financial cost or interest rates had been submitted. Commissioner of Income Tax (Appeals) referred to the salient features of FCNR(B) loans as they offered low cost funding option to the Indian Corporates, but, had two elements; interest rate-risk which was bench marked on LIBOR rates and foreign exchange fluctuation risk i.e. risk of Indian Rupees (INR) depreciation against the foreign currency pertaining to the loan. These FCNR(B) loans were usually for short term and the loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced by the bank statement of Bank of America filed with submission. It is also accepted that Foreign Currency Fluctuation Loss on short term loan amounting to ₹ 49,98,072/- is an actual expenditure incurred during the year on the purchase of forward contacts for repayment of FCNR(B) Loan and not notional or contingent as stated by the Ld. AO. It is also admitted that by this FCNR (B) Loan, no fixed assets has been acquired in foreign currency by the appellant in earlier years or in this year. This fact is also supported by the audited accounts of earlier year and this year. It is evident from the extract of balance sheet that the debentures have been repaid and new loans are raised at lower finance cost. The appellant is able to reduce the cost of financing by ₹ 6,967,717/-. It is also clear from the submission made before me. In respect of the applicability of section 43A of the Act, the, Ld. AO is wrong in applying the provisions of the section 43A in the present case, as from the fact is clearly evident that no assets were acquired by the assessee by raising the FCNR(B) loan by making the payment in foreign currency on acquisition of capital assets out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court has been upheld . 7. On appeal filed by the revenue, the aforesaid decision was affirmed by the Income Tax Appellate Tribunal. 8. Decision of the Delhi High Court in Woodward Governor India Pvt. Ltd. (supra) has been affirmed by the Supreme Court in decision reported as Commissioner of Income Tax, Delhi Vs. Woodward Governor India Pvt. Ltd. [2009] 312 ITR 254. It has been, inter alia, held that the expression expenditure in Section 37(1) of the Act connotes what is paid out and what has gone irretrievably. But the word expenditure used in context of Section 37(1) would also cover loss‟ even though the said amount had not gone out from the pocket of the assessee. The said provision was a residuary provision extending the allowance to items of business expenditure, not covered by Section 30 to 36 of the Act. Reference was made to Section 28 and 29 read with Section 145(1) of the Act, and it was observed that accounts maintained in the normal course of business should be taken as correct unless there were strong and sufficient reasons for their unreliability. Thus, the profits and gains‟ of the previous year were required to be computed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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