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TMI Blog2023 (4) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the ld. PCIT. Decided against assessee. - I.T.A. Nos. 1701 And 1702/Chny/2019 - - - Dated:- 21-4-2023 - Shri V. Durga Rao, Judicial Member And Shri Manoj Kumar Aggarwal, Accountant Member For the Appellant : Shri R. Vijayaragahavan, Advocate For the Respondent : Shri M. Rajan, CIT ORDER PER V. DURGA RAO, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against separate orders of the ld. Principal Commissioner of Income Tax-1, Chennai, dated 28.03.2019 and 20.03.2019 relevant to the assessment years 2013-14 and 2014-15 respectively passed under section 263 of the Income Tax Act, 1961 [ Act in short]. Since, common issue has been raised in an identical fact, for the sake of convenience; both appeals were heard together and are being disposed off by this consolidated order. 2. The appeal filed by the assessee for the assessment year 2014-15 is delayed by six days in filing the appeal before the Tribunal. The assessee has filed petition for condonation of delay in the form of an affidavit against which, the ld. DR has not objected. Since the assessee was prevented by reasonable cause, we hereby condone the delay of six days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income arising on account of forward contracts hedging the debtors has been directly accounted under reserves and surplus account, without routing through the P L account. As the assessee was following mercantile system of accounting any income arising on account of accrual basis shall be offered to tax in the year of such accrual. 3.2 In view of the decision in the case of CIT Vs. Woodward Governor India P. Ltd. (312 ITR 254), wherein, Supreme Court has observed that any difference, loss or gain arising on conversion of the liability at the closing rate, should be recognised in P L account for the reporting period. Under revenue account, foreign exchange fluctuations are on an account of debtors for exports, creditors for purchases and expenses payable etc. Gain on fluctuations of these accounts will be recognised on accrual basis under the head profit and gains of business or profession. Similarly, loss on fluctuation is also allowed on accrual basis under section 37(1) of the Act. Hence the income of ₹.1,01,08,500/- should be assessed to tax for assessment year 2013-14. 3.3 Further, the ld. PCIT has observed that M/s. AGS Health Private Limited hedges i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.7 In this regard, reliance is placed on judgement of the Apex Court in case of CIT v. Woodward Governor India Pvt. Ltd. (supra), wherein, it has been held that accounting principles laid down by nationally accepted account standards are supreme and must guide the computation of income under the Act where the system of accounting adopted is fair and reasonable and is not adopted with a view to reduce the incidence of taxation. 3.8 Since in the instant case the assessee has followed the accepted accounting standards i.e., AS-11 and AS-30 while preparing the financial statement for the assessment year 2013-14 and 2014-15, the assessee, has offered to tax the exchange difference gain on forward contracts recognised in P L account as per applicable AS-11 in the financial statements. But, however, the assessee has not offered to tax the exchange difference gain on forward contracts credited to hedge reserve as per applicable AS-30. 3.9 Further, the draft tax accounting standard and Income Computation and Disclosure Standards (ICDS) which are applicable from assessment year 2016-17, also provide that exchange difference arising on forward exchange contract entered into to hedge f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Tribunal. The ld. Counsel for the assessee has submitted that during the course of assessment proceedings, the Assessing Officer has asked the details in respect of foreign exchange gain vide notice under section 142(1) of the Act dated 02.11.2016 as per paper book page No. 53 and detailed reply to the above notice was filed on 10.11.2016 as per paper book page 55 and the same are reproduced as under: 3. Provide the details of Forward Contract Receivable shown under Short-term loans advances : Response: An amount of ₹.1,01,08,500 is shown as forward contract receivable under Short term loans and advances and contra is shown as Hedge reserve under reserves surplus . This amount is recorded both as asset and liability in the books, just to represent the ineffectiveness in hedging of our forward contracts in accordance with the accounting standards prescribed by Institute of Chartered Accounts of India. Thus, the ld. Counsel for the assessee has submitted that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue. 5. On the other hand, the ld. DR has submitted that the Assessing Officer has called for explan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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