TaxTMI 
TaxTMI 
2021 (4) TMI 481
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary. 3. The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO amounting to Rs. 20,68,00,000/- representing the loss on account of interest swap contracts. 4. Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of energy and power generation. The assessee has taken foreign currency loans which was subject to the interest at the rate of LIBOR +4.40%. The LIBOR rate being fluctuating in nature, the assessee has entered into interest rate swap contract with Standard Chartered bank in order to reduce the risk attached on account of fluctuation in the LIBOR rate. As such the assessee with such interest rate swap contract was able to convert the floating rate of interest into fixed rate of interest to safeguard its exposure against interest payment on the foreign currency loan. 4.1 The assessee further has incurred a loss of Rs. 20.68 crores with respect to such interest rate swap contract. Out of such loss, a sum of Rs.11.26 crores was realized on account of interest pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it has M2M gain on similar transactions which are offered to tax. During the course of appellate hearing, ARs of the appellant has submitted tabular chart in its written submission which show that in A.Y. 2015-16 appellant has earned M2M gain for Rs. 29.43 crores and such gain has been offered to tax. Further, Appellant has also earned swap realized gain for Rs. 37.91 crores in A. Y. 2015-16 which is also offered to tax 3.6. It is observed that Hon'ble Ahmedabad ITAT in the case of Adani Enterprises I Limited 55 Taxmann.com 375(2015), group case of appellant has held that "Where assessee company has entered into currency swap contracts for working capital loans which was prerequisite for its business of export and imp 311 of commodities, loss incurred in said contract being in respect of circulating/working capital is allowable business loss". It is also observed that on this very issue, Hon'ble Ahmedabad ITAT in the case of Heavy Metal and Tubes Limited in ITA No 1951/Ahd/2011 dated 30/06/2014 decided the issue in favour of assesses XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3.7 It is observed that Hon'ble Ahmedabad ITAT in the case of DCIT vs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITA No. 197/Ahd/2016 in the case of DCIT vs. Elitecore Technology Pvt Ltd has decided the issue in favour of the assessee by observing as under: 23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 24. It is with some amount of anguish that we have taken note of the fact that the CIT(A) was so much overawed with the CBDT instruction no. 3 (supra) on the subject that rather than even dealing with a Supreme Court judgment cited before him, he simply followed the CBDT instructions. It is only elementary that the CBDT instructions do not bind the appellate authorities and the appellate authorities are, therefore, required to take their independent calls in accordance with the law and binding judicial precedents. That has not been done. Be that as it may, in the case of Woodward Governor (supra), the issue regarding deductibility of foreign exchange loss came up for consideration before Hon'ble Supreme Court. Their Lordships, dealing with this issue and holding that such a loss will be deductible in computation of business profits, observed as follows: ..........it is clear t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come to the conclusion that business losses are deductible under s. 37(1) on the basis of ordinary principles of commercial accounting and having come to the conclusion that the Central Government has made Accounting Standard-11 mandatory, we are now required to examine the said Accounting Standard ("AS"). 18. AS-11 deals with giving of accounting treatment for the effects of changes in foreign exchange rates. AS-11 deals with effects of exchange differences. Under para 2, reporting currency is defined to mean the currency used in presenting the financial statements. Similarly, the words "monetary items" are defined to mean money held and assets and liabilities to be received or paid in fixed amounts, e.g., cash, receivables and payables. The word "paid" is defined under s. 43(2). This has been discussed earlier. Similarly, it is important to note that foreign currency notes, balance in bank accounts denominated in a foreign currency, and receivables/payables and loans denominated in a foreign currency as well as sundry creditors are all monetary items which have to be valued at the closing rate under AS-11. Under para 5, a transaction in a foreign currency has to be recorded in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g in loss that the Department has disallowed the deduction/debit. This fact is important. It indicates the double standards adopted by the Department. 11. The dispute in this batch of civil appeals centers around the year(s) in which deduction would be admissible for the increased liability under s. 37(1). 12. We quote hereinbelow s. 28(i), s. 29, s. 37(1) and s. 145 of the 1961 Act, which read as follows : "Sec. 28. Profits and gains of business or profession-The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession", - (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year." "Sec. 29. Income from profits and gains of business or profession, how computed-The income referred to in s. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43D." "Sec. 37. General-(1) Any expenditure (not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or professi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Supreme Court was considering the meaning of the expression "expenditure incurred" while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de futuro. The word "expenditure" is not defined in the 1961 Act. The word "expenditure" is, therefore, required to be understood in the context in which it is used. Sec. 37 enjoins that any expenditure not being expenditure of the nature described in ss. 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "Profits and gains of business". In ss. 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" has also been used. For example, depreciation and allowances are dealt with in s. 32. Therefore, Parliament has used the expression "any expenditure" in s. 37 to cover both. Therefore, the expression "expenditure" as used in s. 37 may, in the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 15. For the reasons given hereinabove, we h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... circulars. Nothing, therefore, turns on the CBDT instruction even if it is actually contrary to the claim of the assessee. 9.1 The facts of the case on hand are identical to the facts of the case as discussed above. We also find that the above decision is further confirmed by the Hon'ble jurisdictional High Court in Tax Appeal No 139 of 2018 dated 20/02/2018. Respectfully following the same, we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. 10. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 15,74,957/- on account of provisions for the gratuity. 11. The AO during the assessment proceedings found that the auditor of the assessee in tax audit report has disallowed the sum of Rs. 3,14,46,585/- representing the provision for the gratuity under the provisions of section 40A(7) of the Act. However, the assessee has made the disallowance in the computation of income for Rs. 2,98,71,626/- only leaving a short disallowance of Rs.15,74,957/- only. Accordingly, the AO disallowed the same and added to the total income of the assessee. 12. Aggrieve....