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Judgment
The revenue is aggrieved by an order dated 15-12-2006 passed by the Income Tax Appellate Tribunal (''Tribunal''), Delhi Bench "A", New Delhi in ITA No. 3100/Delhi/2004 relevant for the assessment year 2001-02.
The assessee is a manufacturer of bleaching earth (also known as Fuller''s earth) which is used for purification of coconut oil. The assessee also exports Fuller''s earth to Singapore and Malaysia. It appears that the assessee used to receive advances from the foreign buyers in foreign exchange to be adjusted against the supplies to be made and that the assessee was maintaining some sort of a running account. It showed this amount in its balance sheet under the head "Current liabilities". The admitted position is that although it received the remittance by way of advances in foreign exchange in May and July 2000 it adjusted the advances partly against the supplies made for the period 1-4-2001 to 31-12-2001 and the balance against the sales made on 25-3-2002.
As a result of the fluctuation in the rate of foreign exchange (US Dollars), as on 31-3-2001 there was an increase in the liability of the assessee as it would have been required to supply somewhat larger quantities of Fuller''s earth than what had been agreed to on the basis of prevalent rate of the US dollars at the time of placing of the order. The assessee treated this as a trading loss. This was, however, not accepted by the assessing officer or by the Commissioner (Appeals) (''CIT(A)'').
The Tribunal, on examination of the facts of the case came to the conclusion that the assessee was required to make the adjustments due to the fluctuations in the rate of foreign exchange and that this was permissible in terms of the prevalent accounting standards. It was held that consistent with the accounting practices the assessee could treat the increased liability resulting from the upward revision in the rate of US dollars as a trading loss on revenue account. The Tribunal followed the decision of the Supreme Court in Sutlej Cotton Mills Limited Vs. Commissioner of Income Tax, Calcutta, where it was held as follows:
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 trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature....
On the facts of the present case, we are unable to find any fault in the view taken by the Tribunal. No substantial question of law arises.
Dismissed.