Hello,
I, an Indian Proprietor import goods from China. Now I purchased goods on 1st February 2012 of $10000 on 3 months credit. The same will be paid on 1st May 2012. Value of Dollar as on 1st Feb 2012 was say Rs.50 and as on 1st May 2012 it was Rs.56. On 31st March 2012 it was say Rs.55.
Now what shall be the accounting treatment. Also, more importantly, can the Foreign Exchange Fluctuation Loss be claimed in Income Tax Act? If yes, under which section?
Yes foreign exchange fluctuation can be claimed as expenditure. I dont remember a particular section for it. But it must be allowed under section 37
You are allowed to take debit of Foreign Exchange Fluctuation Loss Under Section 37 of IT act.
Do you'll mean Sec 37(1) which is the general section?
And what if there is a profit? Will it have to offered to tax also?
The Supreme Court (SC) in case of M/s Woodward Governor India Private Limited1 and others delivered its long awaited decision on foreign exchange fluctuation losses. The SC held that in terms of mercantile method accounting, the exchange fluctuation loss arising on mark-to-market restatement of liability in foreign currency at the year end is an allowable loss, where the liability is on revenue account.
Refer the complete case for all pros and cons.
Sanjay Chauhan
As per my knowledege you can show Foreign Exchange difference A/c under exps. a/c where u can record Foreign exchange profit / loss amount.
CAclubindia
