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I-T - Loss arising from foreign exchange fluctuation is not unascertained liability and need not be added back to the book profit u/s 115JA: HC

By TIOL News Service

MADRAS, NOVEMBER 19, 2018: THE ISSUE IS - Whether the loss arising from foreign exchange fluctuation is an unascertained liability required to be added back to the book profit as per clause (c) of explanation to Section 115JA. NO IS THE VERDICT.

Facts of the case

The assessee is a Joint Venture between an American company and an Indian company. For the AY 1998-1999, the assessee filed return of income. A scrutiny order was passed and assessment was completed. Thereafter, a notice u/s 148 was issued for the reason that the loss arising on account of foreign exchange fluctuation amounting to Rs. 59,70,000/- was not allowable in the computation of income u/s 115JA of the Act, in so far as the same was an 'unascertained liability' for the purposes of computation of book profit u/s 115JA. Accordingly, the amount was treated as an unascertained liability and added back to the book profits in the computation of income under Section 115JA. On appeal, CIT(A) passed order in favour of assessee. On further appeal, Tribunal passed order in favour of Revenue.

High Court held that,

++ assessee's contention is that such loss arising from the foreign exchange fluctuation was determined with reference to rate of foreign exchange as on the last date of the financial year and was, therefore, an ascertained liability for the purpose of Clause (c) of Explanation to Section 115JA of the Act. The assessee further contended that for the import, the assessee had to effect payments on or before 31st March of the relevant year and the amount having not been paid, the rate of the foreign exchange as on 31st March was taken into account and accordingly, the same was calculated and therefore, it cannot be treated as an unascertained liability. Though the Revenue contended that the assessee has made only a provision, it was found that nowhere in the assessment proceedings such a statement was made. Even while passing the assessment order, the AO has shown the same as loss on account of exchange fluctuation and not as a provision. Therefore, the substantial question of law framed for consideration in the case on hand, requires to be answered in favour of the assessee.

(See 2018-TIOL-2440-HC-MAD-IT)


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