TMI Blog2017 (2) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court ], CIT(A) concluded that estimated, anticipated income arrived at on the basis of rate of exchange which prevailed on the last date of forward contract in foreign currencies only represents notional profit and could not be subject to tax. Respectfully following the proposition laid down by Madras High Court, we do not find any infirmity in the order of CIT(A) for deleting the addition made by AO on account of notional gain on forward contract. However, AO is at a liberty to verify that this gain has been offered for taxation in the subsequent years when it actually arose. - Decided against revenue - ITA No. 3273/Mum/2015 - - - Dated:- 15-2-2017 - Shri R. C. Sharma, AM And Shri Sandeep Gosain, JM Revenue by : Shri Alok Johri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the case of CIT vs Woodward Governor India (P.) Ltd., Explanation 3 to section 43A and section 43(5). In view of the above, the AO concluded that the notional gain on forward contract is speculative gain in the case of the assessee and it has to be offered for taxation in the same accounting year and not on settlement of contracts as contended by the assessee. Based upon the mercantile system and matching principle of accounting, he considered the notional gains of ₹ 45,47,858/- as speculative business income liable to taxation during the year. Therefore, he added the above sum of ₹ 45,47,858/- to the total income of the assessee. 4. By the impugned order CIT(A) deleted the addition after observing as under:- T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of a revenue liability on account of exchange difference as on the date of balance sheet is an item of expenditure allowable u/s. 37(1). Thus, the case of the assessee is distinguishable from the above decision relied on by the AO. I find that a similar issue arose before the Hon'ble Madras High Court in the case of Indian Overseas Bank vs CIT (1990) 183 ITR 200 (Mad). The head note of the above case is produced as under: The levy of income-tax is on income and though the Income-tax Act has taken note of the twin points of time at which the liability to tax is attracted, viz., the accrual of income or its receipt, yet, the substance of the matter is income and if income does not result at all, there cannot be a tax, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR during the course of hearing before us. 7. From the record, we found that as per the practice followed by the assessee company, the notional gain or loss on forward contract is debited or credited to the P L account for the year in which the forward contract is settled. The fundamental principle of taxing income under the mercantile system of accounting is the time of accrual. It is not material whether the amount has been received at the time of accrual or not. The income is accrued when the assessee acquires the right to receive it. 8. While deleting the addition made on account of notional gain o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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