The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that the forex loss/liabilities used for the working capital purpose of the assessee is a revenue expenditure and shall be allowed as a deduction under Section 37(1) of the Income Tax Act, 1961.
The assessee is a Public Ltd Company, engaged in the business of offshore drilling and production services to companies engaged in exploration, and development of oil and gas, both in domestic and international markets. The assessee has filed its return of income admitting a total income of Rs. 394,58,55,198/-.
The case was reopened under Section 147 of the Income Tax Act and the assessment has been completed under Section 143(3) read with Section 147 of the Income Tax Act and determined total income in the reassessment was at Rs. 455,28,83,672/-, after disallowing Rs. 8,61,33,985/- under Section 40(a)(ia) of the Income Tax Act towards payment made outside India without TDS to M/s. Haledon International Corporation and Rs. 50,02,70,902/- under Section 37(1) of the Income Tax Act, on account of disallowance of foreign exchange loss.
The Commissioner of Income Tax (Appeal) [CIT(A)] partly allowed the appeal filed by the assessee, where the CIT(A) deleted additions made towards payment made to a non-resident under Section 40(a)(ia) of the Income Tax Act for non-deduction of Tax Deducted ay Source (TDS) under Section 195 of the Income Tax Act. However, confirmed additions made by the Assessing Officer (AO) towards the disallowance of foreign exchange loss under Section 37(1) of the Income Tax Act.
The counsel submitted that the AO has disallowed forex loss incurred on various accounts including loans taken in foreign currency for the purpose of the business of the assessee, on the ground that said forex loss relating to a loan borrowed for the purpose of acquisition of fixed asset and thus, should be capitalized and cannot be allowed as revenue expenditure deductible under Section 37(1) of the Income Tax Act.
The Two-member bench comprising of Durga Rao (Judicial member) and Manjunatha G. (Accountant member) held that the AO disallowed forex loss mainly on the ground that said loss was on account of fluctuation in foreign currency loan/liabilities borrowed for the purpose of acquisition of capital assets.
A similar issue has been considered by the coordinate bench of ITAT in the assessee’s own case, where the Tribunal under an identical set of facts, the issue has been set aside to the file of the AO for further verification. Therefore, consistent with the view taken by the coordinate bench, the bench set aside the order passed by the CIT(A) and restored the issue to the file of the AO, and directed the AO to re-examine the claim of the assessee and decide the issue in light of our reasons given in assessee’s own case.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
