Sitac Re Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi Allows Forex Loss on Business Advances: Disallowance of ₹23.71 Lakh Deleted
In a noteworthy ruling, Delhi ITAT has given relief to Assessee by allowing the claim of foreign exchange fluctuation loss on year-end reinstatement of business advances. Tribunal set aside the findings of AO & CIT(A), who had disallowed the loss of ₹23.71 lakh
Assessee had advanced a sum of ₹11.25 crore in the course of business. At the close of the financial year, the company revalued the outstanding advance in line with exchange rate movements & booked a forex loss of ₹23.71 lakh. AO disallowed the claim, doubting the existence of the advance & treating it as non-payable. CIT(A) not only confirmed the disallowance but went further, issuing directions that the business advance could be treated as unexplained cash credit u/s 68 in earlier years & that exchange fluctuation losses should be disallowed in every subsequent year as well, invoking section 150(1) to allow reopening of past assessments.
Challenging the disallowance, Assessee relied upon a catena of binding precedents, including the landmark judgment of the Supreme Court in CIT vs. Woodward Governor India P. Ltd. (312 ITR 254), Oil & Natural Gas Corporation Ltd. vs. CIT (322 ITR 180) & the Delhi High Court ruling in CIT vs. Taiko Chander Nagar Chemicals P. Ltd. (311 ITR 475), which hold that foreign exchange fluctuation loss arising at the balance sheet date on business transactions is an allowable revenue expenditure u/s 37(1). Assessee also argued that the principle of consistency applied, since in earlier years the identical claim had been accepted & exchange gains on the same advances had been offered to tax & assessed as income.
