ITAT ‘A’ Bench, Mumbai
Before D. K. Agarwal (JM) and
B. Ramakotaiah, (AM)
ITA No. 6780/Mum./2008
A.Y. : 2004-05. Decided on : 20-10-2009
Counsel for assessee/revenue : K. Gopal/
Virendra Ojha
S. 28 and S. 37(1) — Exchange loss arising on application
of AS-11 — Allowable as business loss/expenditure — Ultimate utilisation of
fund for investment purpose would not affect the al-lowability of loss.
Per B. Ramakotaiah :
Facts :
The assessee was a film actress. She had shown her
professional receipts to the tune of Rs.6.12 crore and declared a total income
of Rs.6.04 crore. During the course of assessment the AO noticed that the
assessee had claimed foreign exchange loss of Rs.7.25 lacs. As per the
assessee the loss was arising out of exchange rate difference in the EEFC
account. The assessee had a large amount of dollar fund in the account at the
beginning of the year and after deposits during the year into the same
account, it was closed and converted into Indian Rupees. On conversion, due to
reduction in the value of dollar vis-à-vis Rupee, there was a
loss/reduction in the professional income accounted, which was claimed as a
loss.
This method of accounting, which was based on Ac-counting
Standard 11, was consistently followed by the assessee and the Department had
also assessed the profits earned therefrom in earlier years. However, during
the year, the AO disallowed the exchange loss, holding that the funds after
conversion were utilised for investing in tax relief bonds/fixed deposits.
Thus, since according to the AO, the utili-sation
of foreign currency balance was not for profes-sional purposes, the exchange
loss was disallowed.
Before the Tribunal the Revenue contended that the
Assessing Officer’s finding was correct that the amount was not utilised for
professional activities. It also relied on the decision of the Calcutta High
Court in the case of invest import and contended that the capital loss cannot
he allowed.
Held :
According to the Tribunal the facts do indicate that the
assessee had deposited her professional receipts in the said EEFC account.
Secondly, as noted by the CIT(A), the assessee was consistently following the
Mercantile system of accounting and also AS-11. Further, according to it, the
ultimate utilisation of the professional receipts after its conversion from
dollar to Indian Rupee was not material (relevant). The subsequent utilisation
of the amount cannot convert such loss as capital loss. According to it, the
Calcutta high Court decision relied on by the revenue, was distinguishable by
facts and hence, cannot be applied to the facts of the assessee’s case.
If further observed that the CIT(A) also erred in
up-holding that it was a notional loss. This was an actual loss after
conversion of balance in US $ into Indian Rupee. Accordingly, it was held that
the loss was an allowable loss against professional receipts.
Case referred to :
CIT v. Invest Import, 137 ITR 310 (Cal.)
