TaxTMI 
TaxTMI 
2016 (10) TMI 924
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....on called for. During the course of assessment proceedings, the A.O. observed that in this case, a survey operation u/s 133A of the Act was conducted on 16.11.2010. During the course of survey operation, books of accounts, registers and documents have been found and impounded. The impounded books of accounts reveals that the assessee is maintaining gate passes for inward of materials purchased and on verification of the gate passes maintained by the assessee, it was noticed that the assessee is not maintaining serial number, name of the farmer from whom the paddy was purchased, village, details of goods purchased, weight in quintals, mode of transport/vehicle numbers, date of purchase and signature of receiving person. Since the books of accounts maintained by the assessee are found with discrepancies, the A.O. opined that purchases shown in the books of accounts are not correct. Keeping these facts into consideration, disallowed 5% of paddy purchases which works out to Rs. 1,19,53,700/-. Similarly, the A.O. observed that the assessee has claimed various expenditures, however, failed to file bills and vouchers and other relevant details in support of expenditure claimed, ther....
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....he firm can resume its operations and continue its exports. The assessee further submitted that it has entered into forward exchange contracts in the previous financial years and the same were continued during the current financial year. Since there was no export turnover, it has closed forward exchange contracts with its bankers and the resultant loss on account of fluctuation in foreign currency has been recognized as business loss, therefore, it cannot be held as speculative transaction. 5. The A.O. after considering the explanations of the assessee, held that the expenditure claimed by the assessee under the head "exchange loss" is not allowable as a business expenditure, as it is only a notional loss, but not crystalised loss. The A.O. further observed that the assessee has entered into forward exchange contracts without there being any underlying exposure i.e. export turnover, therefore, the loss incurred by the assessee is a speculative loss which cannot be allowed as a normal business loss. The A.O. has discussed at length the term speculative loss, derivatives and forward exchange contracts and came to the conclusion that loss against currency fluctuations, crystallizat....
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.... conveyance expenses, administrative expenses and vehicle maintenance, the CIT(A) has sustained additions to the extent of Rs. 2 lakhs and balance is directed to be deleted. As regards disallowance of repairs & maintenance, processing expenses and printing & stationery, sustained additions of Rs. 4,50,000/- and balance amount is directed to be deleted. With regard to disallowance of loss on forward contracts, the CIT(A) held that the loss claimed by the assessee is not a notional loss and the loss is incurred on termination/renewal of forward exchange contracts. The A.O. disallowed the loss on the ground that the loss claimed by the assessee is marked to market losses (MTM), however, on perusal of details filed by the assessee, it was observed that the losses have been debited by the bankers on termination of forward contracts, therefore, the A.O. was not correct in disallowing the loss incurred by the assessee. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 7. The first issue that came up for our consideration is disallowance of 5% paddy purchases. The A.O. disallowed 5% paddy purchases for the reasons that gate passes maintained by the assessee ....
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.... that it has maintained proper bills & vouchers in support of all expenses. The assessee further submitted that due to huge volume of transactions, the cashier has been preparing single vouchers when the nature of payment comes under the same head by taking the entire recipients signature on the same vouchers. As regards not affixing the revenue stamp on the vouchers, it was submitted that due to non-availability of revenue stamp, the firm had not been affixed revenue stamp on the vouchers. The assessee further submitted that considering its total volume of businesses, the expenditure claimed under the head 'freight charges and other expenses' is meager in nature and also all the expenditures are covered by fringe benefit tax, therefore, there was no reason for the A.O. to doubt the genuineness of the expenditure. We find force in the arguments of the assessee for the reason that considering huge volume of business of the assessee, the expenditure incurred by the assessee under freight charges and other expenditure is meager in nature. We further observed that all the expenditure is covered under fringe benefit tax. The A.O., while assessing the fringe benefit tax has accepted the ....
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.... the previous financial year and matured during the current financial year. The assessee further contended that during the previous financial year, it has achieved more than Rs. 80 crores export turnover, however, in the current financial year because of unexpected ban imposed by the Government of India, on export of rice, it could not achieve any export turnover. It was further submitted that since the forward exchange contracts have been entered in the previous financial year, on closure of these forward exchange contracts, the banker has debited the loss incurred on account of fluctuation in currency and the same has been claimed as expenditure. The assessee further claims that the loss incurred under the head 'exchange loss' is a crystalised loss, therefore, the A.O. was not correct in holding that the loss incurred is a notional loss. 11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. disallowed loss incurred on forward contracts for the reason that the loss claimed by the assessee is a notional loss. The A.O. further observed that the assessee has failed to correlate exchange lo....
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....t, excludes certain transactions within the meaning of speculative transaction. According to the sub-clause (a), a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchandising business, to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. A plain reading of sub-clause (a) of section 43(5) of the Act, makes it clear that any forward exchange contracts entered into in its business of import or export of goods to hedge the possible fluctuation in foreign currency, then such transactions are kept outside the purview of the definition of speculative transactions. Therefore, to see whether a particular transaction is a speculative transaction or a mere hedging transaction, there should be export or import of goods or merchandise at least to the extent of value of forward exchange contracts. 14. The treatment to be given to foreign currency items as per the amended AS - 11 of ICAI, notified by Central Government u/s 211(3C) of Companies Act, does not make any distinction between items of capital nature and revenu....
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....ading loss, but depreciation of fixed capital on account of alteration in exchange rate would be capital loss. For determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilisation of the amount at the time of devaluation and not the object for which the loan had been obtained. The way in which the entries are made by an assessee in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Therefore, once loss incurred on account of fluctuation in foreign currency, then the loss suffered shall be allowed as business loss, unless it is in the nature of speculation loss. 16. Having said that, let us come to the facts of the present case. In the present case on hand, the assessee is into the business of export of rice and other commodities. During the previous financial year, it has achieved export turnover of about Rs. 80 crores. The forward exchange contracts are entered in the previous financial year, which was not disputed by th....