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TMI Blog2017 (2) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.858/- on forward contracts which was not offered to tax by assessee" 2. "Whether on the facts and in the circumstances of the case and in law. the Ld. CIT(A) was justified in relying on the decision in the case of Indian Overseas Bank Vs. CIT (1990) 183 ITR 200 (Mad) even though the same is distinguishable from the facts of the assessee's case?" 3. "Whether on the facts and in the circumstances of the case and in law. the Ld. CIT(A ) was right in treating the gain on forward contract as notional gain and thus not taxable ignoring the fact that the A.O. had treated the same as speculation gain as per section 43(5) of the Act." 4. "Whether on the facts and in the circumstances of the case and in law. the Ld. CIT(A ) was right in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 45,47,858/- as speculative business income liable to taxation during the year. Therefore, he added the above sum of Rs. 45,47,858/- to the total income of the assessee. 4. By the impugned order CIT(A) deleted the addition after observing as under:- The issue relates to the assessment made by the AO of the notional gain on foreign currency forward contracts of Rs. 45,47,858/-' as income for the year under consideration. I find that para 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, even though, for purposes of book-keeping, an entry is made about an hypothetical income which does not materialise and a mere book-keeping entry cannot be income unless income has actually resulted. The question whether there is a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, 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 on forward contract the CIT(A) had taken note of the fact that in case of Woodward Governor India Pvt. Ltd., (supra), Hon'ble Supreme Court had dealt with the loss suffered by assessee in respect of revenue liability on account of exchange difference as on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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