Egger Pumps India Private Limited Vs ITO (ITAT Chennai)
The appeal was filed by M/s. Egger Pumps India Pvt. Ltd. against the order of the CIT(A)/Addl./JCIT(A)-1, Nashik, dated 11.02.2026 for AY 2010-11. During assessment proceedings, the Assessing Officer noted that the assessee had obtained an External Commercial Borrowing (ECB) from its Swiss parent company, which was subsequently converted into equity shares. On year-end restatement of the outstanding ECB liability at the prevailing exchange rate, the assessee debited foreign exchange fluctuation loss of Rs.18,23,420 to its Profit & Loss Account and claimed it as a deduction.
The Assessing Officer held that the ECB had been utilised for capital purposes and was ultimately converted into share capital. Accordingly, the foreign exchange fluctuation loss arising from restatement of the liability was treated as capital in nature and not allowable as revenue expenditure. The AO disallowed Rs.18,23,420 and added it to the total income. After set-off of brought-forward losses, the assessed income remained Nil, while book profit under Section 115JB was determined at Rs.57,06,863.
Before the CIT(A), the assessee challenged the disallowance. After considering the assessment order, grounds and written submissions, the CIT(A) upheld the AO’s action. The CIT(A) held that the foreign exchange fluctuation loss arising from restatement of the ECB was capital in nature because the borrowing was connected with the company’s capital structure and was subsequently converted into equity shares. The CIT(A) accordingly confirmed the disallowance and dismissed the assessee’s grounds.
