Disallowance of ₹5.11 Crore Forex Loss on ECB Settlement: ITAT Restores Matter to AO [Read Order]
The DRP erroneously treated the issue from a transfer pricing perspective, but the ITAT directed the AO to reconsider the claim in accordance with the law after verifying the facts
![Disallowance of ₹5.11 Crore Forex Loss on ECB Settlement: ITAT Restores Matter to AO [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/ITAT-ITAT-Kolkata-Disallowance-of-Forex-Loss-TAXSCAN.jpg "Disallowance of ₹5.11 Crore Forex Loss on ECB Settlement: ITAT Restores Matter to AO [Read Order]")
The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) restored the issue of ₹5.11 crore forex fluctuation loss on the settlement of External Commercial Borrowings (ECB) to the Assessing Officer (AO) for re-examination. TDK India Pvt. Ltd.,appellant-assessee,incurred a forex fluctuation loss of ₹12,77,92,261 during the relevant assessment year 2017-18. This loss arose from...
The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) restored the issue of ₹5.11 crore forex fluctuation loss on the settlement of External Commercial Borrowings (ECB) to the Assessing Officer (AO) for re-examination.
TDK India Pvt. Ltd.,appellant-assessee,incurred a forex fluctuation loss of ₹12,77,92,261 during the relevant assessment year 2017-18. This loss arose from the settlement of ECB and related contracts through conversion into equity shares. The tax audit report classified it as capital expenditure.
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Out of this, ₹7,66,75,357 was linked to imported assets and was disallowed in the total income computation, then added to the block of assets under Section 43A. The remaining ₹5,11,16,904 was a realized loss on ECB used for purchasing capital goods domestically and was reported for disallowance in the tax audit report under earlier tax provisions.
After the retrospective introduction of Section 43AA through the Finance Act, 2018, the appellant-assessee claimed ₹5,11,16,904 in the revised return. The ECB purpose was declared to the RBI for both imported and locally sourced capital goods. However, the claim was disallowed under Section 143(1) due to inconsistencies between the tax audit report and the return of income.
Later, in the assessment under Section 143(3), the AO disallowed the claim in the draft order without giving the assessee an opportunity to explain.
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The Dispute Resolution Panel (DRP) mistakenly treated the issue as a transfer pricing matter instead of a corporate tax issue. It directed the AO to classify foreign currency gains as operating if linked to sales and exchange fluctuation risk was borne by the assessee. If reliable data for comparables were unavailable, the gains were to be excluded from operating income. It also considered provisions for doubtful debts and advances as non-operating.
The assessee filed a rectification application on March 11, 2022, but no order was passed.
The two member bench comprising Pradip Kumar Choubey (Judicial Member) and Rajesh Kumar (Accountant Member) that the issue needed re-examination and sent it back to the AO for a fresh decision based on the facts and the law. It also directed that the appellant-assessee be given a fair opportunity before the final decision.
In short,the appeal field by the assessee was allowed for statistical purposes.
To Read the full text of the Order CLICK HERE
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