Foreign Exchange Loss on Repayment of Borrowings is Revenue Expenditure: ITAT allows Relief to Cafe Coffee Day [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore has granted relief to Cafe Coffee Day and held that foreign exchange loss due to the reinstatement of the accounts at the end of the financial year as well as loss incurred on account of exchange fluctuation on repayment of borrowings is similar to the interest expenditure and it is to be allowed as revenue expenditure u/s 37 of the Income Tax Act.

The CIT(A) deleted the addition by observing that the assessee had been consistently treating the gain/loss as revenue. The CIT(A) observed that there are various occasions in the past wherein the similar gain had been offered as income and the same was accepted by the department from A. Y.2004-05 till A. Y.2011-12.

According to the CIT(A), the AO, for the first time, disturbed the similar loss on Forex claimed by the assessee for the A.Y.2012-13 by making the disallowance of forex loss. The CIT(A) had deleted the addition in his order on relying on the various judicial pronouncements and also based on the principles of consistency as the assessee’s treatment of similar Forex Gain was accepted as income by the AO in earlier years.

The order of CIT(A) for the A.Y. 2012-13, the CIT(A) held that the foreign exchange fluctuation loss here in the peculiar facts and circumstances is an allowable revenue expense and deleted the addition made consequent to disallowance of expenditure of Forex Loss.

The ITAT bench comprising of Judicial Member, Beena Pillai, and Accountant Member, Chandra Poojari pronounced the order an appeal filed against Cafe Coffee Day.

In the light of the judgment of the Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. had already held that the actual payment was not a condition precedent for making the adjustment in respect of foreign currency transactions at the end of the closing year.

While dismissing the appeal the Coram said that it is not able to concur or agree with the view of the Assessing Officer that liability could arise only when the contract would have matured as such a stand is totally divorced from the accounting principles and is in variance with the principle.

The  ITAT further said that foreign exchange loss is due to the reinstatement of the accounts at the end of the financial year as well as loss incurred on account of exchange fluctuation on repayment of borrowings is similar to the interest expenditure and it is to be allowed as revenue expenditure u/s 37 of the I.T.Act, as per the accounting standard approved by the Institute of Chartered Accountants of India (ICAI).