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TMI Blog2015 (4) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee and the appeal bearing ITA No.4949/Del/2011 by the Revenue. 2. First we shall take up ITA No.4949/Del/2011 appeal filed by the Revenue. The assessee is a company incorporated the provisions of Companies Act. The assessee company is engaged in the business of software development and IT enabled services for the AY 2007-08. The assessee company filed the return of income on 30.10.2007, declaring a total income of Rs. 4,96,43,190/-. After processing the return of income u/s 143(1) of the Act, the case was selected for scrutiny assessment and finally the assessment was completed u/s 143(3) of the Act, vide order dated 16.12.2010 at a total income of Rs. 5,65,96,889/-. The disparity between the returned income and assessed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of Rs. 35,49,495/- should not be added back in as much as foreign exchange fluctuation had arisen on capital items. However, the Assessing Officer held that the gross amount of Rs. 66,23,602/- should be brought to tax. The Assessing Officer had also disagreed with the contention of the assessee that the foreign exchange gains made on account of restatement of the foreign currency transaction as at end of accounting year should not be taxed. The Ld. Assessing Officer held that there was no first degree nexus between the income of foreign exchange fluctuation gain on reinstatement/realization of ECB loans etc. and profit from export of computer software. Being aggrieved the assessee preferred an appeal before the CIT(A)-XVIII, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on capital items. 4. We heard the rival parties and perused the material available on record. The issue involved in the appeal is whether the difference amount arising out of restatement of foreign currency transactions taking into account the prevailing exchange rate as on the end of accounting year is liable to tax or not. The Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. Vs. CIT reported in [1979] 116 ITR 1 has held as under:- (Page 13) "The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5. In the light of our above findings, 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. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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