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TMI Blog2015 (3) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in foreign exchange - AO denied the claim of deduction u/s 80HHC on the said income - Held that:- The issues relating to the “independent income” are required to be adjudicated by the lower authorities after granting a reasonable opportunity of being heard to the assessee. Further, regarding the cancellation of forward contracts, the Tribunal has explained the relevant provisions in its order in the case of London Star Diamond Company (I) Pvt Ltd (2013 (11) TMI 424 - ITAT MUMBAI), where one of us (AM) is a party and the same should also be considered by the Assessing Officer in the remanding proceedings. There is a need for giving definite finding of fact if the impugned profits are „independent income‟ or part of the normal business profits of the assessee. In any case, speculative nature of profit is ruled out by the Tribunal in the assessee's own case in earlier years. Assessing Officer shall make use of the explanation given by the jurisdictional High Court in the case of Pfizer Ltd (2010 (6) TMI 433 - Bombay High Court ) after analyzing the dates of the contracts, connection to the invoices and also the reasons for conclusion. We also find that the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not required to be entertained. Assessing Officer is directed to give an opportunity of being heard to the assessee and decide the issue applying the said judgment of the Apex Court. - Decided in favour of assessee for statistical purpose. - I.T.A. No.5124/M/2008, I.T.A. No.291/M/2008 & I.T.A. No.8293/M/2011 (AY:2004-2005) - - - Dated:- 13-2-2015 - Shri D. Karunakara rao And Shri Amit Shukla JJ. For the Appellant : Shri Nitesh Joshi and Mr. P.P. Bhandari For the Responent : Shri Sachchidanand Dube, DR ORDER Per D. Karunakara rao, AM: There are three appeals under consideration involving two assessment years 2003-04 and 2004-05. Out of the three appeals, two appeals are filed by the assessee and ITA No.8293/M/2011 is filed by the Revenue u/s 271(1)(c) of the Act relating to assessee‟s appeal ITA No.291/M/2008. We are informed that there is no penalty proceedings in connection with the ITA No.5124/M/2008. For the AYs under consideration, the Revenue‟s appeals were already heard in the past and the copiesof the orders of the Tribunal are filed before us. It is noticed from the instant appeals that the issues raised in these appeals are unconnect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the assessee. Assessee merely submitted the breakup of the said expenses and not the evidences. Accordingly, Assessing Officer disallowed 1/5th of the claim i.e., 5,89,200/- (Rs. 29,46,079 / 5) and added the same to the total income of the assessee. On appeal, CIT (A) confirmed the same. Aggrieved, assessee field the present appeal by raising the ground no.1. 4. During the proceedings before us, Ld Counsel for the assessee filed a written note stating that the similar claim of the assessee was accepted by the Revenue in the past under comparable circumstances. This is the case where the audit done by the auditors u/s 44AB of the Act without any remarks. In view of such circumstances, the disallowance is unwarranted. Alternatively, assessee submitted that the Assessing Officer‟s conclusion of disallowance of 1/5th of the claim of the assessee is on higher side. Ld Counsel requested the Bench to reduce the disallowance. 5. On the other hand, Ld DR relied heavily on the order of the Assessing Officer and mentioned that before the Assessing Officer the assessee failed to evidence the genuineness of the expenditure with third party evidences. In such circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish the nexus between the export invoices and the impugned forward contracts. Therefore, the gains in question should be treated as speculative business and affirmed the Assessing Officer‟s denial of deduction u/s 80HHC of the Act. 9. During the proceedings before us, Ld Counsel for the assessee explained the business of the assessee, the requirement of entering into forward contract, the definition of speculation transaction as provided in Explanation to section 28 of the Act and other relevant provisions as well as the judicial pronouncements and submitted that there is no requirement in law for establishing such nexus. For this, he relied on the decision of the coordinate Bench in the case of London Star Diamond Company (I) Pvt Ltd vs. DCIT [2013] 37 CCH 217 Mum. Tribunal. Referring to the order of the Tribunal in assessee‟s own case for the AY 1997-1998 [(2009) 124 TTJ (Mumbai) 337, dated 18.11.2009] wherein the Tribunal decided the issue against the assessee concluding that the impugned profits are not to be considered derived from the import activities and such receipts have to be dealt with as per the provisions of Explanation (baa) to section 80HHC of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/2008 (AY 2004-05) dated 20.4.2011; the judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Deodhar Electro Design (P) Ltd [2008] 300 ITR 103 (Bom); judgment of the Apex Court in the case of Liberty India vs. CIT [2009] 317 ITR 218 (SC). In para 18 assessee mentioned that the Tribunal did not follow the orders relied upon by the Ld DR. He heavily relied on the judgment of the jurisdictional High Court in the case of Pfizer Ltd (supra) and the judgment of the Hon‟ble Karnataka High Court in the case of Motor Industries Co. Ltd (supra). 11. On the other hand, Ld DR submitted that the assessee failed to establish the nexus between the impugned forward contracts with the export invoices and therefore, the Assessing Officer is justified in treating the same as the income from other sources. Alternatively, CIT (A) justified in treating the same as speculative profits. It is the submission of the ld DR that assessee failed to give reasons for cancellation of the forward contracts. Referring to the coordinate Bench decision in the case of London Star Diamond Company (I) Pvt Ltd (supra), Ld DR mentioned that there is a need for evaluating the quantity / volum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zer Ltd (supra) after analyzing the dates of the contracts, connection to the invoices and also the reasons for conclusion. We also find that the judgment of the Bombay High Court in the case of Shah Originals (supra) delivered in the context of different facts i.e, gain on account of exchange rate fluctuations and EEFC account and the same was relied upon by the Tribunal in the case of K. Mohan Co. (Exports) (supra). Of course, the other orders of the Tribunal relied upon by the Ld DR must also be considered. We accordingly remand this issue to the file of the Assessing Officer and the ground no.2 raised by the assessee is allowed for statistical purposes. 13. Ground no.3 relates to the gain arising on revaluation of foreign currency borrowings. Assessee claimed the same as business income and qualifies for deduction u/s 80HHC of the Act. The facts are that the assessee borrowed funds under pre-shipment and post-shipment credit facilities in connection with the export transactions. These borrowings / loans are in terms of foreign currency. These loans were valued at the end of the FY and the same resulted in gains regarding the gains of ₹ 2,53,95,129/- which is credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said provisions of clause (baa) of Explanation to section 80HHC of the Act, the net interest income may be considered as. For this, Ld Counsel for the assessee relied on the judgment of the Hon‟ble Supreme Court in the case of ACG Associated Capsules Pvt Ltd vs. CIT 343 ITR 89. We find merit in the same. Therefore, alternative submissions made by the assessee are found not required to be entertained. Assessing Officer is directed to give an opportunity of being heard to the assessee and decide the issue applying the said judgment of the Apex Court. Accordingly, ground no.4 raised by the assessee is allowed for statistical purposes. 16. In the result, appeal of the assessee is partly allowed for statistical purposes. I.T.A. No.291/M/2008 (AY:2004-2005) (By assessee) 17. This appeal filed by the assessee on 11.1.2008 is against the order of the CIT (A)-VIII, Mumbai dated 27.11.2007 for the assessment year 2004-05. In this appeal, assessee raised the following grounds which read as under: 1. The Ld CIT (A) erred in (a) Confirming the assessment by the Assessing Officer of assessing the gains on cancellation of forward exchange contracts (net) of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond the specified period of 6 months ignoring the fact that the assessee is covered by the Circular No.91 of the Reserve Bank of India, Exchange Control Department and also ignoring the fact that there is no time limit prescribed for realization of the exports in respect of the units allocated in the Special Economic Zones (SEZs). RBI is the competent authority in these matters and therefore, the denial of deduction in respect of the impugned export proceeds is not sustainable. For this proposition, Ld Counsel for the assessee relied 10 on the coordinate Bench decision in the case of ITO vs. M/s. International Gold Co. Ltd., vide ITA No.1615/Mum/2008 (cross appeals) dated 24.4.2012. He brought our attention to paras 14 to 20 of the said order of the Tribunal wherein the Tribunal considered the said Circular issued by the RBI qua the SEZ units. Para 17 of the said order of the Tribunal was also brought to our notice wherein the Tribunal reported the judgment of the Bombay High Court in the case of CIT vs. Morgan Stanley Advantage Services Pvt Ltd (339 ITR 291) which is relevant for the proposition that it is a case of deemed grant of explanation and the benefits under Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom time to time : The AR further submitted that the AO's observations that the circular is only prospective would be out of place. The AR has furnished complete list of export proceeds which has been denied by the revenue authorities. The AR referred to the case of CIT Vis Morgan Stanley Advantage Services Pvt. Ltd., reported in 339 ITR 291, 294, wherein the Hon'ble Bombay High Court has held, the extension has been granted in substance and therefore, the benefit of section 10A has to be allowed to the assessee on the ground that the extension is deemed to have been granted. The AR submitted that in the case of the assessee, it is the competent authority who is issuing the circular for the projects in the SEZs, where, now, according to the circular there is no time limit for realization of export proceeds. The AR therefore, submitted that the revenue authorities were wrong to exclude the unrealized export proceeds for computation of the exemption. 18. Against the submissions made by the AR, the DR supported the orders of the revenue authorities and he further submitted that though the competent authority has issued the circular, but that may never be the intention that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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