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2019 (2) TMI 792 - AT - Income TaxDisallowance of crystallized losses of foreign exchange contracts - loss was amortized in books but claimed as a deduction while filing Return of Income - Held that:- It is a decision of business man to minimize the losses on account of fluctuation in the foreign exchange rate and therefore it is very much connected with the assessee’s business. Since in assessment year 2010-11, the assesseecancelled some export orders and as a result, the forward contracts linked with the export ordersshould also be cancelled and therefore it is natural that the bank has charged the cancellation charges of the forward contract, which is nothing but a business loss. Therefore, since the forward contracts have been taken in connection with the business and for the purpose of business hence the loss arising on account of cancellation of forward contract would also be a business loss and therefore the assessee is entitled to claim the said loss in his books of accounts. In view of the facts and precedents narrated above, it is abundantly clear that the Assessee Company has correctly accounted for the loss on account of Cancelled Forward Contract for hedging of Foreign Currency Risk and is an allowable Business Loss under section 28 of the Act. The loss on account of forward contract and loss on cancellation of forward contract, is a business loss and assessee is entitled to set offthe said loss against the business income, hence we delete the disallowance - Decided against revenue Disallowance being prior period expenses the liability for which crystallized during the relevant previous year - Held that:- We note that the transportation charges of ₹ 1,00,000/- paid to M/s Santosh Transport Services pertaining to assessment year 2007-08 and it was stated that there was a dispute regarding the bill amount therefore, it could not be paid in the year in which it was incurred. The dispute got resolved during the assessment year under consideration hence, it was finally paid. We not that assessee is following mercantile system of accounting and the assessee’s expenditure has got crystallized during the assessment year under consideration, therefore the assessee is entitled to claim the expenses. We note that the assessee had incurred the said expenditure for the purpose of business and liability has crystallized during the assessment year under consideration. Hence the addition needs to be deleted - Decided against revenue Disallowance being replacement cost of seven ring frames - treated by the assessee as revenue expenditure u/s 37(1) however, AO treated the same as capital expenditure - Held that:- This issue is squarely covered against the assessee by the Judgment for assessment year 2005-06 as held Expenditure for replacement of a new ring frames is an addition to existing plant and machinery of the assessee giving enduring benefit and as such is capital in nature. - Decided against assessee
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