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TMI Blog2021 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the capital in any other company. The AO may then take a considered decision with regard to disallowance of interest on loan and bank charges in accordance with the provisions of the Income Tax Act - Appeal allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... vely for the purpose of business of the Appellant. 2. That the Ld CIT (Appeal) failed to appreciate that the gain on revaluation of foreign exchange of similar basis has been taxed as income in earlier years by the Appellant following mercantile system of accounting and in accordance with the accounting policy prescribed in Accounting Standard 11 - 'Accounting for the Effects of Changes in Foreign Exchange Rates'. The grounds of appeal, as submitted, are notwithstanding each other. The Appellant Company craves to amend, alter or add fresh grounds of appeal during the course of proceeding before your goodself. 3. Briefly stated facts of the case are that the assessee company was engaged in construction of highways, infrastructure development etc. For the year under consideration, the assessee filed return of income on 29/11/2012, declaring loss of ₹ 14,16,04,895/-. In the scrutiny assessment completed on 20/02/2015 under section 143(3) of the Income-tax Act, 1961 (in short 'the Act'), the Assessing Officer disallowed 'foreign exchange fluctuation loss' of ₹ 13,78,30,136/- on the ground that loan taken by the assessee on which fluctuation loss had been claimed, wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loan had been obtained or even if the foreign currency was intended or had originally been utilized for acquisition of fixed asset, if at the time of devaluation, it had changed its character and had assumed the new character of stock in trade or circulating capital, the loss that occurred on account of devaluation shall be revenue loss and not a capital loss. vi. The entries made by the assessee in the books of the account are not determinative of the question whether the assessee has earned any profit or suffered any loss; what does need to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee [Sutlej Cotton Mills Ltd Vs CIT (1979) 116 ITR 1 (SC)]. vii. Even an unrealized loss on an interest rate swap transaction has been allowed as a deduction as the assessee had consistently followed the same method of accounting as mandated by the RBI guidelines (JP Morgan Chase Bank Vs ADIT (2010) 42 SOT 30 (MUM) (URO). viii. In a case, where assessee seeks deduction for foreign exchange loss in respect of conversion of different expenditure at a uniform rate, though it is not a foreign exchange fluctuation, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntile system of accounting (followed consistently) and as per the AS-11 in the respective year. 3.3.5 Identical issue arose in the case of the appellant for A.Y. 2011-12 and the CIT (Appeals)-14 vide his order in A. No. 551/14- 15/I.T./Del/2015-16 dated 23.03.2016 has held as follows:- "4. Considering the submission of the appellant that the foreign exchange fluctuation loss on revaluation of foreign currency loans and advance is allowable as business expenditure u/s 37(1) of the Act by way of business purpose and commercial expediency, I am of the view that the Ld. A.O. should have allowed 50% of the loss on foreign exchange fluctuation particularly while on similar facts, he has allowed 50% of bank charges u/s 37(1) of Act and also keeping in view the judgement of the Hon'ble Supreme Court of India in CIT vs. Woodward Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC)/179 Taxman 326 (SC) as deliberated in the above said paras. However, it is also a fact on record, that looking into the true nature of transaction, it cannot be said that the sum expended for the entire transactions are wholly or exclusively for the business expediency or business purposes. Therefore, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for business purpose by taking into account the amount of the loan raised, the quantum of the own capital and the reserves & surplus, utilization of the amount for day-to-day running of the business and utilization of the amount for investment in the equity shares of the subsidiary company or the amount invested for infusion of the capital in any other company. The AO may then take a considered decision with regard to disallowance of interest on loan and bank charges in accordance with the provisions of the Income Tax Act." 7.1 While arriving at the above decision, the Tribunal (supra) has followed the finding of the Tribunal in ITA No. 5871/Del/2013 for assessment year 2009-10 in the case of the assessee. 7.2 The identical issue in the appeal of the assessee for assessment year 2013-14 has been sent to the file of the Assessing Officer by the Tribunal in ITA No. 489/Del/2018 observing as under: "7. We have gone through the order of the Co-ordinate bench of the Tribunal for the earlier years in ITA No.5871/Del/2013 and in CO Nos. 239 & 240/Del/2016 wherein the matter has been referred to the file of the Assessing Officer for verification of the utilization of the loan for bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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