Per D.R. Singh, Judicial Member: revenue has filed this appeal against order of CIT(A), New Delhi, passed in Appeal No. 78/06-07, dated 21-12-2006 on following effective ground: - 'On facts and in circumstances of case and in law, CIT(A) erred in deleting disallowance of foreign exchange fluctuation loss of Rs. 80,68,000.' 2. Briefly, facts relating to issue involved in ground of appeal are that assessee had claimed foreign exchange loss of Rs. 80.68 lakhs on basis of conversion of liability standing as on 31-3-2003. According to Assessing Officer, foreign exchange liability is in nature of provision created in accounts without actually incurring same; hence, Assessing Officer disallowed deduction in computation of income chargeable to tax and added back same to declared income. 3. On appeal, CIT(A) deleted addition made by Assessing Officer by making following observations in order:- 'In accounts, amount of Rs. 80,68,159 has been debited by way of net foreign exchange loss. adjustment in P&L a/c is terms of method of accounting for impact of foreign exchange to appellant's accounts as per policy mentioned in notes to account. policy states 'foreign exchange transactions are recorded at exchange rate prevailing as on date of transaction. Exchange differences arising on settlement of these transactions are dealt with in P&L a/c. All mandatory items denominated in foreign currency are translated at year end rates and exchange differences arising on such transactions are also adjusted in P&L a/c. original cost of fixed assets acquired through foreign currency liability, is adjusted so as to show liabilities at rate of exchange prevailing at end of year. exchange differences arising on repayment of these liabilities are also adjusted in carrying amount of fixed assets.' finding of Assessing Officer that foreign exchange fluctuation of appellant debited to P&L a/c is unascertained provision is not in line with judgments in case of ONGC Ltd. v. DCIT 83 ITD 151 (Delhi), Sutlej Cotton Mills Ltd. v. CIT 116 ITR 1 (SC), CIT v. BHEL 239 ITR 756 (Delhi), JCIT v. Mangalam Timber Products 89 ITD 316 (Cuttack), Gillette India Ltd. v. JCIT 156 TAXMAN 236 (JP) and other citations brought on record by appellant. In view of decisions above and also fact that appellant has consistently followed policy of considering exchange difference arising on settlement of these transactions in P&L a/c, in line with AS-11, there is no room to hold that loss on account of foreign exchange fluctuation debited to P&L a/c was unascertained liability. disallowance stands deleted.' 4. Before us, learned DR for revenue except placing reliance on reasoning given in order of Assessing Officer was neither able to controvert factual observations made in order of CIT(A) nor was able to cite any case law wherein view contrary to view taken by CIT(A) has been taken by either Tribunal/High Court or Apex Court. 5. On other hand, learned AR for assessee reiterating submission made before CIT(A) and placing reliance on case law cited before him further relied upon latest decision of jurisdictional High Court of Delhi in case of CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451 submitted that CIT(A) has rightly come to conclusion that assessee was entitled to claim deduction on account of foreign exchange fluctuation loss. 6. We have considered rival submissions of both parties, perused records and carefully gone through orders of tax authorities below. 7. In Oil & Natural Gas Corpn. Ltd. v. Dy. CIT [2002] 83 ITD 151, Special Bench of ITAT (Delhi) after taking cognizance of various principles enunciated in various judicial decisions formulated certain test questions for deciding issue relating to allowability of loss on account of fluctuation in foreign currency rate and thereafter concluded that loss arising on account of fluctuation in foreign exchange fluctuation rate was allowable as deduction by making following relevant observation: 'Before concluding, we would like to point out that assessee's claim for loss arising as result of fluctuation in foreign exchange rates on closing day of year, has been disallowed by Assessing Officer, inter alia, on ground that this liability was contingent liability and loss was notional one. main ingredient of contingent liability is that it depends upon happening of certain event. We are of considered opinion that in case of assessee, Tribunal 'event' i.e., change in value of foreign currency in relation to Indian currency has already taken place in current year. Therefore, loss incurred by assessee is fait accompli and not notional one.' 8. In case of Dy. CIT v. Maruti Udyog Ltd. [2006] 99 ITD 666 (Delhi) Tribunal held that additional liability incurred by assessee on account of variation in foreign exchange rate was allowable trading liability where borrowed foreign currency was utilized to meet need of working capital. above conclusion was drawn by Tribunal after following decision of Apex Court in case of Sutlej Cotton Mills Ltd. v. CIT [1978] 116 ITR 1 and also principles laid down in case of CIT v. Bharat Heavy Electricals Ltd. [1999] 239 ITR 756 decided by Delhi High Court and Apex Court in case of Sutlej Cotton Mills Ltd. (supra) holding that additional liability incurred by assessee on account of variation in foreign exchange rate was allowable trading liability where foreign exchange loans have been utilized on revenue account. In present case, it was stand of assessee that l o n obtained in foreign currency was utilized to meet working capital requirements. Assessing Officer had also impliedly accepted this stand of assessee as he proceeded only on that footing. method of accounting adopted by assessee was consistent. Therefore, decision of Special Bench of Tribunal was squarely applicable to present case. Accordingly, following said decision, order of CIT (A) was upheld on this issue. 9. In Jt. CIT v. Abbot Laboratories (India) Ltd. [2006] 100 ITD 343 (Mum.) Tribunal while considering issue regarding disallowance of loss on account of fluctuation in foreign currency in respect of liability incurred on payment against import of raw material decided issue in favour of assessee and against revenue by observing as under: - 'We find that this issue is now covered in favour of assessee by decision of Special Bench in case of Oil and Natural Gas Commission 261 ITR 1 (AT), wherein, it has been held that loss arising on account of fluctuation of foreign exchange rate was allowable as deduction when liability to pay was on revenue account. In present case, fluctuation loss was incurred in respect of liability towards payment of raw material and thus, loss was on revenue account. Following decision of Special Bench, we do not find merit in ground raised by revenue. order of learned CIT (Appeals) is, therefore, upheld.' 10. In Bharat Heavy Electricals Ltd.'s case (supra) their Lordships were required to answer question whether on facts and in circumstances of case, Appellate Tribunal was justified in law in upholding deletion of disallowance of Rs. 7,65,21,000 on account of additional liability on change of rupee-rouble parity ratio? Delhi High Court came to conclusion that additional liability on account of exchange rate fluctuation was allowable deduction. operative part of judgment is reproduced below: 'Thus, answer to first question whether additional liability which assessee had incurred on account of change in rupee-rouble parity ratio would necessarily depend on answer to question whether additional liability pertains to trading asset or capital asset. . . . In present case, admittedly initial liability arose on account of purchase of new material, trading debt, and after it had arisen, nothing happened to divest it of character of trading debt, and after it had arisen, nothing happened to divest it of character of trading debt. In this view of matter, applying principles of law adumbrated in Sutlej Cotton Mills' case [1979] 116 ITR 1 (SC), we are of opinion that Tribunal came to correct conclusion that additional liability incurred by assessee on change of rupee-rouble parity ratio was allowable as trading liability.' 11. In Sutlej Cotton Mills Ltd.'s case (supra), assessee, limited company, was having its head office in Calcutta, it had inter alia, Cotton Mill situated in West Pakistan where it carried on business of manufacturing and selling cotton fabrics. In financial year ending 31-3-1954, being accounting year relevant to assessment year 1954-55, assessee made large profit in this unit. This profit obviously accrued to assessee in West Pakistan and this profit, which may, for sake of convenience, be referred to as Pakistan profit, amounted to Rs. 1,68,97,232 in terms of Indian rupees. Since assessee was taxed on actual basis, sum of Rs. 1,68,97,232 representing Pakistan profit was included in total income of assessee for assessment year 1954-55, and assessee was taxed accordingly after giving double taxation relief in accordance with bilateral agreement between India and Pakistan. However, remittances of this profit were made in subsequent years and due to appreciation of Indian rupee against Pakistani rupee, assessee suffered loss in process of conversion and claimed deduction against loss. This claim was, how-ever, rejected by ITO. assessee carried matter in further appeal to Tribunal but Tribunal also sustained disallowance of these losses and rejected appeals. On reference, High Court took substantially same view as Tribunal and held that no loss was sustained by assessee on remittance of amounts from West Pakistan and that in any event loss could not be said to be business loss, because it was not loss arising in course of business of assessee but it was caused by devaluation which was act of State. matter went up to Supreme Court and issue before Hon'ble Supreme Court was 'Whether assessee's claim for exchange loss in respect of remittance of profit from Pakistan, was not allowable as deduction.' Hon'ble Supreme Court remanded matter to Tribunal with direction to dispose it off in accordance with directions given by it and in light of law laid down in this judgment. operative part of judgment on this issue is given in following words: 'The cause which occasions loss would be immaterial, loss, being i n respect of trading asset, would be trading loss. Consequently, we find it impossible to agree with High Court that since loss in present case arose on account of devaluation of Pakistani rupee and Act of devaluation was Act of sovereign power extrinsic to business, loss could not be said to spring from business of assessee. Whether loss suffered by assessee was trading loss or not would depend on answer to question, whether loss was in respect of trading asset or capital asset. In former case, it would be trading loss but not so in latter. test may also be formulated in another way by asking question whether loss was in respect of circulating capital or in respect of fixed capital. . . . Putting it differently, if amount in foreign currency is utilized or intended to be utilized in course of business or for trading purpose or for effecting transaction on revenue account, loss arising from depreciation in its value on account of alteration in rate of exchange would be trading loss, but if amount is held as capital asset, loss arising from depreciation would be capital loss. . . . where assessee in course of its trade engages in trading transaction, such as purchase of goods abroad, which involves as necessary incident of transaction itself, purchase of currency of foreign country concerned, then profit resulting from appreciation or loss resulting from depreciation of foreign currency embarked in transaction would prime facie be trading profit or trading loss.' 12. In Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, Apex Court held that where assessee was following mercantile system of account, expenditure accrued but not actually incurred during relevant accounting year, was allowable. 13. In unreported case of Dy. CIT v. Eicher Goodearth [2000] 72 ITD 360, ITAT Delhi Bench held that in mercantile system of accounting it was mandatory to translate outstanding liability on basis of fluctuation in foreign currency rate. 14. In recent decision approving decision in case of Oil & Natural Gas Corpn. Ltd. (supra), Hon'ble Jurisdictional High Court of Delhi in case of Woodward Governor India (P.) Ltd. (supra) in facts where fixed assets were purchased by way of import, payments for which were agreed to be made in foreign exchange on deferred payment basis, cost of assets was shown in accounts of assessee on basis of exchange rate on date of filing of bill of entry. contention of assessee was that fluctuation in foreign exchange rates would go to increase or decrease liability on revenue account. It would qualify as business expenditure allowable under section 37 of Income-tax Act, 1961, despite fact that liability had not been discharged in concerned previous year. other contention was that if there was increase in liability remaining to be discharged in respect of outstanding liability at beginning of year, losses suffered as result of increase in value of foreign currency as compared to Indian currency would be business loss eligible for deduction under section 28 of Act. On appeal by revenue contending that increase in liability due t o foreign exchange fluctuation as per exchange rate prevailing on last day of financial year was notional and could not be allowed as deduction: Held, (i ) that liability arose out of contracts already conclude. liability already stood accrued minute contract was entered into. mere postponement of payment to different date could not extinguish liability and render it notional or contingent. Even if liability was discharged at future date, it would nevertheless be liability which was certain and not contingent. main ingredient of contingent liability was that it depended upon happening of certain event. change in value of foreign currency in relation to Indian currency by assessee was fait accompli and not notional one. Therefore increase in liability due to foreign exchange fluctuation as per exchange rate prevailing on last date of financial year was allowable as deduction and was not notional or contingent. Bharat Earth Movers Ltd. v. CIT [2000] 245 ITR 428 (SC) relied on. (ii ) That there was no provision for assessment of actual cost at stage subsequent to date of acquisition of asset. Depreciation had to be worked out therefore only on basis of actual cost at time of acquisition to provide for subsequent revisions to actual cost. In computing capital gains arising to assessee on sale or transfer of capital asset acquired by him from abroad on deferred payment terms or against foreign loan, additional rupee liability incurred by him in repaying instalments of cost or foreign loan, as case may be, after date of devaluation of rupee, would be added to original actual cost of asset. Section 43A secures that where there was decrease in rupee liability of assessee in respect of assets acquired by him from abroad due to change in exchange value of rupee, original actual cost of asset would be correspondingly reduced. provisions of section 43A apply in case where assessee has acquired any capital asset from abroad for purpose of his business or profession, on credit or on deferred payment terms, or against loan in foreign currency, and whole or part of cost of such asset or of loan in foreign currency is outstanding as on date on which there was change in rate of exchange of currency. In such case where in consequence of change in rate of exchange of currency, there was increase or reduction in assessee's liability as expressed in Indian currency for payment of whole or part of cost of assets or of loan in foreign currency, original actual cost to assessee, of machinery or plant or other capital asset, was required to be increased or, as case may be, reduced, correspondingly. In capital account cases where cost of asset had been either paid fully or in part prior to fluctuation in rate of foreign exchange, cost of asset would correspondingly be permitted to be reworked for purposes of repayment or depreciation or investment allowance, as case may be, with reference to rate prevailing on last date of financial year in which fluctuation occurs. (iii ) That in determining whether there has in fact been accrual of liability or income, accountancy standards prescribed by Institute of Chartered Accountants of India had to be followed and applied. (iv ) That amendment of section 43A with effect from 1-4-2003, was prospective. effect of amendment was plainly to negate benefit that was extended to assessee as result of interpretation placed on provisions as they stood prior to amendment. amendment itself made it clear that it was with effect from 1-4-2003. This was further clarified by Central Board of Direct Taxes Circular No. 8 of 2002 [2002] 258 ITR (St.) 13 which in no uncertain terms stated that amendment would take effect from 1- 4-2003, and would accordingly apply in relation to assessment year 2003-04 and subsequent years. 15. In view of ratio of decisions (supra) and principles laid therein which fully apply to issue under consideration before us, we are of opinion that CIT(A) in well-reasoned and well-discussed order has not committed any error in coming to conclusion that assessee was entitled to claim deduction on account of foreign exchange fluctuation loss. Since, order of CIT(A) is in conformity with ratio of decisions (supra) and principles laid therein, we do not find any illegality or infirmity in well-reasoned order of CIT(A) in this regard and accordingly same is upheld and ground of appeal taken by revenue is rejected. 16. In result, appeal filed by revenue is dismissed. *** DEPUTY COMMISSIONER OF INCOME TAX v. HONEYWELL INTERNATIONAL (INDIA) (P) LTD.