The question of whether companies can claim deductions against tax liability on account of losses due to foreign exchange rate fluctuations is slated to come up for hearing before the Supreme Court on February 18. The issue has wide implications since it can result in a huge loss of revenue to the state exchequer or to companies.
The tax department has moved the apex court against satellite-based communications service provider Hughes Escorts Communications Ltd, saying that the firm cannot claim deductions against tax liability on account of losses due to foreign exchange rate fluctuations.
Challenging the Delhi High Court?s judgement that dismissed its plea, the department said the high court was not correct in its decision of allowing the company to claim Rs 58.82 lakh as loss by revaluing the trade liability due to forex rate fluctuations on the last date of the accounting year.
The advance payment, made by the assessee as SVB deposits to the customs authorities, could be allowed under Section 43-B of the Income Tax Act, 1961, when the liability to pay did not accrue during the year, counsel Rahul Kaushik said.
While Hughes had claimed losses on account of restatement of foreign exchange liability at the end of the accounting year, the department had disallowed the company?s claim.
However, the commissioner of income tax had decided in favour of the department but the Income Tax Appellate Tribunal had allowed the company?s claim on the ground that the increase in the revenue liability on account of these fluctuations did not create a notional or contingent liability.
The tribunal had also held that the extra amount paid by Hughes under provisional bill of entry for whom consumption was in the nature of payment of custom duty and not as advance or deposit placed with the custom department.
The department?s appeal was dismissed by the Delhi High Court.
