The Delhi Bench of Income Tax Appellate Tribunal(ITAT) upheld the Commissioner of Income Tax Appeals(CIT(A))’s decision on the disallowance of ₹96.71 Lakh foreign exchange loss incurred by the assessee due to import-export transactions without hedging.
The Revenue-appellant appealed against the National Faceless Appeal Centre (NFAC)’s order dated 21.08.2023, which stemmed from the Deputy Commissioner of Income Tax(DCIT)’s order under Section 143(3) for the Assessment Year 2017-18.In this case,Hella India Lighting Ltd,respondent-assessee,reported a loss of Rs. 96,70,990 due to foreign exchange transactions related to imports and exports.
The assessee explained that no hedging was done because the costs of hedging could exceed the exchange earnings. The AO disallowed the loss, citing the Supreme Court’s judgment in the case of M/s Quippo Oil & Gas Vs. Addl. CIT. However, the CIT(A) later deleted the addition.
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The two member bench comprising Madhumita Roy(Judicial Member) and Brajesh kumar Singh(Accountant Member) established that gains or losses from foreign exchange rate changes should be treated as income or loss, following the rules under Section 145 and AS-11. The First Appellate Authority agreed that the foreign exchange fluctuation loss was claimable. The AO had disallowed the loss because it was related to import and export transactions without hedging, but the assessee argued that hedging costs sometimes exceeded the exchange earnings.
The AO did not question the calculation of the loss. Relying on case law, the CIT(A) found that the loss was valid and deleted the addition made by the AO. This decision was considered just and proper.
In short,the appeal filed by the revenue was dismissed.
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