TMI Blog2016 (6) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... ., at net realizable value, where held on revenue account, is on the basis of the accounting principle of prudence which suggests booking of all known losses and liabilities. Providing for the same is on the premise that the enterprise following accrual method of accounting, the loss had accrued even though the liability may not have crystallized or its amount may not be quantifiable with exactness and, therefore, represents only an estimate thereof, based on the best available information. Such estimates are called accounting estimates, which inform and permeate the preparation and presentation of final accounts, the background facts with regard to which are generally communicated through the notes to the accounts. The price/s obtainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 1-6-2016 - Shri Joginder Singh, JM And Shri Sanjay Arora, AM For the Appellant : Shri K. Gopal For the Respondent : Shri D. Prabhakar Reddy ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-9, Mumbai ( CIT(A) for short) dated 20.01.2012, dismissing the Assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2008- 09 vide order dated 20.12.2010. 2. The facts in brief are that the assessee-company, in the business of share broking, trading and investment in shares and securities, was, during the course of assessment proceedings found by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctuation in respect of trading transactions, made with reference to the balance-sheet date, is not a contingent liability or a contingent loss but fait aaccompli and, accordingly, admissible as a deduction. In view of the A.O., the derivative contracts are not acquired at a cost and, further, do not constitute stock-in-trade, so as to attract the principle of valuation t cost or market value, whichever is less. The liability had not crystallized as on the balance-sheet date, and would be so only on the settlement of the contract at a future date. True, the principle of real income is applicable, but then disallowing such notional loss, as being claimed, is only toward the assessment of real income. The same cannot be allowed to be infl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o market, and which (profit) had been ignored by the A.O. The method of valuation has to be fair and reasonable, and not motivated or guided with a view to reduce the incidence of tax. He, accordingly, after show causing the assessee for enhancement, while deleting the impugned disallowance (for ₹ 11.54 lacs), effected an addition for ₹ 15.30 lacs, i.e., made an enhancement to the assessed income by the difference of ₹ 3.76 lacs (Rs.15.30 lacs ₹ 11.54 lacs). Aggrieved, the assessee is in second appeal. 3. We have heard the parties, and perused the material on record. To begin with, we note, even as observed by the Bench during hearing, that the ld. CIT(A) has allowed the assessee s claim for loss (for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bench, S.H. Kapadia, J. summarised the following factors which should be taken into account in order to find out if an expenditure on account of fluctuation in the foreign currency rates, when the Assessee is following mercantile system of accounting, is deductible: (i) whether the system of accounting followed by the assessee is the mercantile system, which brings in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and credits, what is due, immediately it becomes due even before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, is on the basis of the accounting principle of prudence which suggests booking of all known losses and liabilities. Providing for the same is on the premise that the enterprise following accrual method of accounting, the loss had accrued even though the liability may not have crystallized or its amount may not be quantifiable with exactness and, therefore, represents only an estimate thereof, based on the best available information. Such estimates are called accounting estimates, which inform and permeate the preparation and presentation of final accounts, the background facts with regard to which are generally communicated through the notes to the accounts. As afore-said, the controversy before us is limited to whether the unrealize ..... X X X X Extracts X X X X X X X X Extracts X X X X
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