Case Law Details
M/s. Baby Memorial Hospital Ltd. Vs ACIT (ITAT Cochin)
In view of the revision made in AS-11 in 2003, it can be said that treatment of foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets acquired through loan in foreign currency shall required to be given in profit and loss account. Said exchange loss should be allowed as revenue expenditure in view of amended AS-11 (2003). It may be noted that apex court had followed treatment of exchange loss or gain as per AS-11 (1994). In view of revision made in AS-11, now treatment shall be as per revised AS-11 (2003). Exchange gain or loss on foreign currency fluctuations in respect of foreign currency loan acquired for acquisition of fixed asset should be allowed as revenue expenditure. However, in the Preamble of AS-11 (Revised 2003), it was stated that the Revised Standard supersedes AS-11 (1994) except that in respect of accounting for transactions in foreign currencies entered into by the reporting enterprise before the date of AS-11 (2004) comes into effect, AS 11 (1994) will continue to be applicable.
In our opinion, sec. 43A is only relating to the foreign exchange rate fluctuation in respect of assets acquired from a country outside India by using foreign currency loans which is not applicable to the indigenous assets acquired out of foreign currency loans. Further, the Revised Standard supersedes AS 11 (1994), except that in respect of accounting for transactions in foreign currencies entered into by the assessee before the date of AS-11 (2004) comes into effect, AS-11 (1994) will continue to be applicable.
In our opinion, foreign exchange loss arising out of foreign currency fluctuations in respect of loan in foreign currency used for acquiring fixed assets should be allowed as revenue expenditure by charging the same into the Profit and Loss account and not as capital expenditure by deducting the same from the cost of the respective fixed assets. Hence, in our opinion, there is no potential escapement of income on the issue relating to allowability of foreign exchange loan taken for the construction of new building and additional equipment. Accordingly, this ground of appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
