TaxTMI 
TaxTMI 
2021 (7) TMI 624
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..... Any other grounds that may be urged at the time of hearing." 1.1 The assessee also raised COs 03 & 04/Hyd/2017 against the said orders of CIT(A) wherein the cross objections raised are common in both the COs, which are as under: 1. The Appeal filed by the learned AO dated 04.01.2017 for the assessment year 2010-11 is contrary law, facts and circumstance of the case. 2. The learned CIT (Appeals) have appreciated that the loss incurred in respect of FOREX transactions to hedge against fluctuations is business loss and not as speculative loss. 3. The learned CIT (Appeals) have appreciated that the Assessee was availing FOREX limits with the four banks for hedging the FOREX exposure in connection with import and export of raw/ white sugar. 4. The learned CIT (Appeals) have appreciated that in order to hedge against lossess, Assessee had booked foreign exchange in the forward market with the banks. 5. The learned CIT (Appeals) have appreciated that the transaction was done with the permission of the Reserve Bank of India and such contracts were incidental to the Assessee's business of import/export of Sugar. 6. The learned C....
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....carried out in this case on 15.05.2012 by the Director of Income Tax (Investigation), Chennai. Accordingly, a notice under section 153A of the Act was issued to the assessee on 09.04.2014. In response to this notice, the assessee has filed its return of income on 08.05.2014. Notice under section 143(2) of the Act was issued to the assessee on 19.08.2014 and assessment completed on 27-03-2015 by disallowing Forex loss of Rs. 9,63,74,685 and 14A disallowance of Rs. 23,37,045/- for AY 2009-10 and Rs. 3,70,60,204/- towards Forex loss and disallowance u/s 14A of the of Rs. 19,11,615/- for AY 2010-11. Since for AY 2009-10 on the date of search, no assessment was pending, therefore, this year is to be treated unabated assessment year. Further, in respect of AY 2010-11, the assessment u/s 143(3) was pending on the date of search, therefore, this AY will be treated as abated assessment year. On going through, issue involved in both the years regarding Forex loss was common, we take the facts from AY 2009-10 to dispose of these appeals on merits and the decision taken in AY 2009-10 shall mutatis mutandis apply in AY 2010-11. 3. When the assessee preferred an appeal before the CIT(A), the ....
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....ent (ISDA) with four banks and availed forex limits with these banks and claimed that these limits were utilized for hedging forex exposure in connection with import and export of raw sugar/white sugar. The assessee company has entered into transactions of buying and selling of forex and incurred a loss of Rs. 3,94,83,000/- on the cancellation of the said contract and claimed the same as business loss and debited to P&L A/c as forex loss under the head 'manufacturing administration expenditure'. Therefore, since the facts in AYs 2009-10 and 2010-11 are similar to the AY 2008-09. As per accounting standard AS-11, the assessee has rightly, claimed the forex loss as business loss u/s 37(1) of the IT Act. The losses claimed by the assessee are not speculative loss as alleged by the AO. The appellant relied on the order of the Hon'ble Supreme Court judgement in the case of Sutlej Cotton Mills, 116 ITR 01 wherein it was held that loss will be allowable under section 28 i.e. as business loss if the following conditions are satisfied: * It should be one that is incidental to the carrying on of the business and must arise or spring directly from or be incidental to the carrying ....
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....7,70,567/- for AY 11 and AY 2011-12 respectively offered for tax in AY 2010-11 and AY 11-12 respectively on account of application of AS-11 on the pending forward contracts as on close of financial years. 10. In Woodward Governor (P.) Ltd. (supra) it is held that the exchange differences on foreign currency transactions in compliance of AS-11 need be considered in the accounts and the losses and profit arising therefrom need to be recognized as such for Income Tax purposes. It is further held that when the Revenue taxed the gains which accrued to the assessee on the basis of accrual and it is only in the year in question when the dollar rate stood increased, resulting in loss that the Revenue has disallowed the deduction/debt, which amounts to double standards adopted by the department. In the absence of any finding of Ld. AO as to the completeness and correctness of the accounts and also on want of compliance of accounting standards, it was held that the loss suffered by the assessee on account of exchange difference as on date of balance sheet is item of expenditure u/s 37(1) of IT Act. 11. In ONGC (supra) also, Hon'ble Apex Court took a similar view and hel....
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....provisions of section 43(5) of the Act. The said question was answered in favour of the assessee on the following lines: '26. ...... Be that as it may, we have considered the reasons assigned by the Tribunal in the assessee's own case for the earlier assessment year wherein the Tribunal rightly took note of the earliest decision of the Calcutta High Court on the said point in the case of Soorajmull Nagarmull and pointed out that under section 43(5) of the Act, 'speculative transaction' has been defined to mean a transaction, in which, a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated, the assessee herein was not a dealer in foreign exchange, but was an exporter of cotton. Therefore, the Tribunal rightly took note of the transaction done by the assessee though, in order to hedge against the losses, the assessee booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for the export of cotton in some cases failed and therefore, the assessee was held to be entitled to claim deduction in respect of the ....
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....paragraph 7 of the impugned order. For the foregoing reasons, we find no ground to interfere with the impugned order passed by the Tribunal." 7.4. Considering the above cited judgments & facts of the case of the assessee, the Forex loss claimed by the assessee is a business loss, which is allowable u/s 37(1) of the IT Act. 7.5 As regards the legal issue raised by the assessee by way of cross objection, we observe that on perusal of the assessment order for the AY 2009-10, nowhere any seized material has been referred by the AO for computing the assessment and made addition only on the basis of the financial statements. Since no incriminating documents found during the course of search u/s 153A, no addition can be made. In this regard, we rely on the following case law: 7.6 In this connection, we rely on the decision of the Cuttack Bench in the cases of Dr. Sukanta Chandra Mallick in IT(SS)A No. 86-91/CTK/2018 and others vide order dated 08/07/2017, wherein the coordinate bench observed as under: "8. We have heard the rival submissions and perused the material on record. Prima facie, the issue raised by both the assessees in their respective appeals for the assessm....
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....ounts and documents were found and seized as per annexure 'A' (01 sheets) and in Annexure-1filed at page 10 of the paper book, contaiinglist/inventory of a/c books etc. found/seized, it is mentioned that bunch of loose sheet found/seized and marked as SCMR-01. Similarly, in the panchanama prepared on 14.03.2016 & 17.03.2016, in para (i) of Sl.No.5(a), with regard to what are found and seized during the course of search, the panchas have put a cross mark on the same, meaning thereby there is no mention about the books of accounts found or seized during the course of search. Ld. DR was unable to establish that the loose sheets can be treated as books of accounts, whereas in the assessment order the AO has mentioned that the books of accounts have been seized but in the copy of panchanama produced before us, no such books of accounts has been found and seized. Further, in the assessment order while making addition the AO has not referred to any loose sheet or any specific incriminating document found during the course of search enabling him to make such addition. 10.We find that the CIT(A) relying upon the decisions of the Hon'ble High Court of Kerala in the case of ....
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.... (III)The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. Assessing Officer has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six assessment years 'in which both the disclosed and the undisclosed income would be brought to tax'. (iv) Although section 153 A does not say that additions should be .strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment 'can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this section only on the basis of seized material.' (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. ....