2014 (1) TMI 1680

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....23,72,500/- arising on valuation of forward exchange contracts on the closing date of accounting year is not a notional loss and therefore, allowable." 3. Briefly stated relevant facts of the case are that the assessee is engaged in the business of import and export of diamonds. Assessee field the return declaring the total income of Rs. 78,71,167/-. Assessment was completed u/s 143(3) of the Act and the assessed income was determined at Rs. 1,02,43,670/-. While computing the assessment, AO disallowed Rs. 23,72,500/- claimed by the assessee as 'losses' on account of revaluation as per rate of US Dollar on 31.3.2009 for outstanding foreign exchange forward contract. During the assessment proceedings, AO observed that the assessee enjoys w....

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....IT vs. Bank of Bahrain and Kuwait (ITA Nos. 4404 & 1883/Mum./2004), wherein it was held that Mark to Market loss in respect of foreign exchange contracts debited to profit & loss account is allowable. AO did not satisfy with the explanation given by the assessee and disallowed the said amount of Rs. 23,72,500/- by holding that the facts of the cited decision of the Tribunal do not apply to the case of the assessee. Aggrieved with the decision of the AO, assessee filed an appeal before the first appellate authority. 4. During the proceedings before the first appellate authority, assessee reiterated the submissions made before the AO. After considering the submissions of the assessee, CIT (A) allowed the appeal of the assessee vide para 6 ....

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....tion that the Hon'ble Supreme Court, in the case of ONGC cited above, upheld the same principles that were laid down in the case of ONGC cited above upheld the same principles that were laid down in the case of Woodword Governor, and the loss was held allowable in similar circumstances, where the business of ONGC is not that of a foreign exchange dealer. Further, it is not the nature of business or the stock dealt with i.e., currency or commodities or goods like diamonds in the present case that matters. What matters is whether the forward contract transaction was entered during the course of appellant's regular business or whether it is tainted with a colour of speculative transaction. At present, the AO does not dispute that the impugned ....