Donyi Polo Timbers Pvt. Ltd. Vs ITO (ITAT Delhi)
ITAT Delhi Allows Forex Loss of Rs.1.19 Cr – Consistent Accounting Method Upheld- Exchange Loss on Import Creditors Allowed Despite No Business
Assessee had imported machinery from overseas suppliers during F.Ys. 2009-10 & 2010-11. Due to proceedings initiated by the Directorate of Revenue Intelligence (DRI), its banker did not permit remittance of outstanding dues to foreign suppliers. As per mercantile system of accounting consistently followed, Assessee recorded outstanding creditors in foreign currency at year-end exchange rate & debited foreign exchange fluctuation loss of Rs.1.19 crore in P&L account for A.Y. 2014-15.
PCIT, in revision proceedings u/s 263, held that since Assessee had no business operations during A.Ys. 2013-14 & 2014-15 & payments remained unpaid for years, the claim was not an “actual” but only a “notional” loss. He also observed discrepancies in exchange rates adopted & treated the liability itself as doubtful in view of DRI’s investigation. AO, in order giving effect, disallowed the entire claim, which was upheld by CIT(A).
Before Tribunal, Assessee argued that consistent accounting standard required foreign currency liabilities to be restated at prevailing year-end rates & such treatment was followed in earlier years also. RBI guidelines permitted recording of outstanding import dues even if remittance was delayed due to disputes or regulatory hurdles. Hence, loss was genuine though unpaid.
