TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 93
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....t the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-2 Guntur in ITA No.56/GNT/CIT(A)-2/2011-12 dated 29.11.2018, CIT(A)-11, Hyderabad in Appeal No.188/2017-18,ACIT,C-1-Rjy/CIT(A)-11/Hyd and CIT(A)-11, Hyderabad Appeal No.189/2017-18/ACIT,C-1-Rjy/CIT(A)-11/Hyd dated 30.10.2018 for the Assessment Year (A.Y.) 2009-10, 2012-13 and 2013-14 respectively. Since the facts in all the appeal are identical, these appeals are clubbed, heard together and disposed off in a common order for the sake of convenience as under. The facts of the case are extracted from I.T.A. 521/Viz/2019 for the A.Y.2009-10. 2. Brief facts of the case are that the assessee is engaged in the business of trading, manufacturing, processing of food products and agricultural products. The assessee is also engaged in the export of agri commodities. After procurement of export order from the prospective buyers at a fixed rate, the company will procure goods locally and the shipment of goods will be dispatched to foreign countries. This process from the day of procurement of order to the last day of shipment may take three to four weeks time, hence, to safeguard the profits against the fluctuations in the forei....
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.... countries. The appellant company debited these losses on cancellation of forward contracts which were booked during the previous financial years. The Assessing Officer treating the loss as notional and contingent in nature and disallowed to be set off against taxable income in view of the CBDTs Instruction No33/2010 dated 23.10.3I010 and added back to the income returned stating following reasons: a) There is no underlying exposure to the foreign exchange risks. The assessee does not have the crystallized contracts on hand or obligation on hand to export the rice. As seen from the statement of Forex losses debited, the assesses company went on entering into the forward contracts for hedging even in the months of January 2008 to March 2008 and beyond upto 31-03-2009, though the ban was imposed by Government of India for export of rice from the month of October 2007 When the Govt. of India bans the rice exports without giving any specific period during which the ban continues, no trader would accept any export obligation and risk the losses. b) The amounts of derivative contracts entered are far more than the export of agri products. Foreign exchange derivatives transactions wer....
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....ssee were not crystalised. Therefore, disallowed the loss claimed by the assessee on account of forward contracts and accordingly disallowed the sum of Rs. 45,69,33,047/- for the assessment year under consideration. Similarly, the AO disallowed the sum of Rs. 4,44,88,000/- for the A.Y.2012-13, Rs. 5,43,76,250/- for the A.Y.2013-14 on identical facts. 3. Against the order of the AO, the assessee went on appeal before the CIT(A) and submitted that the company raises sale invoices in foreign currency for export sales made to foreign buyers. The company used to enter into forward contracts with their bankers to hedge the currency risk. The purpose of entering into hedge transactions is primarily to provide an insurance medium against risk of unfavourable price fluctuation. Without these contracts of hedge transactions, there would be no effective insurance against the risk of loss in the price fluctuations of the commodity manufactured or merchandise sold. The company enters into foreign contracts with their bankers, i.e. State Bank of India, upon future projections of exports of agri commodities. All the export contracts of the company are in foreign currency i.e. USD. In the year 20....
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.... the order of the Ld.CIT(A) and argued that no interference is called for. 6. We have heard both the parties and perused the material placed on record. There is no dispute that the assessee is engaged in the export of agri commodities. The ban was imposed by government of India on export of rice in October, 2007 but not specified the period of ban. With the hope that the ban will be lifted, the company had entered into forward contracts with the bank and incurred losses at the end, since the ban was not lifted. The company had to pay difference to the banks between the expected rate of dollar at the time of booking the contract and actual value of dollar at the time of cancellation of contract and the resultant loss was debited to the account of the assessee, thus the losses were crystalised and not contingent in nature. There is no dispute that the bank has debited the loss and the assessee has incurred the forex loss on forward contracts. Entering into forward contract in foreign exchange is permitted by RBI and the losses were incurred during the course of business of the assessee. The assessee is not in the trade of foreign exchange and is engaged in the business of export of ....
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....al loss. As the forward contracts have been entered into against currency fluctuations, there would not be any crystallization of liability. The A.O. further observed that loss incurred by the assessee is of MTM losses, which is in the nature of notional loss cannot be allowed as deductions. The A.O. referred to AS-30 issued by the ICAI and CBDT circular and observed that MTM loss provided in the books of accounts cannot be allowed. We do not find merits in the findings of the A.O., for the reason that in the present case on hand, the A.O. himself has accepted that the loss claimed by the assessee are on account of cancellation/renewal of forward exchange contracts, which has been debited by the bankers. The assessee has filed details of forward exchange contracts and bank accounts. On perusal of the bank statements, we find that the losses incurred by the assessee is on account of cancellation/renewal of forward exchange contracts, which is crystallized and debited by the bankers. Considering facts and circumstances of this case, we are of the view that foreign exchange loss incurred by the assessee on account of entering into forward contracts with banks for the purpose of hedgin....
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....on of Sahuwala High Pressure Cylinder (P) Ltd. in I.T.A. No.261/Viz/2019 dated 12.03.2021 and argued that the Ld.CIT(A) erred in confirming the addition, therefore, requested to set aside the order of the Ld.CIT(A) and allow the cross objections of the assessee. 11. Per contra, the Ld.DR relied on the order of the Ld.CIT(A) and argued that the assessee has taken loan for forward contracts and derivative transactions on which the assessee incurred the loss during the course of business. Therefore, argued that benefit received on one time settlement required to be treated as business receipt as held by the lower authorities and accordingly submitted that no interference is called for in the order of the Ld.CIT(A) and the same is required to be upheld. 12. We have heard both the parties and perused the material placed on record. There is no dispute that the amount of Rs. 26.03 crores represent the principal amount, but not expenditure debited to the Profit & Loss account. The AO is permitted to tax the allowance or the deduction or expenditure incurred in the earlier assessment year and subsequently during any previous year obtained the benefit in cash or in any other manner whatsoe....
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.... OCC loan represents the principal which was never claimed as expenditure. The AO also did not make out a case that the principal amount was debited to the Profit & Loss account in the earlier years. Therefore there is no case for making addition u/s 41(1) in respect of the principal amount. The Hon'ble Supreme Court in the case of CIT Vs. Mahindra & Mahindra Ltd considered the similar issue and held as under : "15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respond....
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....of the Act has no application since the receipt was in the nature of cash or money. In the instant case what the assessee has received was remission of liability which was in the form of cash or money and the difference amount of principal which was settled by onetime payment was never debited to Profit & Loss account. Therefore, the decision of Hon'ble Supreme Court is squarely applicable in the instant case. The Ld.DR relied on the decision of Hon'ble Delhi High Court in the case of Rollatainers Ltd. Vs. Commissioner of Income Tax [2011] 15 taxmann.com 111 (Delhi) and the decision of Hon'ble High Court of Madras in the case of Commissioner of Income Tax, Chennai Vs. Ramaniyam Homes (P.) Ltd., the judgements were delivered prior to the judgement of Hon'ble Supreme Court in the case of Mahindra and Mahindra supra and the Hon'ble High Courts have no occasion to consider the decision of Hon'ble Supreme Court. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and accordingly, we uphold the same. The appeal of the revenue is dismissed. 12.1 In the instant case there is no dispute that the benefit by the assessee was in respect of Principal amount but no....