Egger Pumps India Private Limited Vs ITO (ITAT Chennai)
The appeal was filed by M/s. Egger Pumps India Pvt. Ltd. against the order of the CIT(A)/Addl./JCIT(A)-1, Nashik, dated 11.02.2026 for AY 2010-11. During assessment proceedings, the Assessing Officer noted that the assessee had obtained an External Commercial Borrowing (ECB) from its Swiss parent company, which was subsequently converted into equity shares. On year-end restatement of the outstanding ECB liability at the prevailing exchange rate, the assessee debited foreign exchange fluctuation loss of Rs.18,23,420 to its Profit & Loss Account and claimed it as a deduction.
The Assessing Officer held that the ECB had been utilised for capital purposes and was ultimately converted into share capital. Accordingly, the foreign exchange fluctuation loss arising from restatement of the liability was treated as capital in nature and not allowable as revenue expenditure. The AO disallowed Rs.18,23,420 and added it to the total income. After set-off of brought-forward losses, the assessed income remained Nil, while book profit under Section 115JB was determined at Rs.57,06,863.
Before the CIT(A), the assessee challenged the disallowance. After considering the assessment order, grounds and written submissions, the CIT(A) upheld the AO’s action. The CIT(A) held that the foreign exchange fluctuation loss arising from restatement of the ECB was capital in nature because the borrowing was connected with the company’s capital structure and was subsequently converted into equity shares. The CIT(A) accordingly confirmed the disallowance and dismissed the assessee’s grounds.
Before the ITAT, the issue was whether the Rs.18,23,420 foreign exchange fluctuation loss arising on year-end restatement of the ECB was allowable as a revenue deduction or was capital in nature and therefore not allowable under the Act.
The Tribunal noted that an identical issue had been considered by the coordinate Bench in the assessee’s own case for AY 2011-12 in Egger Pumps India (P) Ltd v. ITO [IT Appeal No. 3104 (Chny) of 2024, dated 18-6-2025]. That decision had followed the Tribunal’s earlier order in the assessee’s own case for AY 2012-13 in Egger Pumps India (P) Ltd v. ITO [IT Appeal No. 477 (Mds) of 2017, dated 1-9-2017]. The earlier decision held that where the loan from the parent company was given for acquisition of a capital asset and was in the capital field, the loss arising from restatement of the liability was capital in nature and could not be allowed as a business expenditure.
The Tribunal found that the assessee had not brought any material demonstrating that the facts of the present case were distinguishable from those considered by the coordinate Bench. No change in the factual matrix or applicable legal position was pointed out. Accordingly, respectfully following the coordinate Bench’s decision in the assessee’s own case for AY 2011-12, the ITAT upheld the CIT(A)’s order sustaining the disallowance of Rs.18,23,420.
The grounds raised by the assessee were dismissed and the appeal was dismissed. The order was pronounced in open court on 20 July 2026 at Chennai.
Cases Discussed
- Egger Pumps India (P) Ltdv. ITO (ITAT Chennai), [IT Appeal No. 3104 (Chny) of 2024, dated 18-6-2025]
- Egger Pumps India (P) Ltd v. ITO (ITAT Chennai), [IT Appeal No. 477 (Mds) of 2017, dated 1-9-2017]
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-1, (hereinafter referred to as “the Ld. CIT(A)”), Nashik, dated 11.02.2026 for the Assessment Year (hereinafter referred to as “AY”) 2010-11.
2. Brief facts of the case are that the assessee, M/s. Egger Pumps India Pvt. Ltd., filed its return of income for the relevant assessment year. During the course of assessment proceedings, the Assessing Officer observed that the assessee had availed an External Commercial Borrowing (ECB) from its Swiss parent company, which was subsequently converted into equity shares. On account of yearend restatement of the outstanding ECB liability at the prevailing exchange rate, the assessee had debited a foreign exchange fluctuation loss of Rs.18,23,420/- to its Profit & Loss Account and claimed the same as a deduction. The Assessing Officer held that since the ECB was utilized for capital purposes and was ultimately converted into share capital, the foreign exchange fluctuation loss arising on restatement of such liability was capital in nature and, therefore, not allowable as a revenue expenditure. Accordingly, the AO disallowed the claim of Rs.18,23,420/- and added the same to the total income. However, after set-off of brought forward losses, the assessed income remained at Nil, while book profit under section 115JB was determined at Rs.57,06,863/-.
3. On appeal, the ld.CIT(A), after considering the assessment order, the grounds of appeal and the written submissions of the assessee, upheld the action of the Assessing Officer. The ld. CIT(A) held that the foreign exchange fluctuation loss of Rs.18,23,420/- arising on restatement of the External Commercial Borrowings was capital in nature, as the borrowing was connected with the capital structure of the company and was subsequently converted into equity shares. Accordingly, the loss could not be allowed as a revenue deduction. The ld.CIT(A) further observed that the disallowance made by the Assessing Officer was in accordance with the facts of the case, the applicable legal provisions and the judicial precedents governing the issue. Consequently, the addition made by the Assessing Officer was confirmed and all the grounds raised by the assessee were dismissed.
4. The issue for consideration is whether the foreign exchange fluctuation loss of Rs.18,23,420/- arising on year-end restatement of an External Commercial Borrowing obtained from the parent company, which was subsequently converted into equity shares, is allowable as a revenue deduction or is to be treated as a capital loss not allowable under the Act.
5. We have heard the rival submissions and perused the material available on record. The solitary issue involved in the present appeal is whether the foreign exchange fluctuation loss arising on restatement of an External Commercial Borrowing obtained from the parent company, which was utilized for capital purposes and subsequently converted into equity shares, is allowable as a revenue expenditure.
6. We find that an identical issue has been considered by the coordinate Bench of the Tribunal in the assessee’s own case in Egger Pumps India (P) Ltdv. ITO [IT Appeal No. 3104 (Chny) of 2024, dated 18-6-2025] for A.Y. 2011-12. The Tribunal, while following its earlier order in the assessee’s own case for A.Y. 2012-13 Egger Pumps India (P) Ltd v. ITO [IT Appeal No. 477 (Mds) of 2017, dated 1-9-2017], held as under:
“In the present case, it is noted that the loan has been given by the parent company for the purpose of acquisition of capital asset and correspondingly the loan is in the capital field and the loss arising on account of restatement of the liability, which is in the capital field to be considered as capital nature and it is a capital loss cannot be considered as deduction while computing the income of assessee as a business expenditure.”
The Tribunal further observed that, in the absence of any change in facts or law, there was no infirmity in the order of the CIT(A) and accordingly dismissed the appeal of the assessee.
7. In the present case also, the assessee has not brought on record any material to demonstrate that the facts are distinguishable from those considered by the co-ordinate Bench in the assessee’s own case. No change in the factual matrix or in the applicable legal position has been pointed out before us. Therefore, respectfully following the decision of the co-ordinate Bench in the assessee’s own case for A.Y. 2011-12 in ITA No.3104/Chny/2024 dated 18.06.2025, we uphold the order of the ld. CIT(A) sustaining the disallowance of the foreign exchange fluctuation loss of Rs.18,23,420/-.Accordingly, the grounds raised by the assessee are dismissed.
8. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on the 20th day of July 2026 in Chennai.
