Allowability of Business loss from Foreign exchange fluctuation on forward contract- whether a notional loss?

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Allowability of Business loss from Foreign exchange fluctuation on forward contract- whether a notional loss?

The loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of account year and it is deductible under section 37(1) and could not be considered as a notional loss.

Assessee had claimed foreign exchange fluctuation loss on foreign currency forward contract. Revenue denied the claim of the assessee on the allegation that it was a notional loss and was not in the nature of stock-in-trade capable of being valued at cost or market price because trading in foreign currency was not a main business of the assessee. Held: In CIT v. Woodward Governor India, Supreme Court had already settled that the loss claimed by assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance sheet was allowable and the assessee was entitled adjustment of actual cost of imported assets. Therefore, the loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of account year and it is deductible under section 37(1).

Decision: In assessee’s favour.

Followed: CIT v. Woodward Governor India (P.) Ltd. [(2009) 312 ITR 254 (SC)]

IN THE BOMBAY HIGH COURT

S.V. GANGAPURWALA & A.M. BADAR, JJ.

CIT v. Paper Products Ltd.

Income Tax Appeal No.142 of 2015

24 July, 2017

Appellant by: Ashok Kotangle with Padma Divakar, Advocate

Respondent by: K.Gopal with Jitendra Singh, Advocate

ORDER

The Appeal pertains to the assessment year 2008-09. Mr. Kotangale, the learned counsel submits that the Tribunal was not justified in allowing the claim of the assessee on unexplained foreign exchange forward contract as such loss was only notional loss. According to the learned counsel, the Tribunal was not justified in holding that the notional loss on unexplained foreign exchange forward contract was in the nature of stock in trade capable of being valued at cost or market price. It ought to have been considered that the trading in foreign currency was not a main business of the assessee. According to the learned counsel, notional loss arising in foreign exchange forward contract at the end of financial year was not allowable under the IncomeTax Act.

2. The learned counsel for the Respondent supports the Order.

3. The Tribunal while deciding the Appeal has relied on the Judgment of the Apex Court in case of CIT v. Woodward Governor India (P.) Ltd. (2009) 312 ITR 254 (SC).

4. The Apex Court has observed that the loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance sheet was allowance and the assessee was entitled adjustment of actual cost of imported assets. The loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of account year and it is deductible under section 37(1) of the Act.

5. Considering the above, no error has been committed by the Tribunal in applying the Judgment of the Apex Court in Woodward Governor India (P.) Ltd. (referred to supra).

6. In the light of above, no substantial question arises.


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