TaxTMI 
TaxTMI 
2014 (2) TMI 1207
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....the Act and directing revision of the Assessment order. 2. He failed to appreciate and ought to have held that the relevant aspects had been considered in the course of assessment proceedings and without prejudice the of order of the Assessing Officer was neither erroneous nor prejudicial to the interests of revenue and the finding to the contrary was without any basis in fact and/or in law. 3. The Appellant prays that, it be held that the action of the Hon'ble CIT in invoking provision of section 263 to set aside the order u/s 143(3) and directing the AO to frame the assessment denovo, after examining the issues specified, be held to be ab-initio and/or otherwise void and bad-in-law." 2. The assessment in this case was completed u/s 143(3) of the Income-tax Act on 31/12/2010 whereby the total income of the assessee was computed at Rs. 9,77,30,916/-. Subsequently, the Commissioner of Income-tax on perusal of assessment records, found that the assessee company has claimed to have raised funds to the tune of Rs. 6485 crores by way of foreign currency convertible bonds (FCCB) during the previous Assessment Year. Out of the said FCCB funds, an amount of Rs. 5142 crores are giv....
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.... that after considering the identical facts and circumstances, the Tribunal has set-aside the revision order passed by the Commissioner for the A.Y. 2007-08. On the other hand, the ld. DR has heavily relied upon the impugned order of the commissioner and submitted that the assessee has diverted the borrowed fund to its sister concern which has earned only interest income and no other business activity was carried out therefore as per the provisions of sections 60 to 63 of the Income-tax Act, the said interest income is liable to clubbed in the hands of the assessee. The ld. DR has forcefully contended that non invoking the provision of sections 60 to 63 of the Income-tax Act, the Assessing Officer has not applied his mind. Thus, the ld. DR has submitted that though the identical issue was considered by the Tribunal for the A.Y. 2007-08 however in view of the provisions of the Income-tax Act, the said interest income has to be clubbed in the hand of the assessee. As regards, the notional loss on forex instrument as on the date of reporting, the ld. DR has submitted that CBDT Instruction No.3/2010 are clear on this point and in view of the CBDT instruction, no benefit of adjustment o....
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....IIL on the bank deposits, which amount was advanced by the assessee company free of interest. The ld. CIT noticed that : "the assessee company transferred its assets by virtue of a revocable transfer which in effect means transfer of income without the transfer of the assets". He further observed that : "If an interest free loan is given by a person to another person, it is a case of transfer of an asset and the transfer is to be treated as a revocable transfer because the transferor would receive the fund back thus invoking provisions of section 60 to 63". As this aspect was not properly considered in this assessment order, the ld. CIT opined that it led to making the assessment order erroneous and prejudicial to the interests of the revenue. 7.2. We have heard the rival submissions and perused the relevant material on record. In this regard, it is observed that the AO enquired about this aspect of the matter during the course of the assessment proceedings. The assessee, vide its letter dated 20.5.2009 addressed to the AO, explained that out of the proceeds of the FCCB, a sum of Rs. 1,343 crore was utilized for capital expenditure and the balance amount of Rs. 5,142 crore was t....
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.... applicability or otherwise of sections 60 to 63 of the Act to the interest income in a case where interest free loan is given by one to another and the later earns interest income thereon. The ld. counsel vehemently argued that the clubbing provisions cannot be attracted in case of interest earned by the borrower on the interest bearing or interest free loan advanced by the lender. Per contra, the ld. DR forcefully relied on the relevant provisions to contend that there is no bar on such clubbing. She referred to the provisions of section 63(a)(i) to contend that what is contemplated is the re-transfer of an asset. Her argument was that in every loan, the pre-requisite of re-transfer is always present. If the provision of retransfer is obliterated in a money transaction, then it becomes a case of gift. In every case of loan, she submitted, that the provisions of section 63(a)(i) will be attracted to make it a case of revocable transfer and consequently the interest income earned by the borrower shall become eligible for clubbing in the hands of the lender. On a pointed query, the ld. DR failed to draw our attention towards any precedent in support of her contention. 7.5. Though....
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....eference to the one adopted by the AO. Coming back to the issue in hand, we find that the controversy here lies in narrow compass inasmuch as the existence of one possible view in favour of the assessee also exists. Without going deep into the interpretation of the relevant provisions, we leave this point here by holding that this aspect cannot be taken out from the realm of "debatable issue" and hence there can be no revision of the assessment order on this point". 6. It is clear from the above finding that the Tribunal has considered all the contention of the department regarding applicability of section 60 to 63 of the Act to the interest income and then gave a finding that the issue was debatable and provisions of section 263 could not be invoked when the AO has already conducted an enquiry and taken one of the possible view. There is no quarrel on the point that for the year under consideration, the AO conducted an enquiry on the issue therefore we do not find any reason for distinguishing either the fact or the finding of the Tribunal on the issue for the A.Y. 2007-08 7. As regards to mark to market loss/gain the Tribunal for The A.Y. 2007-08 has considered and decided ....
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....ed on CBDT Instruction No.3/2010 to bolster his point of view that the loss on account of derivatives cannot be claimed as deduction. We have perused this Instruction. The crux of the Instruction is that the loss on account of forex derivatives cannot be allowed against taxable income. 8.3. In CIT v. Woodward Governor India (P.) Ltd. [(2009) 312 ITR 254 (SC)], the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency transactions towards revenue items as on the last day of the accounting year. The A.O. held that the liability as on the last date of the previous year was not an ascertained but a contingent liability. Resultantly, the same was added back to the total income. The CIT(A) echoed the assessment order. However, the Tribunal held that the claim of the assessee for deduction of unrealized loss due to foreign exchange fluctuation as on the last date of the previous year was deductible. The said order of the Tribunal was upheld by the Hon'ble High Court. On further appeal, the Hon'ble Supreme Court held that the loss suffered by the assessee on revenue account towards foreign exchange difference as o....
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....e logic of the view that the forex loss be ignored but the forex gain on derivatives be taxed. Any profit and loss from an item cannot go in the opposite directions. This position can be observed from the judgment of the Hon'ble Supreme Court in Woodward Governor (supra). The Instruction of CBDT simply states the loss on account of forex derivatives cannot be allowed since it is a contingent loss. It cannot be accepted that the deduction claimed by the assessee towards loss due to foreign exchange fluctuation in foreign currency transactions in derivatives should be considered as contingent and hence ignored but the gain due to such foreign exchange fluctuations in foreign currency transactions on derivatives should be assessed to tax. Both the loss/gain assume the same character of either contingent or non-contingent. If the forex loss on account of derivatives is considered as contingent and hence ineligible for deduction, the forex gain will also have to be considered as contingent and hence immune from taxation. If there is a prohibition in not allowing the loss on account of forex derivatives, equally there can be no question of charging to tax the gain on account of forex der....