Foreign exchange forward contract loss recognised at year-end is a real revenue loss, not a contingent deduction bar.

Year-end restatement loss on pending foreign exchange forward contracts, recognised under the applicable accounting standard and under a consistently followed accounting method, is a real revenue loss and not a merely notional or contingent loss. Because the assessee had also recognised corresponding exchange gains in earlier years, the disallowance of the restatement loss was unsustainable. The addition made by the Assessing Officer was therefore deleted.

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Issues: Whether the loss arising on restatement of pending foreign exchange forward contracts at the year-end exchange rate was allowable as a revenue loss or was a notional and contingent loss not deductible.

Analysis: The assessee restated the pending forward contracts on the basis of the exchange rate prevailing on 31.03.2013. The same accounting treatment had been consistently followed from earlier assessment years, and the corresponding exchange gains had also been recognised as income. The issue was covered by the judicial view that foreign exchange fluctuation loss determined in accordance with the applicable accounting standard is not a mere notional loss and cannot be disallowed on the ground that it is contingent in nature.

Conclusion: The loss was allowable, and the disallowance was unsustainable.

Final Conclusion: The addition made by the Assessing Officer was directed to be deleted, and the assessee succeeded in the appeal.

Ratio Decidendi: A year-end loss on foreign currency forward contracts recognised in accordance with the applicable accounting standard and consistently followed method of accounting is a real revenue loss and not a disallowable notional loss.

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