9911796707
TMI Blog2014 (11) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that Rs. 57,82,954 disclosed by the assessee as gain on commodity derivatives is a net figure of such gains, after adjusting unrealized loss of Rs. 1,60,369. The Assessing Officer required the assessee to show cause as to why adjustment of Rs. 1,60,369 for unrealized loss not be disallowed. It was explained by the assessee that the said amount represents loss on open positions in trading transactions of commodity derivatives. The assessee explained, in substance, that once a loss can be reasonably estimated, as was the position in that case, such a loss is to be provided for in the books of accounts, and, in support of this broad contention, relied upon several judicial precedents, including landmark judgment in the case of Chainrup Sampatram v. CIT (24 ITR 481), and accounting practices, including accounting standards. The Assessing Officer was, however, not impressed by any of these arguments and he proposed to disallow the unrealized loss on commodity derivatives. Aggrieved, assessee approached the DRP but without any success. It was in this backdrop that the AO disallowed Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted profit for forward contracts are not taken into account but anticipated losses are duly taken into account in computation of business profits. Elaborating upon this legal position and dealing with the deductibility of anticipated but unrealized losses on forward exchange contracts, a special bench of this Tribunal, in the case of DCIT v. Bank of Bahrain & Kuwait (41 SOT 290), has observed as follows: 58. In view of the above discussion, we allow the assessee's appeal for the following reasons : (i) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. (ii) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. (iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on 31st March. (iv) A liability is said to have crystallised when a pending obligation on the balance sheet date is determinable with reasonable certainity. The considerations for accounting the income are entirely on different foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is received or no benefit, and/or services received are duplicative in nature. 6. That, on the facts and circumstances of the case, the DRP and TPO/AO erred in presumptively holding that the revenue authorities are empowered to question the commercial decision of the appellant and in not appreciating the jurisprudence that the DRP and the AO/TPO cannot go beyond their powers to question the business decision of the company. 7. That, on the facts and circumstances of the case, the DRP has erred in confirming that the TPO has discharged his statutory onus by establishing the conditions specified in (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm's length price determined by the appellant and proceeding to decide the arm's length price himself. 8. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in conducting economic analysis of the international transactions without relying on any comparable transaction/companies using inappropriate method. 9. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in determining the arm's length price of international transactions consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, no arm's length value was assigned to these services also. In respect of these cases TNMM was rejected and CUP was applied- though, even under CUP method, value assigned was nil as, in the opinion of the TPO, these services were worthless. 13. When Assessing Officer proposed to make disallowance in respect of payments for the above services, arm's length value of which was taken at 'zero', aggregating to Rs. 31,23,325, as against total management fees of Rs. 58,20,571 paid by the assessee, assessee carried the matter before the DRP but without any success. The DRP confirmed the stand so taken by the TPO, Accordingly, an ALP adjustment of Rs. 31,23,325 was made by the Assessing Officer. The assessee is aggrieved and is in appeal before us. 14. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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