Case Law Details
Foreign exchange fluctuation loss cannot be called notional loss since the fall in the exchange rate has already taken place in the accounting year. Accounting Standards-11 provides that the entire amount of liabilities outstanding as at the balance sheet date should be restated and the loss should be charged to the Profit and Loss account of each year.
Issue- That on the facts and circumstances of the case and in the law, the CIT(A) has seriously erred in failing to appreciate that foreign exchange fluctuation loss arising consequent to restatement of current liabilities as per the year end rates in accordance with the requirements of Accounting Standard-11 is clearly allowable as a deduction being a well settled position as upheld in various decisions from the Apex Court.
Held by ITAT
it is notable that as required by AS-11 and as also held by Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (supra) and Oil and Natural Gas Corporation Ltd. (supra, the entire amount of current liabilities outstanding as at the balance sheet date was to be re-instated by the assessee, which has been done by assessee in the instant case.
The accounting standard-11 provides that at each balance sheet date the outstanding foreign currency monetary items should be reported using the closing rates. It clarifies that that when the transaction is not settled in the same accounting period in which it had occurred then in all the intervening period till the transaction is settled, the exchange differences have to be duly accounted for.
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