Court upholds set-off of foreign exchange loss against income, citing Income Tax Act.

The Court dismissed the appeal, upholding the Tribunal's decision to allow the set off of foreign exchange fluctuation loss against taxable income without considering CBDT's instruction. The Court relied on Section 37 of the Income Tax Act, citing the Woodward Governor India case to support the claim of expenditure. It found that the losses were not from derivatives but from transactions like creditors and debtors outstanding, making the instruction inapplicable. The appeal was dismissed as the issue was covered by the principles in the Woodward Governor India case, with no costs awarded.

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Issues:
1. Whether foreign exchange fluctuation loss can be set off against taxable income without considering CBDT's instructionRs.
2. Allowability of expenditure under Section 37 of the Income Tax Act, 1961.

Detailed Analysis:
1. The appeal challenges the Income Tax Appellate Tribunal's order regarding the allowability of a foreign exchange fluctuation loss of Rs. 62.62 lakhs against taxable income for Assessment Year 2009-10. The Revenue questions the Tribunal's decision to allow this set off without considering CBDT's instruction No. 3 of 2010. The respondent claimed the loss and gain related to foreign exchange fluctuations in its return, but the Assessing Officer disallowed the loss as a contingent liability. The CIT(A) upheld this decision, leading to the appeal before the Tribunal.

2. The Tribunal allowed the respondent's appeal, citing Section 37 of the Act to support the claim of expenditure. It referred to the Supreme Court's decision in Commissioner of Income Tax Vs. Woodward Governor India (P) Ltd. to establish that foreign exchange losses related to purchase and sales transactions are allowable as expenditure under Section 37(1) of the Act. The Revenue contended that CBDT's instruction issued in 2010 should apply, but the Court found that the losses were not from derivatives but from transactions like creditors and debtors outstanding, making the instruction inapplicable. The Court concluded that the issue was covered by the principles laid down in the Woodward Governor India case.

3. The Court dismissed the appeal, stating that the Tribunal's decision aligned with the Supreme Court's ruling in Woodward Governor India, which governed the issue at hand. As the losses were not from derivatives and the CBDT instruction did not apply, the question raised by the Revenue did not give rise to any substantial legal issue. Therefore, the appeal was dismissed, and no costs were awarded.

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