Facts of the Case

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal dated 22 August 2008 pertaining to Assessment Year 2003-04.

The Assessing Officer had disallowed a liability amounting to Rs. 51,78,289/- arising on account of foreign exchange fluctuation and consequently made an addition to the income of the assessee, Fidelity Technology India Pvt. Ltd.

The Tribunal deleted the addition and granted relief to the assessee by following the judgment of the Delhi High Court in CIT vs. Woodward Governor India (P) Ltd. (2007) 294 ITR 451 (Del.). Aggrieved by the Tribunal's decision, the Revenue preferred the present appeal before the Delhi High Court.

Issues Involved

  1. Whether the Tribunal erred in law in deleting the addition of Rs. 51,78,289/- made by the Assessing Officer on account of foreign exchange fluctuation liability.
  2. Whether foreign exchange fluctuation loss constitutes an allowable deduction under the Income Tax Act, 1961.
  3. Whether the issue was already settled by binding judicial precedents.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the Tribunal had committed an error in law by deleting the addition made by the Assessing Officer.
  • It was argued that the liability claimed on account of foreign exchange fluctuation should not have been allowed as a deduction.
  • The Revenue sought restoration of the addition of Rs. 51,78,289/-.

Respondent’s Arguments (Assessee)

  • The assessee relied upon the decision of the Delhi High Court in CIT vs. Woodward Governor India (P) Ltd. (2007) 294 ITR 451 (Del.), wherein foreign exchange fluctuation loss had been recognized and allowed in accordance with law.
  • It was contended that the issue stood covered by binding judicial precedent and the Tribunal had correctly followed the same.

Court Findings

The Delhi High Court examined the record and observed that the Tribunal had decided the matter by relying upon the Division Bench judgment of the Delhi High Court in CIT vs. Woodward Governor India (P) Ltd. (2007) 294 ITR 451 (Del.).

The Court further noted that the aforesaid judgment had subsequently been affirmed by the Supreme Court in CIT vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC).

Since the controversy raised by the Revenue had already been conclusively settled by the High Court and affirmed by the Supreme Court, the issue was no longer open to debate and did not give rise to any substantial question of law.

Court Order

The Delhi High Court held that the issue involved in the appeal was no longer res integra in view of the binding decisions in Woodward Governor India (P) Ltd.

Accordingly, the appeal filed by the Revenue was dismissed in limine.

Important Clarification

  • Foreign exchange fluctuation loss, where otherwise allowable under law, cannot be disallowed merely because the liability arises due to exchange rate variation.
  • Once the legal position has been settled by the Supreme Court in CIT vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC), similar disputes on the same issue are governed by that precedent.
  • A High Court appeal under Section 260A cannot succeed where the issue is already conclusively settled by binding judicial authority and no substantial question of law survives.

Relevant Sections Involved

  • Section 260A, Income Tax Act, 1961 – Appeal to High Court.
  • Section 37(1), Income Tax Act, 1961 – Allowability of business expenditure.
  • Principles relating to foreign exchange fluctuation loss as laid down in judicial precedents.

Link to Download the Order

https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:4671-DB/MMH20092010ITA2772010.pdf 

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