Oil & Natural Gas Corp. Ltd. Tr. M.D vs Commr.Of Income Tax, Dehradun

The Supreme Court addressed whether fluctuations in exchange rates for loans taken for revenue purposes can be deducted under Section 37(1) of the Income Tax Act, 1961, in the year of fluctuation or only upon repayment. The Court held that such losses can be recognized in the year of fluctuation, establishing that the mercantile system of accounting allows for this treatment. The Court also ruled on the adjustment of the actual cost of imported capital assets due to exchange rate fluctuations, affirming the Assessee's entitlement to such adjustments pending actual payment.