Amneal Pharmaceuticals Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)
Depreciation on Capitalised Forex Loss Requires Proof of Asset Linkage and Actual Realisation
Background of the Case
The assessee sought an additional depreciation deduction of ₹1,34,07,372, arising from capitalisation of a claimed realised foreign exchange fluctuation loss of ₹5,63,84,469.
According to the assessee, the loss was realised during FY 2017–18 but related to a period before 1 April 2016 and concerned domestic assets.
The claim had not been made in the return of income. It was subsequently raised through a written submission during the assessment proceedings. However, the Assessing Officer completed the assessment at the returned income without dealing with the claim.
The assessee therefore pursued the deduction before the CIT(A).
Assessee’s Explanation for the Omission
The assessee referred to section 43AA, introduced with effect from 1 April 2016, and submitted that foreign exchange gains or losses, other than those covered by section 43A, were required to be recognised in computing income.
It distinguished this from section 43A, which concerns exchange differences associated with assets acquired from outside India.
The company explained that it had inadvertently failed to capitalise the realised exchange loss relating to domestic assets and the period before 1 April 2016. On revising the depreciation computation after the proposed capitalisation, the deduction increased by ₹1.34 crore.
This was the assessee’s explanation for the claim; the Tribunal did not finally determine its correctness under the relevant provisions.
CIT(A) Rejects Claim for Want of Evidence
The CIT(A) considered that the claim could not be verified without documents establishing the asset acquisition, foreign currency liability and exchange loss.
The required material included purchase invoices, bank statements showing payments and exchange rates, foreign currency loan documents and the underlying contracts or agreements.
Despite notices issued on several occasions during the appellate proceedings, the CIT(A) found that the necessary documents had not been furnished.
Without them, the original liability, relevant exchange rates and actual settlement could not be adequately verified. The CIT(A) therefore rejected the additional depreciation claim.
Reliance on Domestic Asset Acquisition Through ECB Loans
Before the Tribunal, the assessee relied on Aesseal India Pvt. Ltd. v. ITO, ITA Nos. 2202 and 2203/PUN/2017.
As described in the present order, the Pune Tribunal had followed CIT v. Woodward Governor India Pvt. Ltd., 312 ITR 254 (Supreme Court) and permitted adjustment to the actual cost of assets for exchange fluctuation loss where it was undisputed that external commercial borrowing loans had been utilised to acquire assets in India.
The assessee relied on that reasoning to support its proposed capitalisation and consequential depreciation.
The Revenue, however, emphasised the CIT(A)’s finding that the necessary purchase, borrowing and settlement records were absent. It argued that the claim could not be decided without factual verification.
Tribunal’s Findings
The Tribunal agreed with the CIT(A) that the absence of necessary details and documents prevented a decision on the merits.
The assessee’s representative then requested restoration of the issue to the Assessing Officer so that the supporting evidence could be furnished. The Revenue did not object.
In the interest of justice and fair assessment, the Tribunal restored the matter to the Jurisdictional Assessing Officer for fresh examination of the additional depreciation claim relating to foreign exchange fluctuation.
The Assessing Officer was directed to provide an opportunity of hearing. The assessee was expressly required to submit all relevant particulars and documents establishing the correctness of the amount claimed.
Final Outcome
The appeal was allowed for statistical purposes.
The Tribunal did not finally allow the depreciation of ₹1,34,07,372 or conclusively hold that the ₹5,63,84,469 exchange loss qualified for capitalisation. Both the factual foundation and the resulting deduction remained subject to fresh examination.
Author’s Comments
A supporting precedent cannot replace proof that the borrowing, asset acquisition and exchange loss are connected in the particular case. That evidentiary gap determined the Tribunal’s approach.
For such claims, the records should connect the foreign currency borrowing with the asset expenditure and reconcile the original liability, repayment or settlement, applicable exchange rates and proposed adjustment to asset cost. The revised depreciation schedule must then show how the additional deduction follows from that adjustment.
The expression “additional depreciation” also requires careful reading. Here, it describes an additional amount of depreciation claimed following a proposed increase in asset cost. The order does not decide entitlement to the separate statutory incentive under section 32(1)(iia).
Likewise, this is not a final ruling that exchange losses on all domestic assets must be capitalised. The assessee relied on an earlier decision involving ECB-funded acquisitions, but the Tribunal left the present claim open for verification.
The procedural outcome is nevertheless useful: a claim omitted from the return and not examined by the Assessing Officer was restored for substantive consideration. The opportunity now requires a complete evidentiary reconciliation, rather than reliance solely on the accounting description or the cited authorities.
Cases Discussed
- Aesseal India Pvt. Ltd. v. ITO, ITA Nos. 2202 & 2203/PUN/2017 (ITAT Pune) — Relied upon by the assessee concerning adjustment to the actual cost of assets for foreign exchange fluctuation losses on ECB loans used to acquire assets in India.
- CIT v. Woodward Governor India Pvt. Ltd., (2009) 312 ITR 254 (Supreme Court) — Cited through the Pune Tribunal decision concerning the tax treatment of exchange fluctuation losses and adjustment of actual cost under the applicable statutory provisions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 09.09.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2018-19.
2. The assessee has raised the following Grounds of Appeal:
“1. Erred in not allowing additional claim of depreciation on realised foreign exchange fluctuation amounting to INR 1,34,07,372/-.
1.1 On the facts and circumstances of the case and in law, Learned CIT(A)/AO has erred in rejecting Appellant’s additional claim of depreciation of INR 1,34,07,372/- which is based on amount of actual realized foreign exchange fluctuation of INR 5,63,84,469/- during the current year and pertaining for the period prior to April 1, 2016 vide submission dated 16 January 2021 during the assessment proceedings.
1.2 On the facts and circumstances of the case and in law, the Learned CIT(A)/AO has erred in appreciating that owing to provisions of section 43AA (introduced with effect from April 1, 2016) the Appellant inadvertently had not capitalized the realized foreign exchange fluctuation loss on domestic assets realized during the current year and pertaining for the period prior to April 1, 2016.
The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal.”
3. The only issue for our consideration is the claim for additional depreciation of Rs.1,34,07,372/- based on realized foreign exchange fluctuation loss of Rs.5,63,84,469/- stated to pertain to Financial Year 2017-18 (relevant to Asst. Year 2018-19) and for the period prior to 01-04-2016. This claim was not made in the return, but in the course of assessment vide letter dated 05-03- 2021. The A.O did not deal with the same while completing assessment at the returned income.
4. The Ld. CIT(A), NFAC, before whom this claim was raised, did not allow the same with the following observation:
“4. Ground no 2 regarding additional claim of depreciation on account of realized foreign exchange fluctuation of Rs.1,34,07,372/-. The appellant submitted that, as per the provisions of section 43AA of the Act (introduced with effect from April 1, 2016), except foreign exchange fluctuation loss gain covered by section 43A, any foreign exchange fluctuation loss gain shall be claimed as an expense or offered to tax. Further, provisions of section 43A of the Act, provides that realized foreign exchange fluctuation gain loss on imported assets shall be capitalized to the cost of asset. Accordingly, for the year under consideration, inadvertently the Appellant had not capitalized the realized foreign exchange fluctuation loss on domestic assets realized during the current year and pertaining for the period prior to April 1, 2016. The amount of such realized foreign exchange fluctuation loss is Rs.5,63,84,469/-. Based on the same, the amount of revised tax depreciation has increased by Rs. 1,34,07,372/-.
4.1 Forex loss can be added to the cost of the capital asset and depreciated, provided the asset is depreciable and long-term. To prove foreign exchange loss on capital goods, the appellant must maintain clear documentation, such as the original purchase invoice, bank statements showing the payment date and exchange rate, and foreign currency loan documents, along with the original contract showing the liability in foreign currency. The loss has to be verified by the AO or CIT (Appeal) by comparing the exchange rate on the transaction date with the rate at the settlement or accounting year-end. In this case, notices were issued to the appellant on 05/10/2021, 21/07/2022, 04/08/2023 and 07/07/2025 requesting for documentary evidences supporting this ground. However, the appellant did not submit (1) Purchase Invoices of depreciable capital assets to show the original cost of the capital good in the foreign currency, (2)Bank Statements to verify the actual exchange rate used when the payment was made, (3) Foreign Currency Loan/exchange Documents to see whether the capital asset was purchased with a foreign currency loan, including the loan agreement and statements showing the loan amount and currency, (4) Contract/Agreement for the capital good that can establish the foreign currency liability ETC… Without these documents, the exchange rate on the date the capital asset purchase was initiated cannot be determined. It is also crucial to find the exchange rate on the date the payment was actually made or on the last day of the accounting year, depending on the currency’s classification. Due to the inability of the appellant to submit necessary documents to prove forex loss, the additional claim of the appellant cannot be entertained at this stage. As a result, ground no 2 is dismissed.”
5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.. We have heard Shri Dhinal Shah, Advocate, the Ld. A.R. and Shri Amit Pratap Singh, the Ld. Sr. D.R.
6. The Ld. A.R. has placed reliance on a decision of the ITAT Pune Bench in Aesseal India Pvt. Ltd. vs. ITO: ITA Nos. 2202 & 2203/PUN/2017. In that case the ITAT, following the decision of the Supreme Court in CIT vs. Woodward Governor India Pvt. Ltd.: 312 ITR 254 (SC), held that the necessary adjustment should be made to the actual cost of assets on account of loss consequent to foreign exchange fluctuation as there was no dispute that ECB loans were utilized for the purpose of acquisition of assets in India. s
7. The Ld. Sr. D.R. drew our attention to Para 4.1 of the CIT(A) order wherein the CIT(A) had noted that in the absence of various details and documents mentioned therein, including purchase invoices, verification of actual exchange rate, documents of foreign currency loans etc., it was not possible to entertain the additional claim of the assessee at that stage.
8. We find ourselves in agreement with the Ld. CIT(A) that the absence of necessary details and documents it was not possible to decide the claim on merits at that stage.
9. Ld. A.R. sought setting-aside the matter back to the A.O. to enable the assessee to file the necessary details and evidence to establish the claim for additional depreciation. The Ld. Sr. D.R. fairly submits that he has no objection to this course of action.
10. In the interest of justice and fair assessment, we direct that this case shall be restored to the Jurisdictional Assessing Officer for fresh assessment on this issue of additional depreciation relating to foreign exchange fluctuation, after affording opportunity of hearing to the assessee. The assessee shall submit all the relevant details and documents to establish the correctness of the amount claimed as additional depreciation.
11. In the result, the appeal of the Assessee is allowed for statistical purposes.
This Order is pronounced on 12 /10/2026
