COMMISSIONER OF INCOME TAX, DELHI vs M/S WOODWARD GOVERNOR INDIA P. LTD.

The Supreme Court addressed the deductibility of exchange rate fluctuations under Section 37(1) of the Income-tax Act, 1961, determining that such fluctuations related to revenue accounts can be deducted in the year they occur, rather than only in the year of loan repayment. The Court also clarified that for capital accounts, adjustments for exchange differences should be made under Section 43(1) and 43A. The Court upheld the Tribunal's decision allowing the deduction of unrealized losses due to foreign exchange fluctuations, affirming the Delhi High Court's ruling.