ACIT Vs Lurgi IndianInternational Services Private Limited (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal for Assessment Year 2018–19, thereby upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)]. The dispute involved two principal issues: the allowability of foreign exchange fluctuation loss claimed as a business deduction under section 37 of the Income-tax Act, 1961, and the eligibility of the assessee to carry forward business losses in light of section 79 of the Act.
The assessee, engaged in engineering consultancy and related services, filed its return declaring a loss of ₹3.16 crore. During scrutiny assessment, the Assessing Officer (AO) disallowed foreign exchange fluctuation loss of ₹2.89 crore on the ground that it was an unrealized and notional loss arising from periodic revaluation of foreign currency receivables and payables at year-end. According to the AO, such losses did not represent crystallized liabilities and were therefore not deductible under the Income-tax Act. The AO relied on judicial precedents, including the Supreme Court decision in Sanjeev Woollen Mills, as well as CBDT Instruction No. 17/2008, to conclude that notional or contingent losses could not be allowed as business expenditure. In addition, the AO denied carry forward of losses for earlier years by invoking section 79, citing a substantial change in shareholding during financial year 2015–16.
