Unrealized loss due to foreign fluctuation as on Balance sheet is allowable as deduction
Where assessee had debited unrealized loss due to foreign exchange fluctuation in foreign currency transaction on revenue items to its profit and loss account on the last date of accounting year, the same should be allowed as deduction under section 37(1).
Assessee had debited unrealized loss due to foreign exchange fluctuation in foreign currency transaction on revenue items to its profit and loss account on the last date of accounting year. AO alleged that liability as on last date of previous year under consideration was not an ascertained liability, but a contingent liability and, consequently, he made addition to total income.
It is held that as per section 37(1), expenditure covered an amount which was really a loss, even though said amount had not gone out from pocket of assessee. Entity has to report outstanding liability relating to import of raw material using closing rate of foreign exchange. Any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period. Therefore, loss suffered on account of foreign exchange fluctuation as on date of balance sheet was allowed as deduction under section 37(1).
Decision: In assessee’s favour
Referred: CIT v. Woodward Government India (P) Ltd. (2009) 312 ITR 85 (SC) : 2009 TaxPub(DT) 1628 (SC)
IN THE GUJARAT HIGH COURT
AKIL KURESHI & B.N. KARIA, JJ.
Pr. CIT v. Suzlon Energy Ltd.
Tax Appeal No. 1000 of 2017
20 February, 2018
Appellant by: Mauna M. Bhatt, Advocate
ORDER
Akil Kureshi, J.
Draft amendment is allowed.
2. Tax Appeal is admitted for consideration of following substantial questions of law :–
“A. Whether the Tribunal erred in law and on facts in granting the deduction under section 80-IB of the Act on duty draw back of Rs. 18,01,67,542?
B. Whether the Tribunal erred in law and on facts in granting the deduction under section 80-IB of the Act of Rs. 28,54,26,054 on interest income on FDI/ICD?
C. Whether the Tribunal erred in law and on facts in deleting the addition made on account of upward adjustment under section 92CA(3) of the Act on account of guarantee fee on loans availed by AEs of assessee against guarantee of assessee?”
3. Revenue has proposed following three additional questions :–
“1. Whether the Tribunal erred in law and on facts in deleting the disallowance of Rs. 22,15,55,371 being national loss on outstanding forex derivatives contracts as on 31-3-2009?
2. Whether the Tribunal erred in law and on facts in granting the deduction u/s. 80 IB of the Act of Rs. 2,18,97,496 on interest income received from debtors?
3. Whether the Tribunal erred in law and on facts in granting of tax credit of Rs. 1,62,26,344 & Rs. 1,05,43,697 in respect of royalty income not claimed in original return of income nor claimed in revised return of income?”
4. These questions are however not considered for the following reasons :–
The decision of the Tribunal with respect to question No. 1 is in conformity with the decision of Supreme Court in case of Commissioner of Income Tax v. Woodward Government India (P) Ltd. (2009) 312 ITR 85 (SC) : 2009 TaxPub(DT) 1628 (SC). Sofar as question 2 is concerned, the Tribunal has correctly followed the decision of this Court in case of Nirma Industries Ltd v. Deputy Commissioner of Income Tax (2006) 284 ITR 401 (Guj) : 2006 TaxPub(DT) 1420 (Guj-HC). So far as question No. 3 is concerned, the Tribunal referred to the judgment of Supreme Court in case of Goetz (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC) to entertain additional contention. Reference in this respect can be made by this Court in the decision in case of Commissioner of Income Tax v. Mitesh Implex (2006) 367 ITR 85 (Guj) : 2014 TaxPub(DT) 2620 (Guj-HC).
5. These three questions are therefore not entertained.
6. To be heard with Tax Appeal No. 999 of 2017.
