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TMI Blog2016 (7) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... led its return of income for A.Y. 2007-08 on 30.10.2007 declaring income of Rs. 133,009,051/- The case was selected for scrutiny. A draft assessment order was passed under section 144C(1) of the Act vide order dated 18.12.2009. 2.2 Aggrieved with this draft order of assessment for A.Y. 2007-08, the assessee preferred its objections thereto before the DRP-I, Mumbai. The DRP-I, Mumbai vide directions issued under section 144C(5) of the Act dated 28.09.2010 disposed off/dismissed the objections raised by the assessee observing as under: - Ground No. 1 - Relating to the set off of loss from settlement of forward contracts for foreign currency of Rs. 6,84,34,804/- against income from 'other sources'. AO's action in treating this loss as capital loss instead of under the head 'other sources'. Upheld. Ground No. 2 - Relating to the disallowance of carry forward of LTCG under section 79 of the Act incurred in the period of A.Y. 2003-04 of Rs. 4,94,64,507/- and A.Y. 2004-05 of Rs. 6,73,63,681/- by the AO was upheld. Ground No. 3 - Relating to the initiation of penalty proceedings under section 271(1)(c), the ground raised by the assessee was held to be premature and therefore dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital loss as disclosed by the assessee in its return of income for A.Y. 2007-08. According to the learned A.R. for the assessee, in doing so, the AO had changed the stand taken by the Department in A.Y. 1998-99 and 2005-06, wherein capital gains earned on early cancellation of forward contracts was by the AO recharacterized as income under the head 'Income from other sources'. It is contended that the AO has not taken a consistent stand and no reason has been given by the AO for this change of stand, where in earlier year capital gains is re-characterised and taxed as 'income from other sources' and in this year the capital loss is being accepted as such when there was no change in the facts and circumstances in the case on hand. 4.2.2 The learned A.R. for the assessee brought to the notice of the Bench that on appeal by the assessee, a Coordinate Bench of this Tribunal, in the assessee's own case for A.Y. 1998-99 and A.Y. 2005-06 in ITA No. 2877/Mum/2003 and ITA No. 910/Mum/2009 dated 08.06.2011 has decided this issue in the assessee's favour holing that the capital gain/loss arising on early settlement of forward contracts takes the character of the underlying securities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the same issue has already been considered by the Tribunal in the case of sister concern of the assessee i.e. Citicorp Banking Corporation Bahrain in ITA No.6525/M/09 for the assessment year 2005-06. The Tribunal in the said case referred to the decision of Special Bench in the case of Apollo Tyres Ltd (supra) vs. ACIT, in which nature of income arising from cancellation of foreign exchange forward contracts entered into by the assessee to safeguard the foreign exchange loan taken for purchase of plant and machinery had been considered. Since the forward contract had been taken to safeguard the foreign exchange loan taken in connection with acquisition of capital assets it was held that income arising from settlement of forward contract was capital in nature. The Tribunal in case of the sister concern noted that, the forward contract had been taken to safeguard foreign currency loan availed for purchase of shares which were capital assets. Therefore, income arising from settlement of forward contract was treated as capital in nature. The facts in the present case are identical with the only difference that in this case the assessee had acquired the foreign exchange loan fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the provisions of section 79 of the Act can have no application. The change of shareholding in the case on hand took place in the period relevant to A.Y. 2005-06 and the assessee's claim for being entitled to carry forward the losses incurred in A.Y. 2003-04 and A.Y. 2004-05 was not denied. It was submitted that, it is apparent that no event has taken place in the year under consideration, i.e. A.Y. 2007-08 for the provisions of section 79 of the Act to come into play. 5.2.2 It is contended that since the assessee has not claimed set off of such losses till date, the question of disallowing the same does not arise now but rather ought to be examined in the year in which the set off is claimed. In this regard reliance was placed on the decision of the Hon'ble Apex Court in the case of CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) wherein it was held that the issue of set off against profits and gains in the subsequent year has to be determined during the year in which such set off is claimed. 5.3 Per contra, the learned D.R. supported the orders of the authorities below on this issue. 5.4.1 We have heard the rival contentions of both the parties and perused and carefully con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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