ITAT Upholds PCIT’s Revision in Foreign Exchange Loss Claim Case

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has recently upheld the decision of the Principal Commissioner of Income Tax (PCIT) to revise the assessment order in a Foreign exchange loss claim case.

The assessee, Hyderabad Yadgiri Tollway Private Limited, filed its income tax return (ITR) for the AY 2018-19 on 11.10.2018, declaring a loss of Rs 37,84,22,186. The company had claimed a deduction of Rs 28,72,73,150 for the repayment of a foreign currency loan (ECB loss). The claim was also accepted by the Assessing Officer (AO).

However, when the case was selected by the PCIT, it observed that, as per Accounting Standard-11 and ICDS-VI, the foreign fluctuation gains or losses are required to be recognised at each balance sheet date. It held that the assesse incorrectly claimed the exchange loss on the entire foreign currency loan in one stretch in the current year. The PCIT set aside the reassessment order and directed the AO to pass a fresh order after examining the facts based on the accounting standard.

The assesse challenged this order of PCIT before the Income Tax Appellate Tribunal (ITAT), Ahmedabad.

The company argued that the claim of deduction for the exchange loss of Rs 28,72,73,150 was examined and accepted by the AO. The assesse also submitted that it had entered into a concession contract with the National Highways Authority of India (NHAI) for a period of 23 years w.e.f. 24.02.2010. The company said that it had received a completion certificate from NHAI on 10.12.2012, and toll collection was started from this date. The assesse also informed that the foreign currency loan was borrowed for the project, and it was not used for any capital asset. The assesse argued that section 43A of the Income Tax Act was not applicable in their case.

The ITAT held that the foreign exchange loss or gain must be restated in the accounts of each previous year. The ITAT cited AS-11, which requires all foreign currency monetary items to be reported at the closing rate on every balance sheet. However, the assessee claimed the deduction for the foreign exchange loss on the repayment of the loan for the whole period in one stretch in the current year, which is incorrect and does not align with the provisions of AS-11 and ICDS-VI. The court also cited past judgments such as Woodward Governor India (P.) Limited (supra) and Wipro Finance Ltd. (137 taxmann.com 230 (SC)), which supported its view.

Therefore, the Tribunal upheld the PCIT’s decision and dismissed the appeal filed by the assessee.