TaxTMI 
TaxTMI 
2022 (7) TMI 1321
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....y the assessee in this appeal: 1. That the worthy CIT(A)-3, Ludhiana erred in law and on facts in upholding the addition of Rs. 13,32,96,175/- being the amount of foreign exchange hedging loss incurred during the course of appellant's regular business by treating the same as speculative transaction. Direction may be given to allow the said loss as business loss. Without prejudice and in alternative, directions be given to Assessing Officer to carry forward the unabsorbed loss of this year under derivative transactions to the subsequent year. 2. a. That the worthy CIT(A)-3, Ludhiana erred in law and on facts in upholding the disallowance of Rs. 1,32,24,640/- u/s 14A of the Act made by the Assessing officer by applying rule 8D of the Income Tax Act, and in view of the fact that appellant itself disallowed Rs. 66,419/- in its return on proportionate basis. Directions may be given not to apply rule 8D in the case of appellant company when the appellant itself disallowed expenditure of Rs.66,419/- in its return on the basis and method recognized by courts on proportion basis and the same be restricted to the amount as shown shown in the return. b.....
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....apital which was actually utilized for the said specific purpose.. 5. That the appellant craves, leave to add, amend, alter, modify or substitute all or any of the above mentioned Ground of appeal before the appeal is finally heard and disposed off. 5. Vide Ground No. 1 the grievance of the assessee relates to the sustenance of addition of Rs. 13,32,96,175/- made by the AO on account of foreign exchange hedging loss incurred during the course of regular business by treating the same as speculative transaction. 6. The facts relating to this issue in brief are that the assessee was engaged in the manufacturing and export of cotton /blended yarn and manufacturing of hosiery garments. The assessee also had a wholly owned subsidiary i.e; M/s Monte Carlo Fashions Limited and manufactured various types of worsted yarn, textile fabric, woolen hosiery, denim fabric and readymade garments through the process of combing, spinning, knitting and weaving. Apart from manufacturing the assessee company was also doing investment in quoted and unquoted scripts. The assessee filed its return of income on 28/09/2011 declaring an income of Rs. 123,32,61,214/-, later on the case was selec....
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....and export obligations. This is a necessary business expenditure and may be allowed. The company has not followed AS-11, had the company followed the accounting standard with regard to foreign exchange rates, the net profit before Tax would have been lower by Rs. 49 Lacs approx. This has been clarified in notes on accounts at item No. C(iv) on page 24 of the Printed Balance Sheet. The-company has been adjusting foreign currency exchange rate difference to the fixed assets which pertains to the purchase of fixed assets." 6.3 The AO again asked the assessee vide notice under section 142(1) of the Act dated 18/12/2013, the following questions: '11. From the computation of income is has been observed that an amount of Rs. 12,53,86,979/- has been reduced from the total income. Please justify the deduction. Also submit a detailed note regarding the nature of the amount as well as the reason for deduction. 18. Detailed note on foreign exchange contingent (disputed liability reserve). 34. It has been observed from note B(vii) that an amount of Rs. 12,58,87,000 has been provided as expense in the books of accounts on account of derivative contracts. Please ....
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....uction no. 3/2010 of 23/03/2010 and that the speculative transaction is defined by section 43(5) of the Act, for the cost of repetition these are not reproduced herein. The AO after considering the submissions of the assessee observed that the loss claimed by the asessee was as a result of agreement with ICICI Bank and the assessee had incurred loss as per following details : Murex strategy Deal date Deal type Maturity Date Outstanding (Rs.Millions) Initial Credit in account -0.15 MX03943 10-Aug-07 INR to CHF POS 14-may-08 -1.47 MX03943 10-Aug-07 INR to CHF POS 14-may-08 86.95 MX03726 10-Aug-07 USD/JPY KIKO 8-Aug-08 29.50* MX03612 12-Jul-07 INR to JPY COS 14 July 08 (interest settlement) 1.79 MX03612 12-Jul-07 INR to JPY COS 13 Jan 09 (interest settlement) 12.06 MX03612 12-Jul-07 INR to JPY COS 13 July 09 (interest settlement) 10.47 MX03612 12-Jul-07 INR to JPY COS 12 Jan 10 (interest settlement) 7.48** MX03612 12-Jul-07 INR to JPY COS (unwind) 14-Jun-10 7. 76** Total 154.39 *USD/JPY....
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....ind or nature whatsoever against our company or its directors, arising out of the derivative transactions entered till date under ISDA Agreement entered between your bank and our company M/s Oswal Woolen Mills Ltd., Both the parties will file application for withdrawl of suit and original application in their respective case within fifteen days from the date of signing this letter or the next date of hearing of the case, whichever is earlier, subject to realization of the payment by ICICI Bank. " 6.10 The AO observed that the directions were not in relation to business carried on by the assessee and it had not been worked out on the last day of the financial year or reporting date. Hence there were no loss to the assessee which could have been set off against the income from business. He further observed that the assessee had claimed that the loss of Rs. 13.33 crores debited in the books was directly relatable to the business which was factually incorrect as the assessee was involved in the business of manufacturing yarn, textile etc. but the loss had been incurred in foreign currency transaction entered into with ICICI Bank Ltd. under a master agreement of foreign curr....
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.... assessee company.. The assessee is involved in the business of yarn, textile etc. but the loss is on account of speculation in currency. III. There is no 'mark to market' loss as claimed by the assessee. Even if there is 'mark to market' loss the same is not allowable in the case of the assessee as held by the Hon'ble ITAT Mumbai in the case M/s S. Vinodkumar Diamond Pvt. Ltd. vs Addl. C.I.T. Range5(3), Mumbai vide ITA No.506/Mum/2013 dated 03.05.2013, because it is not in relation to the business carried on by it. IV. Booking and cancellation of Forward Contract of exchange were not in respect of specified export or import. V. The forward transactions made by the assessee must have a direct connection with the goods manufactured or the merchandise sold. VI. The assessee is not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. It is not covered by provisions of section 43(5)(a) of the I.T. Act. VII. The transaction of currency has not been carried out by the assessee in any recognized stock exchange. Hence it cannot be treated as busi....
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.... retain FCCB so as to claim the amount given under each bond after a specified period. (iv) The agreement with ICICI Ltd. was for currency transactions. The head note of this agreement was "ISDA (International Swaps & Derivatives Association Inc.) Master Agreement dated 17.03.2007". (v) As per the agreement/ swap confirmations the foreign currencies can be swapped like INR-USD-CHF. Under the heading 'deal type' the conversion of currencies could be done from Indian rupees to CHF POS i.e. Swiss Frank and also from USD to CHF or vice versa. (vi) The appellant has not entered into the foreign exchange contracts in any Recognized Stock Exchange. Hence it cannot be treated as business loss in view of clause (d) of section 43(5) of the I.T. Act. (vii) The appellant has not entered into any hedging transaction for items imported or exported by it. Booking and cancelation of Forward Contract of foreign exchange was not in respect of specified export or import. The appellant is not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. To be hedging transactions, the fo....
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.... (ii) Hoosen Kasam Dada (India) Ltd. v. CIT (1964) ITR 171 (Cal) (iii) Abdul Gani Haji Habib v. CIT (1969) 72 ITR 6 (Cal), (iv) CIT v. Ratanlal Mohanlal (1972) 86 ITR 200 (All), (v) P.L. KN. Meenakshi Achi v. CIT (1974) 96 ITR 375 (Mad) and (vi) A. Mukhukumara Pillai v. CIT (1974) 96 ITR 557 (Mad). (vii) CITv. Ram Chandra Gupta & Co. (1968) 69 ITR 254 (Cal) (viii) Bhandari Rajmal Kusalraj v. CIT (1974) 96 ITR 401 (Mys) 8.3 The Ld. CIT(A) observed that the assessee had raised the following contention in support of its claim that the loss incurred on account of foreign exchange transaction was a business loss: (a) The transactions relating to foreign exchange were hedging transactions (b) The transactions were entered in with the view to cover the liability under FCCB amounting to more than Rs. 200 Crores. (c) Provision of section 43(5) were not applicable in the appellant's case as currency was not a commodity as referred to in section 43(5) of the Act. 8.4 The Ld. CIT(A) did not accept the claim of the assessee that the foreign exchange were hedging transactions for the reason that the asses....
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....The reliance as placed on the following decisions of ITAT, Mumbai Bench : * S.Vinodkumar Diamonds Pvt. Ltd., vs. Addl. CIT, Mumbai in ITA No. 506/Mom/2013 vide order dt. 03/05/2013 * Araska Diamond Pvt. Ltd. vs. ACIT in ITA No. 5631/Mum/2012 vide order dt. 17/10/2014 Reference was also made to the clarification regarding losses on account of derivative transaction in foreign exchange issued by CBDT vide Instruction No. 03/2010 dt. 23/03/2010 which clarified that in a case where a loss on a foreign-derivative transaction arose on actual settlement / conclusion of the contract and was not a notional or marked to market book entry, a further question would arise as to whether such a loss was on account of speculative transaction as contemplated in section 43(5) of the Act. The Ld. CIT(A) also observed that the Proviso (d) below sub-section(5) of section 43 of the Act inserted by the Finance Act, 2005, with effect from 1/04/2006 lays down that any eligible transaction in respect of trading in derivatives referred to in clause (a(c) of section 2 of the Securities Contracts (Regulation) Act, 1956, which had been carried out in a recognized stock exchange shall not be....
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....s not speculative transaction under section 43(5) of the Act. In reply thereto the assessee vide its reply dt. 28/02/2014 (copy of which is placed at page no. 27 to 32 of the assessee's paper book) submitted therein that to cover up the expected loss on fluctuation of foreign exchange on the liability incurred during the course of regular business, the ICICI Bank having fiduciary relationship with the assessee had suggested to hedge the liability as permitted under FEMA & RBI through derivatives contracts. Accordingly, the assessee company had to cover up its financial liability under import which was to be paid in foreign currency to the suppliers, entered into derivative contracts with the banks and as per banking guidelines, the said bank asked the assessee to file board approval which authorized the assessee company to enter into hedging transaction and that the board approval for the same was obtained as a result thereof vide resolution dt. 27/12/2006, copy of which is placed at page no. 33 of assessee's paper book which was also furnished to the authorities below. It was further stated that the assessee company filed detailed submissions dt. 17/11/2014 (copy of which is place....
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....ange as admitted by both the authorities i.e., CIT(A) as well as the Assessing Officer. The transaction of derivative product as evidenced by the Board's resolution and the ISDA master agreement entered into between the Bank and the assessee was hedged to meet the financial loss on account of fluctuation of foreign currency to cover the financial liability of the company because of unexpected fluctuations in foreign exchange currency in global market compelled as a matter of commercial expediency, to be viewed from the point of view of the assessee, to settle the derivate loss during the year relevant to the assessment year and therefore, the amount of said loss was rightly claimed as business expenditure/loss by the assessee. The intention of the assessee, thus, was to hedge the transaction for securing business loss. Such type of hedging transactions, it is well settled, are recognized as per law in India and one such decision in regard thereto is the decision rendered by the Hon'ble High Court of Madras in the case of Rajshree Sugars & Chemicals Limited Vs. Axis Bank Limited & Anr., 2008 SCO On Line Mad 746 : AIR 2011 Madras 144. Hedging transactions of financial liability a....
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....f business loss caused thereof was rightly claimed as a business loss and by no stretch of imagination the transaction could be held to be a speculative transaction thereby calling for the invocation of the provisions of Section 43(5) of the Act at the instance of the Assessing Officer for making a disallowance thereunder. The assessee for the aforesaid submissions relies upon the Judgments/Orders rendered by the Hon'ble High Courts and various coordinate Benches of the Hon'ble Income Tax Appellate Tribunals which are as follows: (i) Commissioner of Income-tax v. Soorajmul! Nagarmull [1981] 129 ITR 169 (Calcutta)/[ 1981] 22 CTR 6 (Calcutta); (ii) Commissioner of Income-tax v. Badridas Gauridu (P.) Ltd[2003] 261 ITR 256 (Bombay)/[2004] 187 CTR 453 (Bombay); (iii) Commissioner of lncome-tax-16, Mumbai v. D. Chetan & Co [2017] 390 ITR 36 (Bombay)/[2017] 295 CTR 365 (Bombay); (iv) Commissioner of lncome-tax-16, Mumbai v. Vishindas Holaram [2014] 50 taxmann.com 337 (Bombay)/[2015] 229 Taxman 30 (Bombay); (v) Commissioner of Income-tax v. Friends and Friends Shipping (P.) Ltd. [2013] 35 taxmann.com 553 (Gujarat)/[2013] 217 Taxman 267 (Gujarat); (vi) Commissioner of Income-tax - I....
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.... sustainable inasmuch as the transaction in question did not fall with the definition of speculative transaction as per Section 43(5) of the Act. Reliance was also placed on the following decisions of various Benches of the Tribunal : * The ACIT, Bangalore Vs. M/s Lifestyle International (P) Ltd. in ITA No. 2258/Bang/2016 vide order dt. 19/04/2021 (Bangalore Trib) * The DCIT v. Kunnam Granite Works, (2022)136 taxmann.com 415 (Chennai Trib) * SCM Garments (P) Ltd. v. DCIT [2015] 59 taxmann.com 395 (Chennai Trib) * The DCIT, Rajkot v. DML Exim (P.) Ltd. [2020] 118 taxmann.com 491 (Rajkot Trib) 11. In his rival submissions the Ld. CIT DR reiterated the observations made by the authorities below and strongly supported the impugned order passed by the Ld. CIT(A). It was further submitted that the assessee had not entered in derivative contract in any recognized stock exchange and had also not entered into any hedging transaction for items imported or exported by it. It was stated that the foreign currency transaction or loss incurred had nothing to do with the business of the assessee rather it was a speculative in nature and that the assessee c....
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....ssessee raise funds through FCCB (Foreign Currency Convertible Bonds) for the purpose of manufacturing and selling of goods. The transaction of derivative products as evidenced by the Board Resolution dt. 12/09/2006, copy of which is placed at page no. 33 of the assessee's paper book and the ISDA master agreement entered into between the bank and assessee company was hedged to meet the financial loss on account of fluctuation of foreign currency to cover the financial liability of the assessee company. The assessee as a matter of commercial expediency because of unexpected flucutations in foreign exchange currency was compelled to settle the derivative loss during the year under consideration and claimed the said loss as business expenditure. The intention of the assessee was to hedge the transaction for securing business loss. Such type of transaction are recognized as per law in India. 13.1 On a similar issue the Hon'ble Madras High Court in the case of Rajshree Sugars & Chemicals Limited Vs. Axis Bank Limited & Anr. Reported at AIR 2011 Madras 144 held that hedging transaction of FCCB's liability are not opposed to the public policy nor void agreements under section 23 of the....
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....day business activity and there was no element of speculation involved. 13.4 In the assessee's case no derivative contract could be entered into without underlying assets. A derivative means a financial instrument whose value changes in response to change in a specific interest rate, security price, commodity price, foreign exchange rate, index of price or rates, a credit rating or credit index which requires no initial net investment or little net investment relative to other types of contract that have a similar response to changes in market condition and it is settled at a future date, in such type of cases, risk embedded in underlying assets is to be protected by means of derivative contracts invented by the banking institutions but it is neither with the intention nor it can be foreign exchange delivery. It is for the purpose of protection of difference in exchange rate by determination of value of a given currency in a given period. In India, in the case of foreign currency derivative, interest rate derivative and credit derivative, RBI is empowered to regulate for the regulatory purposes. The RBI Act has defined the derivative as under; "Derivative means an instr....
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....ch the contract for purchase or sale of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The definition also provides for certain exceptions. A speculative transaction is characterized by four features, namely - (i) it is a contract for purchase or sale; (ii) The purchase or sale should be of a share, stock or commodity; (iii) There should be periodical or ultimate settlement of the contract; (iv) Settlement to be otherwise than by actual delivery or transfer. 5.7 In order to attract the definition of a speculative transaction, all the characteristics mentioned in the said definition is required to be satisfied. Definition of a speculative transaction vis-a-vis forward cover are as follows:- (i) A forex cover is a contract for purchase or sale and thus the first characteristic as per section 43(5) is satisfied. The third and fourth characteristic of periodic and ultimate settlement and settlement other than by actual delivery would be satisfied in a forex cover transaction. (ii) The second characteristic is that the purc....
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....ion of speculative transaction itself is not applicable to the assessee's case as all the conditions were not satisfied, treating the transaction as speculative in nature is not sustainable in law. Therefore, we hold that the CIT(A) is correct in deleting the disallowance of premium on forward contract and no interference is called for. It is ordered accordingly. In the present case also the assessee entered into forward contract with the ICICI Bank to hedge the import payments and repayments of the loans therefore the transaction entered into by the assessee was not speculative transaction. 13.6 Similarly the ITAT Chennai Bench 'A' in the case of DCIT Vs. Kunnam Granite Works (supra) held in para 8 & 9 as under: 8. We have heard both the parties, perused the materials available on record and gone through orders of "me authorities below. The facts borne out from record clearly indicated that assessee had entered into business of export of monument granite blocks to Japan Companies through their Chinese Intermediaries. The Chinese Intermediaries would be making the payment in USD with a future possibility of the direct payment by Japan customers in Japanese Yen depend....
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....his legal principle is supported by the decision of the Hon'ble Supreme Court in the case of Woodward Governor India (P.) Ltd. (supra), and it is also supported by the principles laid down by the Hon'ble Bombay High Court in the case of CIT v. VS. Dempo & Co. Pvt. Ltd. [1994] 72 Taxman 134/206 ITR 291 (Bombay), wherein, it was held that the loss arising in the process of conversion of foreign currency, which is part of trading asset of the assessee, is a trading loss as any other loss. In this case, the facts available on record clearly shows that the assessee being an export of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. The Ld. CIT(A) after considering the relevant facts has rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, is in the nature of business loss, but not speculative loss, which is covered u/s.43(5) of the Act. Facts remain unchanged. The Revenue failed to bring on record further evidences to prove the findings of facts r....
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....he AO termed the dollar bookings, which was not set off against the dollar remittance, as speculation and not hedging since there is booking in excess of the actual remittance accepted to be received. However, as we find from the records while allowing the claim of the assessee the Ld. CIT(A) observed as follows:- "7.2 I have perused the assessment order and the written submission filed by the Id. AR. The AO vide para 7 of the assessment order had held that the fluctuation in foreign currency arose on account of the dollar bookings by way of advance contracts entered into by assessee with the banks against which the realization of dollar at the time of export is adjusted and the extent of the unutilized dollar booked in advance by the assessee with the bank which remained outstanding at the end of the month, was closed by the bank by crediting/debiting the assessee's account to the extent of the unused dollar left behind out of the dollar booking for want of export realization, is speculative I nature. According to the AO, this settlement is done on a month to month basis by the ban and there is no squaring up of transactions by way of actual realization of do....
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....ks for the purpose of hedging the loss due to fluctuation of foreign exchange while implementing the export contracts. Such transaction in foreign exchanges were truly identical to the assessee's regular course of business and hence the loss is not a speculative one under section 43(5) of the Act; the same is incidental to the assessee's business and hence allowable. We, therefore, taking into consideration the entire aspect of the matter find no infirmity in the order passed by the Ld. CIT(A) in deleting the addition made by the Ld. AO on the premise that hedging of currency is incidental to appellant's business and thus the same is allowable business expenditure, in the present facts and circumstances of the case so as to warrant interference. We, thus, find no merit in the case made out by the Revenue. Hence, the order is passed in the affirmative i.e. in favour of the assessee and against the Revenue. In the present case also the assessee was not a dealer in foreign exchange, it had entered into forward contract with ICICI Bank for the purpose of hedging the loss due to fluctuation of foreign exchange while implementing export contract therefore the foreign excha....
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....ivative) with the bank in order to hedge its foreign exchange risk. In the case of the assessee, what has happened is that due to adverse foreign exchange movement, the bank has debited the loss to the assessee's account. Thus, the loss debited by the bank in the assessee's account has crystallized and is a realistic loss suffered by the assessee. In these circumstances, the issue under consideration before us is that, whether loss on account forex derivates are to be considered as a business loss in parlance with Section 28 of the Act. Further, in the case of the assessee before us, the following facts emerge and the legal issues involved are discussed and summarized herein below:- (i) The assessee has entered into forex derivative transactions only in order to contain the foreign currency fluctuation risk. (ii) Thus, the loss on account of forex derivative transactions are directly attributable to the normal business of the assessee. (iii) The loss incurred by the assessee is realistic and not notional. (iv) Only money changers and banks are allowed to trade in foreign currency and the assessee is neither a money changer nor a bank. (v....
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....vert to this claim of the assessee. (xi) Since the assessee has entered into foreign currency derivative contract adequate enough to cover the overall exposures of foreign currency, the contention of the Revenue that the proportion of the loss in derivatives is eight times more than the loss from currency fluctuation does not have any merits. (xii) The forex derivative transactions transacted by the assessee are through nationalized banks in compliance with the RBI regulations. These regulations permit the assessee to enter into such derivative transactions only by fulfilling certain conditions in the course of the business of the assessee These regulations do not permit the assessee to enter into forex derivative contract as a separate business. (xiii) Section 73(1) of the Act restricts the set off of speculation loss against the other business income in only those cases were speculative transactions carried on by the assessee are of such nature so as to constitute a business by itself. It is pertinent to mention here that RBI does not permit any bank under its umbrella to entertain its client in any separate business of forex derivative transactions. Pe....
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.... price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of "actual delivery", see Taxman's Direct Taxes Manual, Vol. 3. Jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause 35[(ac)] of section 236 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;] shall not be deemed to be a speculative transaction. Explanation.-For the purposes of this clause, the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or subbroker or such other intermediary registered under sect....
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....Nationalized Banks are either Government regulatory body or extended arm of the Government. Further the characteristic of the currency and stock/shares are not the same and therefore, currency cannot be held as stock or shares. This view is also fortified with the various decisions. 10. Now let us examine the following decisions:- A. In the case of CIT Vs. Badridas Gauridu (P) Ltd., reported in (2003) 261 ITR (Bom) wherein it was held that the assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee's regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under s.43(5) of the IT Act, 'Speculative transaction" has been defined to mean a transaction in which a contract for the purchase or sale of a commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge ag....
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....d was in settlement of the amount of damages suffered by the assessee by reason of breach of the contract to delivery, it is to be held that the payment was not a loss from a speculative transaction as defined in Expln.2 of s.24(1) of IT Act, 1922. C. In the case of Cotton Blossoms (India) Pvt. Ltd. V ACIT, in ITA No.2032/Chny/2012 vide order dated 21.02.2013, also the Chennai Bench of the Tribunal held that, in respect of forex contracts entered into by the assessee in similar circumstances will not fall under the definition of speculative transaction. D. In the case of Sutlej Cotton Mills Ltd Vs. CIT, reported in 116 ITR 1(SC) wherein it was held that loss on account of revaluation of foreign currency is a trading loss to the extent it does not relate to any capital asset and accordingly allowable. E. In the case of Munjal Showa Ltd. Vs. Dy.CIT, reported in (2005) 94 TTJ (Del.) wherein it was held that profit on cancellation of forward contract in foreign currency entered into for safeguarding against loss by fluctuation in foreign currency for purchase of plant and machinery with loan obtained in foreign exchange is capital receipt and not speculative ....
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....e assessee M/s.SCM Garments Pvt Ltd in ITA Nos.1645/13 & 2275/Mds./2014 for the assessment years 2009-10 & 2010-11 and the first ground raised by the assessee M/s.Gajaananda Jewellery Maart Pvt Ltd. in ITA No.1646/Mds./2013 for the assessment year 2009-10 are allowed in their favour." In the present case also the assessee entered into forex exchange transaction through its banker with a view to effectively hedge its foreign currency risk therefore these forex derivative transaction are a close proximity or rather incidental to the business of the assessee which cannot be considered as speculative. 13.9 Similar view has been taken by the ITAT Chennai Bench 'A' in the case of DCIT Vs. Kunnam Granite Works (2022) 136 taxmann.com 415 (Supra) wherein relevant findings have been given in para 8 & 9 as under: 8. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from record clearly indicated that assessee had entered into business of export of monument granite blocks to Japan Companies through their Chinese Intermediaries. The Chinese Intermediaries would be making the payment in US....
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....underline asset is more than the amount of forward contracts entered into by the assessee. This legal principle is supported by the decision of the Hon'ble Supreme Court in the case of Woodward Governor India (P.) Ltd. (supra), and it is also supported by the principles laid down by the Hon'ble Bombay High Court in the case o fCITv. VS. Dempo & Co. Pvt. Ltd. [1994] 72 Taxman 134/206 1TR 291 (Bombay), wherein, it was held that the loss arising in the process of conversion of foreign currency, which is part of trading asset of the assessee, is a trading loss as any other loss. In this case, the facts available on record clearly shows that the assessee being an export of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. The Ld. CIT(A) after considering the relevant facts has rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, is in the nature of business loss, but not speculative loss, which is covered u/s.43(5) of the Act. Facts remain unchange....
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....T in CO.No. 17/2001 for Asstt.Year 1997-98 in case of Nahar Industrial Enterprises Ltd one of the group company and also followed by your predecessor in Assessment proceedings for Asstt. Year 2006-07. The calculation is given as under. (Amount in Rs.) DISALLOWANCE U/S 14A IN CASE OF REGULAR COMUPTATION 1. Amount Of Dividend Income 6,003,156/- 2. Operating Income 9,612,589,314 3. % of Dividend Income 0.06245 4. Amount Of Expenses Out Of Administrative Expenses 106,353,029 5. Proportionate Amount of Disallowance of Administrative Expenses to Earn Dividend Income 66,419/- Administrative Expenses 1. Interest paid to others 34,688,260 2. Managerial remuneration 39,845,000 3. Cost Audit 86,464 4. Auditors remuneration 1,201,226 5. Directors Meeting Fee 140,000 6. Postage, Telegram & Telephone 8,459,667 7. Printing & Stationary 4,298,901 8. Travelling and conveyance 9,506,845 9. Vehicle expenses 8,126,666 106,353,029 On the basis of the above computation the assessee company has alr....
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....ee objected to the working of the AO and submitted as under: "With reference to the subject mentioned above and queries raised at Sr.No.3 vide questionnaire dated 18.12.2013, regarding disallowance u/s 14A read with rule 8D by considering total interest paid (including interest on working capital as well as term loan) it is humbly submitted as under:. That the assessee on its own while computing disallowance u/s 14A had considered proportionate interest attributable to investments. The balance amount of interest pertains to the loan of Rs. 177.12 Cr taken by company by way of term loan and Rs. 199.38 Cr for working capital. As against the total term loan of Rs. 199.38 Cr. my fixed block of assets was Rs. 300.98 Cr. which is sufficient to demonstrate the utilization of entire term loan farpurchase of fixed assets. Besides, please note that entire term loan is taken under tuff scheme as is evident from page 14 of Balance Sheet, which under no circumstances can be utilized for any other purposes except for fixed assets of textile unit spelt out under tuff scheme. Further during the year under consideration the company's total borrowed working capital loa....
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....laim of the expenditure made by the assesee in relation to the income which does not form part of the total income by observing that the method adopted by the assessee could not be accepted because it had been worked out upon administrative expenses only on proportionate basis and a part of interest paid only, however, the expression of "expenditure incurred" in section 14A of the Act refers to other expenditures also including rent, taxes, salaries, interest etc. which can't be apportioned unless Rule 8D is applied. The AO referred to the judgment of the Hon'ble Apex Court in the case of CIT Vs. V.W. Alfort Share Brokers P. Ltd. reported at 326 ITR 1 and in the case of Godrej and Boycee Mff. Co. Ltd. as well as the judgment of Hon'ble P&H High Court in the case of CIT Vs. Punjab State Industrial Development Corp. Ltd. in ITA No. 565 of 2006 vide order dt. 18/07/2011. The reliance was also placed on the decision of the ITAT Chandigarh Bench in the case of Sigma Cartons (P) Ltd. Ludhiana Vs. Department of Income Tax in ITA No. 769/Chd/2011 vide order dt. 10/07/2012 for the A.Y. 2008-09. 15.6 The AO observed that this submissions of the assessee that the entire term loan had been ....
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.... dt. 17/11/2014 which had been incorporated at page no. 20 of the impugned order by the Ld. CIT(A) for the cost of repetition the same is not reproduced herein. 16.2 The Ld. CIT(A) after considering the submissions of the assessee and report of the AO sustained the disallowance and observed that the assessee had not been able to establish that these investments were actually made out of interest free funds and no amount of interest bearing funds were used for this purpose and that the assessee had not shown any direct nexus of borrowed funds with any particular income or expenditure as there was mixed use of borrowed funds and it was not possible to link the borrowed funds with any particular income or receipt. He therefore held that there was mixed use of interest bearing funds and that some of the funds were used for investment in business while a part of the funds was used towards investment in shares. As such Rule 8D(ii) was attracted in the assessee's case. The Ld. CIT(A) held that the provisions of Section 14A of the Act r.w.r 8D would be applicable, the reference was made to the following case laws: * Avon Cycles Ltd. Ludhiana Vs. CIT, Ludhiana in ITA No. 277 of ....
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.... 14A of the Act. It was further submitted that the AO worked out the disallowance at Rs. 1,82,24,640/- under section 14A of the Act by erroneously applying the provisions of Rule 8D by including the interest paid on term loan which alongwith interest was attributable to and / or relatable directly to business of the assessee and further the AO instead of taking into consideration the average investment from which the exempt dividend income was received during the year under consideration total average investment as shown in the balance sheet which pertained to the earlier A.Y. including the present A.Y. from which no dividend income had been earned. It was stated that the investment had been reduced during the year under consideration on the reserves and surplus were made as per the balance sheet therefore the presumption was raised as per the various decisions of the Hon'ble High Court including that a jurisdictional High Court in the case of CIT Vs. Max India Ltd. reported at (2016) 388 ITR 81 (P&H) wherein it was held that no disallowance under section 14A of the Act could be made of any expense by applying Rule 8D. 18.1 It was submitted that the assessee earned exempt divide....
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.... * The South Indian Bank Ltd. Vs. CIT reported at 438 ITR 1 (SC) * Canara Bank Vs. ACIT, Bangalore [2014] 265 CTR 385 (Karnataka) 19. In his rival submissions the Ld. CIT DR reiterated the observations made by the AO in the assessment order and strongly supported the said order. The Ld. CIT DR also reiterated the observations made by the Ld. CIT(A) in para 4.6 of the impugned order wherein the Ld. CIT(A) had observed that the assessee had not been able to establish that the investments were actually made out of the interest free funds and no amount out of interest bearing funds was used for this purpose and that the assesse had not shown any direct nexus of borrowed funds with any particular income or expenditure. It was further submitted that the Ld. CIT(A) was fully justified in upholding the view of the AO that the provisions of Section 14A were applicable in this case and disallowance was required to be made under Rule 8D. 20. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that the assessee during the year under consideration had recived exempt dividend income of Rs. 60,03,156/-, the assesse....
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....rresponding legal obligation upon the assessee to maintain separate accounts for different types of funds held by it. There was no statutory provision which obligated the assessee to maintain separate accounts which might justify proportionate disallowance. The nexus between expenditure disallowed and earning of exempt income had not been established. The disallowance under section 14A of the Act for the investment made by the assessee in bonds and shares using interest-free funds, would be legally impermissible." 20.3 In the present case also the assessee had made the investment in the securities out of common funds, the assessee was also having non interest bearing funds, even there was reduction in the investment during the year under consideration. The assessee also claimed to have received the dividend income through RTGS, therefore the disallowance made by the AO was not justified. It is also noted that a similar issue having identical facts was a subject matter of the assesse's appeal for the preceding assessment year 2010-11 in ITA No. 37/Chd/2015 wherein vide order dt. 03/07/2019 it has been held as under: 6. So far as the administrative expenses are concerned,....
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....on an objective basis. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee, there would be no warrant for taking recourse to the method prescribed by the rules. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee. We may further observe that the Hon'ble Delhi High Court in a recent decision has further given a similar view in the case of "CIT vs. Taikisha engineering India Ltd." (supra) and has held that the AO having regard to the accounts of the assessee is required to record his satisfaction that the self or voluntarily expenditure offered by the assessee or claim that no expenditure has been incurred by the assessee in relation to earning of exempt income was not correct or the same was unsatisfactory on examination of the accounts of the assessee. Without recording such a satisfaction, he cannot proceed to apply Rule 8D for the ....
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....essee had already disallowed a sum of Rs. 66,419/- under section 14A(1) of the Act, the said amount is to be reduced and the remaining amount may only be disallowed. Accordingly this ground of the assessee's appeal is partly allowed. 21. The next issue vide Ground no. 3 relates to the sustenance of disallowance of Rs. 1,53,17,042/- out of the interest paid on working capital loan and long term loan. 22. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee company was engaged in making investment in quoted and unquoted shares from year to year apart from manufacturing & export. And during the year under consideration the assessee had shown in the balance sheet, investment of Rs. 29.04 crores as on 31/03/2011 as against Rs. 58.09 crores in earlier years. The AO asked the assessee to explain as to why interest in investment in shares etc should not be allocated and made part of cost and disallowed under section 36(1)(iii) of the I.T. Act. In response the assessee submitted as under: "Regarding this query in respect of disallowance of interest u/s 36(l)(iii). It is submitted that the total inves....
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....n view. of above it is clear that. interest paid on term loan and working capital is for the purpose of its regular business. This fact has also been demonstrated through a computation (copy enclosed) filed vide letter dated 28.2.2014. From the said chart you would appreciate that company was having sufficient funds to make investment of Rs. 29.05 Cr. Further without prejudice, it is submitted that your kind self has already proposed to consider interest expenses for the purpose of disallowance u/s 14A read with rule 8D. No disallowance of the same amount can be made under two different sections. The Hon'ble legislative in its wisdom has categorically stated in Section 14A not to allow any expenses which are relatable to exempt income. The exempt income is derived from investments. That was the reason that amount of interest which is to be considered relatable to investments from where exempt income is derived, is to be considered for disallowance. You would appreciate that intention of Hon'ble Legislature is very clear that any element of interest which is relatable to investment / exempt income are to be considered for the purpose of disallowance. ....
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....the remaining part. According to him the investment in gross block of assets was more than the share capital and reserves as well as the term loan. He pointed out that the total term loan during the year were at Rs. 177.12 crores and total share capital and reserves were at Rs. 275.97 crores totaling to Rs. 453.09 crores whereas the gross block was Rs. 516.75 crores. According to him interest free funds available with the assessee i.e; share capital and reserves had already been invested in the fixed assets and nothing was left for investment in shares except the interest bearing funds i.e; working capital loan and other unsecured loans. He was of the view that the assessee had made investment in shares only out of the working capital and unsecured loans on which interest had been paid. Therefore entire amount of interest attributable to investment could have been disallowed under section 36(1)(iii) of the Act. He also observed that the assessee had failed to submit any evidence to prove that investment in shares had been made out of interest free funds, at the same time the AO observed that keeping in view the assessee's submissions that it had also made investment in the share....
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....sider the interest expenses for the purpose of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, therefore, no disallowance of the same amount could be made under two different sections. It was stated that no borrowed funds were used for making investment in the share and the interest paid on term loan and working capital loan was for the purpose of business of the assessee. The assessee also furnished a written submission which had been incorporated by the Ld. CIT(A) in para 6.3 of the impugned order which read as under: "It is submitted that during the year the total investment in shares of Rs. 140.86 Cr. was reduced from 141.17 Cr. of the immediately preceding year. No fresh investments were made during the year. The investment made in earlier year was from the funds sufficiently available out of internal accruals and Company's own funds. The detailed submissions were given in this regard vide our letter dated 14.03.2014 enclosed as Annexure-V, which was also reproduced by the assessing officer in its order at page 30 & 31. It was also submitted before Id. Assessing Officer that the interest expenses have also been considered....
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....e and that there could not be a presumption that internal accruals had been utilized for the purpose of investment in shares. The Ld. CIT(A) further observed that the onus was on the assessee to demonstrate that the internal accruals had been utilized for the purpose of investment in shares and that the figures appearing in the balance sheet were as on a particular day i.e; 31st March, so, it could not be presumed that the same state of affairs existed for the whole financial year and that it was incumbent upon the assessee to get verified from the bank statement that the assessee had not utilized borrowed funds for the purpose of investment in shares, and that there was no linkage on the day of making investment in shares as regards the position of cash available with the assessee i.e; with reference to the own funds or borrowed funds. The Ld. CIT(A) referred to the judgment of the Hon'ble Punjab & Haryana High Court in the case of M/s Abhishek Industries Limited, 286 ITR 1. A reference was also made to the following case laws : * Umesh Trehan in ITA No. 1022/Chd/2012 (Chd Trib) * Vishal Coaters Pvt. Ltd. in ITA No. 281 & 282/Chd/2013 (Chd Trib) * CIT Vs....
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.... justified in sustaining the addition made by the AO. 26. In his rival submission the Ld. CIT DR reiterated the observation made by the authorities below in their respective orders and strongly supported the impugned order passed by the Ld. CIT(A). 27. We have considered the submissions of both the parties and perused the material available on the record, it is noticed that an identical issue having similar facts was a subject matter of the assessee's appeal in the case of M/s Monte Carlo Fashions Ltd. Vs. ACIT (supra) wherein vide order dt. 12/10/2017 the issue have been decided in favour of the assessee and the relevant findings have been given in para 10 and 11 which read as under: 10. We have heard Ld. Representatives of both the parties and perused the material available on record. 11. It is also to be noted that the Finance Act 2003 has amended Section 36(1)(iii) by inserting a proviso to the existing provision w.e.f 01.04.2004 relevant to assessment year 2004-05. The proviso inserted to the existing provision of section 36(1)(iii) is reproduced as under: " Provided that any amount of the interest paid, in respect of capital borrowed for acqui....
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....ets had been received afterwards. Therefore the interest was not required to be disallowed in view of the provisions of section 36(1)(iii) of the Act, after the assets had been put to use. The AO again asked the assessee to explain as to why no interest was capitalized on assets purchased. In response the assessee submitted as under: "Regarding the capitalization of interest on the machinery lying under the Capital work in progress, it is humbly reiterated as also discussed with your kind self during the assessment proceedings that the interest, if any paid on the money borrowed for the said purpose of purchase of machinery will be capitalized at the time of capitalization of machinery as per policy adopted as per accounting norms. The said interest for the purpose of capitalization in the case of fixed assets is normally computed from the date of purchase of machinery vis-a-vis the date of amount borrowed if any. This is evident from the detail filed by us. Even your kind self has asked us to compute the amount of interest from the date of payment upto the date of machinery installed irrespective of the fact that the machinery was lying in work in progress in earlier year....
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.... disallowed u/s 36(l)(iii) of the I.T. Act. ii.) Though the assessee has claimed that the payments were made out of its own funds but the same is not tenable as the assessee has raised various loans during the year for running his business. The onus is on the assessee to establish that own funds were utilised. If the account is common for deposit of profits then automatically the debit balance will get reduced and consequently the interest would be lower. There is no substance in the argument of the assessee that only own funds were used. The payments for the purchase of assets were done through the same bank accounts where the profits of the business and the loan money received are being credited. Hence a clear cut distinction as to whether the loan funds or the profits of business were used for purchase of assets cannot be made. Accordingly, contention of the assessee company that it has not incurred any interest is not acceptable in view of the clear provision of explanation 8 of section 43(1) of the I.T. Act. As per the provision of Explanation to Section 43(1) which was inserted by the Finance Act, 1986, with retrospective effect from April 1," 1974 where any amount i....
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....cquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction" 6.4 The assessee's argument that the payments for purchase of assets out of own funds is, therefore, not acceptable. As per proviso to section 36(l)(ii) of the I.T. Act interest is to be capitalized till the date of actual use for the purpose of business. The assessee has furnished the working of interest from date of payment to date of actual use as below: Unit Name Amount of Interest Unit 1 Unit 3 (HO) 1693215.36 Unit 4 27118.17 Unit 5 391473.90 Unit 6 - Unit 7 - Denim Lalru 486944.13 SPG Lalru 18909.98 Chennai 1,407.04 Overseas 13361.05 Denim Bhopal - Total 2632429.63 It is believed that the assessee has made correct calculations. Later on, if it is found that there is error in calculation the same would be rectified. The interest to the extent of Rs. 26,32,429/- is therefore capitalized under provision to section 36(1)(iii) of the I.T. Act. The same would form part of the assets and depreciation would be allowed accordingly if the assesse does not contest this....
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....ed use of funds where borrowed funds have been used both for the purpose of investment in work in progress and in fixed assets as well as in shares and other business activities, it was in this background that the interest on term loan as well as other business loan were taken for the purpose of computation of disallowance under Rule 8D(2) r.w.s 14A of the Act. The Ld. CIT(A) deem it fair and reasonable to limit disallowance on account of capitalization of interest, fixed assets and capital work in progress to the extent of debt equity ratio. He accordingly asked the AO to recompute the disallowance by adopting the debt equity ratio and restrict the disallowance accordingly and that any excess depreciation allowed on account of capitalization of interest may be withdrawn. 31. Now the assessee is in appeal. 32. The Ld. Counsel for the assessee at the very outset stated that this issue is squarely covered in favour of the assessee in the case of Group Company i.e; M/s Monte Carlo Fashions Ltd. Vs. Asst. CIT in ITA No. 1341/Chd/2016 vide order dt. 12/10/2017, copy of the same was furnished. 33. In his rivals submissions the Ld. CIT DR strongly supported the impugned order pas....
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.... and ITA No. 149/Chd/2015 in the case of M/s Nahar Industrial Enterprises Ltd Vs. Additional CIT and M/s Nahar Spinning Mills Ltd. Vs. ACIT respectively, identical issues have been raised having similar facts the only difference is in the amount involved, therefore, our findings given in the former part of this order in ITA No. 153/Chd/2015 in the case of Oswal Woolen Mills Ltd. Vs. Addl. CIT, shall apply mutatis mutandis to the aforesaid appeals of the assessees. 36. Now we will deal with the appeal of the Department in ITA No. 200/Chd/2015. 37. Following grounds have been raised in this appeal : 1. Whether in the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the AO to allow the claim of the assessee on the issue of additional depreciation and carbon credits entitlements during assessment proceedings ignoring that there are no provision under the Income Tax Act to make amendment in the return of income at the assessment stage without revising the return. 2. Whether in the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the AO to allow the claim of the assessee on the issue of additional depreciat....
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....d put to use for less than 180 days, the deduction shall be restricted to 50% of the amount calculated in the said year. The balance 50% of the restricted allowance is to be given in subsequent year as the appellant was eligible to claim additional depreciation @ 20% but restricted to 50% thereof because of working of assets for less than 180 days in the said year. Since the machinery is still in use therefore the eligibility for claiming balance additional depreciation cannot be denied by invoking proviso to section 32(l)(iia) of the Act. The contention of the appellant is substantiated by various benches of the ITAT. The humble appellant relies upon the following decisions: 1) Apollo Tyres Ltd. Vs. ACIT (Cochin Bench). 2) MITC Roling Mills Pvt. Ltd. Vs. ACIT (Bombay Bench). 3) DIVIS Laboratory Ltd. Vs. DCIT (Hyderabad Bench)... IT A No. ll/HYD/2012. 4) DCIT Vs. SIL Investment Ltd.... 148 TTJ 213(Delhi). 5) Addl. CITVs. Cosmo Films Ltd 13ITR (Trib) 340-ITAT (Delhi). 39.1 The copy of the submission made by the assessee was forwarded to the AO who reported as under: "In this ground the assessee has taken a plea that t....
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....d made this claim of additional depreciation through letter dated 14.02.2014. The AO has disallowed this claim on the ground that the claim was not made in the return of income. Therefore, the claim made by letter filed during the course of assessment proceedings was held to be not allowable. The only issue to be considered is whether such claim made during the course of assessment proceedings through a letter and not through revised return was a valid claim. Reference in this regard may be made to the case of Budhewal Co-operative Society Ltd. In this case claim of deduction u/s 80P was disallowed by the AO on the ground that the claim was not made in the original return of income nor any revised return was filed for this claim. The claim had been made during the assessment proceedings through the letter filed before the AO. The disallowance made by the AO was confirmed by me vide order dated 24.08.2012 in Appeal No. 44/ROT/IT/CIT(A)-II/Ldh relying on the case of Goetze India Ltd. Hon'ble ITAT Chandigarh Bench, vide its decision dated 24.5.2013, in the case of Budhewal Co-operative Society Ltd., in ITA No. 1077/Chd/2012, reversed my order and held that an assessee can raise ad....
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.... original return of income, therefore, the AO was justified in not allowing the claim of the assessee raised during the assessment proceedings. 42. In his rival submissions the Ld. Counsel for the assessee reiterated the submissions made before the Ld. CIT(A) and further submitted that the Ld. CIT(A) followed the decision of the ITAT and allowed the claim of the assessee therefore, no interference is called for in the just order passed by the Ld. CIT(A). It was further stated that the AO himself allowed the claim of the assessee in subsequent assessment years i.e; A.Y. 201415 to 2017-18 copies of which are placed at page no. 47 to 102 of the assessee's paper book. 43. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that the Ld. CIT(A) rightly allowed the claim of the assessee by following the decision dt. 24/05/2013 of the ITAT Chandigarh Bench in the case of Budhewal Co-operative Society Ltd. in ITA No. 1077/Chd/2012 wherein it was held as under: "We find that the Hon 'ble Punjab & Haryana High Court in CIT vs. Ramco International (supra) allowed the claim of deduction under section 80IB of t....
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....ara 7.2 of the assessment order as under: 7.2 It is also pertinent to note that CER does not come under the second proviso of Sec. 28(va) which exclude any sum received under agreement from profit under business & profession and thus it is included in the definition of income as per Section 2 (24) (xii) of Income Tax Act. In the decision of Tarak Chemicals Pvt. Ltd., Mumbai dated 08.02.2013 the ITAT Mumbai held the compensation from multilateral fund under the Montreal fund for phasing out the production of environmental unfriendly substance only when the complete facts were produced before CIT (A) and was found to be covered under second proviso of Section 28 (va) of Lncome Tax Act. Notwithstanding discussion above the department has not accepted the view of ITAT and has preferred appeal before the Hon'ble High Court. More over the assessee itself has offered it taxation. No claim can be made without filing a revised return. The assessee has not furnished any revised return. Hence the claim of the assessee is rejected and the same is treated as revenue receipt. 46. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: &n....
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....ts. The appellant has relied on the decision of the Hon'ble IT AT (Hyd) in the case of My Home Power Ltd., (Supra) wherein the Hon 'ble IT AT has held that the receipts on account of carbon credits are capital receipts. Similar view has been held by the Hon 'ble ITAT Jaipur in the case of Shree Cements Ltd., vs. Addl. CIT in IT A No. 503/JP/2012. In this decision dated 27.01.2014, the Hon'ble ITAT held as under :- "38. We have heard the rival submissions and perused the evidence on record. We find that the Appellate Tribunal in My Home Power Ltd Vs. DCIT [supra], have, after detailed examination, concluded that the receipts from Carbon credit are capital in nature. We are inclined tofollow the said decision and the other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT [supra] and Ambika Cotton Mills Ltd. Vs. DCIT (supra) where also it has been held that receipt on account of Carbon Credit is capital in nature & neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains. Our above view is also supported by the decision of Supreme Court in the case of Vodafone International....
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....ted in 151 TTJ 616. The Assessing Officer rejected the claim of the assessee because the view of the Tribunal is not accepted by the Revenue Department and appeal is pending before High Court. It was also submitted that on identical issue, ld. CIT(A) has decided the issue in favour of the assessee in the case of Nahar Industrial Enterprises Ltd. Copy of the order is placed on record in which it was held that carbon credit receipt is not revenue receipt but capital receipt. The ld. CIT(Appeals), following his order in assessee's group cases of M/s Nahar Industrial Enterprises Ltd. dated 19.02.2014 allowed the appeal of the assessee. 3. The ld. counsel for the assessee, at the outset submitted that the issue is covered in favour of the assessee by order of ITAT Chandigarh Bench dated 15.04.2015 in ITA No. 389/CHD/2013 for assessment year 2009-10 in the case of DCIT Vs Kotla Hydro Power Pvt. Ltd., copy of the same is placed on record in which in para 7 to 9, the Tribunal held as under : "7. We have considered the rival submissions carefully. The facts of the case are identical to the facts of the case decided by Hyderabad Bench of the Tribunal in the case of My H....