The assessee-company was engaged in providing business process outsourcing services in the healthcare industry. For AYs 2013-14 and 2014-15, the assessment was completed u/s 143(3) r.w.s. 92CA of the Act without making any transfer pricing adjustment. The Principal Commissioner took the view that the hedge gain or loss of revenue items accounted for in reserves pertaining to forward contracts on highly probable forecast transactions had to be recognised for tax purposes in accordance with the accounting treatment in the year when the gain or loss was finally recognised in the profit and loss account. It was observed that by notice u/s 142(1) of the Act, the AO had asked the assessee to file details in respect of forward contract receivables shown under short-term loans and advances and the assessee also filed a reply stating that an amount of Rs. 1,01,08,500 was shown as “forward contract receivables” under short-term loans and advances and contra shown as “hedge reserve” under “reserves and surplus” and moreover, this amount was recorded both as asset and liability in the books, just to represent the ineffectiveness in hedging of forward contracts in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India. However, the AO had not called for any other details from the assessee or further explanation and had simply accepted the reply filed by the assessee. However, the issue was complicated and needed detailed verification with regard to the Accounting Standards followed by the assessee, and the law applicable to the subject matter. The AO, without examining the matter, had simply accepted the explanation of the assessee, which was erroneous and prejudicial to the interests of the Revenue. It was further observed that the Principal Commissioner had directed the AO to verify and pass the assessment order afresh in accordance with law after affording an opportunity to the assessee. It was therefore held that there was no reason to interfere with the order passed by the Principal Commissioner. (AY.2013-14, 2014-15)