2025 (3) TMI 1638

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.... in the retail business of gold and diamond jewellery. The return of income for AY 2015-16 was filed on 27.11.2015 declaring total income of Rs. 79,76,910/-. Against the said return of income, the assessment was completed by the ACIT, Circle-1(1), Thrissur (hereinafter called "the AO") vide order dated 18.12.2017 accepting the returned income. 3. Subsequently the learned Pr. Commissioner of Income Tax had set aside the assessment in exercise of the powers vested with him u/s. 263 of the Income Tax Act, 1961 (the Act) vide order dated 28.10.2019 by directing the AO to redo the assessment in accordance with law after affording reasonable opportunity of being heard to the appellant by considering the following issues: - "i. The ass....

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....the risk of price fluctuation of gold known as Commodities Derivative Contract with the State Bank of India. The accounting policies adopted on this transaction is stated by the appellant in its Financial Report as under: - "The Company uses derivative financial instruments to manage risks associated with gold price fluctuations relating to certain highly probable forecasted transactions, foreign currency fluctuations relating to certain firm commitments and foreign currency exposures relating to foreign currency derivative. The Company neither holds nor issues any derivative financial instruments for speculative purposes. The Company has adopted the accounting principles set out in the Guidance note on Derivatives for con....

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....vatives which is not real income and, therefore, not liable to tax. It is further submits that the gain from unexpired forward contract is notional income placing reliance on the decision of the Hon'ble Supreme Court in the case of Godhra Electricity Co. vs. CIT 225 ITR 746 and also placing reliance on ICDS that such income is not taxable. He also placed reliance on several decisions. 10. On the other hand, the CIT-DR vehemently opposed the above submissions and submits that no interference in the orders of the lower authorities is called for. 11. We have heard the rival contentions of both the parties and perused the material available on record. The only issue that is required to be determined by us is whether the notional gains....

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....he shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following year's account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually." 12. The Hon'ble Supreme Court in the case of Godhra Electricity Co. vs. CIT 225 ITR 746 held as under: - "14. The question whether there was real accrual of income to the assessee company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in t....