TaxTMI 
TaxTMI 
2017 (3) TMI 966
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.....2011 for assessment year 2008-09. Shri K.M. Gupta and Shri Bikash Kr. Jain, Ld. advocate appeared on behalf of assessee and Shri Nirj Kumar, Ld. Departmental Representative represented on behalf of Revenue. 2. In this appeal various grounds have been raised out of which grounds No. 2 and 3 are not pressed, therefore same are dismissed as not pressed. Ground No. 4 is of general nature and does not require separate adjudication. The other ground is as under:- "1(a) That on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)], erred in confirming the disallowance of foreign exchange loss of Rs. 8,46,64,000/- 1(b) That the Ld. CIT(A) erred by confirming the disallowance of foreign exchange ....
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....ance on CBDT instruction No. 3 of 2010 dated and added the same to the total income of assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has been following mercantile system of accounting on regular basis and accordingly the impugned loss was recognized in its books of account which is deductable u/s. 37(1) of the Act. The assessee further submitted that the impugned loss was recognized in the books of account in pursuance of provision of Accounting Standard-11 issued by the Institute of Chartered Accountant of India. As per AS-11, it is compulsory to give effect to the foreign currency transactions as per the foreign exchange rates as on the balance-sheet date. The ass....
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....s. Therefore, being contingent / notional liability, the AO was justified to disallow the claim of the appellant. However, the alternative plea of the appellant is that the loss should be allowed I the year of conclusion of the liability or in the year of maturity. I find merit in the alternative submission. Therefore, the AO is directed to allow the loss in the year in which the same becomes ascertained." Being aggrieved by this, assessee came in second appeal before us. 6. Before us Ld. AR for the assessee filed paper book which is running pages from 1 to 96 and submitted that the impugned loss was recognized in the books as per accounting standard 11 issued by the ICAI. The ld. AR also relied in the judgment of Hon'ble Apex Court in the....
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....ppeals) confirmed the order AO. The facts in the instant case are undisputed that that the instant loss is arising in respect to the forward contracts which had not expired on the last day of the accounting year. It is also not disputed that the assessee is following mercantile system of accounting which requires to account for all the expenses in the profit and loss account on accrual basis. Accordingly, the assessee has claimed the losses on the basis of mercantile system of accounting. Thus, in our considered view the assessee is very much eligible for the deduction of the impugned loss. In this connection, we find support and guidance from the judgment of the Hon'ble Supreme Court in the case of Woodward Governor India (P) Ltd. (Supra)....
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.... where, e.g., the rate of dollar rises vis-a-vis the Indian rupee, there is an expense during that period. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-a-vis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the P&L account for the reporting period.-CIT vs. Woodward Governor India (P) Ltd. & Ors. (2007) 210 CTR (Del) 354 affirmed." The principles laid down by ....