2020 (11) TMI 855 - AT - Income Tax

Addition of loss on derivate transactions - CIT-A deleted addition - HELD THAT - Assessee had initially taken a loan of US 61 Lakhs on 04-12-2007, which got closed on 04- 06-2008 and has resulted in a loss of ₹ 1,77,81,500/- during the AY.2008-09 and again for the AY.2009-10, there was another loan of US 61 Lakhs on 05-06-2008 and on the closing date i.e., on 05-12-2008, this has again resulted in a loss of ₹ 16,99,460/-. CIT(A) has therefore correctly appreciated the facts of the case and has accordingly deleted the addition made by the AO. Ld.DR has not been able to rebut the findings of the CIT(A) with any evidence to the contrary. In view of the same, we see no reason to interfere with the order of the CIT(A) and the appeal of the Revenue is accordingly dismissed.

Summary

Issues:
Assessment of speculative loss on derivative transactions for AY 2009-10.

Analysis:
The case involves an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The assessee, a company engaged in textiles manufacturing, trading, and retailing, initially reported a total income of ?3,73,47,310 for the year. However, the assessment was completed by treating a loss of ?1,41,07,623 related to derivative transactions as a 'speculative loss' under section 43(5) of the Income Tax Act. Subsequently, the matter was taken up to the ITAT, which remitted the issue back to the Assessing Officer for fresh consideration. The assessment was then finalized under sections 143(3) and 254 of the Act.

During the reassessment proceedings, it was observed that there was a discrepancy in the computation of foreign exchange loss, leading to the reopening of the assessment under section 147 of the Act. The Assessing Officer noted that the difference in exchange rates resulted in a profit instead of a loss as claimed by the assessee. Consequently, the AO disallowed the loss of ?1,77,81,500 and brought a profit of ?14,03,000 to tax.

The assessee appealed to the CIT(A), who ruled in favor of the assessee, stating that there was no basis for adding ?1,91,84,500 concerning the loss on derivative transactions. The CIT(A) analyzed the details of foreign currency loans availed by the assessee, highlighting the exchange rate differences and resulting losses. The CIT(A) concluded that the AO's addition was erroneous, as there was no actual profit from the foreign exchange transactions.

Upon hearing both parties, the ITAT upheld the CIT(A)'s decision, emphasizing that the AO's computation error led to the incorrect addition of ?1,91,84,500. The ITAT concurred with the CIT(A) that there was no valid basis for the addition and dismissed the Revenue's appeal. The ITAT's order was pronounced on 12th October 2020, affirming the deletion of the disputed addition based on the correct assessment of the foreign exchange losses incurred by the assessee in the relevant assessment years.