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TMI Blog2018 (5) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase bills, proof of payment of customs duty bill of entries bank realisation certificates and import clearance documents. He also held that it did not furnish any justification for claiming such a huge loss. Finally, he disallowed four items namely Exchange Difference Import (Rs. 24. 87 crores), Dollar Adjustment Account (Rs. 5. 08 crores), Forward Contract Loss (27. 89 crores)and Deemed Export Exchange Difference(Rs. 1. 52 crores). 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). It was stated that exchange difference import loss of Rs. 24. 87 crores was result of a routine import exchange difference, that the assessee suffered the loss mainly on account of hedging against export receivable effected via export sales, that assessee had not suffered the notional loss by revaluing open forward contracts, that is dealing in a FE derivatives was not covered u/s. 43 (d)(5) of the Act. The FAA called for remand report in that regard from the AO. In his remand report, he admitted that assessee had submitted all the necessary documents, that the AO had missed the details and had added back by entire sum, that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hendra Brothers Exports Private Ltd. (161 ITD 772), Foods and Inns Ltd. (71 Taxmann. com. 338), London Star Diamond Company (I) Private Ltd. (38 Taxmann. com 338), M/s. Hiraco India Pvt. Ltd. (ITA/ 2300/ Mum/2015, AY. 2009-10, dated 20/01/2016) and Jaimin Jewellery Exports Private Ltd. (151 ITD 357). The Departmental Representative(DR) supported the order of the FAA stated that transactions entered into by the assessee speculative transactions. He relied upon the case of Araska Diamond (P. )Ltd. (52 Taxmann. com 238). 5. We have heard the rival submissions and perused the material before us. Out of the forex loss of Rs. 59. 69 crores loss of Rs. 27. 89 crores was booked under the head forward contract cancellation. The assessee had filed the details in that regard. The explanation given by the assessee contains bill wise detail of the exchange loss suffered by it on account of forward contract cancellation. In our opinion, loss arising out of it cannot be treated as speculative loss. We also find that import exchange difference of Rs. 24. 87 crores was a routine exchange difference on import and creditors revaluation carried out at the end of the year, that dollar adjustment accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss on payment to creditors and on revaluation on the last date of the accounting year aggregating to Rs. 24. 87 crores has to allowed. 5. 2. As per the details available the assessee had revalued Packing Credit Facility and Post- Shipment Credit Facility, as on 31/03/2009 whereby it had to pay not additional amount of Rs. 5. 08 crores. In our opinion, both the facilities cannot be held to be capital in nature as these facilities are provided by the bank not for acquiring any capital asset but as a working capital. Therefore we hold that FAA loss of Rs. 5. 08 has to be allowed, as it was a revenue expenditure. 5. 3. It is found that the loss on cancellation of forward contract, amounting to Rs. 27. 89 crores has been disallowed on the ground that the transactions were of speculative nature. Circular No. 3 of 2010, issued by the CBDT has been referred to in support of the disallowance. No evidence has been brought on record to prove that transactions entered into by the assessee were speculative. The AO has in the remand report mentioned that he 'realised' that transaction were not regular business transactions. No basis for his so-called 'realisation' is available. He did not el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction was speculative but only disallowed on the ground that it was notional. Thus, it was to be concluded that the transactions entered were only in regular course of business and not speculative. Therefore no substantial question of law arose. " Finally, we would like to refer to judgment of the Hon'ble Bombay High Court, delivered in the case of Vinergy International Private Ltd. (supra) wherein the honorable court has held as under: "5. The grievance of the Revenue before us is that Instruction No. 3 of 2010 dated 31st March 2010 issued by the CBDT in respect of loss on account of foreign exchange derivatives is subsequent to the Apex Court's decision in Woodward Governer India private Ltd. (supra) and was not considered by the Tribunal. The instruction according to the Revenue would govern the issue. 6. In the present facts, we find that loss was not on account of derivatives but are in fact losses and gains in foreign exchange relating to purchase and sale transactions i. e. creditors and debtors outstanding as on 31st of March, 2010. Therefore, the Instruction No. 3 of 2010 issued by CBDT would have no application to the facts of the present case. In fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of page Remarks 3. 18-50 Party-wise details of sales Month wise export summary, party wise export register which contains quantity, value, party name, address, country and details of sale of rejection and rough diamond. Point 9-discount expense on sale to Niru Creation (Niru Creation ledger given here with full narration) 5. 72-323 Expense ledger A/c. Copy of general ledger a/c. of various business expenses, sales and administrative expenses. Etc. Discount expenses ledger of sale to Niru Creation point-9 of disallowance of discount expenses of Rs. 1, 38, 85, 210/- "6. Under valuation of turnover of Rs. 1, 38, 85, 210/-: This represents discount given to M/s. Niru creation for exports made to it and therefore it is not under valuation of turnover. Even the letter dated 14/12/2012 does contain similar note of credit given to Niru Creation. " It is found that the FAA had confirmed the addition on the ground that the assessee had given discount to its sister concern and that the assessee itself had incurred loss during the year under consideration. 6.1. During the course of hearing before us, the AR stated that the payment made by the assessee was not in doubt, that al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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