TaxTMI 
TaxTMI 
2019 (2) TMI 792
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....m to take bed rest for a long period. Besides, Mr. Naveen Singh, staff of the company, left the job without handing over all the documents pertaining to appeal for A.Y.2009-10 to Mr. K.N. Bansal and as a result, the appeal could not be filed on time before the Tribunal. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing. 3. Since these two appeals filed by the Assessee pertaining to A.Y. 2009-10 and 2010-11 contain the identical and common issues, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 4.Although, these appeals filed by the Assessee for Assessment Year 2009-10 and A.Y.2010-11 contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Assessee. Most of the grounds raised by the Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the Assessee. With this background, we summarize and co....
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....response, the assessee submitted the details. On perusal of the details of the forex loss of Rs. 78,51,250/-, it was noted by the Assessing Officer that the assessee had entered into the derivatives transactions which was option of European style, Tokiyo cut viz. and the said loss was incurred in derivatives of currency. The AO noted that the assessee had incurred loss in derivative which was not traded in the recognized stock exchange within the meaning of section 43(5)(d) of the Act, hence the AO treated this derivative transaction of Rs. 78,51,250/- to be speculative transaction and therefore not allowed the derivative loss to be set off form normal business income. 7. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. The ld CIT(A) noted that onus was on the assessee to prove that the derivative transactions in question were not of a speculative nature. The booking of forward contract of currency was not in respect of specified export of goods and there was no actual delivery of foreign exchange. The ld CIT(A) therefore noted that forward contracts en....
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....is the first year, the assessee has claimed the loss on account of cancellation of forward contract, whereas the assessee is in the business of export since long and had not entered with similar forward contract in earlier years. The ld. DR submitted that there is a complete mismatch between the cancellation of the forward contract and the invoices against which the forward contract has been cancelled. The ld. DR also pointed out that this is the planning of the assessee to avoid the taxes and to reduce the income tax liabilities by showing the fictitious loss on account of cancellation of forward contracts. Therefore, the loss on account of cancellation of forward contract should be disallowed. 11. We have heard both the parties and perused the material available on record. Before, we come to the final conclusion, let us first deal with the nature of transactions in derivatives and the treatment given to these transactions in the income tax Act, 1961. As to what is the nature of a derivative transaction, we find useful guidance from Hon'ble Madras High Court's judgment in the case of Rajshree Sugars & Chemicals Ltd. vs. Axis Bank Ltd. reported in [2008] 8 MLJ 261, referred t....
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.... questions are asked. This is the point where the transaction takes a detour from a simple contract of insurance. 12. Taking into account the dictum of Hon'ble Madras High Court in the case of Rajshree Sugars & Chemicals Ltd (supra), we note that the Assessee Company is engaged in the business of Export of Cotton Yarn, Cotton & Other various merchandise. A perusal of the Audited Financial Statements would indicate that Value of Exported Goods on FOB basis for the accounting year ended on 31/03/2009 was Rs. 187.88 Crores. In order to hedge the risk of Exchange Fluctuations on Export Receivables the assessee company had entered into the Long Term Forex Derivatives Contracts and thus the same is an admissible loss since it is already recovered by the Banker from the Assessee Company. We note that the Loss of Rs. 78,51,250/- was crystallized during the year which was related to Long Term Forex Derivatives Contracts. This loss was amortized in books but claimed as a deduction while filing Return of Income. The assessee submitted the following evidences in support of above claim which are as under: a. Ledger Account of Foreign Currency Monetary Item Transaction Difference Acc....
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.... business operation; b. There should be direct or proximate nexus between the business operation and the loss. c. It should be a real loss and not notional or fictitious. d. It should be a loss on revenue account and not on capital account. e. It must have actually arisen and been incurred, not merely anticipated as certain events to occur in future, and hence there should be no prohibition in the Act, express or implied, against the deductibility thereof. We note that assessee company has satisfied all the conditions mentioned above, therefore, it is entitled to claim the loss of Rs. 78,51,250/- on account of forward contract, for that we rely on the judgment of the coordinate bench of ITAT Mumbai in the case of JaiminJewellery Exports (P) Ltd Vs ACIT-5(2) Mumbai [2014] 43 taxmann.com 380, wherein it was held as follows: "Forward contracts which are integral part or incidental to core business of import/export of diamonds, in principle, constitute hedging transactions, and not speculative contracts. It was also held that it would be a business loss which can be set off against profit and gains of business." We also rely on the jud....
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.... on 31/03/2010 was Rs. 319.63 Crores. In order to hedge the risk of Exchange Fluctuations on Export Orders the Assessee Company had entered into the above Short Term Forex Sale Contracts (Purchase for Bankers) and thus the same is an admissible loss since it is already recovered by the Banker from the Assessee company on cancellation. The Assessee company upon cancellation of Export Orders cancelled their short- term contracts with bankers and thus the loss claimed is an admissible business loss at Rs. 4,74,84,669/-. The ld counsel submitted before us following evidences and documents in support of above claim: (a). Ledger Account of Foreign Exchange rate Difference a/c for March 2010. (b). Working Capital Term Loan Canara bank to cover forward contract losses. (c ). Bank Statements wherein the amounts were debited by Bank. We note that due to the fact that a substantial part of assessee company's turnover comprises of sales by way of export of goods out of India and hedging of foreign currency is carried out by way of forward contracts / options / derivatives in order of minimize losses on realization. Hence, loss to the tune of Rs. 4,74,84,669/- on a....
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....count of Cancelled Forward Contract for hedging of Foreign Currency Risk and is an allowable Business Loss under section 28 of the Act. The loss on account of forward contract and loss on cancellation of forward contract, is a business loss and assessee is entitled to set offthe said loss against the business income, hence we delete the disallowance of following losses: (i). Disallowance of crystallized losses of Rs. 78,51,250/- on Forex contracts, for assessment year 2009-10. (ii). Disallowance of crystallized losses of Rs. 1,54,44,375/- on Forex contracts, for assessment year 2010-11. (iii). Foreign Exchange loss of Rs. 4,74,84,669/- on account of cancelled Forex Purchase contracts, assessment year 2010-11. 19. In the result, derivatives grounds raised by the assessee in A.Y.2009-10 and A.Y.2010-11 are allowed 20. Now we shall take Other Grounds raised by the assessee. (1). Ground No. 1 raised by the assessee in I.T.A. No. 906/Kol/2018 for assessment year 2009-10 relates to disallowance of Rs. 1,00,000/-being prior period expenses the liability for which crystallized during the relevant previous year. 21. The brief facts qua the issue are th....
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.... the Bench that this issue is squarely covered against the assessee by the Judgment of Hon'ble ITAT, Kolkata in I.T.A. No. 1474/Kol/2008 for assessment year 2005-06 vide order dated 21.08.2009, wherein it was held as follows: "Considering the above observation and the findings of the Hon'ble Apex Court in the above case, we hold that the replacement of nine ring frames by the assessee in the case before us give enduring advantage to the assessee as ring frames section constitute an independent machine with an independent function. Hence, the replacement of new ring framed by the assessee is not expenditure for current repairs, which could be allowed u/s 31(i) of the IT Act nor it is expenditure allowable u/s 37 of the Act. The Expenditure for replacement of a new ring frames is an addition to existing plant and machinery of the assessee giving enduring benefit and as such is capital in nature. However, we agree with the ld. AR that the treatment given by the assessee in its books of accounts of the expenses incurred could not be decisive to decide whether the claim of the assessee is allowable as revenue or capital in nature. In the case of the assessee before us, the natu....