TaxTMI 
TaxTMI 
2020 (4) TMI 744
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....7,74,27,653/- under normal provisions of the Act and Rs. 2375, 41, 87,553/- under section 115JB of the Act. Subsequently, order u/s 143 (3) r.w.s. 263 of the Act was passed and the income of the assessee was determined at Rs. 1414,20,12,200/- under the normal provisions of the Act. Further, order u/s 154 was passed to rectify the order passed u/s 143(3) read with section 263 of the Act and determined the total income at Rs. 1444,34,52,200/- under the normal provisions of the Act. Since, it was noticed that the assessee had excluded gain on exchange fluctuation amounting to Rs. 39,22,70,379/- from the taxable income and credited to the profit and loss account, the AO passed order u/s 154 and added the said amount to the total income of the assessee rejecting the contention of the assessee that foreign exchange fluctuation is on capital account and hence excluded from computation of income. In the first appeal, the Ld. CIT (A) set aside the order passed by the AO and deleted the addition. The revenue is in appeal against the said findings of the Ld.CIT (A). 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- ....
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.... relied upon by the Ld. counsel. The Ld. CIT (A) has decided this issue in favour of the assessee on the grounds that the issue involved is covered in favour of the assessee by the various judgments of the Courts and the issue involved in the present case is beyond the scope of section 154 of the Act. The findings of the Ld. CIT (A) read as under:- "5.3.1. I have considered the facts and circumstances of the case and the detailed submission of the appellant. Firstly, the issue of exclusion of gain arising on account of foreign exchange fluctuation held for capital purpose is settled in favour of the appellant in its own case by the Hon'ble Apex Court which was also followed further by the Hon'ble Apex Court in the case of Sutlej Cotton Mills Ltd. vs. CIT (116 ITR 1) (SC). The relevant portion of the decision of Apex Court in Sutlej Cotton (supra) is reproduced as under:- "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 profit or loss if t....
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.... wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent." 5.3.3 In view of the above, respectfully following the Apex Court in Volkart Bros.(supra), the order passed by the AO u/s 154 of the Act on the issue that is settled in favour of the appellant by the Hon'ble Apex Court is held to be bad in law. Therefore, grounds no. 1 to 3 are allowed." 7. As pointed out by the Ld. counsel for the assessee this issue is covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Tata Locomotive and Engineering Company Ltd. (supra). The question before the Apex Court was "(1) Whether on the facts and in the circumstances of the case, the surplus or difference arising as a result of devaluation in the process of converting dollar currency in regard to the sum of $ 36,123.02 repatriated to India was profit which was taxable in the hands of the assessee? (2) Whether the said sum of $ 36,123.02 having been taxed in the relevant earlier year the surplus or difference in dollar exchange account arising by reason of the repatriation thereof as a result of devaluation was rig....
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....treat the entire gain on account of exchange rate fluctuation as capital receipt. The ITAT had decided the said issue by following the judgment of the Hon'ble Madras High Court in the case of E.I.D. Parry Ltd. vs. CIT 174 ITR 11, in which the Hon'ble court had held that if foreign currency is held as capital asset or as fixed capital, profit or loss arising on account of fluctuation in the value of foreign currency would be in the nature of capital receipt. 10. It is apparent from the notes filed by the assessee along with the revised computation of income that the assessee has excluded the net exchange fluctuation from the computation of income being on capital account. The exchange fluctuation was on borrowings (foreign currency convertible bonds) utilized for purchase of domestic fixed assets (non imported assets), loan given and investment made; (b) loans given; (c) deposit placed out of above foreign currency convertible bonds. 11. Further, the paper book contains the following detail filed by the assessee regarding treatment of foreign exchange fluctuation of capital account in computation from AY 2007-08 to AY 2012-13:- Sr. No. A.Y. Particulars Amount disal....