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TMI Blog2016 (9) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... and is liable to be set aside. In the assessment year 2013-14, the department itself has accepted foreign exchange fluctuation loss under identical circumstances. Not only this, the assessee has been following a consistent policy on re-statement of foreign currency payables and whenever there is a gain the same is duly offered to tax as also noted by ld. CIT(A) in a chart at page 31 of the impugned order wherein the gains arising consequent to conversion at closing exchange rate have been duly offered to tax by the assessee. Therefore, the ld. Authorities below are not justified to take different view in the instant year. In view of these discussions, we do not find any justification to support the orders of the authorities below. Accordingly, the appeal of the assessee is found to have merit and deserves to be allowed in favour of assessee - ITA No. 2976/Del./2013 - - - Dated:- 24-8-2016 - Shri I. C. Sudhir, Judicial Member And Shri L. P. Sahu, Accountant Member Appellant by : Sh. Piyush Kaushik, Advocate Respondent by : Sh. B. Raman Janeylily, Sr. DR ORDER Per L. P. Sahu, Accountant Member: This is an appeal filed by the assessee against the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the decisions of Hon ble Supreme Court in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 SC and Oil Natural Gas Corp. Ltd. vs. CIT, 322 ITR 180 and also the decision of ITAT on the same issue in assessee s own case for previous year which was not challenged by the department before the Hon ble High Court. The AO, however, disallowed the loss as claimed by appellant on the ground that the assessee did not furnish any evidence/details of restatement of foreign currency and at the time of passing the decision by ITAT in assessee s own case, Instruction No. 3 of 2010 was not in existence. He further observed that the losses claimed by the assessee are based on forex derivatives in the form of currency swaps, forex forwards etc. It was also observed that now, in view of the change in law, the decisions of Hon ble Supreme Court are not applicable to the case of assessee. She accordingly concluded that the foreign exchange fluctuation loss of ₹ 12,41,11,179/- is a speculative loss and disallowed the same to be set off against the business income of the assessee as per section 43(5) of the Act and CBDT Instruction No. 3/2010 dated 23.03.2010. The appellant cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of same is accounted for as income or expense as the case may be. This accounting policy is in view of the requirements of Accounting Standard 11 issued by Institute of Chartered Accountants of India ( ICAI). The exchange differences arising on capital account i.e. pertaining to fixed assets are adjusted in the cost of fixed assets. 1.3 Accounting policy consistently followed by the assessee company: The aforesaid accounting policy is consistently followed by the assessee company. Wherever there is a gain arising pursuant to the aforesaid reporting of receivables / payables in foreign currency the same is duly offered to tax. The Chart outlined at page 31 of CIT(A) order outlines the year wise details wherein the gains arising consequent to conversion at closing exchange rate has been duly offered to tax. During the subject year pursuant to the aforesaid accounting policy there was an exchange loss of ₹ 124,111,179 which was consequently claimed as a deduction. The item wise working of such exchange loss was duly submitted before the AO CIT(A) duly acknowledged by the AO enclosed at page 27 of PB. It is a matter of fact that both the lower authorities could not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and therefore the approach of AO in applying Instruction No. 3/2010 is grossly misplaced - noted at page 17 of CIT(A) order, ii. Assessee is following a consistent policy on re-statement of foreign currency payables and whenever there is a gain the same is duly offered to tax - noted at pages 77; 18 of CIT(A) order along with a chart outlined at page 31 of CIT(A) order giving the year wise details wherein the gains arising consequent to conversion at closing exchange rate have been duly offered to tax', iii. Inter company payables have arisen only on account of revenue transactions in the past. Transactions undertaken by assessee with its parent entity on expense and income side have been detailed in the Transfer Pricing Documentation on record which have been accepted in the past and also in the current year without any reference to TPO u/s 92CA; iv. During the current year there was a high fluctuation in rupee dollar rate by more than 25% i.e. there was a high decline in value of rupee; v. Clarifications required by the CIT(A) vide its order sheet entry dated 19/02/13 were duly submitted by the assessee vide its submissions as reproduced in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es still very wrongfully the AO applies the said instruction. 4.3. The item wise working of foreign exchange loss of ₹ 12,41,11,179 on outstanding inter company payables / receivables was duly submitted before the AO CIT(A) duly acknowledged by the AO CIT(A) enclosed at page 27 of PB. It is a matter of fact that both the lower authorities could not find any default / lacuna on the same. Though the AO herself acknowledges vide para 7.1 of its order that the assessee has submitted the details of foreign exchange loss on outstanding balances but still the AO very wrongfully observes vide para 7.2 of its order that the assessee has not given details of foreign exchange loss. In fact the C1T(A) does not holds that the assessee has not given said details, the solitary reason framed by CIT(A) in confirming AO's decision is totally different outlined in para 3.2 supra. The outstanding intercompany payables / receivables arising as a result of transactions with the parent entity are as per the audited accounts of the current year and past years. Assessments for all the past years have been done u/s 143(3) and in none of the past assessments it is the case of the AO that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing extract from AS-11: When the transaction is settled within the same accounting period as that in which it occurred, all the exchange differences is recognized in that period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognized in each intervening period upto the period of settlement is determined by the change in exchange rates during that period. Thus as per the very clear mandate of AS-11 the exchange differences arising in each subsequent accounting period uptill the settlement of transaction have to be duly accounted for. Similarly it has been held by the Supreme Court in its decision in the case of CIT Vs Woodward Governor India P. Ltd. 312 ITR 254 SC vide para 18 of its decision in the following words: Similarly, it is important to note that foreign currency notes, balance in bank accounts denominated in a foreign currency, and receivables/payables and loans denominated in a foreign currency as well as sundry creditors are all monetary items which have to be valued at the closing rate under AS-11. Under paragraph 5, a transaction in a foreign currency has to be recorded in the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee for AY 2001-02 the restatement was with respect to liabilities incurred in the past as noted in para 2 of ITAT order. Thus the facts in the current year are exactly identical with the facts in assessee's own case for AY 2001- 02. To similar effect it has been so held in another case of assessee for the preceding year AY 1999-00 under exactly identical fact situation. 4.6 Assessee's claim of foreign exchange fluctuation loss under identical circumstances has been accepted by the department itself in the subsequent years in the course of sec 143(3} scrutiny proceedings; It is submitted that in the latest scrutiny assessment order issued by the AO u/s 143(3} for AY 2013-14 dated 30/03/16 the department itself in the course of scrutiny assessment proceedings had pursuant to a specific deliberation with the assessee on assessee's claim of foreign exchange loss of ₹ 2,35,97,638 accepted the same and did not made any addition on said account in the assessment order u/s 143(3). In the assessment proceedings for AY 2013-14 the assessee had raised similar arguments as in the present year to defend its claim of foreign exchange fluctuation loss which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion of the AO derived on the basis of CBDT Instruction No. 3 of 2010 in the above circumstances is not fit to be supported that the foreign exchange fluctuation loss is a speculative loss. The ld. CIT(A) has confirmed the disallowance on altogether different count that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions pertaining to the current year. In this context, it is notable that as required by AS-11 and as also held by Hon ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (supra) and Oil and Natural Gas Corporation Ltd. (supra, the entire amount of current liabilities outstanding as at the balance sheet date was to be reinstated by the assessee, which has been done by assessee in the instant case. The accounting standard-11 provides that at each balance sheet date the outstanding foreign currency monetary items should be reported using the closing rates. It clarifies that that when the transaction is not settled in the same accounting period in which it had occurred then in all the intervening period till the transaction is settled, the exchange differences have to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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