The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench in relief to HSBC Electronic Data Processing deleted the addition on account of unrealized hedging loss on forwarding contracts made by the AO.
The assessee company, HSBC Electronic Data Processing which is engaged in the rendering of ITeS and BPO services to its AE’s, filed its return of income declaring total income of Rs.458,11,74,170/- under normal provisions of Income Tax Act and Rs.425,46,44,130/- under section 115JB of the Act. During the assessment proceedings under section 143(3) of the Act, pursuant to a selection of the assessee’s return of income for scrutiny under CASS, the Assessing Officer required the assessee to furnish certain details.
During the course of assessment proceedings, from the P&L A/c of the assessee, the Assessing Officer observed that the assessee has credited Rs.7,01,48,671/- towards forex gain under the head “other income” and the assessee had shown Rs.49,11,07,448 towards loss on ‘Mark to Market on foreign exchange forwards. The Assessing Officer also observed that the assessee has debited/reduced Rs.49,11,07,448 towards ‘unrealized hedging loss’ to arrive at the net Forex gain of Rs.7,01,48,671.
The assessee was therefore asked to justify the allowability of such unrealized hedging loss in view of the CBDT instruction No.3 of 2010. The assessee furnished its reply vide letter. The Assessing Officer, however, was not convinced with the assessee’s contentions. He held that the loss on forwarding contracts is not to be allowed as per the above CBDT instructions. He accordingly disallowed the same and brought it to tax.
Aggrieved, the assessee preferred an appeal before the CIT (A), who partly allowed the same by deleting the disallowance of expenditure on the issue of ESPPs.
The coram of Lakshmi Prasad Sahu and P.Madhavi Devi deleted the addition of Rs. 49,11,07,448/- on account of unrealized hedging loss on forwarding contracts made by the Assessing Officer and confirmed by the CIT (A).
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