NINESTARS INFORMATION TECHNOLOGIES P LTD.,CHENNAI vs. DCIT CORPORATE CIRCLE 4(2), CHENNAI

आदेश / O R D E R

PER M. BALAGANESH, ACCOUNTANT MEMBER:

(A.Y 2015-16) M/s.Ninestars Information Technologies Pvt. Ltd. :- 2 -: 2. Though the assessee has raised the several grounds of appeal, we find that only effective ground to be decided is as to whether the exchange difference arising on the loan transaction with foreign subsidiary company could be considered as a notional loss in the facts and circumstances of the case.

Pursuing to the same, the assessee incurred foreign exchange fluctuation loss. The assessee in A.Y 2014-15 earned exchange gain in respect of the same transaction and had offered the same to tax.

The Ld. A.O in the scrutiny assessment proceedings completed u/s. 143(3) dated 29.12.2016 had also assessed the said exchange gain as a taxable receipt. During the year under consideration on receipt of the loan from the foreign subsidiary, pursuant to the conversion of the amounts received in foreign currency into Indian currency, the assessee incurred exchange fluctuation loss and claimed the same as a revenue loss u/s.37(1) of the Act in the return of income. This loss was considered to be notional in nature and capital expenditure by the Ld. A.O and accordingly, the same was disallowed in the (A.Y 2015-16) M/s.Ninestars Information Technologies Pvt. Ltd. :- 3 -: assessment. We find that the Ld. CIT(A) had considered this exchange fluctuation loss as "mark to market" loss for treating the same as exchange loss incurred on some forex-derivatives and accordingly by placing reliance on the CBDT Circular Instruction No.3 to 2010 dated 23.03.2010 held that the said exchange fluctuation loss is capital in nature and also contingent expenditure. With this observation, he upheld the action of the Ld. AO. We find that the Revenue had not understood the transaction carried out by the assessee in the instant case. This is a simple case of loan given by the assessee to its foreign subsidiary in the earlier years and at the time of re-statement of the said loans in earlier years at the exchange rate prevailing at the end of the year, it had resulted in exchange gain which has been duly offered to tax by the assessee voluntarily and assessed as such by the Revenue in the scrutiny assessment proceedings completed u/s. 143(3) of the Act. During the year under consideration, when the said loans were received back by the assessee and the assessee had actually incurred exchange loss, the revenue had considered the same as transaction carried out in forex- derivatives and treating the same as "mark to market" loss, which in our considered opinion, is against the facts of the assessee and material available on record. We find that the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of CIT

(A.Y 2015-16) M/s.Ninestars Information Technologies Pvt. Ltd. :- 4 -: vs. Woodward Governor India (P.) Ltd. reported in [2009] 312 ITR 254(SC) and respectfully following the same, we hold that the exchange fluctuation loss incurred by the assessee during the year under consideration is a regular revenue loss and is squarely allowable as deduction. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced on 28th day of February, 2020 in Chennai.