TaxTMI 
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2022 (7) TMI 1321
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....thy 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. That the worthy CIT(A)-3, Ludhiana, further erred in law and on facts in up....
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...., 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 selected for scrutiny. 6.1 During the course of assessment proceedings the AO noticed that the assessee had claimed deduction of Rs. 13,32,9....
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....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 justify its deduction." 6.4 In response the assessee replied as under: Reply to this query has already been given vide our letter dated 27/1/2014, However the copies of ISDA agreement along.with the cop....
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....t 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 Spot rate Loss in JPY (115- Spot)* 1.25 mio JPY7 INR Spot Rate Loss in INR 109.67 76, 650,000 0.3849 29,502,585 **USD/JPY Fwd rate To pay in USD (JPY 68.93 mio, /Fwd) USD/INR Fwd Rate Loss in INR (Fwd * USD amount -27.27 mio) 91.74 751,429 46.65 7, 780,205 6.9 The AO further observed that there was dispute in respect of the loss with the bank and a case was filed in the court of law, fin....
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.... 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 currency transaction or foreign currency swap. The transactions or the loss incurred had nothing to do with the business of the assessee and there was no mark to market valuation of loss as claimed by the assessee. 6.11 The AO also did not accept this claim of the assessee that the loss had crystallized and finally ascertained during the year, therefore, the same may be allowed as claimed in the return of income, for the reason that the loss was speculative in nature. The AO also referred to the provisions contained in sec....
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....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 business loss in view of clause (d) of section 43(5) of the I.T. Act. Accordingly loss incurred by the assesee amounting to Rs. 13,32,96,175/- was treated as speculative in nature and the set off claimed against the income from business and profession was not allowed. 7. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and reiterated the submissions made before the AO during the course of assessment proceedings. It was further stated that the provisions of section 43(5) of the Act were not applicable to the foreign currency transactions, a reference was made to th....
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....cts 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 forward transactions made by the appellant must have a direct connection with the goods manufactured or the merchandise sold. It is not covered by provisions of section 43(5)(a) of the I.T. Act. (viii) Transaction or the loss incurred had nothing to do with the business of the appellant. The appellant is involved in the business of yard, textile, sugar etc. but the loss is on account of speculation in currency. The loss is on account of exchange rate different in currency transactions. (ix) There is no 'marked to market' loss. 8.1 The Ld. CIT(A) was of the view that as per the provisions of Section 43(5) of the Act speculative transact....
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....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 assessee had not entered into any transaction for items imported and exported by it which is the pre-requisite for a transaction to be hedging in respect of goods manufactured and / or sold by the assessee. The reliance was placed on the following case laws: * M.G. Bros 154 ITR 695 (AP) * Delhi Flour Mills Company Ltd., 95 ITR 151 (Del) * M.P. Sugar Mill Pvt. Ltd., 148 ITR 203 (All) * CIT Vs. Ramkumar Venugopal & Co. (1993) 70 Taxman 30 (Bom) * Javri Subbaramaiah and Co. V. CIT (1964) 51 ITR 742 (AP) * Omkarmal Agarwal V. CIT (1968) 67 ITR 329 (AP) * Chimanlal Chhotalal V. CIT (1968) 69 ITR 129 (Guj) * Pankaj Oil Mills v. CIT (1978) 115 ITR 824 (Guj)(FB) * Kirtilal Jaisinglal & Co. v. CIT (1980) 121 ITR 779 (Bom) 8.5 As regards to the claim of the assessee ....
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....ction(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 treated as a speculative transaction and any loss in a speculative transaction can be set off only against profit from speculative transaction. 8.7 The Ld. CIT(A) held that the AO was fully justified in holding that the loss incurred by the assessee on account of foreign exchange transaction not involving actual delivery was speculation loss. 9. Now the assessee is in appeal. 10. The Ld. Counsel for the assesse reiterated the submissions made before the authorities below and further submitted that the assessee was engaged strictly as per its Memorandum of Association and Articles of Association, in the business of manufacturing and export of woolen / blended Yarn and during the F.Y. 2006-07 to 2010-11 the assessee exported yarn as per following details; Asstt. Year Amount (Rs.) 2007-08 23,82,99,743/- 2008-09 16,90,51,886/- 2009-10 13,78,62,....
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.... 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 placed at page no. 34 to 37 of the assessee's paper book), before the Ld. CIT(A) Ludhiana on the issue that Foreign Currency Transactions were made to hedge the financial liability related to normal business of goods imported for the manufacturing and sales & export of goods. However, unfortunately ever since in the beginning of year 2007 the foreign exchange market started fluctuating in a very unusual and unexpected manner. Thus the liability for this hedging contracts entered by the assessee with the bank in the normal course of business started generating heavy liability on account of unexpected fluctuation in foreign exchange in global market and the hedging contracts were abandoned by the assessee and whatever the liability arose for the purposes of hedging the business transactions, the assessee chose to pay off and accordingly the net liability for such hedging had been provided in the books of account as ....
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....e 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 are not opposed to public policy nor void agreements under Section 23 of the Indian Contract Act, 1872 moreso when such a transaction is not expressly included by the legislature treating the assessee entering into such a transaction as being engaged in the business of speculation and/or such a transaction as a speculative transaction under Section 28 read with Section 43(5) of the Act, and therefore, on the anvil of the settled principle of law that one arm of law cannot be utilized to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule{Bihari Lai Jaiswal v. CIT [1996] 217 ITR 746 (SC)/ 84 Taxman 236 (SC) followed by the jurisdictional High Court of Punjab & Haryana, Chandigarh in Commissioner of Income-tax v.Jagdish Chand Walia [1998] 234 ITR 595 (Punjab & Haryana)/[1998] 144 CTR 127 (Punjab & Haryana)}, the finding recorded by the learned CIT(A) that hedging tra....
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.... 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 - III v. Panchmahal Steel Ltd. [2013] 33 taxmann.com 10 (Gujarat)/[2013] 215 Taxman 140 (Gujarat); (vii) SCM Garments (P.) Ltd. v. Deputy Commissioner of Income-tax, Central Circle-III, Coimbatore [2015] 59 taxmann.com 395 (Chennai - Trib); (viii) Majestic Exports v. Joint Commissioner of Income-tax, Tripur Range, Triupu [2015] 62 taxmann.com 307 (Chennai -Trib)/[2015] 172 TTJ 504 (Chennai - Trib.)i (ix) Reliance Industries Limited v. Commissioner of Income-tax, Large Taxpayer unit [2013] 40 taxmann.com 431 (Mumbai - Trib.)/[2014] 147 ITD 323 (Mumbai - Trib.). It is submitted that the finding recorded by the CIT(A) holding that the transactions in foreign exchange entered into by the assessee could not be held to be a hedging transaction is therefore, not sustainable and deserves to be vacated. (b) The learned CIT(A) as well as the Assessing Officer committed a serious error of law in holding that the transaction of foreign e....
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....on 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 could not demonstrate how those transactions were directly linked with the business of the assessee. It was further stated that the transactions had been done without taking actual delivery therefore the provisions of section 43(5) of the Act were applicable as the transactions were speculative in nature. 12. The Ld. CIT DR accordingly submitted that the Ld. CIT(A) was fully justified in sustaining the addition made by the AO. 13. We have considered the submission of both the parties and perused the material available on the record. In the present case the assessee was in the business of manufacturing of yarn processed fabrics and sugar etc., it was not carrying on any trading activity of foreign exchange either in India or outside India since its incorporation. During the year under consideration the assessee debited Rs. 13,32,96,175/- as foreign exchange hedging loss under the head financial expenses. However the AO did not accept the claim of the assessee and....
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....ugars & 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 India Contract Act, 1872. 13.2 In the present case the assessee was engaged in manufacturing of yarn, processed fabrics, sugar and export of cotton yarn, its business did not extend to dealing in foreign exchange. However, 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 has permitted under FEMA and RBI through derivative contract. The assessee company had to cover up its financial liability under import which was to be paid in foreign currency to the supplier, entered into derivative contract with the bank and as per the banking guidelines, the ICICI Bank asked the assessee to file the approval of Board of Directors which authorizes the assessee company to enter into hedging transaction. In response the Board approval was obtained vide Resolution dt. 27/12/2006 copy of which is placed at ....
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....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 instrument, to be settled at a future date, whose value is derived from change in interest rate, foreign exchange rate, credit rating or credit index, price of securities (also called "underlying") or a combination of more than one of them and includes interest rate swaps, forward rates agreements, foreign currency swaps, foreign currency rupee swaps, foreign currency options, foreign currency - rupee options or such other instruments as may be specified by the bank from time to time." As per the RBI guidelines the user can undertake derivative transaction to hedge - specially reduce or extinguish an existing identified risk on an ongoing basis during the life of derivative transactions or for transformation of risk exposure as specially permitted by RBI. 13.5 On a similar issue the ITAT Bangalore Bench 'A' in the case of ACIT Vs. M/s Lifestyle International(P) Ltd. in ITA No. 2258 and 2259/Bang/2016 for the A.Y's 2008-09 and 2010-11 vide order dt. 19/04/2021 (supra)held in para 5.5 t....
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.... and settlement other than by actual delivery would be satisfied in a forex cover transaction. (ii) The second characteristic is that the purchase should be of a share, or stock or commodity. A forex cover is not a contract for the purchase of a share or a stock. In a forex cover, the purchase or sale is towards foreign currency. Therefore it has to be seen whether foreign currency can be equated with the term "commodity" such that its purchase or sale triggers the definition of a speculative transaction under the Act. 5.8 The term "commodity" has not been defined under the Income Tax Act Black's Law Dictionary (8th Edition) defines the term "commodity" as an article of trade or commerce; the term embraces only tangible goods, such as products or merchandise, as distinguished from services; an economic good, especially a raw material or an agricultural product. 5.9 The other definitions include: (i) Articles of commerce (ii) Anything movable which is bought and sold (iii) A raw material that can be sold (iv) An article of trade or commerce, especially an agricultural or mining product that can be processed and resold (v) Reasonably homogenous good or material bought....
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....of the direct payment by Japan customers in Japanese Yen depending on the currency fluctuation. As agreed by the parties, the assessee had achieved export sales of Rs. 50.53 Crs. for the FY relevant to the AY 2009-10. Since, the assessee had huge export receivables from customers, it had entered into a Forex derivative transaction with State Bank of India to hedge the foreign currency risk involved in these transactions. The assessee has treated profit or loss arised on account of fluctuation of foreign currency as income or expenses, as the case may be, in the relevant AYs. The Department has accepted the income declared by the assessee on account of Forex gain whenever the assessee has earned gain from appreciation in foreign currency. However, disputed loss claimed for the year under consideration only on the ground that derivative transactions entered into by the assessee is in the nature of speculative transaction, which does not come under proviso (d) to sec.43(5) of the Act. 9. We have gone through the reasons given by the AO to treat Forex loss incurred by the assessee on account of derivative transactions as speculative transactions in light of various arguments advanced....
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....ecord further evidences to prove the findings of facts recorded by the Ld. CIT(A) are incorrect. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismissed the appeal filed by the Revenue. In the present case also the assessee entered into forex derivative transaction with the ICICI Bank to hedge the foreign currency risk involved in the transaction therefore the expenses claimed by the assessee were revenue in nature, for the reasons that the derivative transaction entered into by the assesse was not in the nature of speculative transaction. 13.7 A similar view has been taken by the ITAT, Rajkot Bench in the case of DCIT, Circle-1(2, Rajkot Vs. DML Exim(P) Ltd.(supra) wherein relevant findings have been given in para 14 which read as under: 14. We have heard the respective parties, we have also perused the relevant materials available on record Including the orders passed by the authorities below. It appears that the assessee made the following submission before the Ld. AO:- "Normally when we confirm any export sale contract, to prevent any future loss due to change in exchange rates we book (hedge) dollars from our Banker Oriental Bank of Commerce where w....
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....e other hand, the Id. AR submitted that, in the appellant's export business, there is always a risk of fluctuating foreign currency at the time of realization of sale proceeds. Therefore in order to hedge against the loss, the appellant enters into forward contracts with its bank and tries to minimize the risk on account of fluctuation in foreign exchange against the future export sales realization. It is also seen that, forward contracts are extensively used to get export receivables hedged against adverse currency movements. The Id. AR also admits that, such contracts are only executed against the export receivables and these facts are clearly mentioned in the said contract. So it can be said that the transactions involved in these contracts have direct nexus with the export of specific merchandise and export receivables. The appellant's Id. AR also brought on record the large fluctuation in foreign currency during the relevant financial year, in order to justify the appellant's action of currency hedging. This is summarized supra, in the written submission. As per this chart, there is variation of upto 10 USD between May 2011 and December, 2011. I find substantial ....
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....sessee was not speculative one under section 43(5) of the Act. The same was incidental to the assessee's business and hence allowable. 13.8 Similar view has been taken by the ITAT Chennai Bench 'C' in the case of SCM Garments(P.) Ltd. Vs. DCIT (supra) wherein relevant findings has been given in para 7 to 11 which read as under: 7. We have heard the rival submissions and carefully perused the material on record and case laws relied by both the parties. In this case before us, one of the major business activities of the assessee is export of business garments as it appears from the financial statements submitted by the assessee. Therefore, it is obvious that the assessee would be having huge sundry debtors resulting from export of garments which are receivable in the foreign currency. These sundry debtors are exposed to currency fluctuation risk. One of the methods to protect loss against foreign currency fluctuation is by way of 'hedging'. Hedging transactions are entered in order to protect against the loss due to compensatory price movement. It protects an asset or liability against fluctuation in foreign exchange rate. One of the tools for hedging the forex risk is by way of f....
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....der to iron out the loss arising out of foreign currency fluctuation risk by entering into forex derivative contract. (vi) The Special Bench of the ITAT, Kolkata Bench in the case of Shri Capital services Ltd Vs. ACIT in 121 ITD 498(Kol.)(SB) has held that foreign currency is neither commodity nor shares as defined U/s. 43(5) of the Act. (vii) The Instructions issued by CBDT Instruction No.03/2010 dated 23.03.2010 has recognized the loss out of forex derivatives on actual settlement/conclusion of contracts as allowable business loss, however they have directed the Revenue to examine whether the transactions would fall U/s. 43(5)(d) of the Act, and if so to treat the same as nonspeculative transaction. By the above directions, it appears that though the CBDT has recognized the loss arising out of forex derivatives on actual settlement of the contracts, directed the Revenue to treat the same as speculative transaction when they are transacted through nationalized banks and as not speculative, when these transactions are transacted through recognized stock exchange. (viii) It is pertinent to note here that the bankers act as an advisory agent to the assessee in order to protect ....
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....currency exposure arising out of import and export trade. (xiv) The Hon'ble jurisdictional Madras High Court in the case M/s.Rajashree sugars and chemicals Ltd Vs. Axis Bank Ltd., in O.A Nos.251 & 252 of 2008 in C.S.No.240 of 2008 O.A. Nos.526 & 527 of 2008 in C.S No.240 of 2008A. Nos.1926, 1927, 2446 and 2447 of 2008 in S.S No.240 of 2008 vide order dated 14.10.2008 reported in 8 MLJ 261 has held that derivative transactions ceased to be speculative transactions or wages because pricing of the deal follows a scientific pattern on the basis of financial mathematics. Just as actuaries scientifically determined the value of insurance risk and the premium payable, Financial Mathematician/Portfolio Managers evaluate the price of these derivatives. (Para 81 of the Order) 8. Further, it is pertinent to note that the foreign currency is neither commodity nor stock or shares. "Foreign currency" is nothing but currency printed in a different country. It is money of a country other than one's own. "Currency" is a generally accepted form of money including coins and paper notes which is issued by a government and circulated within an economy. It is a medium based on the value of an underl....
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....of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 238 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified 39 by the Central Government for this purpose;] It is pertinent to note that banks have option to trade in foreign currency derivatives either through recognized stock exchange or through RBI. When the banks facilitates its clients to deal in foreign exchange derivatives through RBI, more stringent regulations are complied and therefore these transactions cannot be denied the benefits provided under the Act when t....
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....duction in respect to Rs.13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court, with which we agree, in the case of Ld. CIT Vs. Soorajmull Nagarmull (1981) 22 CTR (Cal.) 8: (1981) 129 ITR 169 (Cal.) B. In the case of CIT Vs. Sooraj Mull Nagarmull, reported in (1981) 129 ITR 169(Cal.) wherein it was held that the assessee used to carry on export and import of jute business. In the course of normal business it used to enter into foreign exchange contracts in order to cover up loss and difference in foreign exchange valuation. The assessee utilized part of the amount of the foreign exchange covered. This finding of fact has not been challenged, If in the course of normal carrying on of business certain loss or obligation or interest arise these must be deferrable to the carrying on of the business and these must be incidental to the carrying on of the business. Undoubtedly, the contract for foreign exchange as such can be treated as a contract for commodity. But the question here essentially is that the assessee was carrying on business of export and import of jute goods. In order to carry out these transactions, the assessee had ....
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....d to some extent to main business activity, then, it could not be said that assessee is in speculative business. G. In the case of CIT Vs. Climate System Pvt. Ltd., reported in 2014 (8) TMI 901 - Delhi High Court wherein it was held that exchange fluctuation arising on the revenue account transaction should be allowed as deductable expenditure. 11. Thus to sum up in the present case before us, the assessee is an exporter of garments who has entered into forex derivative transactions through its bankers with a view to effectively hedge its foreign currency risk. Therefore, these forex derivative transactions have a close proximity or rather incidental to the export business of the assessee, which cannot be considered as speculative. Moreover in the case of the assessee foreign currency contracts cannot be treated as wagering contracts for the reasons discussed herein above. Section-43(5) of the Act is applicable to transactions in commodity or stocks and shares. If currency is treated as commodity, then according to Section 43(5) (a) of the Act, such transaction shall not be deemed to be speculative transaction. Further currency cannot be treated as stock or shares because inher....
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....had entered into a Forex derivative transaction with State Bank of India to hedge the foreign currency risk involved in these transactions. The assessee has treated profit or loss arised on account of fluctuation of foreign currency as income or expenses, as the case may be, in the relevant AYs. The Department has accepted the income declared by the assessee on account of Forex gain whenever the assessee has earned gain from appreciation in foreign currency. However, disputed loss claimed for the year under consideration only on the ground that derivative transactions entered into by the assessee is in the nature of speculative transaction, which does not come under proviso (d ) to sec.43(5) of the Act. 9. We have gone through the reasons given by the AO to treat Forex loss incurred by the assessee on account of derivative transactions as speculative transactions in light of various arguments advanced by the Ld.AR for the assessee and we ourselves do not subscribe to the reasons given by the AO for the simple reason that the assessee being an export of goods to Japan Company had entered into hedging transactions with State Bank of India by entering into Forex derivatives to minim....
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.... banker i.e; ICICI Bank to minimize the possible fluctuation in foreign currency which resulted in a loss, so it was a business loss or revenue loss. 13.10 We therefore by considering the totality of the facts as discussed herein above and by respectfully following the aforesaid referred to decisions of the Coordinate Benches at different stations delete the impugned addition made by the AO and sustained by the Ld. CIT(A). 14. Next issue vide Ground No. 2 relates to the sustenance of disallowance amounting to Rs. 1,82,24,640/- made by the AO by invoking the provisions of Section 14A of the Act read with rule 8D of the Income Tax Rules, 1962. 15. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had earned dividend income of Rs. 60,03,156/- which had been claimed to be exempt under section 10(34) of the Act. The assessee had worked out a sum of Rs. 66,419/-as disallowance under section 14A of the Act. The AO also observed that the assessee apart from manufacturing & export was also engaged in making investment in quoted and unquoted shares from year to year. He asked the assessee to explain as to why pro....
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.... income. The Bombay High Court has relied upon the decision & principles laid down by Hon'ble Supreme Court in the case ofC.I.T V/s WALFORT SHARE & STOCK PVT. LTD reported in 233 CTR - 42 (ST). The assessee itself has computed the disallowance on the basis of proportion as mentioned by the Apex Court & Bombay High Court. Rule 8 D can be applied only in the cases where the assessing officer is not satisfied with the disallowance made by the assessee on the basis of expenditure shown in the books. In our case the expenditure to be disallowed u/s 14A has been rightly computed as approved by the courts in the cases mentioned above. You are therefore requested not to apply Rule 8D in our case. However, without prejudice to the above submissions and as desired computation of disallowance u/s 14A as per rule 8D of the Income Tax Act is enclosed." 15.2 The AO also observed that the assesee company had computed the disallowance by taking the proportionate of operating income and dividend earned, but only administrative expenses had been proportionately divided. In support of its computation, the assessee submitted that computation was based upon the principle laid down by the ITAT in....
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....der: Inventories 264.83 Cr. Sundry Debtors 140.24 Cr. Cash & Bank Balance 37.04 Cr. 442.11 Cr. Loans & Advance 118.05 Cr. 560.16 Cr. Less: Current Liabilities & Provisions 182.49 Cr. 377.67 Cr. Working capital loan 199.38 Cr. 1.89:1 In view of above it is clear that the interest paid on term loan and working capital was for the purpose of income earned which is subjected to tax. The interest paid to others has been apportioned for computing disallowance u/s 14A. Further, it is submitted that investments during the year under consideration has reduced to 29.05 Cr. from 58.09 Cr. of the immediately preceding year which can be verified from pages 16 & 17 of. the printed balance sheet. The fresh investments made during the year are out of the proceeds of the investments sold during the same year. Further, the investments made in the earlier years were made from net internal accruals and Reserves & Surplus of Rs. 251.07 Cr. available with the company which are sufficient to justify the investments made by the company there from. Further, without prejudice to the a....
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.... investment in shares except the interest bearing funds i.e working capital loan and other unsecured loans. According to the AO the disallowance on this account came to Rs. 1,82,24,640/- and as the assessee had already disallowed a sum of Rs. 66,419/- in the computation of income, further disallowance of Rs. 1,81,58,221/- was made under section 14A of the Act. 16. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that the application of Rule 8D in the assessee's case was not justified as the assessee had itself worked out the disallowance under section 14A of the Act on the basis of well recognized method of proportion i.e; dividend income vis-à-vis operating income which had been upheld by the ITAT Chandigarh Bench in other group company cases. It was further stated that for the purpose of Rule 8D, only the interest which was not directly attributable to any particular income or receipt was to be taken for calculating the disallowance under the said Rule. It was also stated that the total amount of term loan was duly utilized in the block of assets i.e; the purpose for which it was raised and the working capital borrowed was also used for the ....
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....Sigma Cartons(P) Ltd. in ITA No. 769/Chd/2011 vide order dt. 10/07/2012 (Chd Trib) * CIT Vs. Walfort Share & Stock Brokers(P) Ltd. (2010) 326 ITR 1 (SC) * ACIT C-V, Ludhiana Vs. M/s Chadha Super Cars P. Ltd., in ITA No. 36/Chd/2012 vide order dt. 28/12/2012 (Chd Trib) * M/s Chadha Super Cars P. Ltd., Vs. ACIT C-V, Ludhiana in ITA No. 1241/Chd/2011 vide order dt. 28/12/2012 (Chd Trib) * HSBC Invest Direct (India) Ltd. Vs. DCIT, Range 8(ii) in ITA No. 3485 & 3944/Mum/2012 vide order dt. 17/10/2014 (Chd Trib) * M/s Munjal Castings Vs. ACIT in ITA No. 774/Chd/2012 vide order dt. 15/09/2014 (Chd Trib) 16.3 The Ld. CIT(A) held that the AO was fully justified in holding that the provisions of section 14A of the Act were applicable in the case of the assessee and disallowance was required to be made under Rule 8D of the Income Tax Rule. As regards to this contention of the assessee that the disallowance under section 14A of the Act should not exceed the amount of exempt income, the Ld. CIT(A) observed that there was no such proposition that the disallowance of expenditure under section 14A of the Act cannot exceed the exempt income earned and that the legislature had provided Ru....
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....ssment records, therefore, in view of the settled principles of law that where the assessee received dividend by way of exempt income from the investments made in the earlier years from interest free funds (own funds) available with the assessee and such own funds were much larger as compared to investment, the disallowance by applying the provisions of section 14A of the Act would be erroneous and unsustainable. 18.2 It was contended that as against the addition made under section 14A of the Act read with rule 8D of the Income Tax Rule 1962 by the AO and sustained by the Ld. CIT(A) to the tune of Rs. 1,81,58,221/-, the assessee worked out disallowance on proportionate basis to the tune of Rs. 66,935/- in respect of dividend income of Rs. 60,03,156/-. It was pointed out that in the preceding assessment year out of the total dividend income of Rs. 1.06 Crores earned by the assessee disallowance on proportionate basis had been worked out at an amount of Rs. 1,33,928/- and the ITAT vide order dt. 03/07/2019 in the appeal for the said assessment year asked the AO to work out the disallowance at an amount of Rs. 9,36,183/- after taking into consideration administration expenses which h....
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....u/s. 10[23G] of the Act. In other words, the persons with whom the amounts are invested by the assessee are crediting the aforesaid amount to the assessee's account by way of a bank transfer. Therefore, no human agency is involved in collecting these dividends and interest for which the assessee has to incur any expenditure. This is the consequence of computerization, online transaction through NEFT [National Electronic Fund Transfer], RTGS [Real Time Gross Settlement] and also DEM AT Accounts. The assessing authority should take note of these developments in deciding whether any expenditure is incurred in earning the said income. The discussion by the assessing authority clearly demonstrates these aspects has not been taken note of and the notional expenditure is calculated pre-modernization. Therefore, in the light of the aforesaid judgment, when the assessee has not incurred any expenditure for realizing this income, the question of holding that 2% of the gross total income is an expenditure and that has to be added back to the income is unsustainable in law. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue. " 20.2 O....
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....ses 556724538 5. Proportionate amount of disallowance of expensed to earn dividend 936183 Details of expenses a. Interest paid to others 21202161 b. Administrative expenses 130240267 c. Personal expenses and allowances other 405282110 556724538" 7. None of the lower authorities have pointed out any defect in the computation of proportionate disallowance computed by the assessee except that certain part of the administrative expenses were not taken into consideration which has been taken into consideration in the computation made above. Even the assessee has claimed that it has not incurred any administrative expenses for earning of tax exempt income. The Assessing Officer in this respect has not recorded any dissatisfaction taking into consideration the accounts of the assessee. The Hon'ble Bombay High Court in the case of 'Godrej & Boyce Manufacturing Co.' 328 ITR 81 has held that under section14A of the Act, resort can be made to Rule 8D of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. ....
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....er expenses, as noted above. In view of this, the disallowance of administrative expenses is restricted to Rs. 9,36,183/-. However, the assessee will get the benefit /set off at the suomotu disallowance offered by the assessee in the return of income at Rs. 1,33,928/- and accordingly the addition is restricted to Rs. 8,02,255/-. In view of our findings given above, the appeal of the assessee is treated as partly allowed. 20.4 For the year under consideration also the assessee had given calculation at page no. 20 of the submission dt. 17/02/2020 as under: A. Disallowance u/s 14A on proportionate basis as per Order of Hon'ble ITAT in Assessee's case Assessment Year 2011-12 (Amount in Rs.) 1. Amount of dividend income 60,03,156 2. Operating Income 961,25,89,314 3. % of dividend 0.06245 4. Amount of expenses 70,31,00,532 5. Proportionate amounts of disallowance of expenses to earn dividend 4,39,093 Detail of Expenses a) Interest paid to others 3,46,88,260 b) Administrative expenses 16,13,33,459 c) Personal expenses & other allowances 50,70,78,613 Total 70,31,00,532 20.5 We therefore respectfully following the....
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....ar term loan was Rs. 177.12 Cr. as against Rs. 147.49 Cr. for the immediately preceeding year As against the term loan, my block assets is Rs. 300.98 Cr. (please see page 11 of balance sheet), which is sufficient to demonstrate the utilization of entire term loan for purchase of fixed assets. Besides, please note that the entire term loan is taken for purchase of fixed assets which under no circumstances can be utilized for any other purposes except for fixed assets. Further during the year under consideration, the company's total borrowed working capital is Rs. 199.38 Cr. and against which current assets of the company which entitles company to borrow from bank is Rs.377.67 Cr. According to the net current asset ratios, working capital and current ratio should be 1:1.33 so long as this ratio is satisfied obviously there cannot be any other inference than that money borrowed from bank have been invested in working capital for the purpose of business. The complete detail of current assets as against working capital loan is as under. Inventory - 264.83 Cr. Sundry Debtors - 140.24 Cr. Cash & Bank balance - 37.04 Cr. 442.11 Cr ....
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....nternal accruals had been utilized for the purpose of investment in shares. He also observed that the figures appearing in the balance sheet were as on particular day i.e; 31st March, so, it could not be presumed that the same state of affairs existed for the whole financial year. According to him 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 own funds or borrowed funds. 22.2 The AO referred to the judgment of the Hon'ble Punjab & Haryana High Court in para 5.9 to 5.10 of the assessment order dt. 21/03/2014 in the case of Abhishek Industries Limited, reported at 286 ITR 1 and the decision of ITAT Chandigarh Bench in the case of Umesh Trehan in ITA No. 1022/Chd/2012 and M/s Vishal Coaters Pvt. Ltd. in ITA No. 281 & 282/Chd/2013. The AO also referred to the judgment of the Hon'ble Kerala High Court in the case of CIT Vs. Smt. Leena Ramchandran reported at 339 ITR 296 and of the Hon'ble Karnataka High Court in the case of Dhanuka & Sons Vs. CIT, reported at 339 ITR 319. The AO did not accept this submissions of the assessee that no interest was attributable to investment in shares and ....
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....Madras) * Sunena Garg, Chandigarh Vs. DIT vide order dt. 13/05/2011 in ITA No. 543/Chd/2010 (Chd Trib) * CIT Vs. Maithreyi Pai 152 ITR 247 (Kar.) 22.3 The AO made the disallowance of Rs. 1,53,17,042/- under section 36(1)(iii) of the Act by observing in para 5.15 of the assessment order as under: 5.15 In view of the case laws cited above Interest attributable to investment in shares would be part of its cost u/s 48(ii) of the I.T. Act. Average investment in shares is Rs.43:56 crores. Interest allocable to investment in shares applying the. debt equity ratio comes to Rs.3,13,63,200/-. Interest attributable to investment in shares has also been worked out in disallowance u/s 14A of the I.T. Act r.w. Rule 8D of the I.T. Rules to the extent of Rs.l,60,46,158/-. The difference of Rs. 1,53,17,042/- is allocated to investment in shares and made part of its cost u/s 48(ii) of the I.T. Act. The sum of Rs.l,53,17,042/- is disallowed u/s 36(l)(iii) of the I.T. Act in the working of income from business and profession. It is worthwhile to emphasise that affectively there is no disallowance as the assessee will get benefit of increased cost of shares when these would be sold out and offer....
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....d. Assessing Officer u/s 36(l)(iii) at Rs. 5,98,87,308/- may be directed to be deleted, especially when the interest on the amount presumed to be invested in shares from borrowed funds has been considered in disallowance u/s 14A of the Act. " 23.1 Copy of the aforesaid submission were forwarded to the AO by the Ld. CIT(A), in response the AO vide his report dt. 18/09/2014 submitted as under; "The AO has made an addition of Rs. 5,98,87,308/- u/s 36(l)(iii) of the l.T. Act, 1961. I have gone through the assessment order passed by the AO vide order dated 21.03.2013. The perusal of the order shows that the AO has discussed in detail in Para 6 of assessment order. The AO has mentioned in assessment order that the assessee's argument that the said amount was utilized from own money is incorrect. Hence kindly decide this ground of appeal on basis of these facts and taking into consideration the assessment order after rejecting the submission of the assessee. " 23.2 The Ld. CIT(A) after considering the submission of the assessee and the report of the AO observed that the assessee had made a general statement that the investment had been made out of internal accruals and own funds w....
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....elescoped with reallocation of the expenses towards the cost of shares so there was no double disallowance made by the AO. Accordingly the disallowance made by the AO was confirmed. 24. Now the assessee is in appeal. 25. The Ld. Counsel for the asessee reiterated the submissions made before the authorities below and further submitted that the addition made by the AO under section 36(1)(iii) of the Act was not sustainable and that no such addition was made from the assessment years 2014-15 onwards in the case of the assessee itself by the AO. A reference was made to the page nos. 54 to 108 of the assessee's paper book which are the copies of the assessment orders for various A.Y's from 2014-15 onward. It was further stated that no fresh investment had been made by the assessee during the year under consideration and no interest expenditure had been incurred on account of investment in shares. It was stated that an identical issue has been decided by the ITAT Bench "B" Chandigarh in ITA No. 1341/Chd/2016 for the A.Y. 2012-13 in the case of the group companies i.e; M/s Monte Carlo Fashions Ltd. Vs. ACIT vide order dt. 12/10/2017, (copy of which is placed at page no. 109 to 111 of th....
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.... aside to the file of the AO to be decided as per the directions given in the aforesaid referred to order dated 12/10/2017 in the case of M/s Monte Carlo Fashions Ltd. Vs. ACIT in ITA No. 1341/Chd/2016 for the A.Y. 2012-13. Accordingly this ground is allowed for statistical purposes. 28. The next issue vide Ground No. 4 relates to the sustenance of addition of Rs. 2,63,24,29/- made by the AO under proviso to section 36(1)(iii) on account of borrowed amount utilized from mixed funds lying in C.C. account, for purchase of fixed assets. 29. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had made an addition to the assets to the extent of Rs. 74,52,27,049/- and also had shown Capital Work in Progress to the extent of Rs. 41,41,88,201/-. The AO asked the assessee to furnish working of interest capitalized, on the loans pertaining to assets purchased and put to use or under installation as Capital Work in Progress. In response the assessee submitted that the payment for the purchase of assets had been made out of the share capital and reserves i.e; interest free funds and that whatever loans had been taken ....
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....urces including unsecured loans for raising funds from banks. He also observed that investment in the gross block of assets was much more than the share capital and reserves as well as the term loans. The AO mentioned that the total term loans during the year were at Rs. 177.12 crores and the total share capital and reserves were at Rs. 275.97 crores i.e; Rs. 453.09 crores where as the gross block was Rs. 516.75. The AO made the disallowance of Rs. 2,63,24,29/- by observing at page no. 50 to 53 of the assessment order as under: i.) The assessee's argument that the payments for purchase of assets have been made out of own sources is not correct for the reasons discussed above. From the details furnished it is clear that there is gap between the payment made and actual user of the asset. As per proviso to section 36(l)(iii) of the I.T. Act interest is to be capitalized till the date of actual use for the purpose of business. It is also a fact that some of the assets have not been put to use for the purpose of business before the payment was made to the supplier. Hence, the interest for the period of actual payment to the date when the asset is actually put to use is required to....
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....the interest paid or payable on such funds constitutes the cost of borrowing and not the cost of the assets acquired with those funds. It is for this reason that as per the clear guidelines issued by the institute of chartered accountant of India, the interest on moneys which are specifically borrowed for the purchase of the fixed assets may be capitalized only relating to the period prior to the assets coming in to production i.e. relating to the erection stage of the assets. However, once the production starts no interest on borrowing for the purchase of the assets should be capitalized." 6.3 It is also to be noted that the Finance Act 2003 has amended Section (1) (iii) by inserting a proviso to the existing provision w.e.f. 01.04.20 04 relevant to assessment year 2004-2005. The proviso inserted to 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 acquisition of an asset for extension of existing business « profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed far acquisition of the asset t....
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....at the assessee had made addition to the fixed assets to the extent of Rs. 135.4996 crores during the year and had shown capital work in progress to the extent of Rs. 39.9533 crores and had taken term loan during the year to the extent of Rs. 546.79 crores. According to the Ld. CIT(A)the borrowed funds were used for investment in assets and towards capital work in progress which required to be capitalized in accordance with the provisions of the proviso to section 36(i)(iii)of the Act. The Ld. CIT(A) did not agree with this contention of the assessee that no borrowed funds were used and the fixed assets were purchased out of own funds and internal accruals. The Ld. CIT(A) observed that the AO had pointed out in the assessment order that the assessee had made payments for purchase of assets from the CC account with the bank on which interest was payable, therefore, the borrowed funds had been used for investment in fixed assets as well as for investment in work in progress and corresponding interest paid was required to be capitalized. The Ld. CIT(A) also observed that it was a case of mixed use of funds where borrowed funds have been used both for the purpose of investment in work ....
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.... be allowed as deduction." The judgment of various Courts in the case of Hero Cycles (P) Ltd. Vs. CIT, Ludhiana C.A. No. 514 of 2008 dt. 05/11/2015, Bright Enterprises Pvt. Ltd. Vs. CIT, Jalandhar (2016) 381 ITR 107 (P&H) held that no disallowance of interest is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. If sufficient own funds are available, no disallowance is called for. This ground may be treated as set aside to the file of Assessing Officer. So respectfully following the aforesaid referred to order, this issue is set aside to the file of the AO to be decided as per the directions given vide aforesaid referred to order dt. 12/10/2017. Accordingly this issue is decided in favour of the assessee for statistical purposes. 35. In ITA No. 184/Chd/2015 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. ....
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....o the allowing the deduction of additional depreciation amounting to Rs. 2,36,55,831/-. 39. The facts related to this issue in brief are that the assessee vide letter dt. 14/02/2014 claimed additional depreciation on the machinery installed and put to use. The AO did not discuss this claim of the assessee in the assessment order. The assessee submitted to the Ld. CIT(A) as under: " It is submitted that it is an accepted and admitted fact that appellant acquired and installed new machinery in the preceding year, when the Ld. Assessing Officer allowed the normal depreciation as well as additional depreciation in the said year. But on the machinery which was installed and used for less than 180 days, the additional depreciation was restricted to fifty percent. The provisions of Section 32(1)(ii) envisage that assessee is eligible for initial/additional depreciation @ 20% of the cost of machinery. The proviso to Section 32(l)(ii) only restrict that if machinery was acquired during the previous year and 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 su....
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....nt to mention that the facts in this case are totally different to the case of the assessee. In this decision since 50% of the depreciation was already allowed by the AO in the immediately proceedings assessment year, hence, the balance 50% of the additional depreciation was allowed after factual verification, no such facts exist in the case of the assessee. Moreover, the other case laws given by the assessee lack any citation details, hence cannot be discussed. Thus, in view of the discussion above, the contention of the assessee is incorrect. Kindly decide this ground of appeal on the basis of these facts & rejecting the submission of the assessee. " 39.2 The Ld. CIT(A) after considering the submission of the assessee and the report of the AO allowed the claim of the assessee by observing in para 8.5 to 8.8 of the impugned order which read as under: 8.5 I have carefully considered the appellant's submissions. The appellant had 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 ....
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....ant during the course of assessment proceedings vide letter dated 14.02.2014 was a valid claim. That being so the AO was not justified in rejecting the claim of the appellant pertaining to additional depreciation merely on the ground that the claim was made through a letter and not through revised return. 8.7 Now coming to the merits of the claim. The issue is squarely covered by the various decision relied upon by the appellant as reproduced in para 8.2 above. The AO has not referred to any contrary decision on this issue. 8.8 The AO is directed to examine the appellant's claim for additional depreciation is requested for by the appellant, vide letter dated 14.02.2014 and allow the same in accordance with the law. This ground of appeal is accordingly allowed. 40. Now the Department is in appeal. 41. The Ld. CIT DR submitted that the assessee did not claim the additional depreciation in the 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....
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....bon emission reduction made by the company during the calendar year. It was based upon the power generation by the assessee company. Since there was difference in power generation (MWH) as shown in balance sheet and the computation submitted, the assessee was asked to give the reason for such difference. In response the assessee submitted that there was difference in total generation of power and net power generated because some part of power was used in house for the generation of power. The Assesse also claimed that the amount of carbon credit should be considered as capital receipt. The reliance was placed on the decision of the ITAT Hyderabad Bench in the case of My Home Power Ltd. Vs. DCIT reported at 151 TTJ(Hyd) 616. The AO after considering the submissions of the assessee treated the amount in question as revenue receipt instead of capital receipt by observing in para 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 Incom....
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....e submission of the assessee were forwarded to the AO who narrated the facts mentioned in the assessment order in his report dt. 18/09/2014. The Ld. CIT(A) by following his earlier order for the A.Y. 2010-11 allowed the claim of the assessee. The relevant findings have been given in para 9.6 of the impugned order which read as under; 9.6. I have carefully considered the appellant's submissions. I have carefully considered the appellant's submissions. Similar issue was decided by me in the appellant's own case for assessment year 2010-11. In this order dated 19.02.2014 in appeal No. 78/IT/CIT(A)II/Ldh/2013-14 it was held as under:- "I have carefully considered the appellant's submission. The only issue to be considered is whether the receipts on account of carbon credits are revenue receipts or capital receipts. 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. ....
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....income of Rs.1.21 Cr under the head Carbon Credit Receipts. This income was based upon total carbon emission reduction made by company during the year. The assessee had claimed these receipts to be capital receipts. The Assessing Officer held that these receipts were revenue receipts and added to the income of the assessee. The assessee filed written submissions before ld. CIT(Appeals) which is quoted in the appellate order in which the assessee explained that the said claim was made on the basis that CER undoubtedly known as Carbon Credit Commodity and are quoted in stock exchange like MCX and NCDE. The gain from the carbon credits represents the receipt to compensate the unforeseenable loss. The view of the assessee was also fully subscribed by ITAT Hyderabad Bench in the case of My Home Power Ltd. reported 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 reco....