2018 (3) TMI 2003 - HC - Income Tax

Foreign exchange loss - assessee had received amounts in the normal course of its business at the agreed contractual rates from the foreign purchasers and that consequently the loss was purely speculative - Whether a speculative transaction hit by Section 43(5)? - As per ITAT action of the CIT (A) in accepting the explanation of the assessee and in deleting the disallowance in question made by the Assessing Officer thus cannot be held unjustified - HELD THAT - This Court is of the opinion that the findings of fact by the CIT(A) and the ITAT are concurrent and based upon sound reasons. Both the appellate authorities have relied upon CIT Vs. Woodward Governor India (P) Ltd. 2009 (4) TMI 4 - SUPREME COURT . The hedging transaction was necessary for the assessee to protect itself from currency fluctuation risks it was inevitably exposed in the case of export trade. The assessee had reported identical transactions in the past which were accepted by the Revenue. For these reasons the Court holds that no substantial question of law arises. Advance of interest free loans to a related party - HELD THAT - The findings of fact again are that the lending was on the basis of commercial expediency. TDS u/s 195 - Non deduction of TDS on account of export commission - HELD THAT - The findings of fact are that the foreign entity receiving the amounts were not Indian residents and subject to tax and that the services rendered were rendered outside India.

Summary

Issues Involved:
1. Tax treatment of foreign exchange loss reported by the assessee as a speculative transaction.
2. Advance of interest-free loans to a related party.
3. Non-deduction of TDS on export commission.

Analysis:

Tax Treatment of Foreign Exchange Loss:
The revenue appealed the ITAT's decision regarding the foreign exchange loss reported by the assessee, arguing that it was a speculative transaction under Section 43(5). The assessee, an exporter, had entered into hedging transactions with authorized foreign exchange dealers/banks to safeguard its interests. The AO taxed the loss claimed by the assessee, contending that it was speculative since the assessee received amounts at agreed rates from foreign purchasers. However, the CIT(A) overturned this decision, citing various Tribunal decisions and a CBDT circular. The ITAT upheld the CIT(A)'s order, emphasizing that forward contracts for hedging losses due to foreign exchange fluctuations are integral to the export activity and should be considered business losses, not speculation activities. The Court agreed with the lower authorities, stating that the hedging transactions were necessary for the assessee's export trade and had been accepted by the Revenue in the past. Therefore, no substantial question of law arose in this regard.

Advance of Interest-Free Loans:
Regarding the advance of interest-free loans to a related party, the findings of fact indicated that the lending was based on commercial expediency. The Court concurred with these findings, and no substantial question of law was found in this matter.

Non-Deduction of TDS on Export Commission:
In the case of non-deduction of TDS on export commission, it was established that the foreign entity receiving the amounts was not an Indian resident subject to tax, and the services were provided outside India. The Court found the findings of fact on this issue to be conclusive.

Conclusion:
The Court dismissed the appeals, stating that no substantial question of law arose in any of the issues. The judgments of the lower authorities were upheld, and all pending applications were disposed of accordingly.