TaxTMI 
TaxTMI 
2016 (12) TMI 1815
X X X X Extracts X X X X
X X X X Extracts X X X X
....before the Tribunal. By referring to the affidavit, the ld. DR has requested for condoning the delay and to admit the appeal for hearing. The ld. Counsel for the assessee did not seriously object to the submissions of the ld. DR. Accordingly, we condone the delay of three days in filing the appeal and admit the appeal for hearing. I.T.A. Nos. 851/Mds/2012 and 2235/Mds/2014 3. At the time of hearing the ld. Counsel for the assessee has submitted that the tax effect in both the appeals filed by the Revenue is less than the monetary limit of Rs..10,00,000/- fixed by the CBDT to file an appeal by the Revenue before the Tribunal as per the CBDT Circular No. 21/2015, dated 10.12.2015. The ld. DR fairly conceded the submissions made by the ld. Counsel for the assessee. Being so, the Revenue authorities are precluded from filing the appeals before the Tribunal, since the tax effect is less than Rs..10,00,000/- in these appeals. Accordingly, the appeals filed by the Revenue are dismissed as un-admitted for both the assessment years 2008-09 and 2010-11. I.T.A. No. 755/Mds/2012 [A.Y. 2008-09] 4. In the appeal of the assessee, the assessee has raised two effective grounds, viz., (i) th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loss suffered by the assessee company on account of forward contracts is speculative in nature and can be adjusted only with speculation gain and not against business income. Further, he relied on the decision in the case of CIT vs. K.Mohan & Co(Exports) (P) Ltd.(2010) 39 DTR 97. 4.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. It is an undisputed fact that the assessee company has entered into a currency swap between Indian rupees and Swiss Francs. The assessee company is engaged in the business of manufacture of white sugar. The assessee had no business exposure for trading in sugar either as an importer or an exporter with Switzerland. However, the assessee entered into swap currency forex derivative with Axis Bank Ltd. relating to principal amount of loan of Rs..10 crores. The only dispute is whether the loss arising swap currency forex derivative entered into with Axis Bank Ltd. relating to principal amount of loan of Rs..10 crores is a speculative loss or business loss. 4.6 Under the Notes on accounts of the assessee's annual report for the year 2007-08, the assessee has been stated as under: "In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or deduction as admissible is on this ground as a business expenditure incurred, the contract being entered into, to reduce cost of borrowing in INR, for business purposes and it was in force for the whole of the year from 05.04.2007. In the case of the assessee, the Assessing Officer has observed that the principal swap was entered into with Axis Bank [when it was formerly known as UTI Bank] in April, 2007, for a period of one year and it was settled on the due date 17.04.2008. Though the assessee had no business exposure for trading in sugar either as an importer or an exporter with Switzerland, the assessee has entered into a currency swap between Indian rupees and Swiss Francs. The loss incurred by the assessee in the process has been claimed as revenue expenditure. 4.7 The assessee has been entered into forex derivative contract for Swiss Franc (CHF) and Indian Rupee (INR) currencies even though the assessee was not dealing in its business in Swiss Francs at all. The contract for the Forex Derivative with Axis Bank does not have any specific underlying risk exposure for which the purported contract has been taken. 4.8 Further, the Assessing Officer has observed that as p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of "actual delivery", see Taxman's Direct Taxes Manual, Vol. 3. Jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause 35[(ac)] of section 236 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax under Chapter V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ange and not others as per RBI guidelines in view of the decision of the Delhi Benches of the ITAT in the case of Munjal Showa Ltd. v. DCIT 94 TTJ 227. 4.13 In this case, the ld. CIT(A) has observed that the assessee has taken term loan from erstwhile UTI Bank, now Axis Bank of Rs..10 crores vide sanction letter dated 16.08.2006. The assessee has entered into with Axis Bank under currency option transactions on 11th April, 2007 and the delivery date was 17th April, 2008. Before the Assessing Officer, by filing proof of payment of Rs..1.95 crores to Axis Bank [UTI working capital account extract for the period], the assessee has submitted that the amount has actually been paid on 17.04.2008. The assessee has claimed currency swap loss Rs..1,95,56,190/-. Since, this loss was related to hedging of Rupee loan with Dollar and Swiss Franc, the Assessing Officer has observed that the said transaction was not eligible transaction and hence the loss incurred was required to be treated as speculative loss under section 43(5) of the Act and such speculative loss could not be adjusted against normal business income as per the provisions of Section 73(1) of the Act. The ld. CIT(A) has observe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar from the orders of authorities below for which purpose; the assessee has entered into currency swap forex derivatives. If the assessee has entered into forex derivatives contract for the purpose of issue of debentures/equity shares, then the loss claimed by it would be admissible as revenue expenditure and otherwise not. The Assessing Officer is directed to verify the same and decide in accordance with law. Thus, the ground raised by the assessee is allowed for statistical purposes. 5. The next ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the interest receipts as income of the assessee. 5.1 During the course of assessment proceedings, the Assessing Officer has found that the assessee credited the interest receipts amounting to Rs..1,95,02,045/- to Capital Work in Progress. The assessee was asked to explain as to why the aforesaid amount of revenue receipts, in the nature of interest, should not be brought to tax. The assessee furnished a written submission in this regard, as follows: "Interest paid /accrued/received in respect of ECB loan: The company as is mandatory, is following the accrual method of accounting and theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee and brought to tax. 5.2 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has observed as under: "7.3 I have gone through the submissions made by the appellant and the order of the Assessing Officer. The Assessing Officer at Para 6 and 7 of the assessment order detailedly discussed the issue and brought the interest amount of Rs.l,95,02,045/- to tax. The total interest receipts were credited to capital work in progress is Rs.l,95,02,045/-. The balance Rs. 7,59,148/- represents interest realized on short term deposits made with SBI, Coimbatore from out of unused funds from the ECB loan. The various decision of the Apex Courts emphasize that interest realized from investments of surplus funds in business should be treated as income even before commencement of business, is applicable to the facts of the present case also. The Circular quoted by the Id.AR was issued on 2.7.2007. There is flexibility regarding the usage of ECB proceeds and the general guideline is that the fund should be invested in such a way that the investment can be liquidated as and when funds are required by the borrow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o involved, the assessee was charged interest by the lending Banks. Interest on ECB loan paid during the year was Rs..10,01,57,046/- which has been capitalized and included in the capital work in progress as required under Accounting Standard 16. The interest received on the unutilized funds parked outside has also been taken to the same account. The gross interest of Rs..1,95,02,045/- so received from short term deposits were credited to capital work in progress. However, the Assessing Officer treated the same as income of the assessee and brought to tax. The ld. CIT(A) confirmed the order of the Assessing Officer. Before us, the ld. Counsel for the assessee strongly contended that the issue is squarely covered in favour of the assessee by the decision in the case of PCIT v. Facor Power Ltd. (supra). We have also perused the case law of Hon'ble Delhi High Court relied on by the ld. Counsel. However, in the case of CIT v. Arasan Aluminium Industries Pvt. Ltd. (supra), as relied on by the ld. DR, the Hon'ble Jurisdictional High Court has observed and held as under: "The assessee was a private limited company incorporated on May 28, 1977, with the object of doing business in manuf....