Egger Pumps India Pvt. Ltd. Vs ITO (ITAT Chennai)
ITAT Chennai dismissed the assessee’s appeal concerning Assessment Year 2011-12 and upheld the disallowance of Rs.7,02,000/- claimed as foreign exchange fluctuation loss arising on restatement of an External Commercial Borrowing (ECB). Egger Pumps India Pvt. Ltd., engaged in manufacture of industrial pumps, had received a Euro 3,24,982.65 ECB from its Swiss parent company in 2006. The assessee claimed Rs.7,02,000/- as forex loss on year-end restatement of the outstanding ECB. The AO treated the loss as capital in nature and disallowed it, and the CIT(A) confirmed the action by following the Tribunal’s decision in the assessee’s own case for AY 2012-13. Before the Tribunal, the assessee submitted that its appeal against the AY 2012-13 decision had been admitted by the Madras High Court. However, the Tribunal noted that no change in facts or law had been pointed out and respectfully followed its earlier decision. The appeal was accordingly dismissed.
ITAT Chennai on Forex Loss from Restatement of ECB
Background and Disallowance of Rs.7.02 Lakh
The appeal was preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-10, dated 04.11.2024 for AY 2011-12.
The sole issue before the Tribunal concerned the action of the Ld.CIT(A) confirming the AO’s treatment of the loss arising from foreign exchange fluctuation on restatement of External Commercial Borrowings amounting to Rs.7,02,000/- as capital in nature and consequently disallowing the same by order passed under sections 143/147 of the Income Tax Act, 1961 dated 04.07.2018.
Egger Pumps India Pvt. Ltd. is engaged in the manufacture of industrial pumps. For AY 2011-12, it filed its return of income on 07.11.2011 declaring income of Rs.48,28,789/- and book profit of Rs.75,88,530/- under section 115JB of the Act.
M/s. Emile Egger & CIE SA, Switzerland was the parent company of the assessee. During 2006, the parent company advanced a loan of Euros 3,24,982.65 as External Commercial Borrowings. The ECB remained outstanding and was restated at the end of the year. The assessee consequently booked a notional foreign exchange fluctuation loss of Rs.36,95,418/- cumulatively for three assessment years, namely AYs 2010-11, 2011-12 and 2012-13. For AY 2011-12, the assessee claimed forex loss of Rs.7,02,000/- on restatement of the ECB and debited the same to its Profit & Loss Account.
The assessment was subsequently reopened. The AO concluded that, since the CIT(A) and ITAT had held the forex loss on restatement to be capital in nature, deduction was not allowable. The Ld.CIT(A) confirmed the action of the AO by referring to the orders of his predecessor and the Tribunal’s decision for AY 2012-13.
Earlier Tribunal Decision in Assessee’s Own Case
The Ld.CIT(A) had relied upon the Tribunal’s order in the assessee’s own case in ITA No.477/Mds/2017 dated 01.09.2017 for AY 2012-13. In that decision, the Tribunal observed that the loan had been given by the parent company for acquisition of a capital asset and correspondingly the loan was in the capital field. It held that the loss arising from restatement of the liability, being in the capital field, was capital in nature and could not be considered as a deduction while computing the assessee’s income as business expenditure.
The assessee’s representative before the present Bench could not controvert that the Tribunal had already taken a view against the assessee on the issue. However, it was submitted that the assessee had preferred an appeal before the Hon’ble Madras High Court against the Tribunal’s decision for AY 2012-13 and that the appeal had been admitted. The assessee contended that the Ld.CIT(A) erred in simply following the view taken by his predecessors.
Tribunal Finds No Change in Facts or Law
The Tribunal heard both sides and perused the material available on record. The Ld.DR supported the order of the Ld.CIT(A), who had followed the Tribunal’s decision in the assessee’s own case for AY 2012-13.
The Tribunal noted that the assessee had not controverted the earlier decision or pointed out any change in the facts or law relevant to the issue. In particular, the earlier decision had treated the loan obtained from the parent company for acquisition of a capital asset as being in the capital field and the resulting loss on restatement of the liability as capital in nature.
Accordingly, the Tribunal found no infirmity in the action of the Ld.CIT(A) and confirmed the disallowance by respectfully following its earlier decision in the assessee’s own case for AY 2012-13.
Appeal Dismissed
The Tribunal therefore dismissed the assessee’s appeal and upheld the treatment of the Rs.7,02,000/- foreign exchange fluctuation loss on restatement of the ECB as capital in nature rather than an allowable business expenditure.
In the result, the appeal filed by the assessee was dismissed.
Order pronounced on the 18th day of June, 2025, in Chennai.
Cases Discussed
- Egger Pumps India (P) Ltd v. ITO: ITA No. 477/Mds/2017, dated 01.09.2017 (ITAT Chennai) — The Tribunal’s earlier decision in the assessee’s own case for AY 2012-13, followed in the present appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-10, (hereinafter referred to as “the Ld.CIT(A)”), Mumbai, dated 04.11.2024 for the Assessment Year (hereinafter referred to as “AY”) 2011-12.
2. The sole issue is against the action of the Ld.CIT(A) confirming the action of the AO who held that the loss on account of foreign exchange fluctuation on restatement of External Commercial Borrowings (ECB) amounting to Rs.7,02,000/- was Revenue expenditure [and not capital in nature] and therefore, he disallowed it by passing order u/s.143/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) by order dated 04.07.2018.
3. Aggrieved the assessee preferred an appeal before the Ld.CIT(A) who has confirmed the action of the AO by taking note of the fact that this Tribunal in the assessee’s own case [ITA No.477/Mds/2017 order dated 01.09.2017] for AY 2012-13 has upheld the action of the AO/Ld.CIT(A) on this issue by holding as under:
7. In the present case, it is noted that the loan has been given by the parent company for the purpose of acquisition of capital asset and correspondingly the loan is in the capital field and the loss arising on account of restatement of the liability, which is in the capital field to be considered as capital nature and it is a capital loss cannot be considered as deduction while computing the income of assessee as a business expenditure.
4. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us.
5. We have heard both the parties and perused the material available on record. We note that the assessee company is engaged in manufacture of industrial pumps. For the AY 2011-12, the return of income was filed on 07.11.2011 admitting income of Rs.48,28,789/- and book profit of Rs.75,88,530/- u/s.115JB of the Act. M/s. Emile Egger & CIE SA, Switzerland is the parent company of the “Egger Pumps India Private Limited” (assessee). The Parent company during the year 2006, advanced loan amounting to Euros 3,24,982.65 as External Commercial borrowings (ECB). The said ECB was outstanding and the same was restated at the end of the year. Consequently, the Appellant booked a notional foreign exchange fluctuation loss of Rs.36,95,418/-cumulatively for 3 AY’s i.e. AY 2010-11, 2011-12 & 2012-13. For the AY 2011-12, the Appellant has claimed forex loss of Rs.7,02,000/- on restatement of ECB and the same was debited in the Profit & Loss account. Later, the case of assessee for AY 2011-12 was reopened and the AO concluded that since the CIT(A) and ITAT held that the Forex Loss on restatement is capital in nature, deduction was not allowable. On appeal, the Ld.CIT(A) confirmed the action of AO citing the orders of his predecessor CIT(A) and that of ITAT for subsequent AY 2012-13.
6. Before us, the Ld.AR couldn’t controvert the aforesaid facts that the Tribunal has taken a view against the assessee on this issue and the AO as well as the Ld.CIT(A) has followed the ratio as laid down by this Tribunal for AY 2012-13. According to the Ld.AR, the assessee has already preferred an appeal before the Hon’ble Madras High Court against the action of this Tribunal for AY 2012-13 and the said appeal has been admitted by the Hon’ble High Court and contended that the Ld.CIT(A) erred in simply following his predecessors view on the issue.
7. Per contra, the Ld.DR doesn’t want us to interfere with the order of the Ld.CIT(A) who has followed the ratio laid down by this Tribunal in the assessee’s own case (supra). In this regard, we note that on this issue in the assessee’s appeal for AY 2012-13, this Tribunal has held as under:
8. In the present case, it is noted that the loan has been given by the parent company for the purpose of acquisition of capital asset and correspondingly the loan is in the capital field and the loss arising on account of restatement of the liability, which is in the capital field to be considered as capital nature and it is a capital loss cannot be considered as deduction while computing the income of assessee as a business expenditure.
9. In the light of the aforesaid decision of this Tribunal on the issue in hand for AY 2012-13, we don’t find any infirmity in the action of the Ld.CIT(A) and confirm it since no change in the facts or law could be pointed out by either parties. Therefore, respectfully following the decision of this Tribunal in the assessee’s own case for AY 2012-13, we dismiss the appeal of the assessee.
10. In the result, appeal filed by the assessee is dismissed.
Order pronounced on the 18th day of June, 2025, in Chennai.
