2024 (4) TMI 317 - HC - Income Tax

Disallowance of foreign exchange fluctuation loss on sale proceeds held in the EEFC account - ITAT deleted addition as the sale proceeds which were already received by the assessee and the assessee was not under obligation to keep sale proceeds under EEFC account - Revenue submits that the reasoning of the I TAT is improper and that foreign exchange fluctuation should have been ignored when considering profit and loss - HELD THAT - The issue raised in this appeal stands answered against the Revenue by the decisions of the Hon ble Supreme Court in the case of Commissioner of Income Tax, Delhi Vs Woodward Governor India (P) Ltd 2009 (4) TMI 4 - SUPREME COURT wherein as clearly held that whether the loss suffered by the assessee due to fluctuation of foreign exchange as on the date of the balance sheet is in respect of the purchase and sale of goods (payments have to be made/received) is an item of expenditure u/s 37(1) of the Income Tax Act. Thus no substantial question of law arises in this appeal.

Summary

Issues involved: Challenge to ITAT's order on foreign exchange fluctuation loss addition and related forex loss on creditors and debtors outstanding.

Foreign Exchange Fluctuation Loss Addition:
The appeal challenged ITAT's deletion of Rs. 8,65,74,413/- addition due to disallowance of foreign exchange fluctuation loss on sale proceeds held in the EEFC account. Appellant argued that the assessee was not obligated to keep sale proceeds under EEFC account. The Assessing Officer's order was cited to support the substantial questions of law raised.

Forex Loss on Creditors and Debtors Outstanding:
The appeal also questioned ITAT's decision on the amount of Rs. 8,65,74,413/- related to forex loss on creditors and debtors outstanding as on 31.03.2010. Appellant argued that ITAT's reasoning was improper and foreign exchange fluctuation should have been excluded when considering profit and loss.

Judgment Details:
The Respondent contended that the issue raised in the appeal was settled against the Revenue by the decisions of the Hon'ble Supreme Court and a coordinate Bench of the High Court. Referring to the Woodward Governor India case, it was argued that the loss due to fluctuation of foreign exchange is considered an item of expenditure under Section 37(1) of the Income Tax Act.

The High Court, after considering the contentions, found that the decision in the Woodward Governor India case provided a clear answer to the Revenue's arguments. The Court highlighted the observations made by the Supreme Court regarding the treatment of exchange differences and the recognition of revenue items under Section 37(1). The ITAT's reliance on the Woodward Governor India case was noted, and a similar decision by the coordinate Bench of the High Court was referenced.

In conclusion, the High Court declined to admit the appeal as it did not involve any substantial questions of law. The decision in the Woodward Governor India case, along with the precedent set by the coordinate Bench, was cited as the basis for dismissing the appeal. No costs were awarded in this matter.