ACIT Vs Lurgi Indian International Services Private Limited (ITAT Delhi)
The Income Tax Appellate Tribunal Delhi dismissed the Revenue’s appeal for Assessment Year 2018–19 and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting the disallowance of foreign exchange fluctuation loss and allowing the carry forward of business losses. The appeal arose from an assessment where the Assessing Officer (AO) had disallowed foreign exchange loss of ₹2.89 crore as notional and unrealised, and had also denied carry forward of losses for AYs 2014–15 and 2015–16 by invoking Section 79 of the Income-tax Act, 1961, on the ground of change in shareholding.
The assessee, engaged in engineering consultancy and related services, had filed its return declaring a loss of ₹3.16 crore. During scrutiny, the AO treated the foreign exchange fluctuation loss as a notional loss arising from periodic revaluation based on market rates and held that such loss had not crystallised. Relying on judicial precedents and CBDT instructions, the AO concluded that unascertained or contingent liabilities are not allowable as business expenditure under Section 37. The AO also disallowed provisions claimed as business expenses and denied carry forward of earlier years’ losses, stating that 97% of the shareholding had changed during FY 2015–16, attracting Section 79.
