Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (8) TMI 454 - ITAT DELHI

2016 (8) TMI 454 - ITAT DELHI - TMI - Addition 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 cons .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 accou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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 der .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oss. 2. The brief facts leading to the above appeal are that the assessee filed its return of income declaring a loss of ₹ 11,91,93,780/-. During the year under consideration the assessee has received advance against export from its overseas buyers, M/s Bunge S.A. in Japanese Yen and due to foreign exchange fluctuation there was a loss of ₹ 17,63,24,155/- in the value of the advance as on 31st March, 2008. The AO disallowed the said loss. The AO was also of the view that this loss is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Income Tax Act and accordingly he deleted the disallowance made by the AO. 4. Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us challenging the deletion of above addition by the learned CIT(A). 4.1 It was contended by the learned DR that assessee has not suffered any actual loss during the year under consideration. The assessee has received advance during the year and has made export in the subsequent year. Thus, this loss accounted for in the year under conside .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e payment of Japanese Yen 299,36,04,642. These Japanese Yen came to the assessee s bank account through proper banking channel and the same was credited to assessee s bank account on 31st July, 2007 by applying the exchange rate of 34.11 as on that date. The net payment received against this advance was ₹ 100,20,66,525/-. The advance so received from the foreign buyer was outstanding at the year end i.e. as on 31st March, 2008. This advance being a current liability outstanding as on 31st .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.2008. This loss was accounted for in accordance with the provisions of the Income Tax Act and the accounting policy consistently being followed by the assessee and is fully allowable and hence the learned CIT(A) was justified in deleting the addition on this account. It was further submitted by the learned AR that against the above advance the assessee has made export in the next financial year i.e. 2008-09 and the value of such export is at enhanced amount of ₹ 118.90 Crores as against t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

incorrect. The AO was wrong in considering this loss as mark to market loss on account of trading in derivatives by not appreciating the facts about bank guarantee correctly. The assessee company provided a bank guarantee to the buyer in order to ensure the security of the money advanced to it. It was submitted that this bank guarantee is the normal guarantee given to the buyer in case advance is received from a buyer for the due performance of the purchase contract. The learned AR invited atten .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ll foreign exchange transactions are to be valued at the rate of exchange on the specified date and for the purpose of computing profit and gains of business and provision the specified date mean the last date of the year. The assessee having computed the loss in accordance with the Rule 115, the learned CIT(A) was justified in deleting the disallowance made by the AO. It was also submitted by the learned AR that even the new Income Tax and Disclosure Standards recently notified by the CBDT, man .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ugh the facts of the case we note that the issue is regarding loss on account of foreign exchange rate fluctuation in respect of trading advance received by the assessee company and outstanding at the closing day of the year. The assessee had received an advance of Japanese Yen 2993604642 on 31st July, 2007. The Punjab National Bank has converted the advance into Indian Rupees by applying exchange rate of 34.11 and credited the account ₹ 100,20,66,525/- to the account of the assessee as pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the advance received against export, the difference of ₹ 17,63,24,155/- was the loss suffered by the assessee on account of this fluctuation. 5.1 As per Rule 115 of Income Tax Rules, foreign exchange transactions while computing profit and gains from business and profession are to be converted at the exchange rate prevalent on the last date of the year and the difference so arising on account of such conversion is to be taken into consideration while computing profit and loss of the busine .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

order and we are in agreement with the contention of the learned AR that AO s action in treating such loss to be on account of derivative is incorrect. In fact from the assessment order we note that the AO has not appreciated the transaction in the right perspective. 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 as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e why the advance was received in Japanese Yen and why it was not received in Euro or Swiss Franc. 5.3 We are also in agreement with the contention of the learned AR that such transactions do not involve any element of derivatives as has been alleged by the AO. In this regard we are of the view that the AO has gone wrong in interpreting the bank guarantee issued by the bank on behalf of the assessee. This bank guarantee has been issued by the bank to provide security to the buyer in respect of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er 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 as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version