Forex loss on borrowings allowed as revenue expenditure as it has direct nexus with interest cost savings, held not covered by section 43A

In a recent ruling, the Pune bench of the Income-tax Appellate Tribunal (Tribunal) upheld the taxpayer’s claim that foreign exchange fluctuation loss has a direct nexus with savings in interest costs and no new capital asset was brought into existence. The Tribunal observed that foreign exchange fluctuation loss utilised for acquiring indigenous assets was not covered by section 43A of the Income-tax Act, 1961 (the Act). It further noted that the taxpayer was mandatorily required to draw its accounts as per Accounting Standard (AS) – 11 in terms of the Companies Act, 1956 as well as the Act. The Tribunal rejected Revenue’s contentions that such loss was capital in nature and also notional and contingent.