2018 (3) TMI 383 - HC - Income Tax

Treatment in the books of accounts of the assessee with respect to losses on account of foreign exchange fluctuation - Held that - The CIT(A) followed the judgment of the Kerala High Court in CIT Vs. International Creative Foods (P) Ltd., (2010 (10) TMI 862 - Kerala High Court) and noticed that the accounting standard AS11 was followed in this case. ITAT also upheld the deletion of disallowance. The Court has considered the submissions of the parties. ITAT accurately observed that in the past years, in the prior and subsequent years, the assessee had accorded similar treatment for foreign exchange gains and paid the required tax. Having regard to the consistent approach adopted by the assessee, the conclusion arrived at by it, which is also a concurrent finding, cannot be said to involve any substantial question of law. Disallowance u/s 40A(3) - The Court notices that hitherto findings are concurrent;, the amount is small and furthermore, the genuineness of the transaction cannot be doubted.

Summary

Issues:
1. Treatment of losses on account of foreign exchange fluctuation in books of accounts.
2. Disallowance under Section 40A(3) of the Income Tax Act.

Analysis:
1. Treatment of Foreign Exchange Losses:
The appeal under Section 260A of the Income Tax Act raised concerns regarding the treatment of a foreign exchange loss in the books of accounts by the assessee for Assessment Year 2009-10. The Assessing Officer disallowed the loss as the assessee failed to make an assessment under Section 40A(3). However, the CIT(A) and the ITAT both supported the assessee's position, citing the accounting standard AS11 and a consistent approach by the assessee in previous and subsequent years regarding foreign exchange gains. The Court concurred with the ITAT's findings, emphasizing the importance of the consistent approach adopted by the assessee in determining the treatment of foreign exchange gains and losses. As a result, no substantial question of law was found in this regard.

2. Disallowance under Section 40A(3):
Regarding the disallowance of &8377; 1,53,540 under Section 40A(3) of the Act due to a cash transaction, the Court noted that previous findings were concurrent. The Court highlighted the small amount in question and emphasized that the genuineness of the transaction could not be doubted. Consequently, the Court concluded that no substantial question of law arose concerning this issue. The dismissal of the appeal was based on the lack of substantial legal questions arising from the treatment of the foreign exchange losses and the cash transaction disallowance under Section 40A(3) of the Income Tax Act.

In summary, the High Court dismissed the appeal as it found no substantial questions of law arising from the treatment of foreign exchange losses and the disallowance under Section 40A(3) of the Income Tax Act. The Court relied on the consistent approach of the assessee in dealing with foreign exchange gains and losses and the small amount involved in the cash transaction disallowance to support its decision.