Compensation paid due to fluctuation loss is allowable business expense

By POONAM GANDHI Income Tax Judiciary February 19, 2026

TaxGuru Citation: 2026 taxguru.in 2375
Case Name: Assab Sripad Steels Private Limited Vs CIT -1 (Madras High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2004-05
Courts: All High Courts, Madras High Court

Already Upgraded? Log in.

Assab Sripad Steels Private Limited Vs CIT -1 (Madras High Court)

Madras High Court held that compensation paid to agent on account of loss due to fluctuations in foreign exchange rate is allowable as business expense under section 37 of the Income Tax Act. Accordingly, disallowance of the same is not justified and liable to be deleted.

Facts- The assessee filed its return of income for the assessment year 200405 on 30.10.2004, declaring income of Rs.92,91,066/-. AO passed an order, dated 27.12.2006, disallowing expenditure under three heads of account to the tune of Rs.81,63,659/-. The subject matter of the case on hand is only in respect of two heads of account. Firstly, in respect of the amounts paid to M/s.Sterling Matchem Trade (P) Ltd., towards the loss suffered by the said SMTPL due to fluctuations in exchange rates for a sum of Rs.45,67,071/-. Secondly, towards the compensation for premature termination of the agreement dated 15.06.2000 entered into between the assessee and the said SMTPL for a sum of Rs.35,00,000/-.

Commissioner of Income Tax (Appeals)-III allowed the appeal of the assessee. However, the Department filed an appeal was partly allowed by the Tribunal. Being aggrieved, the assessee has preferred the present appeal.