2018 (7) TMI 2081 - AT - Income Tax

Loss on foreign exchange currency forward contracts entered - Whether it is speculative in nature? - whether assessee company failed to discharge the onus cast upon it by the statute to prove that the transactions in question were not of a speculative nature and thus the case of the assessee was not covered by proviso (a) of Section 43(5) ? - HELD THAT - As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee s own case, wherein Tribunal have held that cancellation of foreign exchange contract is a business loss and not a speculation loss, we do not find any infirmity in the order of CIT(A) for allowing assessee s claim of business loss. TP Adjustment - whether when TNMM requires only broad comparability and not product identity, CIT(A) was not justified in accepting product dissimilarity claim to reject? - HELD THAT - As per the finding of CIT(A) it is apparent that assessee is manufacturing diamond studded jewellery having an average of gold content of 40% and the comparable adopted by the TPO and GECL has negligible gold content of about 1.10%. Accordingly, CIT(A) was justified in rejecting GECL which was not comparable with the assessee on account of product dissimilarity. Fresh facts have been contended before the learned CIT(A), without giving opportunity to the A.O./TPO - HELD THAT - As gone through the orders of the authorities below and observed that ground of appeal does not point out to any particular facts, which are not there before the A.O/TPO. Further, we are into the analysis of segmented accounts of corporate entity as available in public domain. It was on this basis that the TPO set off comparables undertaken by the assessee and was analyzed by the A.O/TPO and was available before the CIT(A). Therefore, there is no possibility of fresh facts being considered by the First Appellate Authority. The ground of appeal is dismissed. Deduction u/s.10A is allowable before giving effect to provisions of Section 70 71 - HELD THAT - This issue has been decided by the Hon'ble Bombay High Court in the case of CIT v. Black and Veatch Consulting Pvt. Ltd 2012 (4) TMI 450 - BOMBAY HIGH COURT held that the deduction u/s. 10A has to be given effect to at the stage of computing the profits and gains of the business, which is anterior, that is prior to applicable sections for set off of business losses, Section 72 of the Act. Therefore, the deduction has to be computed before setting off of unabsorbed losses. In view of the above, we do not find any infirmity in the order of CIT(A) for allowing claim of deduction u/s.10A before giving effect to the provisions of Section 70 and 71 of the IT Act. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Allowance of loss on foreign exchange currency forward contracts.
2. Decision based on fresh facts without opportunity to the TPO.
3. Acceptance of product dissimilarity claim for comparability.
4. Granting relief without considering CBDT Circular on deduction u/s. 10A.

Issue 1:
The appeal involved a dispute over the allowance of a loss on foreign exchange currency forward contracts. The Revenue contended that the assessee failed to prove that the transactions were not speculative, thus not covered by Section 43(5) of the Income Tax Act. The CIT(A) granted relief to the assessee, leading to the appeal. The Tribunal referred to a similar case from A.Y. 2003-04 where it was held that such losses were business losses, not speculation losses. Citing previous decisions, the Tribunal upheld the CIT(A)'s decision, allowing the claim of business loss due to the cancellation of foreign exchange contracts.

Issue 2:
The second issue raised by the Revenue was regarding the CIT(A) deciding on fresh facts without giving an opportunity to the TPO. The Tribunal analyzed the facts and found that the grounds of appeal did not point out any new facts not available to the A.O./TPO. The Tribunal dismissed this ground, stating that the information was already analyzed by the authorities below, and no fresh facts were considered.

Issue 3:
The third issue involved a claim of product dissimilarity affecting comparability. The Department argued that the CIT(A) wrongly accepted the product dissimilarity claim to reject a particular entity as a valid comparable. The Tribunal referred to a decision by the Bangalore Bench supporting the exclusion of comparables based on significant dissimilarities, even within the same segment. The Tribunal upheld the CIT(A)'s decision to reject the comparable entity due to significant product dissimilarity, in line with the principles established in the Bangalore Bench's decision.

Issue 4:
The final issue revolved around the grant of relief to the assessee without considering the CBDT Circular on deduction u/s. 10A. The Tribunal referred to a decision by the Hon'ble Bombay High Court, which clarified that the deduction under section 10A must be given effect to before applying provisions for set off of business losses. The Tribunal upheld the CIT(A)'s decision to allow the deduction u/s. 10A before considering the provisions of Section 70 and 71 of the IT Act. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal addressed all issues raised by the Revenue, providing detailed analysis and legal references to support its decisions, ultimately dismissing the appeal and upholding the CIT(A)'s order in favor of the assessee.