Income Tax Act - Loss Suffered Due To Exchange Fluctuation While Repaying Loan Can Be Regarded As Revenue Expenditure : Supreme Court

Allowing the appeal filed by Wipro Finance Ltd., the Supreme Court observed that the loss suffered owing to exchange fluctuation can be regarded as revenue expenditure and thus an allowable deduction.

The bench comprising Justices allowed the appeal against High Court judgment which had reversed the above view taken by Income Tax Appellate Tribunal. 

Wipro entered into a loan agreement with one Commonwealth Development Corporation for borrowing amount to carry on its project. The loan was obtained in foreign currency (5 million pounds sterling). While repaying the loan, due to the difference of rate of foreign exchange, it had to pay higher amount, resulting in loss. The loan amount was utilised by the appellant for financing the existing Indian enterprises for procurement of capital equipment on hire purchase or lease basis.

Before the ITAT, Wipro claimed deduction in respect of loss of Rs.1,10,53,909/­ arising on account of exchange fluctuation, and  also set up a fresh claim in respect of revenue expenses to the tune of Rs.2,46,04,418/­, erroneously capitalised in the returns. The ITAT allowed this claim relying on India Cements Ltd. vs. Commissioner of Income Tax, Madras AIR 1966 SC 1053. This was later reversed by the High Court.

Allowing the appeal against the High Court judgment, the court, also referring to Empire Jute Co. Ltd. vs. Commissioner of Income Tax (1980) 4 SCC 25, observed:

A priori, we are of the considered opinion that the analysis done by the ITAT and the conclusion arrived at in respect of the subject claim of the appellant being the correct approach consistent with the exposition of this Court, needs to be upheld. In our opinion, the High Court missed the relevant aspects of the analysis of the ITAT concerning the fact situation of the present case. As a matter of fact, the High Court has not even adverted to the aforementioned reported decisions, much less its usefulness in the present case

The court also rejected the contention that  it was not open for the appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure

"In the first place, the ITAT was conscious about the fact that this claim was set up by the appellant for the first time before it, and was clearly inconsistent and contrary to the stand taken in the return filed by the appellant for the concerned assessment year including the notings made by the officials of the appellant. Yet, the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal under Section 254 of the 1961 Act, by relying on the dictum of this Court in National Thermal Power Co. Ltd. . Further, the ITAT has also expressly recorded the no objection given by the representative of the department, allowing the appellant to set up the fresh claim to treat the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department cannot be countenanced"

Case details

Wipro Finance Ltd. vs Commissioner of Income Tax | 2022 LiveLaw (SC) 418 | CA 6677 of 2008 | 12 April 2022

Coram: Justices AM Khanwilkar, Abhay S. Oka and C T Ravikumar

Counsel: Sr. Adv S. Ganesh for the appellant and ASG Vikramjit Banerjee for the respondent

Headnotes

Income Tax Act, 1961 ; Section 37 -  Loss suffered owing to exchange fluctuation while repaying loan can be regarded as revenue expenditure - The exchange fluctuation loss is an expenditure incidental to carrying on of business and comes within the purview of section 37 of the Act as the same is incurred wholly and exclusively for the purposes of business. [Referred to India Cements Ltd. vs. Commissioner of Income Tax Madras AIR 1966 SC 1053 , Empire Jute Co. Ltd. vs. Commissioner of Income Tax (1980) 4 SCC 25 ] (Para 3, 7-9)

Income Tax Act, 1961 ; Section 254 - Limitation to to entertain fresh claim would apply to the "assessing authority", but not impinge upon the plenary powers of the ITAT bestowed under Section 254 of the Act - Rejected contention that ITAT cannot entertain fresh claim for the first time. [Referred to National Thermal Power Co. Ltd. vs. Commissioner of Income Tax (1997) 7 SCC 489 ] (Para 10-11)

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