S.37(1): Business expenditure-Loss on account of change in rates of foreign exchange-Notional loss-Matter
remanded to Assessing Officer to decide whether claim allowable.
The assessee claimed deductions by way of loss in its business income, due to fluctuations in the rate of exchange on the outstanding dues payable in foreign exchange, which the assessee had raised for the purpose of buying its stock-in-trade. The Assessing Officer rejected the claim on the ground that it was notional loss and, therefore, not allowable. The Commissioner (Appeals) and the Tribunal held that the assessee could claim deduction on notional basis. On appeal: Held, allowing the appeal, such claim would have to be examined in the light of the fulfillment of the conditions as indicated by the Supreme Court, for which purpose, the matter was remitted to the Assessing Officer, who had to apply the tests to the claim made by the assessee and then either admit the claim or reject it depending upon the assesse satisfying the conditions.
The Court held that the claim of notional can be entertained subject to the fulfillment of the six conditions that (i) the system of accounting followed by the assessee is the mercantile system; (ii) the same system is followed by the assesse from the very beginning and if there was a change in the system, the change was bona fide; (iii) the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it ; (iv) the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) the method adopted by the assessee for making entries in the books both in respect of losses and gains is in accordance with nationally accepted accounting standards; and (vi) the system adopted by the assessee is fair and reasonable and not adopted only with a view to reducing the incidence of taxation.
The ratio of CIT v. Woodward Governor India Pvt. Ltd. [2009] 312 ITR 254 (SC) applied. (A. Y. 2000-2001)
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