Forex loss incurred on loan is deductible if its underlying objective is to save interest cost as reported by taxmann

Forex loss incurred on loan is deductible if its underlying objective is to save interest cost
Facts
a) Assessee had, initially availed of various term loans in Indian rupee from banks for acquisition of assets and for expansion of project etc. It had converted these loans into foreign currency loans to take benefit of lower rate of interest on such foreign currency loans vis a vis loans in Indian rupee. However, assessee incurred loss due to fluctuation in rate and claimed it as a business loss.
b) Assessing Officer disallowed loss claimed by assessee on ground that loans were obtained to acquire capital asset, thus, same could not be allowed as revenue expenditures.
c) The Commissioner (Appeals) granted partial relief to assessee on account of foreign currency fluctuation loss arising on loans connected to revenue items such as bill discounting, debtors, etc.

d) Aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under-
1) The fluctuation loss inflicted upon assessee bore no nexus or relationship to the acquisition to the assets. The action of the assessee was tied up to its underlying objective, i.e., saving in interest costs, hedging its revenue receipts, etc., which were undoubtedly on revenue account. Thus, the loss generated in impugned action bore the character of revenue expenditure.
2) Further, the assessee had claimed loss in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAI and also in conformity with CBDT’s notification. Hence, loss being on revenue account was an allowable expenditure under section 37(1)- [2016] 69 taxmann.com 244 (Pune – Trib.)

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