TMI Blog2013 (7) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the assessee despite the fact that ONGC was not a dealer in foreign exchange. Also see DCIT vs. Banque Indosuez (Known as Credit Agricole Indosuez) reported [2012 (12) TMI 730 - ITAT MUMBAI] & Societe Generale vs. DDIT (International Taxation) (2013 (5) TMI 374 - ITAT MUMBAI). In favour of assessee. - I.T.A. No. 7629/Mum/2011 - - - Dated:- 30-4-2013 - Shri R. K. Gupta, JM And Shri P. M. Jagtap, AM,JJ. For the Appellant : Shri Pravin Kumar For the Respondent : Dr. K. Shivram Shri Ajay R. Singh ORDER Per P. M. Jagtap, A. M. This appeal is preferred by the Revenue against the order of ld. CIT(A) - 27, Mumbai dtd. 28-8-2011 whereby he deleted the addition made by the A.O. on account of "marked to market" loss of Rs. 5,53,02,172/- claimed by the assessee on revaluation of the pending forward contract on the closing day. 2. The assessee in the present case is a partnership firm which is engaged in the business of manufacturing, trading as well as import and export of diamonds. The return of income for the year under consideration was filed by it on 29-9-2008 declaring total income of Rs. 54,44,25,595/-. During the course of assessment proceeding, it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bahrain Kuwait (supra) relied upon by the assessee, the A.O. held that the same was distinguishable on facts inasmuch as the foreign currency in that case was held by the assessee as stock-in-trade and he had entered into foreign exchange contract in order to protect its interest against the wide fluctuation in the foreign currency itself. He held that in the case of the assessee, foreign currency was not its stock-in-trade and therefore the decision of the Special Bench of the Tribunal in the case of Bank of Bahrain and Kuwait (supra) was not applicable in the case of the assessee being distinguishable on facts. As regards the reliance placed by the assessee on Accounting Standard - 11, the A.O. held that the reporting of notional losses to adhere to the accounting guidelines would not by itself make it deductible for Income Tax purposes especially when there is no provision in the Income Tax Act to allow the deduction on account of notional loss for which the liability has not crystallized. He therefore disallowed the marked to market loss claimed by the assessee in respect of forward exchange contract claimed by the assessee in the assessment completed u/s 143(3) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that this method of recording transaction denominated in foreign currency is as per AS-I I being consistently followed and there is no change as compared to earlier year. In the light of the relevant facts as noted by him, the ld. CIT(A) decided this issue by applying the ratio of the decisions laid down in the various judicial pronouncements. In this regard, he referred to the decision of the Hon'ble Delhi High Court in the case of Woodward Governor 294 ITR 451 as affirmed by the Hon'ble Supreme Court (312 ITR 254) wherein it was held that theliability arising out of already concluded contracts stands accrued the minute the contract is entered into and mere postponement of the payment to different date cannot extinguish the liability and render it notional or contingent. He then referred to the decision of Hon'ble Supreme Court in the case of ONGC vs. CIT (322 ITR 180) wherein it was held that when the assessee maintained its accounts on mercantile system of accounting and the loss suffered by it on account of fluctuation in the rate of foreign exchange as on the date of balance sheet was claimed in compliance with Accounting Standards, the same should be allowed as expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant aspects of the matter and the relevant observations of the tribunal recorded in this context are summarized as under:- "(i) A binding obligation accrued against the Appellant the minutes it entered into forward foreign exchange contracts. (ii) A consistent method of accounting followed by the Appellant cannot be disregarded. The Appellant has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on March, 31. (iii) A liability is said to have crystallized when a pending obligation on the balance sheet date is determinable with reasonable certainty. (iv) As per AS-II when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period. (v) In view of the decision of the Supreme Court in the case of Woodward Governor India (I) P. Ltd., the Appellant's claim is allowable. (vi) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit." Although the decision of Special Bench of ITAT in the case of Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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