TaxTMI 
TaxTMI 
2025 (11) TMI 1905
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....ing date. Such Periodic unrealized loss is typically notional and cannot be allowed under income tax provisions. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,89, 12,346/- in view of the order of Hon'ble Supreme Court in the case of M/s Sanjeeve Woolen mills vs CIT (279 ITR 434) and the decision of Hon'ble ITAT in the case of M/s Bechtel India (P.) Ltd. Vs ACIT, ITAT Delhi, [2017] 82 taxmann.com 301 (Delhi - Trib.)/[2017] 165 ITD 282. 3. Whether on the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the carried forward losses of the assessee for A.Y. 2014-15 & 2015-16 ignoring the fact that shareholding of 97% shares has been changed in F.Y. 2015-16 and as per section 79 of the Act, losses of previous year cannot be carried forward, if there is a change in shareholding of a company. 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not considering the decision of Hon'ble Delhi High Court in the case of M/s Yum Restaurants (India) Private Limited vs ITO in ITA no. 349 of 2015 before allowing carry forward of losses."....
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.... provision or treatment for this method of accounting. Under this method of accounting, loss or gain arises due to revaluation of financial instrument. There is no actual loss on account of dealings in Forex until their final values are known. Though on the given date the liability does not crystallize, it is a prudent accounting practice that all these losses are reported as mandated by ICAI. However, if the contracts run to their full course, no losses may arise. The reporting of such notional losses to adhere to the accounting guidelines does not by itself make it deductible for income tax purposes. The provisions of Income Tax Act, 1961 do not allow deduction of any such notional loss for which the liability has not crystallized. Therefore, losses on account of revaluation of Forex transaction are only notional and cannot be deductible as business losses under income Tax provisions. 5.3 Reliance is placed on the decision of the Hon'ble Supreme Court in the case of M/s. Sanjeev Woollen mills vs. CIT (279 ITR 434) wherein the Hon'ble court has upheld the principle "that notional income cannot be charged through tax and the assessee cannot also get benefit of notional los....
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....eal before the Ld. CIT(A), who allowed the appeal of the assessee. The finding of the Ld. CIT(A) with respect to disallowance of foreign exchange loss is as under: "8.1 The appellant has also referred to the decision of Hon'ble Supreme Court in the case of CIT v/s Woodward Governor India P Ltd 179 Taxman 326. In the said case, the Apex Court identified specific sectors which are critical in determining whether an expenditure relating to foreign exchange is deductible. The same are reproduced as under: * Whether the Assessee follows a mercantile system of accounting, which allows for the accrual of expenditure and revenue; * Whether the Assessee has consistently followed this system from the beginning and, if there was a change, whether the change was bona fide; * Whether the Assessee has given the same treatment to losses claimed to have accrued as to the gains that may accrue; * Whether the Assessee has been consistent and definite in recording entries in the account books for both losses and gains; * Whether the method adopted by the Assessee for making entries in the books is in accordance with nationally accepted Accounting ....
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.... by a person or persons should continue to be held then only such benefit could be given to the company. 10.2 In view of the above, the AO is directed to allow the carried forward losses of the appellant for AY 2014-15 & 2015-16. Ground No 5 of the appeal is treated to have been allowed." [Emphasis supplied] 7. Dissatisfied with the order of the Ld. CIT(A), the Revenue is in appeal before us challenging the above-mentioned two issues. 8. Before us, the Ld. Sr. DR placed reliance on the finding of the Ld. AO and case laws cited in various grounds of appeal. He prayed for setting aside the impugned appellate order with direction to restore the assessment order. 9. On the other hand, the Ld. Counsel submitted that the Revenue had challenged the relief allowed by the Ld. CIT(A) on the issue of foreign exchange losses on the reasoning that the Ld. CIT(A) had not considered the decision of the Sanjeev Woolen mills (supra) and the Tribunal decision in the case of Bechtel India (P.) Ltd. (supra). The Ld. Counsel, drawing our attention to these case laws, submitted that the issue in Sanjeev Woolen Mills (supra) was in respect of valuation of closing stock in which the a....