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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI S.V. MEHROTRA : & SMT. BEENA A. PILLAI:
This is assessee’s appeal against the order dated 26.03.2010, passed by the ld. CIT(A)-VIII, New Delhi, relating to AY 2006-07.
Sole effective ground raised
is as under:
1. That the Hon’ble Deputy Commissioner of Income Tax is wrong and unjustified both in law and facts in disallowing Rs. 6,66,060/- on account of foreign exchange fluctuation loss.
2 ITA 1820/Del/2012 3. Brief facts of the case are that for AY 2006-07, the assessee filed its return of income declaring income of Rs. 12,84,690/-. The assessee company, in the year under assessment, had temporarily entered into a new venture of trading of telephone equipments. AO noticed, from the details filed by the assessee, that the assessee had declared a net loss from foreign exchange fluctuation of Rs. 6,66,060/-. In response to AO’s query the assessee stated that company imported 12000 telephone equipments (USD 68 per equipment) amounting USD 816000/-. As per bill of entry for the said import dollar pries were at Rs. 44.45 per dollar. However, at the time of actual payment i.e. on 10th May 2006 and 18th May 2006, company had paid USD 408000 @ Rs. 45,0325 and USD 408000 @ Rs. 45.50. The transaction caused a total loss of Rs. 666060. The AO did not accept the assessee’s contention, observing that the loss must actually be suffered in the relevant previous year. Actual suffering would arise only at the time of remittances and not before. He, therefore, disallowed the assessee’s claim treating the same as unrealized loss on account of foreign exchange fluctuation.
Ld. CIT(A) confirmed the AO’s action, inter alia, observing that the loss in question did not pertain to the assessment year under consideration.
Aggrieved, the assessee is in appeal before the Tribunal.
Ld. counsel for the assessee pointed out that import of equipment had been made during the FY 2005-06, but payment was made on 10.5.2006 and 18.5.2006, subsequent to the closing of the financial year on 31.3.2006. He pointed out that the accounts were approved by the Board on 5.7.2006 and,
3 ITA 1820/Del/2012 therefore, provision was made as on 31.3.2006 as per Accounting Standard- 4, issued by the Institute of Chartered Accountants of India in regard to events occurring after balance-sheet date.
We have considered the submissions of both the parties. Admittedly the loss on account of foreign exchange fluctuation related to the imports made during FY 2005-06. This loss got quantified only on the date of payment viz. 10.5.2006 when the payment was made by assessee, as per Accounting Standard-4, issued by the Institute of Chartered Accountants of India, as per paras 8.1 and 8.2, which are reproduced hereunder:
8.1. Events which occur between the balance sheet date and the date on which the financial statements are approved, may indicate the need for adjustments to assets and liabilities as at the balance sheet date or may require disclosure.
8.2. Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. For example, an adjustment may be made for a loss on a trade receivable account which is confirmed by the insolvency of a customer which occurs after the balance sheet date.”
It is pertinent to note that in the same Accounting Standard it is specifically mentioned in para 8.3 that no adjustment is required to be made and liabilities for events occurring after the balance-sheet date, if such events do not relate to conditions existing at the balance-sheet date. Therefore, it is clear that if the event has occurred before the balance-sheet date and a subsequent event materially affects the profits, then the same has to be provided in the balance-sheet which is finalized after the closing of the 4 ITA 1820/Del/2012 year. We, therefore, direct the AO to allow the loss claimed by assessee, particularly because it is not disputed that the imports were made during FY 2005-06. 9. In the result, the assessee’s appeal is allowed. Order pronouncement in open court on 15/06/2016.