TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 447
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....assessment order dated 30.12.2010 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act,1961 (Hereinafter called "the Act"). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,86,98,167/- being the loss pertaining the option contract open at the year end, recognized at the year end rate i.e. Marked to Market loss, debited to the Profit & Loss Account, without appreciating that such loss is not allowable u/s 37(1) of the Act." 2. On the fact and i....
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.... part of business does import of raw materials for manufacture of vitrified tiles and sanitary ware . In the return of income filed with the Revenue, the assessee had claimed Rs. 2,89,76,450/ being foreign exchange rate loss on account of outstanding transactions (marked to market). The A.O. disallowed the said exchange rate loss on the ground that the said loss pertains to unsettled transactions and in view of instructions no 3/2010 dated 22.3.2010, the said loss on unsettled transactions is not allowable which was added to the total income of the assessee. The loss of Rs. 2,78,283/- on account of unrealized transaction (marked to market) on unsettled transactions was also disallowed by the AO and added to the total income of the assessee.....
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.... the prevailing exchange rate at the year end and valuing the open forward contract at the yearend exchange rate is statutory requirement under the Companies Act which may result in gain or loss. The A.O. has disallowed the exchange rate loss of Rs. 2,89,76,450/- on the premise that this is an unrealized transaction. The A.O. disallowed the loss relying on the CBDT Instruction No. 3/2010 dated 23rd March, 2010. The ld.CIT(A) observed that the assessee is following mercantile system of accounting and under this accrual system whenever the amount is credited to the account of the payee, the liability stands incurred even though the amount is not actually paid. The ld. CIT(A) held that the said loss is allowable as per the decision of the Hon'....
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....ly applicable in this case. 7. We have considered the rival contentions and also perused the material available on record including the case law cited by the assessee. The assessee is engaged in the business of tiles and sanitary ware and also as a part of business does import of raw material for manufacture of tiles and sanitary wares. The assessee is consistently following mercantile system of accounting. In the return of income filed with the Revenue, the assessee had claimed Rs. 2,89,76,450/- being foreign exchange rate loss on account of outstanding transactions (marked to market) being unsettled forward foreign exchange contracts and also loss of Rs. 2,78,283/- being exchange rate difference relating to marked to market losses on uns....
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....against foreign exchange rate fluctuation i.e. to verify that this is an integral part of the business undertaken by the assessee and incidental to the import business of the assessee as in the absence of such forward contracts, the assessee may sustain huge losses and hence it became essential for the assessee to book such forward contracts as a prudent business practices to safeguard against losses which may be sustained by the assessee towards import obligation in foreign currency outstanding as at year end . Further, we find that the assessee is engaged in the business of manufacture of tiles and sanitary wares , and not in the business of foreign exchange. In view of the same, if the AO came to the finding of the fact that these contra....