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2011 (9) TMI 1264

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....der. ITA No.2749/Ahd/2009 - Hazira Port Pvt. Ltd. 2. The only ground raised in this appeal reads as under: "1. The ld.CIT(A) has erred in law and on facts in deleting the addition made on account of gain on foreign exchange fluctuations of Rs.4,21,35,401/-". 3. At the time of hearing before us, it stated by the learned DR that during the year under consideration, the assessee has not commenced any business. This fact is evident from the note in the assessee's audit report as well as the finding recorded by the AO in the assessment order. That during the year under consideration, the assessee made a gain of Rs.13,04,29,208/- on account of cancellation of foreign exchange contracts. That out of such gain, the AO treated the gain of Rs.....

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....on these facts, the decision of the Hon'ble jurisdictional High Court in the case of Garden Silk Mills Ltd. (supra) would be squarely applicable. He also stated that the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) relied upon by the learned DR is on altogether different facts therefore, the same will not be applicable in the case of the assessee. In that case, dispute was with regard to taxability of earning of the interest income from investment of surplus fund. 5. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the AO as well as the learned DR has heavily relied upon the decision of the Hon'ble Apex Court in th....

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....nvestment of surplus fund. The assessee had set off the interest income earned from the investment of surplus fund against the expenditure incurred by the assessee for setting up of the business which was held to be not allowable by Their Lordships of the Hon'ble Apex Court. However, in the case of the assessee, facts are altogether different. In this case, the assessee had taken foreign currency loan of US dollar for financing the development of port project. Admittedly, such foreign currency loan was utilised for acquisition of capital assets. The contract in the foreign currency was made by the assessee for the repayment of such foreign current loan, which was taken for acquisition of the capital assets. On these facts, the decision of t....

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....k Mills Ltd. v. Deputy CIT (No. 2) [1996] 222 ITR 68 (Guj) (at page 70) of the reports. Thus, the finding by the Tribunal is that the foreign exchange was acquired under the contract for the purpose of discharging an obligation on account, viz., towards borrowing for the purpose of import of capital assets, which would indicate that the surplus realised on cancellation of such contract would bear the same characteristic. As held by the apex court, the principle that is to be applied for determining the character of a receipt, whether results in any profit or loss on account of appreciation or depreciation in the value of foreign currency held by the assessee, upon conversion into another currency, would depend on whether the transaction ....

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....ssar steel Ltd. The learned DR tried to distinguish this decision on the ground that facts of the assessee's case are different because in the above two cases, the assessee had commenced business while in the case of the assessee, the business was not commenced. In our opinion, it is not the relevant whether the assessee has commenced the business or not. The relevant fact would be whether the contract in the foreign exchange is relatable to the trading transaction or in relation to the capital assets. In fact, if the assessee has not commenced its business, this will support the case of the assessee because then obviously, the transaction was made in relation to a capital asset. Therefore, in our opinion both the decisions of the ITAT i.e.....