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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V.DURGA RAO & SHRI G. MANJUNATHA
This appeal filed by the assessee is directed against order passed by the learned Commissioner of Income Tax (Appeals)-6, Chennai, dated 19.12.2018 and pertains to assessment year 2014-15.
2. The assessee has raised following grounds of appeal:-
“Loss on foreign currency transaction: 1. The learned CIT(A) erred on facts and in law in upholding disallowance of foreign exchange fluctuation loss of Rs. 3,43,34,294 considering it as capital expenditure in nature.
1.1. The learned CIT(A) failed to appreciate the fact that the foreign exchange fluctuation loss of Rs. 3,43,34,294 was incurred on loan taken for purchase of capital assets in India and therefore the provisions of Section 43A are not applicable. 1.2. The learned CIT(A) failed to appreciate the fact that the purpose of loan was to reduce interest cost which is a revenue expenditure and therefore the foreign currency fluctuation loss on such loan is also revenue in nature.
1.3. The learned CIT(A) failed to appreciate the fact that the Appellant has been consistently following the accounting policy of treating foreign exchange fluctuation difference as revenue in nature. Therefore, when foreign exchange fluctuation profit has been offered to tax by the Appellant as revenue income, foreign exchange fluctuation loss ought to have been considered as revenue expenditure. 1.4. The learned CIT(A) failed to appreciate the fact that the treatment of foreign exchange fluctuation difference is in line with the generally accepted accounting principles, accounting standards notified by the Institute of Chartered Accountants of India and the Income Computation and Disclosure Standards notified by the CBDT.”
Brief facts of the case are that the assessee is engaged in the business of manufacture of control suspension and related components for automotive industry filed its return of income for the assessment year 2014-15 on 29.11.2014 declaring Nil total income. During the course of assessment proceedings, the Assessing Officer noticed that the assessee company had incurred loss of Rs.5,36,58,909/- on account of foreign currency fluctuation in respect of advance from customers, loans availed from banks in foreign currency and interest payment thereon. The assessee claimed before the Assessing Officer that it has availed loan from banks in foreign currency for acquisition of asset as well as for general business purpose.
Therefore, if at all, disallowance is required to be made, then proportionate disallowance should be made in terms of provisions of section 43A of the Act. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to him, loss incurred by the assessee on account of fluctuation in foreign currency is capital in nature, because the assessee company had borrowed loans from external source for the purpose of acquiring capital asset.
Therefore, disallowed loss and added back to the total income.
The assessee carried the matter in appeal before first appellate authority, but could not succeed. The learned CIT(A) for the reasons stated in his appellate order dated 19.12.2018 rejected arguments of the assessee and sustained additions made by the Assessing Officer. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
The learned A.R for the assessee submitted that the learned CIT(A) erred in upholding disallowance of foreign exchange fluctuation loss considered it as capital in nature, without appreciating fact that exchange fluctuation loss was incurred on loan taken for purchase of capital asset in India and therefore, provisions of section 43A of the Act, are not applicable. He further submitted that the assessee has taken foreign currency loan for the purpose of acquiring capital asset as well as for general business purpose and therefore, if at all disallowance is required to be made, then proportionate loss incurred on loan taken for acquiring capital asset should be disallowed. He further submitted that the Assessing Officer had considered very same issue for the assessment year 2016- 17, where the Assessing Officer himself has made proportionate disallowance and thus, the issue may be set aside to the file of the Assessing Officer.
The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that the Assessing Officer as well as the learned CIT(A) brought out clear facts in light of various evidences filed by the assessee and held that exchange loss incurred by the assessee is capital in nature which cannot be allowed. However, the issue may be set aside to the file of the Assessing Officer to reconsider the issue in light of the arguments of the assessee that in the subsequent assessment year, the Assessing Officer has made proportionate disallowance in respect of loss pertaining to loans taken for acquiring capital asset.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the assessee has incurred exchange loss on account of foreign currency loan availed from external sources. The Assessing Officer has disallowed total loss incurred on account of exchange fluctuation by holding that it is in the nature of capital loss. It was the argument of the assessee before us, that the assessee has borrowed foreign currency loans for the purpose of acquiring capital asset as well as for general business purpose and thus, if at all, disallowance is required to be made, then proportionate disallowance is required to be made in respect of exchange loss pertains to loans borrowed for acquiring capital asset. He further submitted that the Assessing Officer had considered very same issue and accepted arguments of the assessee for subsequent assessment year 2016-17 and has made proportionate disallowance towards foreign exchange loss pertains to loans borrowed for acquiring capital asset.
Having heard arguments of both the sides, we find that the assessee never disputed fact that foreign exchange loss debited into profit & loss account also includes loss pertain to loans borrowed for acquiring capital asset. The only plea raised before us is that the Assessing Officer has considered very same issue for subsequent assessment year 2016-17 and has made proportionate disallowance towards for foreign exchange loss u/s.43A of the Act, in respect of loss pertaining to loans borrowed for acquiring capital asset. Therefore, considering arguments of the learned A.R for the assessee that the Assessing Officer has considered a similar issue and made proportionate disallowance, we are of the considered view that the issue needs to go back to the file of the Assessing Officer to re-consider the issue in light of the Assessing Officer’s subsequent assessment year for 2016-17, keeping in mind rule of consistency and thus, we set aside the appeal and restore the issue to the file of the Assessing Officer and direct the A.O. to reconsider the issue in light of arguments of the assessee that proportionate disallowance is required to be made in line of disallowance made by the Assessing Officer for subsequent assessment year 2016-17.