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Delhi High Court affirms forex rate fluctuation treatment as trading loss for manufacturing entity The High Court of Delhi upheld the treatment of fluctuation in foreign exchange rate as a trading loss for an assessee engaged in manufacturing bleaching ...
Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
Provisions expressly mentioned in the judgment/order text.
Delhi High Court affirms forex rate fluctuation treatment as trading loss for manufacturing entity
The High Court of Delhi upheld the treatment of fluctuation in foreign exchange rate as a trading loss for an assessee engaged in manufacturing bleaching earth. The court concurred with the Tribunal's decision that adjustments made due to fluctuation in the US dollar rate were permissible under accounting standards. The judgment referenced the Supreme Court decision in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) to support the view that such fluctuations could be considered trading losses if the foreign currency was held on revenue account. The appeal was dismissed as no substantial question of law arose.
Issues: 1. Treatment of fluctuation in foreign exchange rate as trading loss. 2. Applicability of prevalent accounting standards. 3. Interpretation of Supreme Court decision in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC).
The High Court of Delhi heard the appeal concerning an order passed by the Income-tax Appellate Tribunal for the assessment year 2001-02. The case involved an assessee engaged in manufacturing bleaching earth, exporting to Singapore and Malaysia, receiving advances in foreign exchange. The assessee adjusted these advances against supplies, resulting in a liability increase due to fluctuation in the US dollar rate. The Assessing Officer and the Commissioner of Income-tax did not accept this as a trading loss. However, the Tribunal found the adjustment permissible under accounting standards. Citing the Sutlej Cotton Mills Ltd. case, the Tribunal held that such fluctuations could be treated as trading loss if the foreign currency was held on revenue account. The High Court concurred with the Tribunal's view, finding no fault in it and dismissing the appeal as no substantial question of law arose. The judgment upheld the treatment of the fluctuation in the foreign exchange rate as a trading loss, in line with prevailing accounting standards and the interpretation of the Supreme Court decision in the Sutlej Cotton Mills Ltd. case.
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