TaxTMI 
TaxTMI 
2023 (9) TMI 1543
X X X X Extracts X X X X
X X X X Extracts X X X X
....exchange, in the assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 in the assessee's case, by upholding the disallowance to the extent of Rs. 31,18,92,950/- only. 2.1 The ld. CITA) is not justified in holding that disallowance to the extent of Rs. 31,18,92,950/- in respect of transactions relating to Chennai Unit is upheld when the amount of loss on forex fluctuations claimed by the assessee and disallowed by the AO in respect of Chennai Unit was Rs. 31,57,41,203/-, thus giving relief to the assessee to the extent of Rs. 38,48,253/-. 2.2 Having regard to the holding of the AO that the provisions for loss on forex fluctuations claimed for of Rs. 40,98,03,268/- in this case for A.Y 2009-10, is a contingent liability and that it is not an expenditure having been laid out or expended", the ld. CIT (A) is not justified in giving relief of Rs. 9,79,10,317 on this count without specifically holding whether the same was an ascertained liability and whether laid out or expended during the previous year relevant to AY 2009-10. 2.3 Having held that the loss booked was Rs. 9,40,62,064- in respect of 4 tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT(Appeals) may be set aside and that of the Assessing officer restored. 2. In its appeal, besides challenging confirmation of quantum additions towards disallowance of provision for forex loss of Rs..31,18,92,950/- and disallowance of loss on forward contracts at Rs..41,31,84,699/-, the assessee has challenged reopening of assessment under section 147 of the Income Tax Act, 1961 ["Act" in short]. 3. Brief facts of the case are that the assessee I engaged in the business of providing fuel management solutions for fossil fuel users and supply of fossil fuel. The assessment under section 143(3) of the Act was completed on 31.03.2013 assessing total income of the assessee at Rs..8,27,24,670/- against returned income of Rs..8,20,15,541/-. Thereafter, notice under section 148 of the Act was issued on 18.03.2015 and served on the assessee on 19.03.2015. Reassessment under section 143(3) r.w.s. 147 of the Act was completed on 30.03.2016. In the reassessment proceedings, the loss claimed by the assessee on foreign exchange fluctuation to the extent of Rs..41,31,84,609/- and the loss claimed on account of restatement of the payables to the extent of Rs..40,98,03,268/- was disallowed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... TPO. Consequently, the TPO, in its order dated 07.09.2012 made a revision to the downward adjustment of Rs. 3,07,39,105/- to the purchases. Finally, the total income Was assessed u/s. 143(3) r.w.s. 92CA(3) on 19.10.2013, assessing the total income as Rs. 29,52,99,177/-. On verification of Annual Report for the AY 2007-08 (relevant to AY 2008-09) it is seen that the assessee had claimed Rs. 5,20,72,552/- towards foreign exchange loss. In the Note to Accounts- Sch.24 (Pg. 21)- 6. Foreign Currency Transactions (AS-11), it is stated that transactions in foreign Currency is recorded at the exchange rate existing at the time of transaction and exchange differences arising from foreign currency transaction are dealt within the Profit & Loss account. Current Assets and Current Liabilities related to foreign currency transactions remaining unsettled at the yearned are stated at contracted rates for forward foreign exchange contracts and others at the prevalent closing rates. The statement of forex loss/gain provision to be made against C&O which is been furnished 31.03.2008 has outstanding as on Rs. 82,29,87,877 relating to Chennai and Mumbai respectiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of foreign exchange during the course of 143(3) proceedings. Therefore, the Assessing Officer has rightly invoked the provisions of section 147 of the Act. 6.2 In so far as disallowance of loss on forward contract, the assessee has not filed any details during the original assessment proceedings under section 143(3) of the Act. Therefore, the Assessing Officer has rightly issued notice under section 148 of the Act. 6.3 As per the proviso to section 147 of the Act, it is the duty of the assessee to disclose all the material facts fully and truly to complete the assessment. In this case, we find that the assessee has not filed any details in respect of claim made by the assessee. Therefore, the Assessing Officer, by issuing notice under section 148 of the Act dated 18.03.2015, reopened the assessment, which is in accordance with law. So far as paper book page 132 is concerned, some details are filed and those are not the details actually required to complete the assessment under section 143(3) of the Act and not only that, the details filed by the assessee cannot be said that those are the material facts to complete the assessment. Therefore, we are of the opinion that the Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gate to the sum of Rs..40,98,03,268/-. The assessee has further provided a breakup of the amount in a table. As per the details submitted by the assessee, the Assessing Officer has noted that a provision of Rs..31.57 crores has been created for 20 transactions, out of which 4 transactions are in respect of purchases or which there are no forward cover whereas the balance 16 transactions are in respect of purchases for which there is a forward cover. In Mumbai branch, there are in all 4 transactions, all of which are not covered by any forward cover. It was explained before the Assessing Officer that their method of accounting required the transactions which are not supported by any forward contract to be restated at the rate of exchange prevailing on the last day of the relevant previous year. As regards transactions that are covered by forward contracts, they are to be restated at the rate agreed in the forward cover agreement. This is the method of accounting disclosed by the assessee in its annual accounts also. After considering the submissions of the assessee, the Assessing Officer has observed that the assessee has failed to establish before him how the provision was calculat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....finally were able to produce forward cover transactions in respect of two voyages. A reference to these two contracts also indicates that the appellant has not restated the payable at the rate as per the forward contract. In fact, it is found that in respect of all the 16 transactions, the appellant has used the same rate of Rs. 50.22 per USD whereas it was unable to produce any forward cover contract wherein this rate was agreed. When this aspect was pointed out to the appellant, the appellant stated orally that the rate of Rs. 50.22 represents the average rate of the forward cover contracts entered into by the appellant. Though it is neither the appellant's method of accounting to adopt the average rate nor is there any such general practise followed, the appellant was still asked to substantiate even that understanding. However, the appellant was unable to produce any calculation to show that the rate of Rs..50.22 per USD represents the average rate. In the light of these facts, it is concluded that the provision created at the end of the year in respect of transactions that are supported with forward cover have not been restated on any scientific basis. In fact, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tent of Rs..9,79,10,317/-. We have perused the details filed by the assessee in the form of paper book as was filed before the ld. CIT (A) and find that the ld. CIT (A) has rightly confirmed the disallowance of Rs..31,18,92,950/- and granted relief of Rs..9,79,10,317/-. We do not find any merits in the arguments of the ld. Counsel for further relief over and above the relief granted by the ld. CIT(A). Thus, we find no infirmity in the order passed by the ld. CIT(A). 9.2 Thus, the ground raised by the assessee towards confirmation of disallowance of Rs..31,18,92,950/- is dismissed. Similarly, the ground raised by the Revenue of deletion of addition to the extent of Rs..9,79,10,317/- stands dismissed. 10. The next ground raised in the appeal of the assessee relates to confirmation of addition of loss on forward contracts at Rs..41,31,84,699/-. The Assessing Officer has noted that during the previous year the appellant has incurred a loss to the extent of Rs..41,31,84,609/- on account of remittance of foreign exchange which are represented by forward contracts. The Assessing Officer required the assessee to establish how the transactions were not in the nature of speculative tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te and produce the forward contract. As per Annexure to their letter dated 13.12.2017, all transactions of loss appear to be on account of forward covers. But the contracts are not produced. Therefore, there is no ground to allow the deduction. Further as already explained the appellant is claiming a further deduction in respect of remittances made against the opening balance of sundry creditors. In this connection the appellant failed to explain why any further deduction on account of payment against opening balance was allowable when the appellant had already restated the sundry creditors at the end of the preceding year on the basis of the forward cover rate applicable in respect of the same. Therefore in any event, in respect of payments made against the opening balance, there is no ground for any further deduction on account of exchange difference. 44. As regards the contention that the deduction be allowed on actual basis by assuming there was no forward cover, if such a view is accepted, the entire claim for loss will change. For example the working of loss in respect of the 5 sample transactions will be as follows: Date of transaction Forward cover rate appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally. The appellant was also unable to explain the circumstances under which the forward cover transactions were cancelled and whether the cancellation was premature. Therefore, the Assessing Officer's conclusion that the net gain or loss represents a speculative transaction as the appellant has merely paid or received the difference between the spot rate and the agreed rate, is correct. Such gain or loss is clearly in the nature of a speculative loss unless the appellant could have placed on record the underlying transactions against which the same was entered. 47. The Mumbai Bench of the ITAT in the case of Jaimin Jewellery Exports P. Ltd, v. ACIT (2014) 43 Taxman.com 380 had occasion to consider a similar issue. The ITAT held that such profit or loss on cancellation can be considered as business loss or business profit only if they are supported by underlying transactions of actual purchase / sale. The following paragraphs are relevant in this regard: 11. In view of the above discussions, it can be safely held that in case of import/export business, where the transactions are demonetarized in the foreign currencies and for the purpose of hedging of the anti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no proximity with export turnover and the Assessing Officer is directed to compute accordingly. Further, the Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for the purpose of considering the business loss and only the transactions which are completed to be considered for the purpose of determining the business loss from these foreign exchange forward contract. With this observation, we remand this issue to the file of the Assessing Officer for fresh consideration. 7. Before us, the ld. Representative relied on the judgment of Gujarat High Court in CIT v. Friends and Friends Shipping P. Ltd. [2013] 217 Taxman 267, for the proposition that if the assessee failed to take delivery within the period indicated in contract and the assessee had given instructions to bank for cancellation of contract on payment of agreed charges to the bank these transactions cannot be considered as speculative transaction. However, there is no finding in this judgment towards this effect and the reliance placed by the assessee is misplaced. More so, this issue was considered by the Mumbai T....