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TMI Blog2025 (3) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading transactions came for consideration before in 'CIT Vs Vinergy International Pvt. Ltd.' [2016 (8) TMI 1041 - BOMBAY HIGH COURT] wherein their lordship following the decision in 'Woodward Governor' [2009 (4) TMI 4 - SUPREME COURT] upheld the adjudication of Ld. Co-ordinate bench in allowing deduction for forex fluctuation losses in relation to monetary items u/s 37(1) of the Act. The appellant recognised the losses on forex fluctuation in relation to closing balance held in EEFC a/c on a regular basis in accordance with the AS-11 and method of accounting regularly employed u/s 145 of the Act. The same was consistently followed by the appellant in all immediate proceeding & later years which the Revenue accepted in regular scrutiny assessments. Thus, there was no scope for the Revenue to take a swap to treat the same as 'notional' now and outdo the aforestated binding judicial precedents. Accordingly, guided precedentially by aforestated decisions whereby the Revenue has already accepted the claim of fluctuation loss as the 'real & revenue in nature', hence deductible u/s 37(1) so must be here. Per contra in the absence of compelling reasons, it much less necessitates a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved by the partial relief, the assessee came in present appeal with the following solitary ground; 'On facts and in the circumstances of case and in law, the ld. Assessing officer and CIT(A) have erred in disallowing Rs 1,14,11,643/- towards loss on balances maintained in EEFC account considering the same as notional and also capital in nature. The ld. AO and the Hon. CIT(A) have incorrectly applied the rationale on the Hon. Delhi HC in the matter of Philips Petroleum International Corp. in the current case.' 4. During the course of hearing the Ld. Senior Counsel Mr Deshpande submitted that, for the year under consideration the assessee was predominantly engaged in export of iron-ore to neighbouring countries. The invoices of export sales were invariably raised in foreign currency more particularly denominated in US dollars ['US$' hereinafter]. On the date of export sales transaction, such US$ denominated invoices, for the purpose of recording the sales in books were converted into equivalent INR by applying currency conversion rate prevailing on such transaction date. The proceeds of such export sales and payments from foreign debtors etc., as and when received were direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss relating to monetary items, the Ld. Deshpande at the cost of repetition also expounded the corresponding text of ICDS-VI placed on page 57-59 of paper books and the adjudication of the Ld. Co-ordinate bench in the case of 'Altisource Business Solution Pvt Ltd. Vs DCIT' [TS-8000-ITAT-(Bangalore)-O]. It is further argued that, though section 43AA of the Act and ICDS-VI came into play at a later stage, the assessee's claim for deduction of exchange loss as business expenditure is indispensable in view of the binding judicial precedents laid in 'CIT Vs Woodward Governor India Pvt Ltd.' (Supra). The explicit provision brought in subsequently hint sites that law never intended to disentitle the assessee from claiming any foreign exchanges fluctuation losses relating to circulating capital. For the reasons the assessee prays to set-aside the impugned order on this score and delete the disallowance made by the Ld. AO in very terms. 6. Au contraire, in refuting the claim for deduction the Ld. DR Hattalli contended that; the instant case anent to AY 2010-11 whereas the provisions of section 43AA of the Act and the ICDS-VI at the outset came into effect from AY 2017-18, therefore by no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty. From pg 1-13 of paper book we note that; the assessee had three EEFC a/cs viz; (1) Bank of Maharashtra-Panaji a/c which had a closing balance of US$ 775.37 equal to opening balance and there were no transaction for the year under consideration. The differential rate of forex standing at respective dates glided the valuation and resulted into loss of ₹ 4730/-(2)IDBI-Vasco a/c had no opening balance but net of receipts and withdrawals arising out of monetary items / trading activities left with a closing balance of 1047878.96US$. Difference of INR valuation of closing EEFC balance with that of books resulted into a loss of ₹ 13,69,821.60/- (3)IDBI-Panaji a/c had no closing balance as at 31/03/2010 but the difference on account of total receipts & withdrawals relating to transactions of monetary items resulted into a loss of ₹ 1,00,37,093.93/-. These losses are recognised in the books by passing journal entries at the closure of the year and resultantly claimed as deduction u/s 37(1) of the Act as revenue in nature. 10. Before we hit the ground of adjudication on aforestated factual matrix, let set the dispute in clear terms. There is much less dispute that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 37(1) of the Act. 12. Now first coming to determination of nature of forex fluctuation loss as to capital or revenue, one can find an answer in the landmark decision of Hon'ble Apex Court rendered in 'Sutlej Cotton Mills Ltd. Vs CIT' [1979, 116 ITR 1 (SC)] wherein their Hon'ble lordship while settling the issue regarding nature of loss as revenue or capital has first formulated the question as; 'Whether the loss suffered by the assessee was a trading loss or not would depend on whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading loss but not so in the latter'. And then answered it in subsequent paragraph [requoted to the extent relevant] as; The law is well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive of the fact whether or not the assessee was under obligation to keep sale proceeds under EEFC a/c. The said matter travelled to jurisdictional High Court in 'CIT Vs Sociedade De Fomento Industrial Pvt Ltd' [2024, (4) TMI 317] wherein their Hon'ble lordships have upheld the Tribunals decision and dismissed the appeal of the Revenue on the ground that no substantial question of law arises as the issue raised therein stands already answered against the Revenue by the decisions of the Hon'ble Supreme Court in the case of 'CIT Vs Woodward Governor India (P) Ltd' [2009 (4) TMI 4 - SC] wherein it was categorically held that; the loss suffered by assessee due to fluctuation of foreign exchange as on the date of the balance sheet is in respect of the purchase and sale of goods (payments have to be made/received) is an item of expenditure u/s 37(1) of the Income Tax Act. It shall not be out of the box to state that similarly in 'PCIT Vs Suzlon Energy Ltd' [2020, 121 taxman.com 137] wherein the SLP filed by the Revenue is dismissed and decision of Hon'ble High Court of Gujrat which in turn upheld the adjudication of Ld. Co-ordinate bench in allowing the claim for forex fluctuation loss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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