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TMI Blog2008 (4) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, the Assessing Officer added the same to the income of the assessee as the same was due to be paid after 31-3-2004. 3. Aggrieved the assessee filed an appeal and the CIT(Appeals) from the details filed by the assessee regarding exchange fluctuation expenses and considering the position of loss and gains arising out of fluctuation of foreign exchange observed that it was evidently clear that in the case of reinstatement of assets and liability as on 31-3-2004 the assessee had shown gain of Rs. 11,11,838 on account of exchange fluctuations on outstanding liabilities/current assets and loss was of Rs. 7,06,173. Thus, in the result, there was a net gain of Rs. 4,05,665. 4. On the other hand the Assessing Officer treated the gain as income and on the other hand not allowed the loss. The Assessing Officer was not justified in giving a different treatment to gains and different to losses arising out of the same nature of transactions. Moreover, in this case, there was a resultant net gain of Rs. 4,05,665 on account of reinstatement of liabilities/assets as on 31-3-2004 due to exchange fluctuation, which the appellant had offered for taxation. Therefore, on facts itself, the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., the change in the value of foreign currency in relation to Indian currency has already taken place in the current year. Therefore, the loss incurred by the assessee is a fait accompli and not a notional one. 9. In the case of Dy. CIT v. Maruti Udyog Ltd. [2006] 99 ITD 666 (Delhi) the Tribunal held that additional liability incurred by the assessee on account of variation in foreign exchange rate was an allowable trading liability where borrowed foreign currency was utilized to meet need of working capital. The above conclusion was drawn by the Tribunal after following the decision of the Apex Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 and also the principles laid down in the case of CIT v. Bharat Heavy Electricals Ltd. [1999] 239 ITR 7561 decided by the Delhi High Court and the Apex Court in the case of Sutlej Cotton Mills Ltd. (supra) holding that the additional liability incurred by the assessee on account of variation in foreign exchange rate was an allowable trading liability where the foreign exchange loans have been utilized on revenue account. In the present case, it was the stand of the assessee that loan obtained in foreign currency was uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt, and after it had arisen, nothing happened to divest it of the character of a trading debt, and after it had arisen, nothing happened to divest it of the character of a trading debt. In this view of the matter, applying the principles of law adumbrated in Sutlej Cotton Mills' case [1979] 116 ITR 1 (SC), we are of the opinion that the Tribunal came to the correct conclusion that the additional liability incurred by the assessee on the change of the rupee-rouble parity ratio was allowable as a trading liability." 12. In Sutlej Cotton Mills Ltd.'s case (supra) the assessee, a limited company, was having its head office in Calcutta, it had inter alia, a Cotton Mill situated in West Pakistan where it carried on business of manufactur-ing and selling cotton fabrics. In the financial year ending 31-3-1954, being the accounting year relevant to the assessment year 1954-55, the assessee made a large profit in this unit. This profit obviously accrued to the assessee in West Pakistan and this profit, which may, for the sake of convenience, be referred to as Pakistan profit, amounted to Rs. 1,68,97,232 in terms of Indian rupees. Since the assessee was taxed on actual basis, the sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in respect of circulating capital or in respect of fixed capital. . . Putting it differently, if the amount in foreign currency is utilized or intended to be utilized in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss. . . where an assessee in the course of its trade engages in a trading transaction, such as purchase of goods abroad, which involves as a necessary incident of the transaction itself, the purchase of currency of the foreign country concerned, then profit resulting from appreciation or loss resulting from depreciation of the foreign currency embarked in the transaction would prima facie be a trading profit or a trading loss." 13. In Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), the Apex Court held that where the assessee was following mercantile system of account, expenditure accrued but not actually incurred during the relevant accounting year, was allowable. 14. In an unreported case of Eicher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the exchange rate prevailing on the last date of the financial year was allowable as a deduction and was not notional or contingent. Bharat Earth Movers Ltd.'s case (supra) relied on : (ii) That there was no provision for the assessment of the actual cost at a stage subsequent to the date of acquisition of the asset. Depreciation had to be worked out therefore only on the basis of the actual cost at the time of acquisition to provide for subsequent revisions to the actual cost. In computing the capital gains arising to the assessee on the sale or transfer of a capital asset acquired by him from abroad on deferred payment terms or against a foreign loan, the additional rupee liability incurred by him in repaying the instalments of the cost or the foreign loan, as the case may be, after the date of devaluation of the rupee, would be added to the original actual cost of the asset. Section 43A secures that where there was a decrease in the rupee liability of the assessee in respect of assets acquired by him from abroad due to a change in the exchange value of the rupee, the original actual cost of the asset would be correspondingly reduced. The provisions of section 43A apply in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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