Case Law Details
ACIT Vs Sopra India Pvt. Ltd. (ITAT Delhi)
ITAT Delhi held that ‘mark to market’ loss on future and forward contracts are not notional loss of contingent nature. Accordingly, foreign exchange fluctuation loss as claimed by the assessee allowed.
Facts- The assessee is engaged in the business of development of software and providing IT solutions and software engineering services. In the course of assessment u/s. 143(3) of the Act, AO observed that assessee has debited and claimed foreign exchange fluctuation expenses of Rs.5,65,36,341/-. AO noted that the aforesaid loss on account of exchange fluctuation on forward cover contracts not crystallized and is in the nature of notional loss. The AO further noted the version of assessee that several foreign exchange forward contracts were entered to hedge its exposure to fluctuation in foreign exchange rates which are entered into on the basis of firm commitments and highly probable future transactions. AO observed that such forward contracts were neither closed nor matured till the end of F.Y. 2011-12 relevant to A.Y. 20 12-13. Such forward contracts have been re-valued by the assessee at the exchange rate as on 31.03.2012 and the exchange differences on such contracts has been claimed as foreign exchange fluctuation loss during the year. AO, however, expressed its disagreement with the claim of loss on the ground that such loss are contingent liability and has notionally arisen merely due to assigning closing rate of foreign exchange and creating artificial loss there-from. It was also observed that such forward contracts are in the nature of speculative contracts and loss arising has also not crystallized as the contracts has not matured at the end of the year. For such broad reasons, AO disallowed foreign exchange fluctuation loss claimed.
CIT(A) allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that ‘mark to market’ loss on such future and forward contracts are not a notional loss of contingent nature and the loss stands crystallized at the end of the year notwithstanding the continuance and spilling over of the contract to next year.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
