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TMI Blog2014 (7) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of forward contract agreements on the closing date of accounting year is not notional loss and, therefore, allowable. 2. The appellant craves leaves to amend or alter any ground or add a new ground which may be necessary." 2. The assessee is engaged in the business of import and exports of diamonds. Substantial amount of its turnover is denominated in foreign currency. It enjoys working capital facility from banks some of which are also denominated in foreign currency. It also carries currency risk in respect of its stock as it is most likely to be sold by way of exports. Therefore, forward contracts were entered into to hedge these currency risk associated with normal business transaction. These derivative contracts are entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO on the ground that it was for outstanding foreign currency forward contract is a notional loss of contingent liability debited to P&L Account. 4. The disallowance has been deleted by Ld. CIT(A) on the ground that such loss cannot be held to be notional loss particularly when gain realized on similar transaction during the same year is being assessed by the AO. Ld. CIT(A) also has relied upon various decision to delete the addition, which include the decision of Special Bench in the case of DCIT vs. Bank of Bahrain and Kuwait ( ITA Nos. 4404 & 1883/Mum/2004). The Revenue is aggrieved by the relief given by Ld. CIT(A) and has filed aforementioned grounds of appeal. 5. At the outset it was stated by Ld. AR that this issue is covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied by Ld.A. R. Reference can be made to the decision of Tribunal in the case of ACIT vs. M/s. Rupam Impex (supra), wherein similar ground was raised by the Revenue and the issue was decided against the Revenue with the following observations: " This appeal is filed by the Revenue against the order of CIT(A) dated 05/03/2012 for the assessment year 2008-09. The ground of appeal raised by the Revenue read as under :- "1. Whether on the facts and circumstances of the case and in law, the Ld .CIT (A) has erred in holding that Market to market loss of Rs. 1,06,47,416/- arising on valuation of forward exchange contracts on the closing date of accounting year is not a notional loss and, therefore, allowable." 1.1 The Assessee is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with aforementioned decisions. 2.1 On the other hand, ld. DR relied on the order passed by AO. 3. After hearing both the parties, we find that the ld. CIT(A) did not commit any error in deciding the issue in favour of assessee. The Hon'ble Supreme Court in case of ONGC vs. CIT (supra), following the earlier decision in the case of CIT vs. Woodward Governor India (P.) Ltd. (supra), have held that the Assessee having maintained account on mercantile system of accounting, loss claimed by the Assessee on account fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for Revenue purpose is allowable as expenditure u/s. 37(1) notwithstanding the fact that liability has not been actua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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