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Facts
The assessee filed an appeal against the order of the Ld. CIT(A) which confirmed the disallowance of Rs. 23,71,973/- representing exchange fluctuation loss on a business advance of Rs. 11.25 Crore. The assessee claimed this loss as a business expenditure.
Held
The Tribunal held that the exchange fluctuation loss arising on revaluation of business advances at the year-end is an allowable business expenditure under Section 37(1) of the Income Tax Act. This decision was based on precedents from the Supreme Court and High Courts, as well as decisions in the assessee's own case for prior years.
Key Issues
Whether exchange fluctuation loss on business advances is a deductible business expenditure under Section 37(1) of the Income Tax Act, considering various judicial precedents and consistent treatment in prior assessment years.
Sections Cited
250, 143(3), 37(1), 14A, 68, 147, 148, 149, 150(1), 150(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
The present appeal is filed by the assessee against the order dated 21.01.2019 passed by Ld. Commissioner of Income Tax (A)- 23, New Delhi [“Ld.CIT(A)”] in Appeal No.149/17-18 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of the Assessment Order dated 31.03.2016 passed u/s 143(3) of the Act pertaining to Assessment Year 2013-14.
2. The assessee has raised following grounds of appeal:- 1. “That on the facts and law involved the Ld. Assessing Officer [Ld. AO] has erred in making and the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in confirming the disallowance of Rs 23,71,973/- being the amount of exchange fluctuation loss provided at year end on business advance of Rs. 11.25 Crore. 1.1 That the said disallowance of exchange fluctuation loss as confirmed by the Ld.CIT(A) is against the binding precedents of the Apex court and Jurisdictional Delhi High Court in the cases reported Page | 1
in [2009] 312 ITR 0254 (SC) - CIT Vs. Woodward Governor India P. Ltd. and 311 ITR 475 (Del.) CIT vs. Taiko Chander Nagar Chemicals P. Ltd. wherein such exchange fluctuation loss has been held allowable as business expenditure u/s 37(1) of the Act. 1.2 That while confirming the disallowance of exchange fluctuation loss of Rs. 23,71,973/- the Ld. CIT(A) has erred on facts and in law in treating the business advance of Rs. 11.25 Crore as non-existent or not payable. The Ld. CIT (A) has not appreciated the fact that the said business advanced is finally settled to be repayable as borne out from the Settlement Agreement and NCLT Order on record. 1.3 That the said disallowance as confirmed by the Ld. CIT(A) is against the consistency principle in as much as in prior years i.e. in AY 2012-13, 2011-12, 2009-10 and 2008-09 similar claim of the appellant has been held allowable by the Ld. CIT(A). Moreover, the exchange gain on such advance in past and in future has been returned and assessed as income of the appellant. Refer decision of Jurisdictional High Court of Delhi in Pr CIT 8 Vs Samwon Precision Mould Mfg. India Pvt. Ltd (Del) - order dated 23.02.2018.
That the said disallowance of exchange fluctuation loss as made and confirmed of Rs. 23,71,973/- is based on erroneous views, non appreciation of facts & law involved, suspicion and conjectures without properly considering or rebutting submissions, material and binding precedents in appellant's favour.
3. That the Ld. CIT(A) has erred on facts and in law in enhancement proceedings in erroneously giving directions beyond his jurisdiction and beyond the limitation period available for: (i) Treating the said business advance of Rs 11.25 Crore as unexplained cash credit u/s 68 in AY 2008-09; and (ii) Disallowance of exchange fluctuation loss in every year where such loss is booked on said business advance.
4. That the Ld. CIT(A) has erred in giving directions u/s 150(1) as in Ground No. 3 above directing the Ld. AO u/s 150(1) to independently examine cases u/s 147/148 and in case the conditions under relevant sections are found to be satisfied, directing that proceedings may be initiated notwithstanding anything contained in Section 149 subject to provisions of Section 150(2).
That the directions, disallowances and enhancement as in Ground No. 1 to 4 above are based on erroneous views and non-appreciation of facts, law, material, submissions and binding case law on record in favour of the appellant. The disallowances and adverse
inferences are unwarranted and are liable to be deleted. The directions given by the Ld. CIT(A) are non-est. 6. That the grounds of appeal as herein are without prejudice to each other.
7. That the appellant respectfully craves leave to add, amend, alter and / or forego any ground(s) at or before the time of hearing.”
Ground of appeal Nos.1, 2 & 3 raised by the assessee are with respect to the disallowance of foreign exchange loss claimed by the assessee on the outstanding amount of advances at the end of the year.
Heard the contentions of both the parties and perused the material available on record. We find that this issue is squarely covered by the decision of the Co-ordinate Bench of Tribunal in assessee’s own case for previous years where the coordinate bench vide its order dated 14.05.2020 in [AY 2014-15] considered all the previous year’s orders and allowed the appeal of the assessee by making the following observations:-
“The issue of disallowance of exchange fluctuation loss has been decided by the Tribunal in assessee’s own case vide its consolidated order dated 29.07.2019 for Assessment Years 2008-09 and 2009-10 in & 134/Del/2014.
Following the decision of Hon’ble Supreme Court in CIT vs Woodward Governor India P.Ltd. 312 ITR 254(SC) it was held as under: “21. “So, following the decision rendered by Hon’ble Apex Court in CIT vs. Woodward Governor India P. Ltd. (supra), we are of the considered view that loss suffered by the assessee on account of foreign exchange rate fluctuation as on date of balance sheet is an item of expenditure u/s 37(1) of the Act and is not liable to be disallowed u/s 14A of the Act. So, the loss suffered by the asses see on account of fluctuation in the rate of foreign exchange is a revenue loss and not a capital loss as held by Id. CIT (A) in Assessment Year 2008-09 and contended by Id. DR for the Revenue. In view of what has Page | 3
been discussed above, we are of the considered view that claim of foreign exchange fluctuation loss is a revenue loss and not capital loss as has been held by the Id. CIT (A) in Assessment Year 2008-09.” 10. Further, the appeal of the Revenue against the order for Assessment Year 2012-13 was dismissed on account of low tax effect vide order dated 28.08.2019 in & Others.
The issue arising in the present appeal has further been decided by the Hon’ble Supreme Court in Oil & Natural Gas Corporation Ltd. v CIT, 322 ITR 180 (SC) and also in the case of CIT vs Woodward Governor India P.Ltd. 312 ITR 254 (SC). The Hon’ble Delhi High Court in the case of Taiko Chander Nagar Chemicals P.Ltd. reported in 311 ITR 475 (Del.) has held that exchange fluctuation loss in respect of business advances received in the course of business on account of reinstatement of outstanding balance at the year end is allowable as business loss.
Applying the said principle to the facts and circumstances of the case, we hold that the exchange fluctuation loss arising on account of the revaluation of business advances on the close of the year by the assessee is allowable as deduction in the hands of the assessee. Accordingly, we hold so and delete the addition of Rs.2.59 crores (approx.). Thus, grounds of appeal
raised by the assessee are allowed.
13. In the result, the appeal of the assessee is allowed.”
5. Since, the issue in the present appeal is identical to the issue involved in the other years and admittedly there is no change in the facts and circumstances of the case therefore, by following the decision of Co-ordinate Bench in the case of assessee itself (supra), the disallowance of INR 23,71,973/- made is hereby, deleted.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 20.08.2025.