The Delhi bench of Income Tax Appellate Tribunal recently held that the deduction in respect of foreign exchange fluctuation loss arising out of current liabilities is allowable in accordance with the rates and year prescribed in the Accounting Standard-11.
Briefly explaining the factual premises of the case, the appellant, engaged in the business of IT, claimed deduction in respect of the foreign exchange loss which was disallowed by the assessing authority on ground that it is a speculative loss. The AO further relied upon the instruction No. 3/2010 dated 23.03.2010 issued by the CBDT. On appeal, the CIT(A) confirmed the disallowance on ground that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions pertaining to the current year.Being aggrieved, the assessee filed a second appeal before the ITAT challenging the above orders.
Referring to various judicial decisions, the Tribunal found that the loss cannot be called notional since the fall in the exchange rate has already taken place in the accounting year.Further, the Accounting standard 11 provides thatwhen the transaction is not settled in the same accounting period in which it had occurred then in all the intervening period till the transaction is settled, the exchange differences have to be duly accounted for.
Based on the above findings the Tribunal accepted the claim of the assessee and it was observed that “the finding of the ld. CIT(A) that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions of the current year, in our opinion, does not stand on sound footings and is liable to be set aside. In the assessment year 2013-14, the department itself has accepted foreign exchange fluctuation loss under identical circumstances vide assessment order u/s. 143(3) dated 30.03.2016. Not only this, the assessee has been following a consistent policy on re-statement of foreign currency payables and whenever there is a gain the same is duly offered to tax as also noted by ld. CIT(A) in a chart at page 31 of the impugned order wherein the gains arising consequent to conversion at closing exchange rate have been duly offered to tax by the assessee. Therefore, the ld. Authorities below are not justified to take different view in the instant year. In view of these discussions, we do not find any justification to support the orders of the authorities below.”
Read the full text of the order below.
