2017 (4) TMI 1406 - AT - Income Tax

Tax Appeal Decisions: Fresh Adjudication Ordered, Notional Losses Allowed

Suzlon Energy Ltd. Versus Asst. Commissioner of Income-tax (OSD) Circle-8, Ahmedabad. And Deputy Commissioner of Income-tax (OSD) Circle-8, Ahmedabad. Versus Suzlon Energy Ltd

Suzlon Energy Ltd. Versus Asst. Commissioner of Income-tax (OSD) Circle-8, Ahmedabad. And Deputy Commissioner of Income-tax (OSD) Circle-8, Ahmedabad. ... Issues Involved:1. Disallowance of notional loss on outstanding forex derivatives contracts.2. Deduction under section 80IB on duty drawback, interest income on FD/ICD, and interest income from debtors.3. Upward adjustment under section 92CA(3) on account of guarantee fee on loans availed by AEs.4. Tax credit for foreign taxes paid.5. Disallowance under section 14A for expenses related to exempt income.Issue-wise Detailed Analysis:1. Disallowance of Notional Loss on Outstanding Forex Derivatives Contracts:The Assessing Officer (AO) disallowed a notional loss of Rs. 22,15,55,371 on outstanding forex derivatives contracts, arguing that the loss had not crystallized and was only notional. The CIT (A) deleted this disallowance, citing the Supreme Court's judgment in CIT v. Woodward Governor India (P.) Ltd. [312 ITR 254 (SC)], which allowed the deduction of such losses under mercantile accounting. The Tribunal upheld the CIT (A)'s decision, emphasizing that anticipated losses, if reasonably quantified, are deductible, and the assessee had consistently followed accounting standards.2. Deduction under Section 80IB:(a) Duty Drawback: The Tribunal remitted the issue back to the AO for fresh adjudication, following a similar decision in the assessee's case for the previous year.(b) Interest Income on FD/ICD: The Tribunal directed the AO to exclude only net interest, consistent with decisions in the assessee's own case for earlier years.(c) Interest Income from Debtors: The Tribunal upheld the CIT (A)'s decision, following the jurisdictional High Court's ruling in Nirma Industries Ltd. v. Dy. CIT [283 ITR 402 (Guj.)], which held that such interest income is not to be excluded in computing deduction under section 80IB.3. Upward Adjustment under Section 92CA(3) on Account of Guarantee Fee:The AO made an upward adjustment of Rs. 53,79,38,187 for guarantee fees on loans availed by AEs. The CIT (A) partly upheld the adjustment, adopting a 0.75% guarantee fee based on an external CUP (ICICI Bank's rate). The Tribunal, however, deleted the entire ALP adjustment, following its decision in Micro Ink v. Asstt. CIT [176 TTJ 8 (Ahd.)], which held that issuance of corporate guarantees does not constitute an international transaction under section 92B.4. Tax Credit for Foreign Taxes Paid:The AO rejected the assessee's claim for tax credit on foreign taxes paid, as it was not claimed in the original or revised return. The CIT (A) allowed the claim, but the Tribunal remitted the matter back to the CIT (A) for fresh adjudication, noting the need for detailed examination of whether tax credit can be given against MAT payment and the impact of subsequent credits under section 115 JAA.5. Disallowance under Section 14A for Expenses Related to Exempt Income:The AO disallowed Rs. 7,28,27,148 under section 14A read with Rule 8D. The CIT (A) upheld the disallowance. The Tribunal, following its decision in the assessee's case for earlier years, deleted the disallowance of interest expenses (Rs. 5,09,31,854) but upheld the disallowance of administrative expenses (Rs. 2,18,95,294), noting that the investments were made out of interest-free funds.Conclusion:Both the appeals were partly allowed, with the Tribunal providing detailed directions for fresh adjudication on certain issues and upholding the CIT (A)'s decisions on others. The Tribunal emphasized the importance of consistent accounting practices and adherence to judicial precedents in determining the allowability of deductions and adjustments.