Logic is simple. The fallout A > B > C is there in your second flow A > B > C > A right? Then, it will be inclusive.
This is not only for Fallout but for Page Path Report. The difference between both are reports can be explained below:
Path 1 : A > B > E > C > D.
Path 2 : A > B > C > D.
If you have a criteria A > B > C, Path 1 and 2 will be included for Fallout Report since there is a flow from A > B > C even if it is not on the next immediate hit. Also, do remember that Fallout can be based on Visit or Visitor.
For the same criteria, only Path 1 will be included for Page Path Report since Path 1 didn't have the match the criteria on next immediate hits.