TaxTMI 
TaxTMI 
2021 (1) TMI 463
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.... erred in upholding the disallowance made by the AO of Rs. 1,82,04,000/- in respect of forex loss on derivatives by holding the same as hypothetical and contingent in nature. 2.2. The learned CIT(A) failed to appreciate the fact that these expenses are recognized in accordance with the accounting treatment provided in the Accounting Standard -11 and 30, issued by the Institute of Chartered Accountants of India. 2.3. The learned CIT(A) failed to appreciate the fact that these forex losses are in respect of binding obligations and are not speculative in nature. 2.4. Without prejudice to above, the learned CIT(A) failed to appreciate the fact that this forex loss debited to profit and loss account is only a timing difference as the same has been reversed in the next year and offered to tax. 2.5. The learned CITA(A) erred in not considering the submission filed by the Appellant during the course of hearing in this regard." 3. The assessee is a company engaged in the business of software development services. In the course of assessment proceedings, the AO noticed that the assessee had claimed a sum of Rs. 1,82,04,000 as exchange loss on forward co....
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.... ld. counsel for the assessee brought to our notice the decision of the Special Bench ITAT in the case of ACIT v. Bank of Bahrain [2010] 41 SOT 290 (Mum)(SB) wherein the SB took the view that forward contract entered into by the assessee to sell foreign currency at an agreed price on a future date falling beyond last date of account period, i.e., before the date of maturity of forward contract, such loss has to be allowed as a deduction. 7. Our attention was also drawn to a decision of the Bangalore Bench of Tribunal in the case of Quality Engineering & Software Technologies (P.) Ltd. v. DCIT (2014) 52 taxmann.com 515 (Bang. Trib.) wherein it was held that provision for losses incurred on derivative contracts was an allowable expenditure. In that case, the assessee entered into a forward contract in order to protect its interest against fluctuations in foreign currency in respect consideration for export proceeds and there was an actual contract for sale of merchandise. The Tribunal held that such transactions cannot be termed as speculative transaction. 8. Reliance was also placed by him on the decision of the Hon'ble Bombay High Court in the case of CIT v. D. Chetan (2016) ....
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....n 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 its decision in S. Vinodkumar Diamonds (P.) Ltd. (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity." 9. It was contended by the ld. counsel for the assessee that the facts o....
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....ce. The AO was of the view that payment in question was in the nature of royalty or fees for technical services and therefore taxable in India. Since the assessee had not deducted tax at source on the aforesaid payment, the AO disallowed the claim of assessee for deduction of the aforesaid sum for non-deduction of tax at source u/s. 195 of the Act and invoked the provisions of section 40(a)(i) of the Act. The AO placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd., 345 ITR 494 (Karn) wherein the Hon'ble Court held that when licence is granted to make use of software by making copy of the same and store it in hard-disk of designated computer and to take backup copy of the software, it will amount to a transfer of right to use software and would constitute royalty within the meaning of Article 12 of DTAA between India and USA. 14. On appeal by the assessee, the CIT(Appeals) confirmed the order of the AO. Before us, the ld. counsel for the assessee submitted that payments in question had been made in the previous year relevant to AY 2010-11. He brought to our notice that the decision of Hon'ble Karnataka High Court in th....
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....ruling of the Hon'ble Bangalore ITAT in Sonata Information Technology Ltd. v. ACIT (103 ITD 324) which had held that payments for software licenses do not constitute royalty under the provisions of the Act and hence disallowance under section 40(a) (ia) of the Act would not be applicable. The change in the legal position on taxation of computer software was on account of the ruling of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. (320 ITR 209), which was pronounced on 15.10.11 that is much later than the closure of the FY 2010-11. Subsequently, the Finance Act 2012 also introduced, retrospectively, Explanation 4 to section 9(1 (vi) of the Act to clarify that payments for, inter alia. license to use computer software would qualify as royalty. During the FY 10-11, the assessee did not have the benefit of clarification brought by the respective amendment. As such, for the FY 2010-11, in light of the provisions of section 9(1)(vi) of the Act read with judicial guidance on the taxation of computer software payments, tax was not required to be deducted at source. Given the practice in prior assessment years, the assessee was of the bona fide view that the p....
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....d when the purchase was made, the appellant did not have the benefit of clarification brought by the retrospective amendment. It is impossible to fasten liability for deducting tax at source retrospectively as tax is to be deducted at source at the time when the payment is credited or made. This view has been upheld by the Bangalore Tribunal in the case of DCIT v. M/s WS Atkins India Pvt Ltd (ITA No 14671Bang12014 and the Mumbai Tribunal in the case of Channel Guide India Ltd. v. ACIT ([2012] 25 taxmann.com 25). 5.2 The ITAT 'C' Bench in the case M/s WS Atkins India Pvt. Ltd and in the case of Infotech Enterprises Ltd of the Hyderabad Bench of the Tribunal wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account of a retrospective legislation. It has also referred to in the case of Sonic Biochem Extractions Pvt. Ltd. (supra), identical issue was considered and decided by the Mumbai Tribunal. Following were the relevant observations:- "The assessee purchased software, capitalized the payment to the computers account as the software came along with the hardware of co....
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.... 05. The CIT (A) followed the decision of this Tribunal in M/s WS Atkins India Pvt. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/HYD/2011 wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account of a retrospective legislation. It has also referred to the decisions of the Delhi & Mumbai Tribunal in SMS Demag Pvt Ltd, 132 ITJ 498 & Sonic Biochem Extractions Pvt. Ltd. 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT (A) and dismiss the grounds raised by the Revenue.' Thus it is clear that the co-ordinate Bench of this Tribunal while deciding this issue has taken note of various decisions in favour of the assessee on the point that the payment for purchase of software does not fall in the definition of royalty. Respectfully following the decision of co-ordinate Bench of this Tribunal, we delete the disallowance made by the Assessing Officer." 17. Following the aforesaid decision, we hold that disallowance u/s. 40(a)(i) of the Act in the present case cannot be sustained as the obligation....
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....ar 2009-10 relevant to assessment year 2010-11, the assessee made a contribution of Rs. 3,72,61,000/- to approved superannuation fund i.e. M/s Asea Brown Boveri Senior Executive Superannuation Scheme. During the course of assessment, the AO asked the assessee to submit the copy of approval for the AY 2010-11 by the appropriate authority as envisaged in the provisions of "The Fourth Schedule -Part B" of the Income Tax Act, 1961. The assessee has produced the copy of approvals by the said authority for earlier year and succeeding year, however could not produce the certificate for the financial year 2009-10 relevant to assessment year 2010-11. Hence, the AO disallowed the said contribution u/s 40A(7). 23. Before the CIT(Appeals), the assessee submitted that the said papers were not available with the assessee during the course of the assessment proceedings due to the fact that the same was kept in their old record room because of space constraint. By the time the said documents were located, the AO had already passed his order by disallowing the said sum. Hence, the assessee was prevented by sufficient reason from producing the said documents before the Assessing Officer. Further,....