TaxTMI 
TaxTMI 
2019 (6) TMI 1436
X X X X Extracts X X X X
X X X X Extracts X X X X
....red in law and on facts in deleting the disallowance made on account of forex loss amounting to Rs. 92,22,371/- without properly appreciating the facts of the case and the material brought on record. 3. The Ld. CIT(A) has erred in law and on facts in treating the speculation loss of Rs. 2,33,24,764/- as business loss without properly appreciating the facts of the case and the material brought on record. 4. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made u/s.14A of the Act amounting to Rs. 35,00,000/-without properly appreciating the facts of the case and the material brought on record." 3. The fact in brief is that return of income declaring income of Rs. Nil was filed on 16th Nov, 2016. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 8th August, 2013. The further facts of the case are discussed while adjudicating the different grounds of appeal filed by the assessee as under:- Ground No. 1 (Disallowance of deprecation of infrastructure facility) 4. During the course of assessment, the assessing officer has noticed that assessee has claimed depreciation @ 25% amounting to Rs. 10,13,23,469/- on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he infrastructure usage facility taken by the appellant from Mundra Port and Special Economic Zone in the F.Y. 2003-04 relevant to A.Y. 2004-05. The appellant claimed the depreciation from the opening WDV of Rs. 40,52,93,877/- as on 01/04/2011 and there was no addition in the assets in this block of assets during the year under consideration. The deprecation was claimed treating the same as intangible asset being infrastructure usage facility. The appellant has used the infrastructure developed by Mundra Port and SEZ under the right to use the same through the lease agreement executed between the appellant and the said party dtd. 5.6.2003 i.e. F.Y. 2003-04 relevant to A.Y. 2004-05. The AO held that the uses of the infrastructure facility and the expenditure incurred thereupon was undoubtedly capital in nature and the AO observed that right to use the infrastructure facility was not similar to intangible asset u/s.32 of the Act and hence not eligible to claim the deprecation @25% as the appellant has no business or commercial rights in the infrastructure facility, since the assessee has no right to transfer these facilities to others. The detailed discussion has been made by the AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In all the above assessment years the scrutiny assessment u/s.143(3) of the Act has taken place and the deprecation claimed by the appellant in all these years have been allowed by the AO having regard to the facts and submissions given under the head. 2.6. It has been noticed that in the preceding years the appellant has claimed the depreciation on the closing WDV at the end of the relevant assessment years. The claim of depreciation made in the preceding years and the opening and closing WDV of the infrastructural facility uses is noted hereunder for ready reference. A. Y. Addition during the year Opening Balance / Addition Depreciation claimed Closing WDV 2004-05 4048367551 0 1012091888 3036275663 2005-06 0 3036275663 759068916 2277206747 2006-07 0 2277206747 569301687 1707905061 2007-08 0 1707905061 426976265 1280928795 2008-09 0 1 280928795 320232199 960696597 2009-10 0 960696597 240174149 720522447 2010-11 0 720522447 180130612 540391836 2011-12 0 540391836 135097959 405293877 2012-13 0 405293877 101323469 303970408 Thus it has been noticed that the depreciation has been allowed to the appellant on the expenditure made i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....set can be altered only when the eventuafity contained in clause-c of Section 43(6) takes place i.e. when a particular asset is sold, discarded or destroyed in the previous year. In the instant case the impugned assets has been acquired in the previous year 2003-04 relevant to A.Y. 2004-05 and was forming part of block of asset of intangible assets and since then the appellant has been claiming deprecation on the impugned intangible assets namely Infrastructural uses facility and the same has been allowed by the A.O. since then. 2.8. It has also been contended that the AO has not empowered to disturb opening WDV of the block of asset which was purchased/expired in the preceding years and on which depreciation has already been allowed in the earlier years. This contention is found acceptable as has been held by the Hon'ble Courts noted as under:- (a) The Hon'ble ITAT Pune Bench-A in the case of M/s.Western Precicaste Pvt. Ltd. vs. JCIT in ITA No.814/PN/2011 dtd. 9.11.2015 (b) The Hon'ble ITAT Mumbai in the case of M/s.HSBC Asset Management (India) Pvt. Ltd. Vs. DDIT in ITA No.2028/Mum/2009 dtd. 15.6.2011. 2.9. Respectfully following the aforesaid decisions, the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rate its container operation in Mundra area in the F.Y. 2003-04 relevant to assessment year 2004-05. It is noticed that infrastructure usages facility is a sort of license given by Mundra Port to the assessee company to operate its container operation in Mundra Port area. The assessee has got the right to use and maintain services of certain infrastructural facilities as set out in the infrastructure usages agreement. The assessee has been showing this right on the asset side of the balance sheet and claimed the same as intangible asset on which the deprecation was claimed. With the assistance of ld. representatives, we have gone through the various judicial pronouncements referred by the ld. counsel. Co-ordinate Bench of the ITAT vide ITA No. 1253/Ahd/2016 in the case of assessee itself pertaining to assessment year 2009-10 while adjudicating the order passed u/s. 263 by the Pr. CIT for disallowing the claim of depreciation on the similar issue has held that claim of the assessee for depreciation on infrastructural facility existed since 2004-05 should not be disturbed after referring a number of judicial pronouncements. In the case of ACIT vs. S.K. Patel Family Trust 33 taxman.co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing officer has not accepted the explanation of the assessee and stated that the assessee is not a manufacturing unit nor is engaged in sale of merchandise. Therefore, treated the foreign exchange losses to the amount of Rs. 2,33,24,764/- as speculation loss in view of the section 43(5)(d) of the act and foreign exchange derivatives unrealized loss of Rs. 92,22,371/- was also disallowed treating the same as notional loss and added to the total income of the assessee. 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) deleting the unrealized foreign exchange loss of Rs. 92,22,370/- is reproduced as under:- "3.3. Decision: I have carefully considered the facts of the case, assessment order and submissions of the appellant. The AO has disallowed the unrealized forex loss of Rs. 92,22,370/- being incurred on forward contracts in view of the Instruction No. 03/2010 dated 23/03/2010. The AO observed that the same was the notional loss as no sale or settlement of contract has taken place and the said continues to be owned by the company. 3.4. The appellant has given ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vernor India Pvt. Ltd. is duly satisfied in the following manner:- whether the system of accounting followed by the assessee is mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; Admittedly, the Appellant is following mercantile system of accounting and that is in fact not denied by the Id. AO. whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide: Again admittedly, from the beginning the Appellant is following mercantile system of accounting and there is not changed in it. whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; Yes. Chart showing the working of realized and unrealized gain/loss from F.Y. 2010-11 to 201415 relevant to A.Y. 2011-12 to 2015-16 is as under to show that the Appellant Company has also earned the gain on the said transaction in earlier years and which has been offered for tax in the respective years....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11 issued by the ICAI. Various authorities have held that while determining alowability of an expenditure, accounting standard has a great persuasive value. Challapalli Sugars Ltd. Vs. CIT (1975) (98 I.T.R. 167). Further following authorities have held that foreign exchange fluctuation loss suffered on account of circulating capital or revenue account should be treated as revenue expenditure in the year in which the devaluation takes place when the method of accounting followed is mercantile. * 116 ITR 1 (SC) * 154 ITR 460 (Cal) * 90 ITR 323 (Ker) * 97ITD 125(Ahd) (TM) 151 para 8.28 Accordingly, this itself establishes that the Appellant has adopted the system of accounting which is fair and reasonable and supported by the Accounting Standard AS 11, Rule 115 and various authorities and not adopted to avoid incidence of income tax. And in any case, as submitted by the Appellant, in the immediate preceding A.Y.2011-12, the Appellant has earned foreign exchange gain which has been offered for taxation, which itself shows that the system adopted by the Appellant is consistent, fair and reasonable. 3.7. In view of the aforesaid discussion, it is held that the forex loss o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions. Since the appellant was not the dealer in foreign exchange but providing the operating container handling terminal services and there did not happen to be any purchase or sale of commodity settled otherwise then by actual delivery, thus the. same cannot be termed as speculative transactions. The foreign exchange were only incidental to the assessee's regular course of business and the loss was thus not a speculative loss but incidental to the assessee's business and allowable as such. 4.7. Similar views have also been endorsed by the Honourable Gujarat High Court in the case of CIT Vs. Friends and Friends Shipping Pvt. Ltd. (2013) 35 taxmann.com 553. 4.8. Further, the Honourable ITAT, Bangalore, in the case of Quality Engineering and Software Technologies Pvt. Ltd. Vs. DCIT 52 taxmann.com 515 has also held the similar nature of losses as the business loss. The relevant extract of the observations are noted as under:- "4.5.8 In the case on hand, it is not in dispute that the forward contracts have been entered into by the assessee in order to protect its interest against fluctuations in foreign currency, in respect of consideration for export proceeds, which is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. Such profits / losses have also been claimed as revenue by the appellant and this method is consistently being followed in the preceding and subsequent years also. Thus, the disallowance made by the AO is found untenable and hence, the same is deleted. The ground of appeal is allowed." 10. We have heard the rival contention and perused the material on record carefully. It is noticed that assessee has claimed loss under the category of realised and un-realized loss. The realized loss was claimed on actual payment made and un-realised loss was claimed for the contract outstanding at the year end. The assessee company has been constantly following method of accounting of charging the loss/gain arising on account of market to market price of foreign currency as on the last day of the year to the P & L account in respect of revenue account transactions and the same was permissible in the eyes of laws. The assessee has entered into forward contracts with Standard Chartered Bank and HSBC Bank. The assessee company has entered into hedge contract in order to hedge foreign currency exposure arising on account of receivable/payable for revenue account transaction. The assessee company h....