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2017 (2) TMI 923 - ITAT MUMBAIAccrual of income - Addition made on account of notional gain on forward contract - speculation income / gains - Held that:- From the record, we found that as per the practice followed by the assessee - company, the notional gain or loss on forward contract is debited or credited to the P&L account for the year in which the forward contract is settled. The fundamental principle of taxing income under the mercantile system of accounting is the time of accrual. It is not material whether the amount has been received at the time of accrual or not. The income is accrued when the assessee acquires the right to receive it. While deleting the addition made on account of notional gain on forward contract the CIT(A) had taken note of the fact that in case of Woodward Governor India Pvt. Ltd. (2009 (4) TMI 4 - SUPREME COURT )had dealt with the loss suffered by assessee in respect of revenue liability on account of exchange difference as on the date of balance sheet. Thereafter, considering the decision of Madras High Court in case of Indian Overseas Bank [1990 (2) TMI 43 - MADRAS High Court ] CIT(A) concluded that estimated, anticipated income arrived at on the basis of rate of exchange which prevailed on the last date of forward contract in foreign currencies only represents notional profit and could not be subject to tax. Respectfully following the proposition laid down by Madras High Court, we do not find any infirmity in the order of CIT(A) for deleting the addition made by AO on account of notional gain on forward contract. However, AO is at a liberty to verify that this gain has been offered for taxation in the subsequent years when it actually arose - Decided against revenue
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