RELIANCE INDUSTRIES LIMITED, MUMBAI V. A.C.I.T.-L.T.U., MUMBAI

ITA 7223/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5094 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transactions in derivatives; Cost of acquisition
• Section: 143(3); 37(1); 37; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND SANJAY ARORA (AM) . . , , _ ./I.T.A. NO.7223/MUM/2011 ( / ASSESSMENT YEAR : 2008-09) RELIANCE INDUSTRIES LIMITED , 3 RD FLOOR, MAKER CHAMBER-IV, 222, NARIMAN POINT, MUMBAI-400021 / VS. COMMISSIONER OF INCOME TAX , LARGE TAXPAYER UNIT, 29 TH FLOOR, CENTRE NO.1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI-400005. ( ( / APPELLANT) .. ( ) ( / RESPONDENT) _ ./ ./PAN/GIR NO. : AAACR5055K ( /: APPELLANT BY SHRI ARVIND SONDE ) ( , / RESPONDENT BY SHRI SANTOSH KUMAR , / / DATE OF HEARING : 20.11.2013 , / /DATE OF PRONOUNCEMENT : 20.11.2013 / O R D E R PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2008-09 AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX DATED 26.8.2011 PASSE D UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (THE ACT) TAKING FOLLOWING GRO UNDS OF APPEAL: 1. THE LD. CIT(LTU) ERRED IN PASSING THE ORDER UN DER SECTION 263 OF THE ACT, AND DIRECTING THE ADDITIONAL CIT(LTU), MUMBAI TO MO DIFY THE ORDER U/S 143(3) OF THE ACT. THE APPELLANT SUBMITS THAT THE NOTICE U/S 263 OF TH E ACT FOR MODIFYING THE ORDER U/S 143(3) OF THE ACT IS BAD IN LAW, ILLEGAL, ULTRA -VIRUS, IN EXCESS OF AND/OR IN WANT OF JURISDICTION AND OTHERWISE VOID; 2. THE LD. CIT ERRED IN HOLDING THAT THE LOSSES OF RS.43.78 CRORES ARISING OUT OF MARK TO MARKET TRANSACTION ARE DISALLOWABLE A ND DIRECTING THE ADDL. CIT(LTU), MUMBAI TO MODIFY THE ORDER U/S 143(3) OF THE ACT ACCORDINGLY. I.T.A. NO.7223/MUM/2011 2 THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW THE MARK TO MARKET MARGIN LOSSES INCURRED IN THE YEAR UNDER CONSIDERATION ARE ASCERTAIN AND NOT CONTINGENT IN NATURE AND THER EFORE SHOULD BE ALLOWED AS CLAIMED. 2. RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE T HAT THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS COMPLETED U /S 143(3) OF THE ACT ON 31.8.2010. 3. THE COMMISSIONER OF INCOME TAX ISSUED SHOW CAUS E NOTICE U/S 263 OF THE ACT DATED 19.7.2011 STATING AS TO WHY THE ASSESSMENT MA DE U/S 143(3) SHOULD NOT BE RECALLED AND FRESH ASSESSMENT BE MADE IN VIEW OF TH E FACT THAT THE DEDUCTION CLAIMED ON FOREX DERIVATIVE ON ACCOUNT OF LOSSES ARISING OUT OF THE MARK TO MARKET TRANSACTIONS (HEREINAFTER TO BE REFERRED AS MTM) OF RS.43.78 C RORES, SINCE THESE LOSSES ARE NOTIONAL LOSSES, AS NO SUCH SALE OR SETTLEMENT HAS TAKEN PLA CE AND THEREFORE, ARE CONTINGENT IN NATURE. 4. IN RESPONSE THERETO, THE ASSESSEE FILED REPLY GI VING DETAILS AND STATING THAT IT ENTERED INTO DERIVATIVE CONTRACT IN THE NATURE OF C URRENCY SWAPS AND SIMPLE OPTIONS. THESE DERIVATIVE CONTRACTS ARE ENTERED FOR HEDGING CURRENCY RELATED RISK IN CONNECTION WITH VARIOUS FOREIGN CURRENCIES EXPOSURES LIKE IMPO RT OF RAW MATERIALS, EXPORT OF FINISHED PRODUCTS ETC. IT WAS FURTHER STATED THAT ACCOUNT ING TREATMENT FOLLOWED WAS IN LINE WITH AS-1-DISCLOSURE OF ACCOUNTING POLICIES ISSU ED BY ICAI. THAT ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING MERCANTILE METHOD OF ACCOUNT ING AND AS PER COMMERCIAL PRINCIPLE OF ACCOUNTING, THE PROFIT IS TO BE ARRIVED AT AF TER TAKING INTO ACCOUNT ALL THE ACCRUED RECEIPTS AND EXPENSES AND COMPARING OF TRADING ASSE TS BETWEEN TWO DIFFERENT DATES. THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING A R EVENUE LOSS OR EXPENDITURE INCURRED AS A RESULT OF DEVALUATION IS ALLOWABLE IN THE YEAR IN WHICH SUCH DEVALUATION TAKES PLACE AND THEREFORE RELYING ON THE SAID RATIO, MTM MARGIN LOSSES ARE RATIONAL AND NOT CONTINGENT IN NATURE. HENCE THEY SHOULD BE ALLOWED AS BUSINESS DEDUCTION. THAT THE LOSS ON ACCOUNT OF DERIVATIVE CONTRACT OUTSTANDING IS AN ALLOWABLE DEDUCTION WHILE WORKING OUT PROFITS AND GAINS OF BUSINESS AS ENVISA GED IN SECTION 28(I) OF THE ACT WHICH IS IN ACCORDANCE WITH PRINCIPLES OF PRUDENCE AND OT HER APPLICABLE GUIDELINES AS PER ACCOUNTING STANDARDS NOTIFIED BY THE COMPANIES AC COUNTING STANDARDS RULES, 2006 READ WITH SCHEDULE -VI OF THE COMPANIES ACT, 1956 . 5. THE COMMISSIONER OF INCOME TAX DID NOT ACCEPT T HE CONTENTION OF THE ASSESSEE AND STATED THAT MTM LOSS IS A NOTIONAL LOSS AS NO SALE/CONCLUSIONS/SETTLEMENT OF I.T.A. NO.7223/MUM/2011 3 CONTRACT HAS TAKEN PLACE AND THE ASSET CONTINUES TO BE OWNED BY THE ASSESSEE- COMPANY. SUCH A NOTIONAL LOSS WOULD BE CONTINGENT IN NATURE AND CANNOT BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE INCOME. THAT THE SAME SHOULD BE ADDED BACK FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF ASSESSEE. TH E COMMISSIONER OF INCOME TAX STATED THAT THE ORDER PASSED BY AO IS ERRONEOUS TO THE EXTENT OF SUCH LOSS CONSIDERED TO BE AN ALLOWABLE AND ALSO PREJUDICIAL TO THE I NTEREST OF REVENUE. HENCE, COMMISSIONER OF INCOME TAX DIRECTED THE AO TO MODI FY THE ORDER PASSED U/S 143(3) OF THE ACT AND MAKE ADDITION OF RS.43.78 CRORES TO TH E INCOME OF THE ASSESSEE, SINCE LOSS IS CONTINGENT IN NATURE AND THE SAME WOULD BE CONSI DERED IN THE YEAR IN WHICH THE TRANSACTION IS SETTLED. HENCE THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING, LD.AR SUBMITTED THAT TH E ABOVE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT V/S WOODWARD GOVERNOR INDIA P.LTD ( 312 ITR 254), WHEREIN THEIR LORDSHIPS HAVE HELD THAT LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF THE BALANCE-SHEET IS AN ITEM OF EXPENDITURE UNDER S ECTION 37(1) OF THE ACT. HE FURTHER SUBMITTED THAT SIMILAR ISSUE HAD ALSO BEE N CONSIDERED BY MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DCIT V/S KOTAK MAHINDRA INVESTMENT LTD. BY ORDER DATED 3.5.2013 IN ITA NO.1502/MUM/2012 (AY-2008-09), 2013 -TIOL-362-ITAT-MUM TO WHICH ONE OF US IS A PARTY (AM), WHEREIN IT HAS BEEN HELD MARK TO MARKET LOSS, ARISING ON DERIVATIVE CONTRACT CAN BE ALLOWED, EVEN THOUGH THE RE IS NO ACTUAL LOSS. THAT THE DERIVATIVES CONTRACT ARE NOT PURELY CONTINGENT IN NATURE WHERE PROFIT OR LOSS IS ASCERTAINED IN VIEW OF CONSTANT WATCH ON DAILY MA RKET VALUE. THE LD. AR ALSO FILED A COPY OF THE SAID ORDER OF THE TRIBUNAL, PLACED AT P AGES 91 TO 97 OF COMPILATION OF CASE LAWS PLACED ON RECORD. LD AR ALSO SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY THE HONBLE APEX COURT IN THE CASE OF ONGC LTD V/S CIT (322 ITR 180), WHEREIN THEIR LORDSHIPS HELD THAT LOSS ON ACCOUNT OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE AS ON LAST DATE OF BALANCESHEET IS ALLOWABLE AS DEDUCTION AS EXPLAINED U/S 37(1) OF THE ACT. HE FURTHER SUBMITTED THAT SIMILAR ISSUE WAS ALSO CONS IDERED BY ITAT VIDE ORDER DATED 5.2.2013 IN THE CASE OF M/S. RELIANCE COMMUNICATIO NS LIMITED V/S ACIT IN ITA NO.2915/MUM/2012 RELATING TO ASSESSMENT YEAR 2007-0 8 WHEREIN ALSO THE ORDER PASSED BY CIT U/S 263 OF THE ACT ON THE ISSUE AS TO WHE THER LOSS ON THE SETTLEMENT DAY OR REPORTING DAY ON THE ACQUIRED DERIVATIVE INSTRUMENT FOR HEDGING IS TO BE ALLOWED OR NOT. IN THE SAID CASE LD. CIT STATED THAT MARK TO MARKET LOSS ON ACQUIRED DERIVATIVE INSTRUMENT BY ASSESSEE FOR HEDGING ON THE RECOGNIZE D REPORTING DAY WERE NOTIONAL LOSS AND HENCE CONTINGENT IN NATURE, NOT ALLOWABLE FOR S ET OFF AGAINST THE TOTAL INCOME. LD. I.T.A. NO.7223/MUM/2011 4 CIT STATED THAT AO WAS WRONG IN ALLOWING SUCH SET OFF. THE LD. AR SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA P.LTD (SUPRA) AND ALSO T HE CBDT INSTRUCTION OF 3/2010 HELD THAT THE ACTION OF THE AO WAS NOT ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE AND ORDER OF COMMISSIONER OF INCOME TAX PASSED U/ S 263 ON THE ABOVE ISSUE WAS QUASHED. HE ALSO FILED A COPY OF THE SAID ORDER TO SUBSTANTIATE HIS SUBMISSIONS. LD. AR SUBMITTED THAT SINCE ABOVE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE ABOVE DECISIONS, THE ORDER OF LD. CIT(A) BE QUASHED. 7. ON THE 13 TH NOVEMBER, 2013, LD. DR REQUESTED FOR TIME TO GO TH ROUGH THE CASE LAWS RELIED UPON BY LD. AR AND, THE CASE WAS ADJOU RNED TO 20.11.2013. ON THE DATE FIXED FOR HEARING I.E.20.11.2013, THE LD.DR CONCEDE D THAT THE ISSUE IS COVERED BY THE AFORESAID DECISIONS IN FAVOUR OF THE ASSESSEE THAT UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACT IONS AS ON THE LAST DATE OF ACCOUNTING YEAR IS DEDUCTIBLE. 8. WE HAVE CAREFULLY CONSIDERED THE ORDER OF LD. CO MMISSIONER OF INCOME TAX AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTI ES. WE HAVE ALSO CAREFULLY CONSIDERED THE CASES CITED BEFORE US (SUPRA). IT IS RELEVANT TO STATE THAT IN THE CASE OF WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA), THE HONBLE APE X COURT OBSERVED AND HELD THAT THE ASSESSEE DEBITED TO ITS PROFIT AND LOSS ACCOUNT CER TAIN UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACTIO NS TOWARDS REVENUE ITEMS AS ON THE LAST DAY OF THE ACCOUNTING YEAR. THE A.O. HELD THAT THE LIABILITY AS ON THE LAST DATE OF THE PREVIOUS YEAR WAS NOT AN ASCERTAINED BUT A CONTINGE NT LIABILITY. RESULTANTLY, THE SAME WAS ADDED BACK TO THE TOTAL INCOME. THE CIT(A) ECHO ED THE ASSESSMENT ORDER. HOWEVER, THE TRIBUNAL HELD THAT THE CLAIM OF THE AS SESSEE FOR DEDUCTION OF UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION AS ON THE LAST DATE OF THE PREVIOUS YEAR WAS DEDUCTIBLE. THE SAID ORDER OF THE TRIBUNAL WAS UPHE LD BY THE HONBLE HIGH COURT. ON FURTHER APPEAL BY THE DEPARTMENT, THE HONBLE SUPRE ME COURT HELD THAT THE LOSS SUFFERED BY THE ASSESSEE IS ON REVENUE ACCOUNT TOWARDS FORE IGN EXCHANGE DIFFERENCE AS ON THE DATE OF BALANCE SHEET AND IS AN ITEM OF EXPENDITUR E DEDUCTIBLE U/S 37(1). IT FURTHER OBSERVED THAN AN ENTERPRISE HAS TO REPORT OUTSTANDI NG LIABILITY RELATING TO IMPORT OF RAW MATERIAL USING CLOSING RATE OF FOREIGN EXCHANGE AND ANY DIFFERENCE, LOSS OR GAIN, ARISING ON CONVERSION OF SAID LIABILITY AT CLOSING RATE SHO ULD BE RECOGNIZED IN PROFIT AND LOSS ACCOUNT FOR REPORTING PERIOD. FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IT CAN BE CLEARLY DEDUCED THAT UNREALIZED LOSS DUE TO FORE IGN EXCHANGE FLUCTUATION IN FOREIGN I.T.A. NO.7223/MUM/2011 5 CURRENCY TRANSACTIONS ON REVENUE ITEM AS ON THE LAS T DATE OF THE ACCOUNTING YEAR IS DEDUCTIBLE. 9. ITAT, IN THE CASE OF KOTAK MAHINDRA INVESTMENT LTD. (SUPRA) ALSO CONSI DERED A SIMILAR ISSUE. IN THE SAID CASE THE ASSESSEE-COMPA NY WAS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES AGAINST SHARES AND S ECURITIES ALSO TRADED IN DERIVATIVE SEGMENT BY ENTERING INTO FUTURE AND OPTION CONTRACT . SOME OF THE FUTURE CONTRACTS COULD NOT BE SQUARED UP AT THE END OF THE FINANCIAL YEA R. THE ASSESSEE BOOKED THE EXPECTED LOSS IN SUCH CONTRACTS ON MTM BASIS. THE ASSESSEE THUS CLAIMED A LOSS AS CALCULATED ON MTM BASIS CLAIMING THAT HE WAS FOLLOW ING THIS PRACTICE CONSISTENTLY. THAT IT WAS ALSO AS PER RECOGNIZED ACCOUNTING STANDARD. AO REJECTED THE CLAIM ON THE GROUND THAT THE DERIVATIVE CONTRACTS WERE NOT STOC K IN TRADE AS THERE WAS NO COST OF ACQUISITION. HE FINALLY HELD THAT THE LOSS ON ACCO UNT OF MTM BASIS WAS THUS A NOTIONAL LOSS AND WAS CONTINGENT IN NATURE AND COULD NOT BE ALLOWED TO BE SET OFF AGAINST TAXABLE INCOME. ON APPEAL, THE LD. CIT(A) ALLOWED THE S AME BY AGREEING WITH THE CONTENTION OF THE ASSESSEE THAT SUCH LOSS ON SUCH VALUATION W HICH IS CALLED MTM HAS TO BE ALLOWED EVEN THOUGH IT MAY APPEAR TO BE A NOTION AL LOSS. THE TRIBUNAL WHILE CONFIRMING ORDER OF LD. CIT(A) AND ALLOWING THE S AID LOSS PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF WOODW ARD GOVERNOR INDIA (P.) LTD. (SUPRA) AND ALSO THE DECISION OF TRIBUNAL IN THE CASE OF E DELWEISS CAPITAL LTD V/S ITO IN ITA NO.5324/MUM/2007 (AY-2004-05) DATED 10.11.2010 AND THE DECISION IN THE CASE OF RAMESH KUMAR DAMANI V/S ADDL.CIT IN ITA NO.1443/M UM/2009 (AY-2006-07)DATED 26.11.2010. COPIES OF WHICH ARE PLACED IN THE COMP ILATION OF CASE LAWS AT PAGES 76 TO 84 AND PAGES 85 TO 90 RESPECTIVELY. 10. WE ALSO OBSERVE THAT SIMILAR ISSUE WAS CONSIDERED BY HO NBLE APEX COURT IN THE CASE OF ONGC LTD (SUPRA). THE ASSESSEE A PUBLIC SECTOR UNDE RTAKING WAS ENGAGED IN THE CAPITAL INTENSIVE EXPLORATION AND PRODUCTION OF P ETROLEUM PRODUCTS FOR WHICH IT HAD TO HEAVILY DEPEND ON FOREIGN LOANS TO COVER ITS EXPENSES, BO TH CAPITAL AND REVENUE AND FOR PAYMENT TO NON-RESIDENT CONTRACTORS IN FOREIGN CURRENCY FOR VARIOUS SERVICES RENDERED. THE ASSESSEE MADE THREE TYPES OF FOREIGN EXCHANGE BORROW INGS I.E.(I) ON REVENUE ACCOUNT; (II) ON CAPITAL ACCOUNT, AND (III) FOR GENERAL PURPOSES. SOME OF THE LOANS BECAME REPAYABLE IN THE RELEVANT ACCOUNTING YEAR AND THE DATE OF PAYMENT OF SOME LOANS FELL AFTER THE END OF THE RELEVANT ACCOUNTING YEAR. THE ASSESSEE REVALUED ITS FOREIGN EXCHANGE LOANS IN FOREIGN EXCHANGE ON REVE NUE ACCOUNT, ON CAPITAL ACCOUNT AND FOR GENERAL PURPOSES OUTSTANDING AS ON 31-3-19 91, AND CLAIMED THE DIFFERENCES I.T.A. NO.7223/MUM/2011 6 BETWEEN THEIR RESPECTIVE AMOUNTS IN INDIAN CURRENC Y AS ON 31-3-1990 AND 31-3-1991 AS REVENUE LOSS UNDER SECTION 37(1) IN RESPECT OF LOAN S USED IN REVENUE ACCOUNT. THE ASSESSEE ALSO TREATED THE SIMILAR DIFFERENCE IN FOR EIGN EXCHANGE AS AN INCREASED LIABILITY U/S 43A. THE AO ALLOWED THE DEDUCTION CLAIMED U/S 37(1), TAKING INTO CONSIDERATION THE INCREASED FOREIGN EXCHANGE LIABILITY AND REPAID IN THE ACCOUNTING YEAR FOR THE PURPOSE OF DEPRECIATION. HE DID NOT HOWEVER, ALLOW THE CL AIM FOR FOREIGN EXCHANGE LOSS ON LOANS BOTH IN RELATION TO CAPITAL AS WELL AS REVENU E ACCOUNT WHICH WERE OUTSTANDING ON THE LAST DAY OF ACCOUNTING YEAR. ON APPEAL, THE C IT(A) AFFIRMED THE VIEW OF AO IN RELATION TO DEDUCTION U/S 37 OF THE INTEREST ON LOA NS OUTSTANDING ON THE LAST DAY OF THE ACCOUNTING YEAR BUT ALLOWED THE BENEFIT OF INCREASE D LIABILITY FOR COMPUTATION U/S 43A IN RELATION TO LOSS OUTSTANDING ON THE LAST DAY OF TH E ACCOUNTING YEAR. HENCE, THE ASSESSEE AS WELL AS DEPARTMENT TOOK THE MATTER IN APPEAL TO THE APPELLATE TRIBUNAL. THE TRIBUNAL HELD THAT THE LOSS CLAIMED BY THE ASSE SSEE ON REVENUE ACCOUNT WAS ALLOWABLE U/S 37(1) AND ALSO REJECTED THE APPEAL OF THE DEPARTMENT AND HELD THAT THE ASSESSEE WAS ENTITLED TO ADJUST ACTUAL COST ON IMPO RTED ASSETS ACQUIRED IN FOREIGN CURRENCY ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE IN TERMS OF SECTION 43A. ON APPEAL BY THE DEPARTMENT, THE HONBLE HIGH COURT REVERSED THE DECISION OF THE TRIBUNAL ON BOTH THE ISSUES. ON FURTHER APPEAL TO THE APEX COURT, THE DECISION OF THE HIGH COURT WAS REVERSED AND IT WAS HELD THAT (A) THAT THE LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN E XCHANGE AS ON THE DATE OF THE BALANCE-SHEET WAS ALLOWABLE AS AN EXPENDITURE U/S 37(1), AND (B) THAT THE ASSESSEE WAS ENTITLED TO ADJUST THE ACTUAL COST OF IMPORTED ASSETS ACQUIRED IN FOREIGN CURRENCY ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE AT EACH OF THE RELEVANT BALANCE SHEET DATES, PENDING ACTUAL PAYMENT OF THE LIABILITY U/S 43A, PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2002. 11. IN VIEW OF ABOVE DECISIONS, IT IS CLEAR THAT T HE LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACTIONS IN DE RIVATIVES HAS TO BE CONSIDERED ON THE LAST DATE OF ACCOUNTING YEAR AND IT IS DEDUCTIBLE U/S 37(1) OF THE ACT. THEREFORE, IN ALLOWING THE SAID CLAIM OF THE ASSESSEE BY AO, TH E ACTION OF THE AO IS IN CONSONANCE WITH THE DECISIONS OF THE HONBLE APEX COURT AND AL SO THE VIEW TAKEN BY THE TRIBUNAL IN THE CASES CITED HEREINABOVE (SUPRA). HENCE, THE VI EW TAKEN BY AO TO ALLOW LOSS OF RS.43.78 CRORES WHILE MAKING ASSESSMENT U/S 143(3) ON ACCOUNT OF DERIVATIVE CONTRACT OUTSTANDING IS NOT AN ERRONEOUS VIEW TAKEN BY AO , NOR THE ACTION OF AO IS PREJUDICIAL TO THE INTEREST OF REVENUE. HENCE, THE ORDER OF CO MMISSIONER OF INCOME TAX U/S 263 OF THE ACT TO HOLD THAT THE ACTION OF AO IS ERRONEOU S TO THE EXTENT THE LOSS CONSIDERED AS I.T.A. NO.7223/MUM/2011 7 ALLOWABLE ON ACCOUNT OF DERIVATIVE CONTRACTS OUTSTA NDING AS ON THE DATE OF BALANCE SHEET I.E. 31.3.2008 IS NEITHER JUSTIFIED NOR IN A CCORDANCE WITH LAW. HENCE, WE QUASH THE SAID ORDER OF LD. COMMISSIONER OF INCOME TAX BY ALLOWING THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON T HE 20TH NOVEMBER, 2013 , 2 3 20TH NOVEMBER, 2013 , SD SD ( / SANJAY ARORA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. ( / THE APPELLANT 2. ) ( / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED 4. : / CIT CONCERNED 5. ; )= , / = , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER TRUE COPY (ASSTT. REGISTRAR) / = , /ITAT, MUMBAI