TMI Blog2021 (7) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO is accepting the gain offered as income by the assessee following similar accounting method, there is no justifiable reason to disallow the loss. It is also relevant to observe, the contention of the assessee that the loss determined on restatement of forward contract as on 31.03.2016 was reversed on 01.04.2016 i.e. on the first day of the succeeding assessment year, wherein, the forward contracts matured has not been controverted. Thus, any disallowance in the impugned assessment year would be prejudicial to the assessee, as, it would amount to double disallowance of the same amount. Thus we allow assessee s claim of loss. - Decided in favour of assessee. - ITA No. 7834/MUM/2019 - - - Dated:- 26-7-2021 - Shri Saktijit Dey, Judicial Member And Shri Manoj Kumar Aggarwal, Accountant Member For the Assessee : Madhur Aggarwal (AR) For the Revenue : Usha Gaikwad (DR) ORDER PER SAKTIJIT DEY, JM Captioned appeal by the assessee is against the order dated 23.10.2019 of learned Commissioner of Income Tax (Appeals) 14, Mumbai for the assessment year 2016-17. 2. The effective grounds raised by the assessee are as under:- 1. On the facts and in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious other goods from foreign vendors on credit and also sales its finished products to foreign customers. Thus, to safeguard against loss, which may arise due to fluctuation in foreign currency rates, the assessee had entered into forward contracts in respect of its export/import orders to hedge against the risk of foreign currency fluctuation. He submitted, all the foreign exchange forward contracts are in respect of underlying import or export transaction. He submitted, the assessee had not entered into any financial derivative transaction which is either for trading or for speculation purpose. He submitted, the auditor also has specifically mentioned this fact in note no. 32 of the Audit Report. He submitted, as per the consistent method of accounting followed by the assessee over the years, the outstanding foreign currency to monetary items are converted at the closing rate by following mercantile system of accounting and Accounting Standard (AS)-11. He submitted, applying the same principle of accounting, the debtors, creditors, borrowings and un-settled forward contracts were restated at the year end applying the closing rate of the foreign currency and gain/loss of such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the ratio laid down in case of CIT vs. Woodward Governor India (P) Ltd. (supra) and the decision of the Hon ble Bombay High Court, loss claimed by the assessee should be allowed. Further, he submitted, since the loss claimed by the assessee is based on consistent method of accounting followed from earlier assessment years and the AO has all along accepted assessee s method of accounting, a different approach cannot be adopted in the impugned assessment year keeping in view rule of consistency. Finally, he submitted, since the assessee has claimed the loss in the impugned assessment year, it has reversed such loss in the subsequent assessment year, wherein the contracts matured. Thus, he submitted, in case it is disallowed in the impugned assessment yea, it has to be allowed in the subsequent assessment year, otherwise, there will be double disallowance. 5. The learned Departmental Representative strongly relying upon the observations of the AO and learned Commissioner (Appeals) submitted, the fact on record clearly reveal that the forward contracts have remained outstanding at the end of the year. Therefore, the loss computed by the assessee is purely notional and specula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be allowable. This ratio laid down by the Hon ble Supreme Court has been followed by subordinate Courts and Tribunals in a number of decisions. Identical view has been expressed by the Hon ble jurisdictional High Court in case of CIT vs. Badridas Gauridas(P) Ltd. (supra), Pr. CIT vs. International Gold Company Ltd. (supra). In case of PCIT vs. M/s Osia Gems (supra), the following question came up for consideration before the Hon ble jurisdictional High Court: Whether on the facts and circumstances of the case and in law, the Tribunal was justified in allowing Mark to Market‟ loss of ₹ 1,54,83,835/- arising on valuation of forward exchange contracts on the closing date of accounting year? 8. While answering the referred question, the Hon ble jurisdictional High Court following their own decision in case of CIT vs. M/s D Chetan Co. decided the issue in favour of the assessee. The observations of the Hon ble High Court are reproduced below for better clarity: 2. Learned counsel for the Revenue pointed out that the issue is squarely covered against the department by virtue of the judgment of this Court in the case of CIT Vs. M/s D. Chetan Co. dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It appears that in S. Vinodkumar (supra), the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT vs. Badridas Gauridas (P) Ltd.1 was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. 9. Thus, the aforesaid observations of the Hon ble jurisdictional High Court definitely clinches the issue in favour of the assessee. 10. Pertinently, when the AO is accepting the gain offered as income by the assessee following similar accounting method, there is no justifiable reason to disallow the loss. It is also relevant to observe, the contention of the assessee that the loss determined on restatement of forward contract as on 31.03.2016 was reversed on 01.04.2016 i.e. on the first day of the succeeding assessment year, wherein, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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