TaxTMI 
TaxTMI 
2020 (11) TMI 333
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....itten show cause notice as required in terms of proviso to section 92C(3) of the Act for his proposal to make transfer pricing adjustment in respect of notional interest on export receivables by the appellant from its Associated Enterprises ('AEs'). 2 In the facts and circumstances of appellant's case and in law, the learned CIT(A) grossly erred in upholding that delayed realisation of export sale proceeds is a separate and independent international transaction under section 92B of the Act independent of the international transaction of sale of cut and polished diamonds to AEs. 3 In the facts and circumstances of appellant's case and in law, the learned CIT(A) grossly erred in upholding upward transfer pricing adjustment of Rs. 151,01,456/- u/s 92 of the Act towards notional interest on delayed realisation of export receivables by the appellant from its AEs. 3.1 Ld. CIT(A) failed to appreciate the uniformity of act of appellant of not charging interest from AES as well as Non-AEs customers for delay in realisation of export proceeds and hence assessee's practice of not charging interest on delayed realisation of export proceeds from AE....
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.... the expenditure incurred by the appellant and by not following the Jurisdictional High court cage of CIT vs. HDFC Bank Ltd. (ITA No.:330 of 2012). 2. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing, selling and marketing of cut and polished diamonds. The assessee filed its return of income for the A.Y 2009- 10 on 29.09.2009, declaring income of Rs. 7,86,19,210/- under the normal provisions of the Act. Along with the return of income, the assessee furnished a report in Form-3CEB and reported following international transactions with its associated enterprises (AE). Sr. No. Description of Transaction Amount Most Appropriate Method used 1 Purchase of raw Materials 76,83,74,820 TNMM 2 Purchase of Polished diamonds 34,05,32,235 TNMM 3 Sale of cut and polished diamonds 484,15,19,543 TNMM 3. Consequent upon reporting of international transaction of more than Rs. 15 Crore, the assessing officer (AO) made reference to the transfer pricing officer (TPO) for computation of arms length price (ALP) of the said transactions. 4. During the transfer pricing adjustment proceeding the TPO f....
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....milar disallowance was made. 7. The AO, further, noted that assessee has shown dividend income of Rs. 1.62 lakhs as dividend income. The assessee was asked to furnish the details of expenditure incurred for earning such exempt income. The assessee filed its reply and contended that no expenses are incurred for earning such exempt income and hence no disallowance u/s 14A of the Act called for. The assessee also contended that during this relevant year the assessee had not made any new investment. The investments made in the past were out of the assessee's own fund. Further, there are no indirect expenses for the purpose of earning dividend income during the year nor there is any use of fund borrowed during the year. The assessee in this without prejudices contentions furnished making of disallowances u/s 14A of the Act @ 0.5% of average value of exempt investment. Thus, the assessee offered disallowance u/s 14A of Rs. 2.49 lakhs. The contention of the assessee was not accepted by the AO, the AO disallowed the interest expenses of Rs. 30,13,853/- and indirect expenses @ 5% of average value of investment (that by assessee in its without prejudices contention). Thereby, the AO disal....
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..... In support of his submission the Ld. AR relied upon the decision of Rushabh Diamonds Vs ACIT, [2016] 68 taxmann.com 141 (Mumbai-Trib). 11. The Ld. AR further submits transfer pricing officer ought to have appreciated that AEs have also made pre payment against their receivables even if the ALP to be computed then same had to be computed by aggregating the impact of delay in same cases pre payment in other cases reliance is made on the following cases: • Barclys Bank PLC Vs. ADIT, [2018] 100taxmann.com476 (Mumbai - Trib), • DCIT Vs. Indo American Jewellary Ltd., [2012] 50 SOT 528 (Mumbai), • Jewellmark India P. Ltd Vs. ITO (ITA No. 432/M/2014). 12. On the other hand, Ld. DR for the revenue submitted the order of TPO/CIT(A). The Ld. DR for the revenue submits that after the amendment in Sec. 92B of the Act any benefit arising out of capital finance is an international transaction. 13. We have considered the submissions of both the parties deliberated on various case laws relied upon by the AR of the assessee. We have noted that TPO while making bench mark accepted the international transaction on sale of cut and polished diamonds with....
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....tanding foreign currency monitory items and the closing rate at the rate as on 31st March. Accordingly, the debtors and creditors, borrowing and uncertain forward contracts were restated at the yearend applying the closing rate of the foreign currency and gain / loss on such conversations were charged to profit and loss account. During the relevant period the assessee suffered foreign exchange fluctuation loss of Rs. 6.69 Crore. The details of which was furnished before the lower authorities. This included foreign exchange fluctuation loss of Rs. 2.86 Crore on yearend conversion of its outstand forward contracts, details of export invoices related to these contracts as on 31st March 2009 were furnished to the lower authorities. Copies of the same are placed at page no. 299 to 302 of the paper book. The AO disallowed Rs. 2.86 crore to yearend conversion of foreign forward exchange contract treating it to be a notional loss and by taking view that contracts were outstanding and settled in subsequent year. The assessee has been consistently following the treatment of revaluation of foreign currency transaction and has been allowed by the AO in all previous and subsequent years except ....
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....rt in CIT Vs. D Chetan & Co. 390 ITR 36 (Bom), while considering the decision of Badridas Gauridu P Ltd., (supra) and order in assessee's own case for AY 2008-09, held that the order of Badridas Gauridu P Ltd., (supra) was not brought to the notice of Tribunal when Tribunal rendered its decision in S. Vinod Kumar (supra). The Hon'ble High court held that forward contract in foreign exchange when incidental to carrying of business of exporter and then to cover up of losses on account of difference in foreign exchange valuation would not be speculative activity but a business activity. Accordingly, Ld. AR of the assessee submits that decision in earlier i.e AY 2008-09 should not be followed in the year under consideration. 20. The Ld. AR also relied upon the decision of the Tribunal in ACIT Vs. Shree BalKrishnan Exports, ITA No. 4185/M/2014, wherein it has been held that earlier year decision of Tribunal is no longer applicable in view of the later decision of High Court in case of D. Chetan & Co.(supra). 21. On the other hand, the Ld. DR for the revenue strongly relied upon the order of lower authorities. 22. We have considered the rival contentions of the parties and caref....
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....venue's contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar Diamonds (P.) Ltd. (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical/similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar Diamonds (P.) Ltd. (supra), the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT v. Badridas Gauridu (P.) Ltd. [2003] 261 ITR 256/[2004] 134 Taxman 376 (Mum.) was not brought to the notice of the Tribunal when it rendered....
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....as reiterated by Hon'ble High Court that forward contracts for purpose of hedging when incidental to carrying on business of exporter and then cover up losses on account of difference in foreign exchange valuation, would not be speculative activity but a business activity. 27. Considering aforesaid factual and legal discussion and keeping in view the decision of Hon'ble Supreme Court in Woodward Governor India P. Ltd., (supra) that losses on revaluation of unmatured foreign exchange forward contract and such losses are not notional losses and are allowable as business expenditure u/s 37(1) of the Act. Further, in case of D Chetan & Co., wherein, the Hon'ble High Court reiterated its earlier decision in Badridas Gauridu P Ltd, that forward contract in foreign exchange when incidental for carrying on business of export and are done to cover up losses on account difference in foreign exchange valuation would not be speculative activity but a business activity. Therefore, we direct the AO to delete the disallowance. In the result, Ground No. 6 & 7of the appeal is allowed. 28. Ground No. 8 relates to disallowance Rs. 32,62,934/- u/s 14A read with Rule 8D(ii) & 8D(iii). The Ld. AR ....