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2015 (4) TMI 1281 - AT - Income TaxNature of transaction - revenue or capital - foreign exchange fluctuation gain on reinstatement/ realization of ECB loans etc. and profit from export of computer software. - taking into account the prevailing exchange rate as on the end of accounting year is liable to tax or not - HELD THAT:- Whether the gain or loss should be brought to tax or allowed as deduction depends upon whether the foreign currency transactions were carried on account of capital or revenue items. If the foreign currency transactions are undertaken on capital account, the gain made out of such transaction is outside ambit of taxation, of course subject to the application of provisions of Section 43A of the Act. If the transactions undertaken are on account of revenue items, the gain is clearly taxable and so the loss also is clearly allowable. The assessee except making bald assertion that the transactions were undertaken on account of capital items no evidence was brought on record to establish that the foreign currency transactions were undertaken on capital items. AO also had failed to undertake this exercise. The Hon’ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. reported in [2009 (4) TMI 4 - SUPREME COURT] had clearly held that the actual payment was not a condition precedent for making adjustment in respect of foreign currency transactions as the end of the closing year. We are therefore, unable to concur or agree with the view of the learned CIT(Appeals), that liability could arise only when the contract would have matured, as such a stand is totally divorced from the accounting principles and is in variance with the principle upheld by the Hon’ble Apex Court in the case Woodward Governor India (P.) Ltd. (Supra). It can also be seen that the decision in the case of Woodward Governor India (P.) Ltd. (Supra) has been rendered with regard to items in the revenue account and capital account. We restore the matter to the file of AO with the direction that to re-do the assessment keeping in view the principles enunciated above after affording a reasonable opportunity of being heard to the assessee.
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