By K. B. Bhujle
Advocate
The Pr. CIT-20 vs. Aloka Exports.
[ AY 2009-10] [Income tax Appeal no. 806 of 2015 dated: 26/02/2018 (Bombay High Court)].
[ACIT, Circle-17(2) vs. Aloka Exports.[ITA No. 4771/Mum/2012; Bench : A ; dated 27/08/2014 ; Mum. ITAT ]
The assessee is engaged in
the business of manufacture and export of readymade garments, imitation
jewellery, handicrafts etc. The AO noticed that the assessee claimed deduction
of expenses relating to foreign exchange rate difference.
The assessee submitted that
the term loan was availed for working
capital purposes. At the year end, the assessee worked out the foreign exchange
difference and claimed the loss arising thereon as deduction.
The AO noticed that the
EEFC account is maintained in foreign currency and accordingly held that the
assessee could not have incurred loss on account of foreign exchange difference.
The assessee explained before the AO about the method of accounting of “foreign
exchange loss/gain”. However, the assessing officer took the view that the loss
accounted by the assessee is against the accounting principles. Accordingly he
disallowed the foreign exchange difference loss claimed by the assessee.
The Ld CIT(A) deleted the
disallowance of loss arising on foreign exchange difference by following the
decisions rendered by Hon’ble Supreme Court in the followingcases:-
(a) Sutlej
Cotton Mills Ltd vs. CIT (116 ITR 1)(SC)
(b) CIT
vs. Woodward Governor India Pvt Ltd (312 ITR 254)(SC).
On further appeal by the
Revenue, the Tribunal upheld the order of the CIT(A). It held that the foreign
exchange term loan was utilised for working capital requirements. Thus, the
loss on account of foreign exchange difference is allowable as a revenue loss.
The Hon. High Court
observed that both the CIT(A) as well as
the Tribunal have on perusal of the record, come to a conclusion that the loan
taken was utilised only for working capital requirements. Therefore, loss on
account of foreign exchange variation would be allowable as a trading loss. In
fact, even the Assessing Officer has held that term loan was not utilised for
purchase of plant and machinery.
The Court held that this
issue stands covered by the decisions of the Supreme Court in Sutlej Cotton
Mills Ltd., vs. CIT 116 ITR 1 (SC) that loss arising during the process of
conversion of foreign currency is a part of its trading asset i.e. circulating
capital, it would be a trading loss. Further, as held by the Apex Court in CIT
vs.Woodward Governor India Pvt. Ltd., 312 ITR 254 – that loss/liability
arising on account of fluctuation in rate of exchange in case of loans utilised
for revenue purposes, is allowable as an expenditure. Accordingly, the question
of law raised in the appeal of revenue
was dismissed.
