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2016 (8) TMI 454 - AT - Income TaxAddition on account of foreign exchange loss - whether assessee has not suffered any actual loss during the year under consideration? - Held that:- The allegation of the AO that assessee entered into a currency swap with the bank for an instrument involving a swap of a liability of Japanese Yen vs. Rupees is against the facts on record. The observation made by the AO in the assessment order in this regard demonstrate the indulgence into surmises without considering the fact that this is an advance received against export and such export has been actually effected in the subsequent year. It is an undisputed fact that assessee has received the advance in Japanese Yen and Japanese Yen has got appreciated from 34.11 to 40.03 during the year. The assessee having received the advance and having suffered the loss, the AO cannot sit over the judgment of the assessee to decide why the advance was received in Japanese Yen and why it was not received in Euro or Swiss Franc. Observation of the learned CIT(A) is correct that the AO has gone on to elaborate the principle of derivatives from Pages 4 to 14 of the assessment order but the whole discussion is on theory of derivatives of mark to market losses. It is also evident from the facts on record that the AO has not disputed the advance received as trading advance towards supply of soya bean meal. It is also a fact that there were several other transactions in foreign exchange fluctuation account which has been treated similarly. The assessee all along has treated this advance in accordance with Accounting Standards AS-11. This also has been followed in earlier assessment years as well as in subsequent assessment years. As regards the contention of the learned DR that the corresponding purchase for this export are more than the value of the sale, we are of the view that this cannot be a consideration for disallowing the loss suffered on account of the foreign exchange fluctuation in the year under consideration. The assessee having followed the system of accounting regularly for accounting foreign exchange fluctuation in accordance with accepted method of accounting and the same have not been inconsistent with any provisions of the Income Tax Act any profit or loss arising on this account has to be taken into consideration and the same cannot be rejected. CIT(A) was justified in holding that the AO was not correct in picking one transaction and treating the same as derivative and disallowing the loss by considering the same as mark to market losses. - Decided in favour of assessee.
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