Case Law Details
CASE LAWS DETAILS
DECIDED BY: ITAT, BANGALORE BENCH `A’,
IN THE CASE OF: ACIT Vs. K. Mohan & Co. (Exports) P. Ltd., APPEAL NO: ITA No. 113/Bang/09, DECIDED ON August 7, 2009
RELEVANT PARAGRAPH
9. We have heard both the parties. A forward contract is an agreement between a buyer and a seller obligating the seller to deliver a specified asset of specified quality and quantity to the buyer on a specified date at a specified place and the buyer in turn Is obligated to pay the seller a pre-negotiated price in exchange of the delivery. In the Instant case, the assessee is engaged in the business of manufacture and export of ready made garments. In respect of export of ready made garments, the assessee enters into forward contract in respect of foreign exchange to be received as a result of export. This is done to avoid the risk of loss due to foreign exchange fluctuation. The assessee at the time of agreeing to export takes into consideration its cost in rupees and also considers the spot price of rupee against foreign exchange. When the actual export is made, this spot price may be different as against the spot price on the date on which the assessee expected an export order. On the date of receipt of the foreign exchange, if the spot price of rupee against foreign exchange Increases then the assessee will be benefited. For example, when the assessee undertakes to accept an export order, the value of one dollar is 40 rupees and when the assessee actually exports, the value of one dollar may be different. The. assessee enters into forward contract for./ receipt:.-of rupees-against dollar. If on the date of receipt of foreign an exchange, the rate of one dollar is 50 rupees then the assessed will be. benefited by rupees; 10 per dollar due to forward contract. The assessee may credit the amount as per forward contract as the sale price of export. Alternatively, he can credit the spot price on the date of accepting the export order as the sale price and the difference due to spot, price on the date of settlement of forward contract may be credited as profit due to forward contract. However, during the course of proceedings before us, the learned AR admitted that profit shown due to forward contract is in respect of those contracts against which no actual delivery of foreign exchange was made. The forward contract is to be settled either by delivery or the difference is either credited or debited by the banker.
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