TMI Blog2016 (6) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed loss under consideration occurred to the assessee on account of five unexpired forex forward contracts i.e is a loss incurred on account of revaluation of contract on last day of accounting period before date of maturity of forward contract. The Ld.CIT-A observed that the assessee has been following a consistent accounting policy for determining loss under AS-11 and AS-30 as required under Companies Act and it is to be noted that the accounting standards were issued by the ICAI which has received judicial recognition. Accordingly the assessee, the gain or loss on revaluation of the outstanding contracts was booked in the P&L a/c as per the mandatory requirements of RBI guidelines. The Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. [2009 (4) TMI 4 - SUPREME COURT ] held that that the Central Government has made AS-11 mandatory. During the course of first appellate proceedings that the CIT-A noticed that the AO allowed the loss of ₹ 85,70,425/- for 2010-11 which supports to show that the assessee has been following consistently accounting standards and the liability has been accrued for a pending obligation for every year i.e the difference was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said expenditure is not incidental to the business expenditure and added to the total income of the assessee. 5. Ld. CIT(A) deleted the addition by relying on orders in CITvs- Samtel Colour Ltd. and DCIT vs- Bank of America Securities (India) (P) Ltd. of Delhi and Bombay Tribunals. 6. The ld. DR relied on AO s order regarding the ground no.1 and ld. A.R. relied on CIT(A) s order. 7. Heard both and perused the material available on record. The question that arose for consideration before us as to whether the subscription paid to a club for membership of staff member is a business expenditure or not. 8. Ld. CIT(A), during appellate proceedings, opined that subscription amount paid for club membership is an allowable business expenditure as per the express provisions of section 37(1) of the Act. 9. We may refer to the provision of Section 37 which is reproduced herein below for the benefit of better understanding of the same in the context of case on hand. 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is an expenditure incurred wholly and exclusively for the purposes of business of the assessee. 13. The MUMBAI 'B BENCH of ITAT in the case of DEPUTY COMMISSIONER OF INCOME TAX vs. BANK OF AMERICA SECURITIES (INDIA) (P) LTD reported in (2011) 136 TTJ 0441, the facts involved therein was that the assessee has made payment of entrance fee to a club namely Bombay Gymkhana amounting to ₹ 16 lacs. The AO disallowed ₹ 16 lacs as capital outlay and added to the income of the assessee. The CIT(A) deleted the addition of ₹ 16 lacs made by the AO being entrance fee to Bombay Gymkhana Club. The relevant portions of Tribunal s order as follows: 8. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute in as much as it has been rightly observed by the learned CIT(A) the AO has not disputed the fact that the expenditure of club membership fees ₹ 16 lacs has been incurred by the assessee wholly and exclusively for the purpose of business of the assessee. Further we find no merit in the plea of the learned Departmental Representative that the decision in Alembic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the aforesaid case law are applicable to the present case and the club subscription fee paid for staff is an allowable expenditure. 15. In the light of above, respectably following the above, we dismiss the ground no-1 raised by the appellant Revenue. 16. Ground no.2 is against the deletion of addition of ₹ 54,23,955/- made by the AO. The AO was of the view that the marked to market loss is a notional loss, contingent in nature and it is not allowed to be set off against the taxable income. The CIT(A) deleted the addition basing on the order of Special Bench C of Mumbai bench of ITAT in the case of DCIT-vs- Bank of Bahrain Kuwait reported in (2010) 41 SOT 0290. 17. Ld. DR submits before us, that the CBDT issued guidelines vide its instruction no.03/2010 dated 23.03.2010 to all assessing officers keeping in view of complexity in the foreign exchange market where assessees reporting losses on marked to market or in accounting standard issued by the Institute of chartered Accountants. The assessing officers were guided by the said instruction to make a specific query to submit to break up of any loss on Marked to Market methodology, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COME TAX (INTERNATIONAL TAXATION) vs. BANK OF BAHRAIN KUWAIT reported in 41 SOT 0290 supra as relied by the CIT-A where the facts are that the assessee is a non- resident company carrying on banking business in India. It enters into forward contracts with its clients to buy or sell foreign exchange at an agreed price on a future date. On the date of maturity, the contract is executed which may result in the profits or losses to the assessee. 21. During the assessment proceedings that the AO noticed that the assessee had booked a loss on revaluation of forward foreign exchange contracts, which were unmatured on the date of balance sheet of an amount of ₹ 12,42,648. He noted that the assessee enters into forward contracts with clients to buy or sell foreign exchange at an agreed price on a future date. This future price was estimated according to certain norms such as forward premium rates for certain currencies and the AO disallowed the loss of ₹ 12,42,648 treating the same as notional loss. The AO, however, allowed the amount which was disallowed on this count in earlier years. The CIT(A) allowed the assessee s appeal, inter alia, observing that the assessee was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the rate prevailing on 31st March. (iv) A liability is said to have crystallised when a pending obligation on the balance sheet date is determinable with reasonable certainity. The considerations for accounting the income are entirely on different footing. (v) As per AS-11, 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. (vi) The forward foreign exchange contracts have all the trappings of stock-in-trade. (vii) In view of the decision of Hon ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra), the assessee s claim is allowable. (viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. 25. Applying the above observations to the facts and circumstances of present case, We find that the claimed loss under consideration occurred to the assessee on account of five unexpired forex forward contracts i.e is a loss incurred on account of revaluation of contract on last day of accounting period before date of maturity of forward contract. The Ld.CIT-A observed ..... 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