- The Assessee in the course of its business received 20 lakh Euros 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 lakh Euro amounting to Rs. 2.60 Crores being net of other amounts credited in exchange fluctuation account was provided in the books of accounts as revenue expense/ exchange loss.
- The Assessing Officer 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 Commissioner of Income Tax.
- The Tribunal placed reliance on the various decisions decided by the Hon’ble Supreme Court in Oil & Natural Gas Corporation Ltd. Commissioner of Income Tax, in the case of Commissioner of Income Tax vs Woodward Governor India Pvt Ltd and also by the Hon’ble Delhi High Court in the case of Taiko Chander Nagar Chemicals P.Ltd., wherein it was held that exchange fluctuation loss in respect of business advances received in the course of business on account of reinstatement of the outstanding balance at the year-end was allowable as business loss.
- Applying the said principle to the facts and circumstances of the case, the exchange fluctuation loss arising on account of the revaluation of business advances on the close of the year by the Assessee was allowable as deduction in the hands of the Assessee.
- Accordingly, the addition of Rs. 2.60 crores made to the income of the Assessee was ordered to be deleted.
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