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2021 (10) TMI 93 - AT - Income TaxLosses from Forex Derivatives - CIT deleted the addition - DR argued as losses claimed by the assessee are MTM losses and unrealized, contingent in nature, therefore, requested to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue - HELD THAT - The company had to pay difference to the banks between the expected rate of dollar at the time of booking the contract and actual value of dollar at the time of cancellation of contract and the resultant loss was debited to the account of the assessee, thus the losses were crystalised and not contingent in nature. There is no dispute that the bank has debited the loss and the assessee has incurred the forex loss on forward contracts. Entering into forward contract in foreign exchange is permitted by RBI and the losses were incurred during the course of business of the assessee. The assessee is not in the trade of foreign exchange and is engaged in the business of export of agri products and the loss was incurred in the course of business. Therefore, the facts of the assessee s case are identical to the case of Sri Ramalingeswara Rice Oil Mill of this Tribunal, relied upon by the Ld.CIT(A). This Tribunal in the case of Sri Ramalingeswara Rice Oil Mill 2016 (10) TMI 924 - ITAT VISAKHAPATNAM held that the losses are crystalised and the foreign exchange loss incurred by the assessee is business loss. Waiver of loan by way of One Time Settlement (OTS) - deemed income - Remission or cessation of liability under section 41(1) - HELD THAT - In the instant case, the assessee did not get any such benefit or the cessation of liability in respect of expenditure or trading liability incurred in the earlier years. The sum of ₹ 26.03 crores was not a profit and loss item, for which the assessee claimed any deduction or loss of expenditure. Therefore, there is no case for making the addition u/s 41(1) of the Act. This Tribunal while dealing the issue in the case of Vasavi Polymers on similar facts held that the AO is not permitted to tax the principal amount as income. As per SRI VASAVI POLYMERS P. LTD. 2020 (6) TMI 401 - ITAT VISAKHAPATNAM there is no dispute that the benefit by the assessee was in respect of Principal amount but not the expenditure debited to the Profit and loss account and the facts are identical to the case supra. The department did not bring any other case to controvert the case cited above. Therefore CIT(A) erred in confirming the addition - Decided in favour of assessee.
Issues Involved:
1. Condonation of Delay. 2. Disallowance of Forex Derivative Losses. 3. Waiver of Loan by One Time Settlement (OTS). Detailed Analysis: Condonation of Delay: The Department filed appeals with delays of 186 days, 111 days, and 111 days for different assessment years, citing administrative reasons. The assessee also filed cross objections with a delay of 26 days due to health reasons. After hearing both parties, the delays were condoned, and the appeals were admitted for hearing. Disallowance of Forex Derivative Losses: The assessee, engaged in trading, manufacturing, and exporting agricultural products, claimed a loss of ?45,69,33,047/- on forward contracts as revenue expenditure under 'administrative expenses'. The Assessing Officer (AO) disallowed this claim, treating the loss as notional and contingent, arguing that the contracts were entered into without actual export obligations and in violation of RBI norms. The AO's main points were: - No underlying exposure to foreign exchange risks. - Contracts entered even after a government ban on rice export. - Amounts of derivative contracts exceeded the export of agri products. - Losses were unrealized and contingent, not crystallized. - Hedging was not related to business activity. The assessee argued that the losses were crystallized as the bank debited the loss amount to the export packing credit loan account. The Commissioner of Income Tax (Appeals) [CIT(A)] found the facts identical to a previous case (Shri Ramalingeswara Rice & Oil Mill) and deleted the addition. The Tribunal upheld the CIT(A)'s decision, concluding that the losses were indeed crystallized and incurred during the course of business, thus allowable as business losses. The Tribunal cited the case of Sri Ramalingeswara Rice & Oil Mill, where similar losses were considered business losses, and the High Court of Telangana dismissed the revenue's appeal against this decision. Waiver of Loan by One Time Settlement (OTS): For the A.Y. 2013-14, the AO found that the assessee had taken a loan which became a Non-Performing Asset (NPA) and was settled under OTS at ?90 crores. The AO treated the waiver of ?26,03,66,197/- as a revenue receipt and added it to the income. The CIT(A) confirmed this addition. The assessee argued that the waiver of the principal amount is a capital receipt, not taxable under sections 28(iv) or 41(1) of the Act. The Tribunal agreed, citing the case of Vasavi Polymers, where it was held that the principal amount waived under OTS is not taxable as it was never claimed as an expenditure. The Tribunal also referred to the Supreme Court's decision in CIT Vs. Mahindra & Mahindra Ltd., which held that the waiver of a loan does not amount to cessation of trading liability and is not taxable under section 41(1). The Tribunal set aside the CIT(A)'s order and deleted the addition, holding that the waiver of the principal amount is a capital receipt and not taxable. Cross Objections: For the A.Y. 2009-10 and 2012-13, the cross objections filed by the assessee became infructuous as the revenue's appeals were dismissed. For the A.Y. 2013-14, the cross objections were partly allowed, with some grounds dismissed as not pressed. Conclusion: - The appeals of the revenue were dismissed. - The cross objections for A.Y. 2009-10 and 2012-13 were dismissed. - The cross objections for A.Y. 2013-14 were partly allowed.
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