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TMI Blog2014 (4) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod - unrealized loss due to foreign exchange fluctuation in foreign currency transactions on revenue item as on the last date of the accounting year is deductible - thus, order of the CIT(A) set aside and the AO is directed to allow the loss claimed by the assessee on account of marked to market loss on foreign exchange contract – Decided in favour of Assessee. Disallowance of write off of 1/10th of non-compete fee – Held that:- As decided in assessee’s own case for the previous assessment years that there was no merit in the ground raised by the assessee – Decided against Assessee. - ITA No. 7761/Mum. /2012 - - - Dated:- 28-3-2014 - Shri Sanjay Arora And Shri Amit Shukla,JJ. For the Petitioner : Mr. C. N. Vaze For the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench decision of the Tribunal in DCIT (IT) v/s Bank of Bahrain and Kuwait, [2010] 43 DTR (AT) 505 (Mum.) (SB). However, the Assessing Officer held that it is a notional loss and cannot be allowed as expenditure to the assessee and was added back to the taxable income of the assessee. He further held that similar addition was made in the assessment year 2008-09 also. The learned Commissioner (Appeals), following the earlier year s order for the assessment year 2008-09, in assessee s own case, decided the issue against the assessee. 4. Before us, the learned Counsel for the assessee submitted that though the appeal for the assessment year 2008-09 preferred by the Revenue is pending before the Tribunal, however, the issue invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentatives of the parties. We have also carefully considered the cases cited before us (supra). It is relevant to state that in the case of Woodward Governor India (P.) Ltd. (supra), the Hon ble Apex Court observed and held that the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency transactions towards revenue items as on the last day of the accounting year. The A.O. held that the liability as on the last date of the previous year was not an ascertained but a contingent liability. Resultantly, the same was added back to the total income. The CIT(A) echoed the assessment order. However, the Tribunal held that the claim of the assessee for deduction of unrealized lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was following this practice consistently. That it was also as per recognized Accounting Standard. AO rejected the claim on the ground that the derivative contracts were not stock in trade as there was no cost of acquisition. He finally held that the loss on account of MTM basis was thus a notional loss and was contingent in nature and could not be allowed to be set off against taxable income. On appeal, the ld. CIT(A) allowed the same by agreeing with the contention of the assessee that such loss on such valuation which is called MTM has to be allowed even though it may appear to be a notional loss. The Tribunal while confirming order of ld. CIT(A) and allowing the said loss placed reliance on the decision of Hon ble Apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee also treated the similar difference in foreign exchange as an increased liability u/s 43A. The AO allowed the deduction claimed u/s 37(1), taking into consideration the increased foreign exchange liability and repaid in the accounting year for the purpose of depreciation. He did not however, allow the claim for foreign exchange loss on loans both in relation to capital as well as revenue account which were outstanding on the last day of accounting year. On appeal, the CIT(A) affirmed the view of AO in relation to deduction u/s 37 of the interest on loans outstanding on the last day of the accounting year but allowed the benefit of increased liability for computation u/s 43A in relation to loss outstanding on the last day of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Apex Court and also the view taken by the Tribunal in the cases cited hereinabove (supra). Hence, the view taken by AO to allow loss of Rs.43.78 crores while making assessment u/s 143(3) on account of derivative contract outstanding is not an erroneous view taken by AO , nor the action of AO is prejudicial to the interest of revenue. Hence, the order of Commissioner of Income Tax u/s 263 of the Act to hold that the action of AO is erroneous to the extent the loss considered as allowable on account of derivative contracts outstanding as on the date of balance sheet i.e. 31.3.2008 is neither justified nor in accordance with law. Hence, we quash the said order of ld. Commissioner of Income Tax by allowing the grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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