2007 (10) TMI 282 - HC - Income Tax

Foreign exchange business loss - assessee used to receive advances from the foreign buyers in foreign exchange to be adjusted against the supplies to be made and that the assessee was maintaining some sort of a running account - As a result of the fluctuation in the rate of foreign exchange (US dollars) as on March 31 2001 there was an increase in the liability of the assessee held that assessee rightly treated this as a business loss

Summary

Issues:
1. Treatment of fluctuation in foreign exchange rate as trading loss.
2. Applicability of prevalent accounting standards.
3. Interpretation of Supreme Court decision in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC).

The High Court of Delhi heard the appeal concerning an order passed by the Income-tax Appellate Tribunal for the assessment year 2001-02. The case involved an assessee engaged in manufacturing bleaching earth, exporting to Singapore and Malaysia, receiving advances in foreign exchange. The assessee adjusted these advances against supplies, resulting in a liability increase due to fluctuation in the US dollar rate. The Assessing Officer and the Commissioner of Income-tax did not accept this as a trading loss. However, the Tribunal found the adjustment permissible under accounting standards. Citing the Sutlej Cotton Mills Ltd. case, the Tribunal held that such fluctuations could be treated as trading loss if the foreign currency was held on revenue account. The High Court concurred with the Tribunal's view, finding no fault in it and dismissing the appeal as no substantial question of law arose. The judgment upheld the treatment of the fluctuation in the foreign exchange rate as a trading loss, in line with prevailing accounting standards and the interpretation of the Supreme Court decision in the Sutlej Cotton Mills Ltd. case.

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