DSIR’s Partial Approval Cannot Restrict Pre-2016 R&D Deduction Claim: ITAT Chennai

DCIT Vs Rane Brake Lining Ltd. (ITAT Chennai)

ITAT Allows Full Section 35(2AB) Deduction Because DSIR Approval Applies to Facility, Not Expense Quantification; ITAT Rejects Revenue Challenge to Weighted R&D Deduction Due to Approved In-House Facility; MTM Forex Loss Held Allowable as Business Expenditure: ITAT Dismisses Revenue Appeal; Foreign Exchange Fluctuation Losses Not Contingent in Nature.

The Income Tax Appellate Tribunal (ITAT), Chennai Bench, dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2011-12 concerning weighted deduction under Section 35(2AB) and allowability of mark-to-market (MTM) losses.

The first issue related to weighted deduction claimed on expenditure incurred for an in-house Research and Development (R&D) facility approved by the Department of Scientific and Industrial Research (DSIR). The assessee had claimed 200% weighted deduction on capital expenditure of Rs.31.18 lakh and revenue expenditure of Rs.5.52 crore. The Assessing Officer initially disallowed the deduction due to non-submission of Form 3CL. Subsequently, after the assessee obtained Form 3CL, the Assessing Officer allowed deduction for the entire capital expenditure but restricted the revenue expenditure to Rs.2.40 crore based on DSIR approval.

The CIT(A) held that under Section 35(2AB), approval was required for the R&D facility and not for quantification of expenditure. It was observed that prior to the amendment to Rule 6(7A) effective from 01.07.2016, there was no prescribed mechanism requiring DSIR to certify yearly expenditure amounts. Relying on decisions including Cummins India Ltd., Reliance Industries Ltd., and Ashok Leyland Ltd., the CIT(A) directed allowance of the entire revenue expenditure claimed by the assessee.

Before the Tribunal, the Revenue argued that the CIT(A) erred in granting relief where DSIR had not approved the full revenue expenditure. The assessee contended that once the R&D facility was approved by DSIR, expenditure incurred on such facility qualified for deduction under the law applicable for the relevant assessment year.

The Tribunal observed that the assessee undisputedly had a DSIR-approved in-house R&D facility and that prior to the 2016 amendment, DSIR was not required to quantify eligible expenditure in Form 3CL. It held that deduction could not be restricted merely because DSIR had approved a lower amount of expenditure. Following earlier Tribunal decisions, including Ashok Leyland Ltd., ITAT upheld the CIT(A)’s order allowing the entire weighted deduction claimed under Section 35(2AB).

The second issue concerned MTM losses of Rs.18.52 lakh arising from foreign exchange fluctuations on overseas sales and purchases. The Assessing Officer treated the loss as notional and contingent, disallowing it on the ground that no actual settlement had taken place.

The assessee explained that it entered into forward exchange contracts to hedge foreign currency risks and recognized the resulting loss in accordance with accounting standards. The CIT(A), relying on the Supreme Court judgment in Woodward Governor India Pvt. Ltd., held that exchange fluctuation losses as on the balance sheet date constituted allowable expenditure under Section 37(1).

The Tribunal noted that the same issue had already been decided in favour of the assessee in earlier assessment years. It held that foreign exchange fluctuation losses relating to trading transactions fell in the revenue field and had to be recognized in accordance with accounting standards. Finding no change in facts or law, ITAT upheld the deletion of the disallowance and dismissed the Revenue’s appeal.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeal), (hereinafter referred to as “the Ld.CIT(A)”), Chennai-18, dated 29.10.2025 for the Assessment Year (hereinafter referred to as “AY”) 2011-12.

2. The first ground raised by the Revenue is against the action of the Ld.CIT(A) allowing the claim of weighted deduction u/s.35(2AB) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in respect of claim made by the assessee in respect of its in-house R&D Unit.

2.1 The brief facts of the case are that the assessee having an in-house Research & Development (R&D) Unit [at Plot No.30, Ambattur Industrial Estate, Chennai], for undertaking research relating to its business, which Unit has been recognized and approved by the Department of Scientific & Industrial Research (DSIR), in Form 3CM u/s.35(2AB) of the Act [Page No.44 of Paper Book – Form 3CM – 01.04.2010 to 31.03.2012], having incurred capital expenditure of 31,18,036/- and Revenue expenditure of 5,52,91,838/- (for the in-house R & D Centre) claimed deduction at the rate of 200% of the above expenditures u/s.35(2AB) of the Act, for relevant AY 2011-12. However, the AO disallowed the weighted deduction claimed by the assessee on account of non-submission of Form 3CL vide assessment order u/s.143(3) of the Act dated 27^th February 2014 by holding as under:

2. Disallowance of expenditure under section 35(2AB): The Assessee has claimed weighted deduction u/s 35(2AB) for capital expenditure of Rs. 31,18,036/- and revenue expenditure of Rs. 5,52,91,838/- incurred towards research and development facility. To avail this claim u/s 35(2AB), the assessee is required to furnish Form 3CL obtained from the prescribed authority (The Secretary, Department of Scientific and Industrial Research) in relation to the approval of the said facility. It was requested to the assessee to furnish Form 3CL in order to allow the claim of weighted deduction u/s 35(2AB). The assessee has failed to submit the proof of having obtained the requisite approval. Hence, the claim of weighted deduction of entire R&D capital expenditure of Rs. 62,36,072/- and revenue expenditure of Rs. 5,52,91,838/- is disallowed. Therefore, the deduction u/s 35(2AB) for the year under consideration of Rs. 6,15,27,910/- is not entertained and taxable income of the assessee is increased by such value. The weighted deduction u/s 35(2AB) would be allowed by way of rectification of this order as and when Form 3CL is furnished by the assessee.”

2.2 Later, the assessee having obtained Form 3CL [Page 40 of PB] from DSIR wherein the DSIR approved the entire capital expenditure of 31,18,036/-, but restricted the revenue expenditure to 2,40,61,000/-. Upon furnishing of Form 3CL by the assessee, the AO passed an order u/s.154 of the Act allowing the quantum of expenditure approved by the DSIR in form 3CL[ Page 38 of PB]. The final figures is shown as tabulated below: (Amounts in )

2.3 Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who was pleased to delete the addition made by the AO and allowed the relief claimed by the assessee vide appellate order by passing the impugned order as under:

“5.3.2 I have carefully considered the submissions made by the assessee and examined the material placed on record. The provisions of section 35(2AB) of the Income-tax Act, 1961, stipulate that where a company engaged in the business of biotechnology or in the business of manufacture or production of any article or thing incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on an in-house research and development facility approved by the prescribed authority, it shall be entitled to a deduction of a sum equal to two times the expenditure so incurred. On a plain reading of the section, it is evident that the requirement of approval by the prescribed authority pertains to the in-house R&D facility itself and not to the quantum of expenditure incurred on such facility. The approval envisaged under section 35(2AB) is, therefore, facility-specific and not expenditure-specific. Once the R&D facility has been duly approved by the Department of Scientific and Industrial Research (DSIR), the assessee becomes eligible for the weighted deduction in respect of all eligible expenditure incurred on such facility, till the Asst. Year 2017-18, where there is an amendment in this regard to Rule 6(7A). Therefore, for the year under consideration, the approval contemplated under section 35(2AB) relates to the facility and not to each item or quantum of expenditure. Accordingly, the absence of approval of the quantum of expenditure by the prescribed authority cannot be a ground for denial of weighted deduction, once the facility itself stands approved by DSIR.

5.3.3 In this connection, the reliance placed by the assessee on the decision of the Pune ITAT in the case of Cummins India Ltd v DCIT (96 taxmann.com 578) is in place. In para 45 & 46 of their order, the Tribunal on curtailing the 35(2AB) deduction by the AO to the amount certified by DSIR was considered and it was held as under:

45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below.

46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs.6,75,000/-. … If

5.3.4 Further, in a recent decision, the Mumbai Tribunal in the case of Reliance Industries Ltd (2022) (143 taxmann.com 194), following their earlier order in the case of Glenmark Pharmaceuticals Ltd, held that prior to amendment to section 6(7A), no authority was granted to DSIR for approving any expenditure for the purpose of claiming deduction u/s 35(2AB) and the pre-amended rules do not prescribe any methodology of approval to be granted by DSIR vis-à-vis expenditure from year to year. Respectfully following the same, the AO is directed to allow the entire revenue expenditure claimed by the assessee u/s 35(2AB) in respect of R&D facility approved by the DSIR. Accordingly, ground no.2 is allowed.”

2.4 Aggrieved, the Revenue is before us.

2.5 The Ld.DR has assailed the action of the Ld.CIT(A) and supported the action of the AO and submitted that the Ld.CIT(A) erred in giving relief to the assessee when DSIR hasn’t approved the ‘revenue expenditure’ since assessee didn’t incur any R&D expenditure. Hence, the Ld.CIT(A) erred in allowing relief to the assessee and pleaded for reversing the action of the Ld.CIT(A) and upholding the action of the AO.

2.6 Per contra, the Ld.AR submitted that the operative phrase of the Section 35(2AB) reads as ‘in-house research and development facility approved by the prescribed authority’. According to him, Prior to 1 April 2016, there was no requirement to quantify the expenditure by DSIR and Form 3CL is a mere intimation of approval of R&D facility. The amendment was brought in via Rule 6(7A)(b) of the Income-Tax Rules, 2016 (hereinafter referred to as ‘the Rules) wherein a separate part was inserted to certify the amount of expenditure year on year and amended Form 3CL. According to the Ld.AR, in the absence of any such procedure or methodology, the deduction of expenditure cannot be curtailed, and consequent weighted deduction claimed under section 35(2AB) of the Act cannot be denied. This view has been upheld in the order of the Chennai ITAT passed in the case of Ashok Leyland Limited v. DCIT [ITA No.361/Chny/2024] for AY 2010-11 [Para 3.4, 3.5 of Page 3 and 4 of the order found in page 184 and 185 of PB] which reads as follows:

“3.4 We have heard both the parties and perused the material available on record. We note that the assessee has three (3) in-house R&D facilities for undertaking scientific research duly approved by DSIR as an in-house R&D centre as per the requirement of section 35(2AB) of the Income Tax Act, 1961 (hereinafter in short ‘the Act’). It is noted that the deduction claimed for these approved R&D centers was duly audited and certified by statutory auditors in annual report. It is noted that DSIR is an authority for approval of R&D facility. And once facility is approved, expenditure incurred by it qualifies for deduction u/s.35(2AB),irrespective of DSIR approval as per the law in force. As noted, the R & D Facility has been approved as required by the authority i.e. DSIR. The settled position as per the law in force is that once facility is approved, expenditure incurred in this regard qualifies for deduction u/s.35(2AB) of the Act until amendment was brought in Rule 6(7A) of the of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016(relevant to AY 2017-18). Therefore, the AO/Ld.CIT(A) erred in disallowing the weighted deduction u/s.32(2AB) of the Act on the expenditure incurred in an approved in-house R & D facility. In other words, deduction can’t be restricted to the amount of expenditure quantified by the DSIR before the AY 2017-18. Similar issue had come up before this Tribunal in the case of M/s. Sundaram Fasteners Ltd., in ITA No.3236/Chny/2017, wherein, at Para No.4.3 at Page No.12, it has been observed as under:

4.3 We note that the assessee has claimed deduction of Rs.14,20,60,668/- and the AO allowed deduction of only Rs.13,52,44,00/- as approved by the DSIR. It is noted that prior to the amendment brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 i.e. from AY 2016­17, the prescribed authority had to submit its report in relation to the approval of in-house facility and development facility in Form 3CL to DG (Income Tax Exemption) within sixty days of its granting approval unlike after the amendment, the quantum of expenditure incurred for in-house research &development facility by assessee was required to be given by the authority; and since, the year under consideration (i.e. AY 2013-14) and the amendment was not applicable as noted (supra) in the case of Crompton Greaves Ltd., the assessee has rightly contended that amendment was not applicable, and the prescribed authority was not required to quantify the expenditure and had to only give report in relation to the approval of in-house facility and development facility, and therefore, in the absence of any requirement of law, the AO erred in curtailing the expenditure and consequent weighted deduction claimed by assessee. Therefore, the non-approval of the expenditure by the DSIR doesn’t disentitle the assessee to make the claim of Rs.14,20,60,668/- in the relevant year under consideration and hence, the AO couldn’t have disallowed Rs.68,16,668/-. Therefore, respectfully following the ratio of the decision of the Tribunal in the case of Crompton Greaves Ltd. (supra),we allow grounds of appeal of the assessee and direct deletion ofRs.68,16,668/-.

3.5 In the light of the foresaid discussion, we allow this ground of appeal of the assessee and direct the AO to grant/deduction on R & D expenditure to the tune of Rs.35,92,94,618/-.”

2.7 Having heard both the parties and after perusal of the records, it is noted that the assessee has undisputedly recognized R & D Unit at its Ambattur Industrial Estate for the relevant year. The assessee had claimed weighted deduction @200% (capital expenditure) of 31,18,036/- [which is not under dispute] and the dispute is regarding claim of Revenue expenditure of 5,52,91,838/- for the in-house R&D Unit, which has been partially allowed by AO. The AO during the original assessment has disallowed the same since the assessee didn’t produce Form 3CL i.e. approval from the DSIR for claiming the expenditure. However, the assessee is noted to have subsequently obtained Form 3CL from the DSIR, based on which, the AO is noted to have allowed weighted deduction for the entire capital expenditure of 31,18,036/-, but restricted the Revenue expenditure to 2,40,61,100/- in place of assessee’s claim of 11,05,83,676/- by passing a rectification order u/s.154 of the Act. On appeal, the Ld.CIT(A) is noted to have allowed the balance revenue expenditure claimed by the assessee. Hence, Revenue is before us. In this regard, we note that the assessee has in-house R&D facilities for undertaking scientific research duly approved by DSIR as an in-house R&D center as per the requirement of section 35(2AB) of the Act. It is noted that the deduction claimed for the approved R&D center was duly audited and certified by statutory auditors in annual report. It is noted that DSIR is an authority for approval of R&D facility. And once facility is approved, expenditure incurred by it qualifies for deduction u/s.35(2AB), irrespective of DSIR approval as per the law in force. As noted, the R & D Facility has been approved as required by the authority i.e. DSIR. The settled position as per the law in force is that once facility is approved, expenditure incurred in this regard qualifies for deduction u/s.35(2AB) of the Act until amendment was brought in Rule 6(7A) of the of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 (relevant to AY 2017-18). Therefore, the AO erred in disallowing the weighted deduction u/s.32(2AB) of the Act on the expenditure incurred in an approved in-house R & D facility. In other words, deduction can’t be restricted to the amount of expenditure quantified by the DSIR before the AY 2017-18. We note that the assesse’s claim for weighted deduction has been restricted by the AO as approved by the DSIR. It is noted that prior to the amendment brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 i.e. from AY 2016-17, the prescribed authority had to submit its report in relation to the approval of in-house facility and development facility in Form 3CL to DG (Income Tax Exemption) within sixty days of its granting approval unlike after the amendment, the quantum of expenditure incurred for in-house research & development facility by assessee was required to be given by the authority; and since, the year under consideration (i.e. AY 2011-12) and the amendment was not applicable as noted (supra), the assessee has rightly contended that amendment was not applicable, and the prescribed authority was not required to quantify the expenditure and had to only give report in relation to the approval of in-house facility and development facility, and therefore, in the absence of any requirement of law, the AO erred in curtailing the expenditure and consequent weighted deduction claimed by assessee. Therefore, the non-approval of the expenditure by the DSIR doesn’t disentitle the assessee to make the claim of Rs.11,05,83,676/- in the relevant year under consideration and hence, the AO couldn’t have restricted the revenue expenditure at Rs 2,40,60,100/-. Therefore, respectfully following the ratio of the decision of the Tribunal in the case of Ashok Leyland Ltd. (supra), we dismiss the grounds of appeal of the Revenue and confirm the impugned action of Ld CIT(A) allowing the entire revenue expenditure claimed by the assessee u/s 35(2AB) in respect of R&D facility approved by the DSIR.

3. The next ground is regarding the allowability of Market-to-Market (MTM) losses amounting to 18,52,531/-.

3.1 Brief facts are that during the relevant assessment year, the AO disallowed the MTM losses of 18,52,531/- by stating that the same is notional and contingent in nature by observing as under:

“4.1 Assessee, when it incurs notional loss on account of exchange fluctuation as on 31.03.2011. It debits the same to P&L account, whereas, the same, if it incurs notional gain, the same is not credited to P&L account. This dichotomy in the treatment of accounting notional losses and gains in forex is not acceptable. Either the assessee can offer notional gains and claim notional losses in the respective years. Or the assessee can opt not to credit such gains and debit such losses to 6the P&L account. However, the assessee has not followed such principles of accounting. Hence, the notional loss cannot be claimed.

4.2 The Assessee has booked the Marked to Market loss in the P&L account which has resulted in the reduction of book profit. Whereas, no sale or settlement has actually taken place, the loss on marked to market basis has resulted in the reduction of book profit. Such a notional loss is contingent in nature and cannot be allowed to be set off against the taxable income. Therefore, the MTM loss of Rs. 18,52,531 is added back for the purpose of computing the taxable income of the assessee.”

3.2 Before the Ld.CIT(A), the assessee submitted that its overseas sales and purchases results in exposure to forex fluctuations. In order to mitigate the assessee’s exposure to foreign currency risk the company hedges its sales and purchase transactions by entering into forward exchange contracts in accordance with assessee’s risk management policies. According to the assessee, the subject loss is recognized in the books as per the applicable accounting standard followed by the assessee. Further, it was emphasized that the subject loss is not contingent but the loss that has accrued to the assessee as on the date of closure of books grouped under the head of miscellaneous expenditure in the P&L a/c. The Ld.CIT(A) is noted to have appreciated the contention of the assessee and relying, inter-alia, claim on the decision of the Hon’ble Supreme Court in the case of Woodword Governors India P. Ltd., reported in [2009] 312 ITR 254 (SC) held that losses suffered by the assessee on account of foreign exchange difference as on the date of the balance-sheet is an item of expenditure within the ambit of Section 37(1) of the Act [Para No.15 of Page No.134 of Paper Book] and held as under:

“5.5.2 I have gone through the assessment order and the submissions of the assessee, including the case law relied upon. It is in order to reduce the foreign exchange fluctuations, the forex receivables were hedged by the assessee and the resultant losses at the end of the year, though not actually incurred, were debited to the profit & loss account. The issue for consideration is whether such losses, not actually incurred by the said date, can be allowed as deduction. The Apex court in the case of Commissioner of Income-tax, Delhi vs. Woodward Governor India (P.) Ltd. [2009] 179 Taxman 326 (SC) held that such exchange difference is an item of expenditure allowable u/s 37(1). The operative portion of the same is as under:

14. In the case of M.P. Financial Corporation v. CIT [1987] 165 ITR 765 the Madhya Pradesh High Court has held that the expression “expenditure” as used in section 37 may, in the circumstances of a particular case, cover an amount which is a “loss” even though the said amount has not gone out from the pocket of the assessee. This view of the Madhya Pradesh High Court has been approved by this Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1977] 225 ITR 802. According to the Law and Practice of Income-tax by Kanga and Palkhivala, section 37(1) is a residuary section extending the allowance to items of business expenditure not covered by sections 30 to 36. This section, according to the learned Author, covers cases of business expenditure only, and not of business losses which are, however, deductible on ordinary principles of commercial accounting. (see page 617 of the eighth edition). It is this principle which attracts the provisions of section 145. That section recognizes the rights of a trader to adopt either the cash system or the mercantile system of accounting. The quantum of allowances permitted to be deducted under diverse heads under sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word “paid” in section 43(2), which is used in several sections 30 to 43C, as meaning actually paid or incurred according to the method of accounting upon the basis on which profits or gains are computed under section 28/29. That is why in deciding the question as to whether the word “expenditure” in section 37(1) includes the word “loss” one has to read section 37(1) with section 28, section 29 and section 145(1). One more principle needs to be kept in mind. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of profits. The 1961 Act makes no provision with regard to valuation of stock. But the ordinary principle of commercial accounting requires that in the P&L account the value of the stock-in-trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year needs to be computed. This is one more reason for reading section 37(1) with section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually. At this stage, we need to emphasize once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under section 209 of the Companies Act, mercantile system of accounting is made mandatory for companies. In other words, accounting standard which is continuously adopted by an assessee can be superseded or modified by Legislative intervention. However, but for such intervention or in cases falling under section 145(3), the method of accounting undertaken by the assessee continuously is supreme. In the present batch of cases, there is no finding given by the Assessing Officer on the correctness or completeness of the accounts of the assessee. Equally, there is no finding given by the Assessing Officer stating that the assessee has not complied with the accounting standards.

15. For the reasons given hereinabove, we hold that, in the present case, the “loss” suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under section 37(1) of the 1961 Act.”

5.5.3 The facts of the present case are same. The issue is also covered in its favour in assessee’s own case for AY 2010-11 by decision of ITAT dated 15/02/2018 in ITA Nos 1526 to 1528/CHNY/2014. Respectfully following the above decision of the apex court, the MTM loss of Rs.18,52,531/- claimed by the assessee is to be treated as an allowable item of expenditure and the AO is directed to allow the same. Accordingly, ground No.4 is allowed.”

3.3 Aggrieved, by the aforesaid action of the Ld.CIT(A), the Revenue is before us.

3.4 Having heard both the parties and after perusal of the records, we note that the issue is no longer res-integra sine the Tribunal is noted to have adjudicated in the assessee’s own case very same issue which was held in favour of the assessee by upholding the action of the Ld.CIT(A) for AY 2010-11, wherein it has been held as under:

“7.2 On analyzing the facts of the issue, we find merit in the order of the Ld. CIT(A). The assessee has arrived at the value of its receivables and payables as on the end of the relevant previous year with respect to foreign exchange transactions resulting from trading activity and such loss due to the fluctuation in foreign currency falls in the revenue field. Moreover, as per the Accounting Standards, such loss has to be recognized in the end of the relevant previous year in which the loss is incurred. The Ld. CIT(A) has rightly relying on the decision of the Hon’ble Apex Court and other decisions cited in his order and also taking note of the accounting standards has allowed the appeal of the assessee. In this situation, we do not find it necessary to interfere in his order.”

3.5 The assessee is noted to have arrived at the value of its receivables and payables as on the end of the relevant previous year with respect to foreign exchange transactions resulting from trading activity and such loss due to the fluctuation in foreign currency falls in the revenue field. Moreover, as per the Accounting Standards, such loss has to be recognized in the end of the relevant previous year in which the loss is incurred. Since there is no change in facts or law could be pointed out by the Department, respectfully following the decision of this Tribunal in the assessee’s own case (supra) for AY 2010-11, we are of the view that the Ld.CIT(A) has rightly appreciated the issue and has taken note of the Accounting Standards has allowed the appeal of the assessee by relying on the decision of the Hon’ble Apex Court in the case of Wood word Governors India P. Ltd. (supra) and other decisions cited in the impugned order. Since no infirmity could be pointed out by the Department, we are inclined to uphold the action of the Ld.CIT(A) and dismiss this ground of appeal of the Revenue.

4. In the result, appeal filed by the Revenue is dismissed.

Order pronounced on the 08^th day of April, 2026, in Chennai.