TaxTMI 
TaxTMI 
2014 (7) TMI 1065
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....order of CIT(A), Revenue is now in appeal before us and Assessee has also filed C.O which is basically in support of the order of CIT(A). The grounds raised by the Revenue reads as under:- 1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance made by the A.O on account of additional depreciation on windmill of Rs. 1,87,57,882/-. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance made by the A.O on account of foreign exchange hedging loss of Rs. 5,89,29,812/- without appreciating fact that the assessee had not entered into any forward contracts and the loss was notional in character. 1st ground is with respect to deletion of disallowance made on account of additional depreciation of Windmill of Rs. 1,87,57,882/-. 4. During the course of assessment proceedings, A.O noticed that Assessee company has acquired Windmill amounting to Rs. 9,37,89,412/- and had claimed additional depreciation u/s. 32(1)(iia) of the Act. A.O was of the view that the Windmill was not used in the manufacturing process undertaken by the Assessee and therefore Assessee was not eligible to claim additional depreciation. The submission of the Assessee that the p....
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.... is deleted. As such, the appellant company gets relief of Rs. 1,87,57,882/-. 5. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. 6. Before us ld. D.R. relied on the order of A.O. On the other hand ld. A.R. supported the order of CIT(A) and further submitted that jurisdictional High Court in the case of CIT vs. Diamines and Chemicals Ltd reported in (2013) 87 CCH 58 (Gujarat High Court). has decided the issue in favour of Assessee. He also placed on record the copy of the aforesaid decision. 7. We have heard the rival submissions and perused the material on record. It is an undisputed fact that Assessee has installed a Windmill during the year under review. We further find that CIT(A) while deciding the issue has given a finding that the Assessee is already engaged in the business of manufacturing of production of Pipes and Tubes and has also fulfilled all the conditions laid down for claim of additional depreciation. We further find that the Hon'ble Gujarat High Court in the case of CIT vs. Diamines and Chemicals Ltd. (supra) has concluded that while claiming the deduction u/s. 32(1)(iia) setting up Windmill has nothing to do with the power industry and....
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....mport source. During the previous year relevant to assessment year under consideration, approx. 90% of the value of materials consumed is from import purchase. There are export sales also. Thus, it appears that the appellant company requires dealing in foreign exchange in normal course of business and to safeguard the future losses against foreign exchange rate fluctuation it enters in to hedging transaction. It has availed the fund based and non fund based financial facilities from its bankers in the form of Letter of Credit, Buyer's Credit, Cash Credit Limits in foreign currency for purchase of raw materials & payment to overseas suppliers, against stock of raw materials & collection of book debts. It is submitted that since the appellant company uses the fund and non fund based facilities in foreign currency, the bankers have advised the company to cover up the foreign exchange payment liabilities against the risk of fluctuation in rate of foreign exchange. There is always an inherent risk of fluctuation in the rates of foreign exchange, i.e. the rates of foreign exchange changes between the time of purchase of raw materials and actual payment to suppliers or bank, which dep....
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.... forward contracts and loss on account of settled foreign exchange forward contracts during the year. Loss, under both the situations, i.e. settled and unsettled forward contracts in foreign exchange, is revenue loss incurred in the normal course of business to hedge the risk of fluctuations in foreign exchange rates. Further, it is also submitted that as per the Accounting Standard-11 (AS- 11) issued by the ICAI and RBI's guidelines, the companies are required to revalue un-matured contracts as per rates of exchange notified by Foreign Exchange Dealer's Association of India (FEDAI). 8.3 During the previous year relevant to assessment year under consideration, there were 2 unsettled forward contracts aggregating to US $ 76.00 lacs as on the last date of Balance Sheet i.e. 31-03- 2008 to sell the foreign currency at an agreed price at a future date falling beyond the last date of accounting period. The loss is incurred by the appellant company on account of evaluation of these unsettled outstanding forward foreign exchange contracts on the last date of the accounting period i.e. before the date of maturity of the forward contracts. It was further submitted by the authorized....
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....pellate Tribunal, Mumbai Bench-"C" Special Bench, Mumbai in the case of DCIT vs. M/s.Bank of Bahrain & Kuwait (ITA No.4404 & 1883/Mum72004) is squarely applicable to the appellant company. 8.7 The loss incurred by the appellant company on account of evaluation of contract on the last day of accounting year i.e. before the date of maturity of forward contract be allowed as business loss for the following reasons :-......................... 8.8 Considering all the above facts together, I am inclined to agree with the contention of the appellant company that the loss incurred by the appellant company on account of foreign exchange hedging transactions in forward contracts which is backed by the trading liability of the appellant company on account of import purchases, is a business revenue loss and not speculative loss as held by the A.O. The case of the appellant company squarely falls under proviso (a) to Sec. 43(5) of the Act and accordingly, the transactions entered into by the appellant company in respect of hedging of the probable loss on account of fluctuation in the rate of foreign exchange in forward contract are not speculative transactions. The A.O. has failed to bring on....