The Income Tax Appellate Tribunal (ITAT), Kolkata Bench, held that the loss incurred in foreign exchange for converting loan to foreign currency is allowable as business loss.
The assessee’s unit M/s Semall Impex Private Limited set up in Falta Special Economic Zone (FSEZ), registered with the Development Commissioner FSEZ, claimed Rs. 1,56,10,764/- on account of foreign exchange loss. The Assessing Officer (AO), observed that the loss incurred was for converting its loan to foreign currency but they had not engaged in the business of export nor made any foreign transactions making the loss not incidental to the core business and so rejected it.
The Commissioner of Income Tax (Appeals) – 1 [CIT(A)] allowed the appeal of the assessee referring to the case CIT v. Woodward Governor India (Pvt.) Ltd. in which the Supreme Court held that, loss incurred on reappraisal of the foreign contracts or resettlement of liability or receivable at the exchange rate is admissible as business loss even if the contracts or receivables or payables were not finally settled. The ITAT upheld the order of CIT(A).
Two more matters were addressed. One in which the ITAT upheld the decision of AO for addition of Rs. 55,546/- under section 36 (1) (va) of the Income Tax Act, in respect of employees’ contribution to provident fund deposited beyond the due date even if payments were made before filing the return of income.
The other matter was in which the assessee had issued shares to a holding company in lieu of money payable for supply of goods, where the AO doubted the transactions and added it to the income of the assessee under section 68 of the Income Tax Act, being unexplained cash credit.
The CIT(A) allowed the appeal of the assessee holding that the money didn’t come into the assessee’s books of accounts and is only a book adjustment entry against the money payable to the holding company. The ITAT upheld the order of the CIT(A).
Under section 2(m) SEZ Act, 2005, the entire turnover is deemed as export turnover and any loss arising in the process of conversion of foreign currency is a part of trading loss and is deductible.
Thus, upholding the decision of CIT(A), the two-member bench of ITAT consisting of Shri Rajesh Kumar (Accountant Member) and Shri Sonjoy Sarma (Judicial Member) held that the loss incurred in foreign exchange for converting loan to foreign currency is allowable as business loss and is deductible.
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