SITAE RE PVT. LTD.,NEW DELHI vs. ITO, WARD-23(4), NEW DELHI

The assessee has raised following grounds of appeal:-

1. “That on the facts and law involved the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in confirming the disallowance of Rs 2,59,97,240/- being the amount of exchange fluctuation loss provided at the year end on business advance received in foreign exchange.

The Ld.AR for the assessee at the outset pointed out that the issue raised in the present appeal on account of treatment of exchange fluctuation loss on revaluation of business advances stand fully covered in favour of the assessee by the orders of the Tribunal in assessee’s own case for the earlier years.

Briefly in the facts of the case during the year under consideration, the assessee company had claimed deduction on account of foreign fluctuation loss at Rs.2.59 crores (approx.) in its Profits & Loss A/c. The Assessing Officer show-caused the assessee as to why the said loss should be allowed in the hands of the assessee. The Assessing Officer noted the submissions of the assessee company and observed that it had claimed notional loss on this account. The Assessing Officer also noted that the additions were made in the earlier years and thus made addition of Rs.2.59 crores (approx.).

Before the CIT(A), the assessee pointed out that the appeals for the earlier years have been decided in favour of the assessee by the CIT(A) and written submissions were filed in this regard. However, the said submissions did not find favour with the CIT(A) on the ground that after lapse of considerable time when advance was first received in Financial Year 2007-08, no work has been rendered against the said advance. It was also observed that the said advance was received in India and the same was also accounted for in Indian Rupees only. The CIT(A) was of the view that the alleged advance shown in the books was a contingent liability against which no work had been carried out by the assessee nor the amount was refunded to M/s. Natural Energy Corporation GmbH till date.

Thus, the addition made by the Assessing Officer was upheld, against which the assessee is in appeal before us.

We have heard the rival contentions and perused the record. Briefly in the facts of the case during the year relevant to Assessment Year 2008-09, the assessee in the course of its business received 20,00,000 Euro equivalent to Rs.11.25 Crores from Natural Energy Corporation GmbH against services to be rendered. Pending adjustment, the said business advance was reflected as advance against services to be rendered in the books of account as on 31.03.2014. There being diminution in the value of Euro as on 31.03.2014, difference in exchange fluctuation on the said advance of 20,00,000 Euro amounting to Rs.2,60,00,000/- (wrongly taken as Rs.2,59,97,238/- being net of other amounts credited in Exchange fluctuation a/c) was provided in the books of accounts as revenue expense/exchange loss. The Assessing Officer 3 treated the said exchange fluctuation loss as notional loss and disallowed the claim of the assessee based on similar disallowance made in some prior years which was upheld by CIT(A).

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:

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.

In the result, the appeal of the assessee is allowed.