A division bench of the Allahabad High Court, in CIT v. Jayaprakash Industries Pvt Ltd, held that the difference on foreign currency translation which is notional debit/credit, did not represent any loss or income for the purpose of computing the taxable income under the Income-Tax Act.
Assessee, in the present case, claimed depreciation on Iraqi assets. The Assessing Officer computed the foreign currency translation difference as income as per accounting principle and only on notional basis. The Tribunal, while allowing the claim of the assessee, observed that the amount of this difference was notional debit/credit and did not represent any loss or income for the purpose of computing the taxable income under the Income Tax Act.
In the opinion of the Tribunal, the entries on this account were made only for balancing the books. It was observed that this exercise was merely done on account of incorporating the trial balance appearing in the Iraqi branch in the Head Officer books in Indian currency. Since no actual gain accrued to the assessee, the Tribunal held that the amount is not taxable under the Income Tax Act.
Aggrieved by the order of the appellate Tribunal, the Revenue approached the High Court.
Aligning with the order of the Tribunal, bench comprising Justice Sudhir Agarwal and Justice Ravindra Nath Misra held that there is nothing wrong on the part of the Tribunal in dismissing the departmental appeal in respect of addition of Rs. 3,43,864.00 made on account of deprecations on Iraqi assets.
Read the full text of the Judgment below.