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2015 (11) TMI 1759 - AT - Income TaxRevision u/s 263 - amount earned on cancellation of forward contracts entered in foreign exchange was not taxed by the AO - amount received on account of gain on cancellation of forwarding contracts was liable to be taxed as income of the assessee during the year under consideration - Held that:- The gain arose on forwarding contracts was on account of cancellation for forwarding contracts entered into in connection with the offshore equipment, byepass valve system etc. Since the commercial production had not begun during the year under consideration, the assessee company correctly capitalized all the expenses incurred in relation to setting up of plant and machinery and the gains reduced from the expenses to be capitalized resulting in lesser capitalization to that extent. Our view is further supported by the decision of Hon’ble Supreme Court in the case of Challapally Sugar Ltd. (1974 (10) TMI 3 - SUPREME COURT). No infirmity in assessee’s claim for setting of gains on such forward contracts from the cost of plant and machinery during pre-commencement stage. With regard to unrecognized gain in forwarding contracts, we find that gain arising on forward contract is an unrealized gain on account of restatement of the liability at the year end. The said forward contracts were entered into in connection with the purchase of Turbines. The nature of gain on account of forward contract is in connection with the acquisition of fixed assets and in view of our above discussion, the same is to be adjusted from the cost of the fixed assets. The Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd. (1978 (9) TMI 1 - SUPREME COURT) held that profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held as capital asset or as fixed assets is liable to be treated as capital in nature, therefore, profit or loss would be of capital nature. No merit in the order of the ld. CIT passed u/s 263 of the Act and we set aside the same. - decided in favour of assessee
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