Income Tax deduction allowed by Karnataka High Court on loss suffered by assessee on Foreign Rate Fluctuation

The Hon’ble Karnataka High Court in P.R Commissioner of Income Tax  v. M/s United Spirits Ltd. [I.T.A. No. 548/2015 c/w  I.T.A No. 37/2010 decided on September 2, 2021] answered in favor of the M/s United Spirits Ltd. (“the Assessee”) and held that the loss suffered by an Assessee on account of foreign exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Income Tax Act (“IT Act”) and further allowed the Income Tax deduction (“ITD”) on the loss suffered by an Assessee on account of Foreign Exchange Fluctuation Loss (“FEFL”).

The Assessee claimed an amount of Rs.1,80,22,000/- towards the FEFL, but was disallowed by assessing officer (“AO”) assuming that the funds raised by the Assessee had been used for certain investments into the share capital of various companies.

Tribunal noted that the Assessee had offered the foreign exchange to tax which had been accepted by the AO, held that the Assessee had established that the loss was in relation to working capital loans and the said loans were not utilized to making the interest as observed by the AO, thus, the said loss was allowed as a deduction.

It was observed, that the interest paid on the loans was allowed by the AO himself as a deduction, however, no loss in connection thereto was allowed. The action of the AO accepting the Foreign Exchange but disallowing the loss appears to be erroneous.

Held that, FEFL suffered by an assessee as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Act.

Ruled, confirming the view of the Tribunal, answered in favor of the Assessee and against the revenue.

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DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.

The Hon’ble Karnataka High Court in P.R Commissioner of Income Tax  v. M/s United Spirits Ltd. [I.T.A. No. 548/2015 c/w  I.T.A No. 37/2010 decided on September 2, 2021] answered in favor of the M/s United Spirits Ltd. (“the Assessee”) and held that the loss suffered by an Assessee on account of foreign exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Income Tax Act (“IT Act”) and further allowed the Income Tax deduction (“ITD”) on the loss suffered by an Assessee on account of Foreign Exchange Fluctuation Loss (“FEFL”).

The Assessee claimed an amount of Rs.1,80,22,000/- towards the FEFL, but was disallowed by assessing officer (“AO”) assuming that the funds raised by the Assessee had been used for certain investments into the share capital of various companies.

Tribunal noted that the Assessee had offered the foreign exchange to tax which had been accepted by the AO, held that the Assessee had established that the loss was in relation to working capital loans and the said loans were not utilized to making the interest as observed by the AO, thus, the said loss was allowed as a deduction.

It was observed, that the interest paid on the loans was allowed by the AO himself as a deduction, however, no loss in connection thereto was allowed. The action of the AO accepting the Foreign Exchange but disallowing the loss appears to be erroneous.

Held that, FEFL suffered by an assessee as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Act.

Ruled, confirming the view of the Tribunal, answered in favor of the Assessee and against the revenue.

Online GST Course by Bimal Jain

Recorded: Certified Advanced GST Course

Course Details: Certificate of Participation will be Provided, Free GST Updates on E-mail, WhatsApp, Telegram for 1 Year, Background Material and PPT will be Provided on the downloadable basis, Total 21 Recorded Sessions (60 Hours), will be available for 120 hours or 60 Days whichever expires earlier.

For Registration:- https://cutt.ly/hxjl5Cu

Recorded: GST Course on Exports, Deemed Exports, SEZ, Imports, Merchandise Exports, Inverted Duty Structure (including Refunds)

Course Details: 6 Online Recorded Sessions of 2.30Hrs each with Background Material (BGM)

For Registration:- https://cutt.ly/pvw7mzl

For more details, Call: +91-8076563802, E-mail: intern@a2ztaxcorp.com, Web: www.a2ztaxcorp.in

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.

The Hon’ble Karnataka High Court in P.R Commissioner of Income Tax  v. M/s United Spirits Ltd. [I.T.A. No. 548/2015 c/w  I.T.A No. 37/2010 decided on September 2, 2021] answered in favor of the M/s United Spirits Ltd. (“the Assessee”) and held that the loss suffered by an Assessee on account of foreign exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Income Tax Act (“IT Act”) and further allowed the Income Tax deduction (“ITD”) on the loss suffered by an Assessee on account of Foreign Exchange Fluctuation Loss (“FEFL”).

The Assessee claimed an amount of Rs.1,80,22,000/- towards the FEFL, but was disallowed by assessing officer (“AO”) assuming that the funds raised by the Assessee had been used for certain investments into the share capital of various companies.

Tribunal noted that the Assessee had offered the foreign exchange to tax which had been accepted by the AO, held that the Assessee had established that the loss was in relation to working capital loans and the said loans were not utilized to making the interest as observed by the AO, thus, the said loss was allowed as a deduction.

It was observed, that the interest paid on the loans was allowed by the AO himself as a deduction, however, no loss in connection thereto was allowed. The action of the AO accepting the Foreign Exchange but disallowing the loss appears to be erroneous.

Held that, FEFL suffered by an assessee as on the date of the balance sheet is an item of expenditure under Section 37(1) of the Act.

Ruled, confirming the view of the Tribunal, answered in favor of the Assessee and against the revenue.

Online GST Course by Bimal Jain

Recorded: Certified Advanced GST Course

Course Details: Certificate of Participation will be Provided, Free GST Updates on E-mail, WhatsApp, Telegram for 1 Year, Background Material and PPT will be Provided on the downloadable basis, Total 21 Recorded Sessions (60 Hours), will be available for 120 hours or 60 Days whichever expires earlier.

For Registration:- https://cutt.ly/hxjl5Cu

Recorded: GST Course on Exports, Deemed Exports, SEZ, Imports, Merchandise Exports, Inverted Duty Structure (including Refunds)

Course Details: 6 Online Recorded Sessions of 2.30Hrs each with Background Material (BGM)

For Registration:- https://cutt.ly/pvw7mzl

For more details, Call: +91-8076563802, E-mail: intern@a2ztaxcorp.com, Web: www.a2ztaxcorp.in

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.