Deduction of Foreign Exchange Loss suffered is duly allowable as Loss incurred during year: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi held that deduction of foreign exchange loss suffered is duly allowable as loss incurred during year.

This appeal by the Revenue has been preferred against the order of the CIT(A) pertaining to the Assessment Year 2009-10. The Revenue is aggrieved by the deletion of addition on account of disallowance of foreign exchange loss of Rs. 11,48,23,000.

The underlying facts are that the assessee company, M/s Oscar Investment Ltd claimed loss of Rs. 11,48,23,009/- on account of foreign exchange fluctuation. It was explained during the course of assessment proceedings that for the purpose of carrying out its business activities, the assessee had taken loan of Rs. 60 crores from M/s RHC Holding Pvt Ltd at an interest rate of 11% p.a. It was explained that the said loan was utilized by the assessee in its activity of granting loans and advances on which it had earned interest income.

It was further explained that in order to save/reduce interest cost, the assessee entered into a Swap Deal Agreement with HSBC wherein HSBC agreed to swap the assessee’s loan of Rs. 60 crores in USD @ 40.68 per USD and in terms of agreement with HSBC the assessee was to earn interest income of 0.95% per annum from the bank which reduced the interest cost of 11% per annum on loan of Rs. 60 crores from M/s RHC.

However, the forex gain /loss on such Swap transaction of loan was to be borne by the assessee. The Assessing Officer was of the view that since the liability of the assessee was outstanding in foreign currency, which has resulted loss to the assessee due to fluctuation and since there is no settlement of transaction, loss is clearly a notional loss and was, accordingly, disallowed by the Assessing Officer.

The Bench consisting of N K Billaiya, Accountant Member and Kul Bharat, Judicial Member confirmed the findings of CIT(A) and observed that “In view of above, factual and legal position the deduction on account of foreign exchange loss suffered by the appellant during the year is duly allowable as loss incurred during the year. Therefore, AO is directed to allow the said Foreign Exchange Loss under reference.

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