9911796707
TMI Blog2013 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... s i.e. to help in manufacture of handsets. As per the details of royalty paid, it is clear that royalty is being paid at sales minus cost of sales i.e. the value addition taking place in the factory. Payment of royalty to SEC has nothing to do with setting up the business. Assessee is only getting a right to use of know how from SEC. The ownership of know-how is with SEC only. Furthermore, royalty is not being paid in a lumpsum, but is paid as percentage of sales made. Hence, since the royalty in the instant case is continuous process, it will be revenue expenditure. DRP has confused the royalty payment with payments made for hiring/ training of employees of SEC. Under the agreement, separate considerations has been provided for (a) royalty for right to use the know-how and (b) for imparting hiring / training. AO has made the disallowance of only royalty and not of hiring /training fee paid. Thus, revenue authorities have wrongly relied upon the provisions of section 32(1)(ii). The perusal of the agreement clearly states that assessee is not the owner of technical information / technology received by it from SEC. All the case laws relied upon by the assessee are germane and supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 4.1 That the TPO/Assessing Officer has erred in law and on facts in holding that the ALP of royalty payment of ₹ 26,681,794/- paid by the appellant is 'nil' by resorting to various frivolous/ incorrect/ baseless statements and misplacing reliance on OECD guidelines which are not relevant to appellant's case so as to mislead the cause of justice, thereby clearly demonstrating a prejudiced mindset driven with the single minded intention to recommend a TP adjustment. Ground No. 4.2 That the Id. TPO/AO has erred in law and on facts in holding that the position of the appellant company with regard to manufactured goods sold to the AEs is that of a 'contract manufacturer' and ignoring the fact that the Functional, Asset and Risk (FAR) profile of the appellant for sales made to unrelated parties is similar to the sales made to AEs; Ground No. 4.3 That the Id. TPO/ AO has erred in law and on facts in ignoring the fact that the royalty paid by the appellant pertains to use of technical know-how and expertise in manufacture of products and not for use of 'Samsung' brand name or logo and that the use of technical know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NO.8 The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 3. Apropos the issue of Transfer Pricing Adjustment to royalty of ₹ 2,66,81,794/- M/s Samsung Electronics Company Limited (SEC Korea) is the ultimate parent company of Samsung Group and is a worldwide leader in semiconductor, telecommunication and digital convergence technology. M/s Samsung Telecommunication India is a company incorporated in October, 2005 in India, is a wholly own subsidiary of Samsung Electronics, Korea. The international transactions of the company are as follows:- S.NO. Nature of Transaction Value of Transaction 1 Purchase of raw material 4,100,174,143 2 Purchase of consumables 5,824,766 3 Exports sales 1,724,554,461 4 Sales support income 17,643,478 5 Purchase of capital ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing are also procured from overseas group entities. The assessee STI is responsible for the production of the hand sets on the assembly lines and also undertakes testing, quality assurance, etc. 4. It is also mentioned in Para 4.3.4 and 4.3.5 of the Transfer Pricing report that the Associated Enterprises own significant intangibles like designs, drawings, patents, know how, technical information. testing quality control standards, etc. which are a result the R D activities of the Group that are used by Samsung Telecommunications India. Further, Group companies also own the corporate brand name/logo. Samsung Telecommunications India is a licensed manufacturer that utilizes technical know-how etc. provided by associated enterprises. It does not undertake any significant R D that leads to the development of non routine intangibles. 5. As staled above, you are paying royalty to your group companies for use of license technology and brand name and logo to your AE. You may therefore show cause as to why royalty payment made on export sales to the group companies itself of ₹ 26,681,794/- should not be held to be payment in respect of which manufacturing is carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the umbrella of the multinational corporation. That even though it appears that the technical know-how is commercially exploited in India, in reality, the price for these activities are not fixed by the market force. TPO opined that whether the sales of the assessee are made within India to its AE or to the parent company does not make much difference to the principles of arm's length transactions. Assessing Officer referred to the guidelines of the OECD in respect of the exploitation of intangible are :- 6.14 Arm's length pricing for intangible property must take into account for the purposes of comparability the perspective of both the transferor of the property and the transferee. From the perspective of the transferor, the arm's length principle would examine the pricing at which a comparable independent enterprise would be willing to transfer the property. From the perspective of the transferee, a comparable independent enterprise mayor may not be prepared to pay such a price, depending on the value and usefulness of the intangible property to the transferee in its business. The transferee will generally be prepared to pay this license fee if the benefit if r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty. 3.7 In the background of the above discussions, TPO held that the payment of royalty to the extent of ₹ 266,81,794/- in the international transaction is treated to be a payment against services having arms length value being NIL. 4. Assessee filed the objections against the order before the DRP. The DRP summed up the assessee's objections as under:- a. Once TNMM has been selected as the most appropriate method, questioning the appropriateness of the individual elements of operating cost is against fundamental TP principles. b. Royalty is not for use of 'Samsung' brand, name or logo but for use of technical know-how and expertise and that transaction of payment of royalty satisfies the principle of 'commercial expediency.' c. There is no difference in FAR profile of the assessee between sales made to overseas related parties versus unrelated parties, there is no reason why there should be a difference in terms of the royalty paid/payable by the assessee on both types of sales. d. The assessee has made some sales to other overseas group companies, SEC Korea cannot be deprived of its right to earn an arm's length return on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (i) Extensive instruction should exist as regards nature, quantity and quality, and (ii) An assurance should exist that the entire production will be purchased. None of the above are factually alleged or satisfied in the present case. If the above was met it ceases to be an independent manufacture and becomes rendering of a service to the person so instruction and purchasing. In Indian jurisprudence it means a works contract. In the present case, as stated supra, majority of sales are to non-AE's. Any mandamus on the modus of sale in specifically denied and not found to be untrue. Appellant is an independent manufacturer selling goods it manufacturer. Support may be drawn from:- (i) Central Board of Excise and Customs Circular No. F.No. 249/1/2006-CX.4 dated 27th October 2008 (copy filed during the course of hearing on 19th March 2012). In this Circular CBEC has clarified that the legal interpretation adopted by it in its earlier Circulars wherein Contract Manufacturing activity of bottling of Indian Made Foreign Liquors, Country Liquors, etc was classified as a Business Auxiliary Service was incorrect in law. (ii) Hon'ble Bombay High Court in the case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butors. Reference: pg 149 of PB-II this fact was also clarified to the TPO vide submission dated 19th October 2010 @ para 43 onwards. Copy enclosed in PB-III pages 250 to 251@ Pg. 262, para 43. this fact was also stated before DRP at page 68, Ground No. 3 (ii) In the relevant assessment year only small portion of appellant's total sales are to AE's (i.eaprox 33.40% in AY 07- 08 and 16.40% in AY 08-09). Bulk of the other sales (i.e 66.60% aprox in AY 07-08 and 83.60% in AY 08-09) are to non AE's. If this be so then appellant can't be termed as a contract manufacturer. {Reference SonaOkegawa Precision Forging ITA No. 4781/Del/2010 order dated 16th December 2011 copy enclosed pages 278 to 285 relevant @ page 284, 7th line from bottom}. (iii) Appellant operates as a full-fledged licensed manufacturer. In fact on export sales it is claiming benefit of deduction u/s 10A which is being granted. FAR profile of the appellant remains same/similar in respect of its overall operations i.e., for sales made to group companies as well as for sales made to totally unrelated parties. It will be significant to mention that the appellant is not mandated to sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale) is same whether the sales are domestic or export sales. For even export sales made to third independent parties royalty is being collected by SEC at the same rate. TPO @ pg. 129, para 7.4 has confused the issue by noting that the payment of royalty is to itself i.e., holding company. Further the TPO at page 127, para 7.2 has observed that all the AE's typically within the broad umbrella of the multinational corporation . While doing so endeavoured to reach the so called economic substance ignoring the legal substance accepted and admitted in five separate jurisdictions. In such a situation the viel has only to be looked at and not looked through. ... Vodafone 341 ITR 1 SC @ pg. 36, para 68 of ITR citation copy of relevant extracts enclosed in PB-III at pages 266 to 270. Once it is held that assessee is not a contract manufacturer the case squarely gets covered by decision of Hon'ble ITAT in case of SonaOkegawa Precision Forging reported in 2010-TII-41-ITAT-DEL-TP copy enclosed pages 271 to 277 of PB-II. In this case it has been held by Hon'ble ITAT as under:- 16. The royalty was paid by the assessee under the Technology Agreement, computed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statement of TPO that the appellant has not been able to demonstrate the benefit and reliance placed on para 6.14 is baseless. Further, para 6.17 states that in some circumstances, the price of the intangibles may stand included in price of goods transacted with AEs and consequently, any additional royalty would have to be disallowed in the case of the buyer. It may be noted that in his order the TPO has not provided any specific reason for placing reliance on the above para. Further, the TPO has not demonstrated any facts or circumstances substantiating that the transfer price of goods include license charge/royalty and therefore, any additional payment for intangibles needs to be disallowed. If that was the case, then the TPO should have demonstrated the impact of the same in the transaction value of raw material purchase from group companies. On the contrary TPO has accepted the transaction value of purchase of raw material and consumables to be at arm's length using the TNMM. Without prejudice even applying CUP no adjustment is called for- Without prejudice it is also submitted that even if CUP is applied then too the rate of royalty (i.e 5% on domestic sales and 8% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng was recorded by Hon'be ITAT that it is noted that this is not a case of ordinary business transaction (refer para 10 of TTJ or SOT citation). 6.1 Ld. Departmental Representative submissions on the issue are as under:- The TPO held that the assessee was akin to a contract manufacturer and is doing contract manufacturing for the group entities, as far as the assessee's related party exports are concerned. As per OECD definition, a contract manufacturer is CONTRACT MANUFACTURER: A manufacturer, in most cases, located in a low cost jurisdiction, which has to license to use an intangible property developed by its parent company. The manufacturer uses the intangible property to produce tangible property which is then resold to the parent for distribution to ultimate customers. The assessee's technology licence agreement with its group parent M/s Samsung Electronics Company Ltd., Korea , SEC dated 26.2.2006, article 6.2(d) (e) thereof specifies responsibilities of the assessee as follows:- The assessee company shall (d) purchase and verify the quantity and quality of the raw and packaging materials, parts and machinery on the basis of SEC's adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction has to be judged as to whether the transaction is at arm's length or not. This view was upheld by the Hon'ble Punjab and Haryana High Court in the case of M/s Coca Cola India, 209 ITR 194 and by the Hon'ble Delhi High Court in the case of M/s Nestle India Ltd. 337 ITR 103, para 15 thereof. The assessee did not specify as to how were the prices fixed between its AEs and itself The assessee did not specify as to how were prices arrived at between itself and its related parties. The assessee has claimed that it purchased goods from its AE at Arm's Length Price. If the assessee claims that had it not paid royalty to its AE it would have had to pay higher prices for its import of goods from its AE is self contradictory because the assessee claims that it had purchased goods from its AE's at Arms Length Price. 6.2 We have carefully heard the submissions and perused the records. We find that assessee in this case has paid the royalty to its AEs on total exports sales of ₹ 1,724,554,461/- to AE, the assessee had deducted the cost of goods sold and on the net sales of ₹ 333,522,421/- royalty @ 8% at ₹ 26,681,794/- had been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd most of the raw materials were purchased from group entities and even the quantity and quality of raw and packaging materials, and machinery etc., and the suppliers were dictated by the Korean Parent (SEC). Ld. Departmental Representative further submitted that even the export sales were to the related parties, or to distributors specified by the group. In such a situation, the assessee's activities relating to export of manufactured items to group entities was akin to contract manufacturing. Ld. Departmental Representative opined that payment of royalty in such a situation would amount to paying royalty to oneself. Therefore, he submitted that TPO rightly proceeded to determine the Arm's Length Price of payment of royalty relating to goods exported to group entities at NIL. 6.4 As against the above, it is the submission of the assessee that royalty is paid by the assessee to SEC Korea for the receipt of technical know how and expertise. That the Assessee cannot carry out manufacturing activity, (either in the export markets or the domestic market), without access to the technical know-how and expertise developed by SEC Korea. We find that this aspect of the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a close watch on the quality of the raw-material and the production process. However, it does not determine the quantity of production and the terms of sales. There is no assurance to the assessee company that its entire production will be purchased. Ld. Counsel of the assessee has submitted the sale prices to the AEs are determined by market force and not dictated by the SEC Korea. It is noted that in the relevant assessment year only small portion of assessee's total sales are to AEs (i.e. approx 33.40% in AY 07-08 and 16.40% in AY 08-09). Bulk of the other sales (i.e 66.60% approx in AY 07- 08 and 83.60% in AY 08-09) are to non AE's. In these circumstances, assessee cannot be termed as contract manufacturer. Thus, Revenue has not been able to bring on record any evidence that assessee is mandated to sell goods to overseas group companies in any manner. It has been claimed by the ld. Counsel of the assessee that just like in arms length/third party situation, the sales made by the assessee to assessee group company is dependent at the outcome of the negotiation between the overseas group companies and assessee on the terms of the contract. It has further been submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee has rightly pointed that the TPO in his order has not doubted the benefits received by the assessee from the payment of royalty. That in fact by accepting the arms length nature of royalty paid on sales made to third party, the TPO has implicitly accepted the benefit derived by the assessee by making royalty payment (irrespective whether it is made to group companies or third parties). Thus, we agree with the contention of the ld. Counsel of the assessee that in these circumstances, the statement of the TPO that assessee has not been able to demonstrate the benefit is not sustainable and hence reliance placed on para 6.14 is devoid of cogency. 6.11 It has further been pointed by the ld. Counsel of the assessee that para 6.17 of the OECD Commentary states that in some circumstances, the price of the intangibles may stand included in price of goods transacted with AEs and consequently, any additional royalty would have to be disallowed in the case of the buyer. In this regard, we agree with the ld. Counsel of the assessee that in his order the TPO has not provided any specific reason for placing reliance on the above para. Further, the TPO has not demonstrated any f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance with the well reasoned elaborate findings of fact recorded by the ld. CIT(A). The same are hereby upheld. The grievance sought to be raised by the Department is thus found to be without substance and shorn of merit. The same is hereby rejected. 6.13 We find that the facts of the above case are similar to the facts of this case as discussed hereinabove. Hence, the above decision also supports the case of the assessee. 7. In the background of the aforesaid discussions and precedents, we hold that royalty payment on exports sales by the assessee to the AE's @ 8% at ₹ 266,81,794/- has been rightly paid the royalty paid is at arms length and no adjustment in this regard is called for. 7.1 Another facet of arguments in this case by the Ld. Counsel of the assessee is that there can be only one Most Appropriate Method (MAP) which can be applied to arrive at the arms length price. Once as per MAP the ALP is arrived, no further testing by applicability of another method is envisaged by or is permissible as per law. We find that the above issue has not been commented upon either by the TPO or the DRP. Since we have already on merits hereinabove held that the royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use trademark etc. for longer period of the giving it an enduring benefit. 8.2 Accordingly, Assessing Officer treated the payment of royalty as capital expenditure. Assessee objected about the above before the DRP. Assessee's main objections/contentions in this regard as noted by the DRP is as under:- As per the agreement, the assessee did not have exclusive rights of operation, as wrongly noted by the Assessing Officer. The relevant extract of Clause 3.1 of the Agreement is reproduced below:- SEC hereby grants to the company upon the terms and conditions set forth in the Agreement, a non-exclusive and non-transferable license, with the Company's right to grant sub-license (the terms and conditions of which are to be determined by the parties), to use the Technical Information to use the Products at the facilities of the Company in India for sale in the domestic and international markets. As mentioned above, SEC has granted the assessee a non- exclusive and non transferable licence to use the technical information in order to produce cellular phones for sale in domestic and export market. The payment is in the nature of running royalty and the rate is 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;)(1968) (691TR 692) SC) b.CIT Vs. I.A.E.E. (Pumps) Ltd. (1997) 232 ITR 316 (SC). c. Alembic Chemicals Works Co. Ltd. Vs. ClT 177 ITR 377 (SC) d. Denso Haryana Private Limited Vs. CIT (ITA No. 381 of 2009) e. CIT Vs. G4S Securities Systems (India) Pvt. Ltd 2011-TIOL- 430-HC-DEL-IT f. CIT Vs. Sharda Motor Industrial Ltd. 22.7 CTR 606 (Delhi HC) g. DCIT Vs. VRV Breweries and Bottling Industries Ltd. (85 TTJ 236) 8.3 However, the DRP was not satisfied with the above. DRP held as under:- After going through the terms and conditions of the technical license agreement, it is found that the agreement was entered for continued production of mobile handsets of International standards in the very first month of beginning of productions. The technical information is made available to the taxpayer, whose personnel after getting proper training can continue production even without the assistance of SEC. It is also noticed from the head note of Article 7 that the payment for technical license fee, includes consideration for using trademark. Therefore the assessee has acquired enduring benefit and it was an important ,step forward to setting up the business of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt at page 249 of PB-III would clearly show that royalty is being paid at sales minus cost of sales i.e the value addition taking place in the factory. Payment of royalty to SEC has nothing to do with setting up the business. If this be so them following cases support claim of appellant: TEI Technology P. Ltd., 304 ITR 262 (Del) @ pg 263. Copy enclosed pages 293 to 295 of PB-III Munjal Showa Ltd., 329 ITR 449 (Del) @ 458, para 12. Copy enclosed pages 308 to 318 of PB-III Articles 5.1, 5.2 12.3 of the agreement clearly show that only a right to use of know-how has been provided to the appellant by SEC. The ownership of know-how is with SEC only. This satisfies the tests propounded by Delhi High Court in case of JK Synthetics Ltd., reported in 309 ITR 371 (Del) @ 412-413, paras (v) (vi). Copy enclosed pages 325 to 370 of PB-III. It is submitted that the lower authorities have gloated over the fact that in the instant case royalty is not lump sum but is being paid as a % of sales made. Since in the instant case royalty is a continuous process it will be revenue expenditure. References: Climate Systems India Ltd., 319 ITR 113 (Del) @ Pg. 118, para 8. Copy enclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d types. (Pg 275, last para and pg 280, 2ndpara of ITR). (iii) Exclusivity was provided thru a non-covenant clause in the agreement (pgs 277-78, para 5 of ITR) and a composite consideration was provided in the agreement for the provision of license information, goods and services rendered (pg 279, para 14 of ITR). (iv) On these facts it was held by the Hon'ble Court that the conferment of an exclusive benefit to manufacture and sell the articles which were subject matter of the agreement and cannot be said to be a part of mere know how agreement. It was held that such a right was an independent right and therefore entire fee was not revenue. To that extent ITAT was right in attributing 25% of the composite fee to the non- covenant rights granted under the agreement.(Pg 280 of ITR) (v) Praga Tools 123 ITR 773 (AP) (PB) case was also distinguished on similar terms holding that case to be a mere provision of know how (pg 281 of ITR). This Southern Switch Gear's case has been distinguished by Delhi High Court in the case of Sharda Motor Industrial Ltd., reported in 319 ITR 109(Del) @ Pg 112, para 8 holding that lumpsum royalty was paid in case of Southern Switchgear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement is not for use of trade mark, as wrongly noted by the Assessing Officer. But it is for grating it a license to use technical information for manufacture of products. Furthermore, the agreement can be terminated by either party in India by giving 60 days notice. Hence, there is no enduring benefit. The know-how obtained under the agreement is for use through the currency of the agreement and on termination of the agreement, the assessee is required to stop using the technical know how and to return the technical information to SEC. Thus, it has been submitted that considering the various terms and conditions of the agreement and keeping in mind the fact that payment is for mere use of information and manufacture of phone and the payment is based on / linked to sales, the same is a deductible expenditure under the Act. 12. We find that the above submissions of the assessee has considerable cogency. The facts of the case and the terms of agreement clearly point out the fact that royalty is being paid as revenue expenditure and it cannot be termed that the same is paid for acquiring benefit of enduring nature. We further agree with the submissions of the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Systems India Ltd. (Supra), it was held by the Hon'ble High Court of Delhi that royalty paid by the assessee to the foreign collaborators had specified as percentage of its domestic export sales for using the technology and availing the technical services provided by the latter under the Technical Collaboration Agreement is allowable as revenue expenditure. 14.3 Furthermore, in the case of Sharda Motor Industrial Ltd. (Supra), the Hon'ble High Court of Delhi has held that running royalty paid by the assessee to the foreign collaborators at a specified rate per piece of product is revenue expenditure. 15. In the background of the aforesaid discussion and precedents, we hold that royalty paid by the assessee to SEC, Korea was not of capital expenditure and it was a revenue expenditure and is to be allowed, as such. 16. Apropos issue of depreciation of UPS On this issue Assessing Officer noted that assessee had claimed depreciation @ 60% of UPS. Assessing Officer was of the opinion that UPS was mere accessories of the computer and it was not entitled to depreciation @ 60%. Assessing Officer allowed the depreciation @ 15% only. 17. The DRP affirmed the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP held that there has been actual outflow of cash but it relates to cancellation / surrender of unused forex contracts. These contracts have been settled by the difference. The DRP was of the opinion that these are speculative losses, in view of Section 43(5) of the I.T. Act. The assessee agreed that these contracts were settled by way of difference. There has been no actual delivery of the underlying assets i.e. cash. It was further argued that forex contracts are not commodity, so section 43(5) will not apply. Further the following decisions were relied upon by the assessee before the DRP. 1. The Delhi Bench of ITAT in the case of Munjal Showa Ltd. vs. DCIT (94 TTJ 227) has held as under:- ...Foreign currency or any currency is neither commodity nor shares. The Sale of Goods Act specifically excludes cash from the definition of goods. Besides, no person other than authorized dealers and money changers are allowed in India to trade in foreign currency, much less speculate. S.8 of the Foreign Exchange Regulations Act 1973, provides that except with prior general or special permission of the RBI, no person other than an authorized dealer shall purchase, acquire, borrow or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also units of UTI are also commodity. (Comfund Financial Services (I) Ltd. vs. DCIT 67 ITD 304 (Bang.) Hence, exchange loss of ₹ 1,88,94,690/- on part cancellation / surrender of unused forex contracts during the year is treated as speculation loss and it shall be carried forward and set off against the speculation income only for a period of 4 years in terms of Section 73 of the Income Tax Act. 20. Against the above order the Assessee is in appeal before us. 21. Assessee has submitted before us that hedging contracts if entered in the normal course of business, will not be termed as speculative u/s. 43(5) of the I.T. Act. In this regard, assessee has relied upon the decision of Hon'ble Calcutta High Court in the case of C.I.T. vs. SurajmalNagarmull 129 ITR 169 (Cal.) and the decision of Hon'ble High Court of Bombay in the case of C.I.T. vs. BadridasGauridu (P) Ltd. 261 ITR 256 (Bom.). 22. Ld. Departmental Representative on the other hand supported the orders of the authorities below. 23 We have carefully heard the submissions and perused the records. We find that the Assessing Officer and the DRP in this regard have noted that the transaction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the breach alleged to have occurred in 1952, the settlement of liability was done by agreement between the parties in the year of account relevant to the assessment year 1956-57. The amount of ₹ 80,491/- was allowable in the assessment year 1956-57. 23.2 In this regard, we further find that in the case of C.I.T. vs. BadridasGauridu (P) Ltd. (Supra), the High Court of Bombay has noted the facts and held as under:- The assessee was an exporter of cotton. The assessee had entered into forward contract with the banks in respect of foreign exchange. Some of these contracts could not be honored by the assessee for which it had to pay ₹ 13.50 lakhs, which was debited to the profit and loss account. The assessee claimed the same as business loss. The Assessing Officer held that the loss was not deductible as a business loss as it was incurred in a speculative transaction. The Tribunal held that it was a business loss. On further appeal to the High Court: Held, dismissing the appeal, that the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses. the assessee had booked foreign exchange in the for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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