INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - MTM losses on account of foreign exchange fluctuation -

Assessee claimed foreign exchange fluctuation loss which include loss on account of MTM losses in accordance with AS-11 on the foreign exchange forward contracts. AO treated losses on forward contracts as notional and contingent in nature and thus disallowed MTM losses on account of foreign exchange fluctuation relying on the CBDT Instruction No. 03/2010 dt. 23-3-2010. Further, AO was of the view that since CBDT Instruction came after the judgment of Apex Court, the above CBDT instruction takes preference over the judgment of Apex Court to disallow the claim of loss. Held: Loss suffered by the assessee on account of exchange difference as on date of balance sheet is item of expenditure under section 37(1). Further, no CBDT circular or instruction can be contrary to the decision of the Apex Court, even subsequent to the decision of the Apex Court. Therefore, addition of MTM losses on account of foreign exchange fluctuation, made by AO was unsustainable.

Relied:ONGC v. CIT (2010) 322 ITR 180 (SC) : 2010 TaxPub(DT) 1672 (SC) ,CIT v. Woodward Governor India P. Ltd. & Ors. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC)

REFERRED : Silicon Graphics Systems (India) Pvt. Ltd. v. DCIT [ITA No.2976/Del/2013, dt. 24-8-2016] : 2016 TaxPub(DT) 3994 (Del-Trib), DCIT v. HCL Comnet Ltd. [ITA No.4809/Del/2016, dt. 6-6-2019] and CIT v. D. Chetan & Co. [ITA No. 278 of 2014, dt. 1-10-2016] : 2016 TaxPub(DT) 4887 (Bom-HC)

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 37(1)

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