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TMI Blog2019 (8) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... le CIT(A) failed to appreciate that the Ld.AO had erroneously set off of brought forward losses and unabsorbed depreciation of earlier years amounting to Rs. 53,56,717/- against the total income while computing deduction under Section 10A. "Ground No.3 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the Ld.AO of setting off loss of non-eligible Unit 1 of Rs. 59,66,887/- against profit of eligible Unit 2 and then computing deduction under Section 10A of the Act". 3. The issue raised by assessee in Ground No.1 is a jurisdictional issue, challenging the order of CIT(A), upholding the order of the Assessing Officer (AO), confirming the additions to the income of assessee without being based on the incriminating material found during the course of search and therefore, the assessment framed u/s.143(3) r.w.s.153A of the Income Tax Act (Act) is bad in law. 3.1. The facts in brief are that - a search and seizure action u/s.132 of the Act was conducted by the DDIT(Inv.), UnitIX(3), Mumbai in the case of the Mahendra Brothers Exports Pvt. Ltd., and its group concerns, directors and related persons on 08-08-2011. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout jurisdiction. 6. Ld. DR on the other hand, relied on the orders of authorities below. 7. We have heard the rival contentions and perused the material on record as placed before us. We observe that in this case the assessment u/s.143(3) of the Act was framed vide order dt.30-12-2008, whereas search was conducted on 08- 08-2011. Thus, the assessment has attained finality on the date of search. In our opinion, AO can not disturb the completed and finalized assessment on the date of search which has attained finality. The AO has jurisdiction to disturb the assessment if the Department has seized some incriminating material qua the additions which are proposed to be made in the assessment framed u/s.143(3) r.w.s.153A of Act. However, in the present case, we find that there is no reference by the AO to any incriminating material found during search and therefore, we hold that the additions/adjustments/recomputations made by the AO in the assessment order are without jurisdiction and have to be deleted. The case of assessee is squarely covered by the decision of the Bombay High court in the case of CIT Vs. Continental Warehousing Corporation Ltd., (supra) wherein the Hon'ble cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange were in regular course of assessee's business and the quantum of such forward transactions were within the import and export exposure on month to month basis. Ld.AR submitted that assessee was importing various raw-materials like polished diamonds, accessories, colour stones, precious metal etc., for manufacturing of jewellery items and these materials were either imported or procured from Domestic Tariff Area (DTA). Since the assessee was located in Seepz, these were generally payable in foreign currency. Similarly, assessee exports finished goods i.e., finished jewellery that it manufactured to various out parties on credit. Credit term for the sales ranged between 90 days to 150 days as the customers were old ones. The ld counsel submitted that this was part and parcel of assessee's business to receive foreign currency for exports and pay foreign currency for imports/DTA purchases. The assessee used to meet its working capital needs by way of foreign currency loans from bankers. Thus, assessee's receipts and payments of foreign currency were integral and inseparable part of its business. Therefore, foreign currency transactions entered into by the assessee were not ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption is available only where such contracts are in the nature of guard and the onus is on the assessee to prove that such contracts in his case were held as a guard and assessee had not been able to prove is there was any hedging. 4. Assessee's arguments are general is nature and onus has not been discharged with specific hedging linkages. 5. Reliance on facts of A.Y.2003-04: The issue of Hedging is one of facts there is no dispute in law. It has been elaborately brought out in Assessment order and in this appeal order above. That assessee has failed to establish specific linkage between forward contracts with international purchase/sale and cancellations etc. of FC. Hence there cannot be any applicability of order for A.Y.2003-04. Since for A.Y.2003-04, the linkage of hedging was held to have been established, it does not mean that by virtue of that, such linkage is proven is A.Y.2009-10 also. The facts of A.Y.2009-10 need to verified separately for hedging purpose. Hence reliance on order for A.Y.2003-04 is not valid and is rejected." 12. Ld.AR vehemently submitted to the Bench that the issue of loss on foreign exchange fluctuation on account of cancellation of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of these facts and circumstances, we are not in agreement with the conclusion of the Ld.CIT(A) that the loss suffered due to cancellation of these forward contracts in foreign exchange was a speculative loss. Moreover, the case of assessee is squarely covered by various decisions, referred above, wherein it was held that loss incurred due to cancellation of forward foreign currency contract in the ordinary course of business is a business loss and not a speculative loss. 15.1. The Co-ordinate Bench of this Tribunal in assessee's own case in ITA Nos.8804/Mum/2004 and others , dt.30-10- 2009 held as under: "31. After haring both the sides, we find that this issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal, where one of us was a party. In the said decision the loss on account of cancellation of foreign exchange contract was held as business loss by the CIT(A) as against speculation loss as treated by the Assessing Officer. When the matter came up before the Tribunal, the Tribunal following the decision of the Hon'ble Kolkata High Court and Hon'ble Bombay High Court, cited above, dismissed the ground raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Tribunal. 30. The learned D.R., on the other hand, supported the order of the CIT(A). 31. After hearing both the sides, we find that this issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal, where one of us was a party. In the said decision the loss on account of cancellation of foreign exchange contract was held as business loss by the CIT(A) as against speculation loss as treated by the Assessing Officer. When the matter came up before the Tribunal, the Tribunal following the decision of the Hon'ble Kolkata High Court and Hon'ble Bombay High Court, cited above, dismissed the ground raised by the Revenue. Following the same logic as held by the decision of the co-ordinate Bench of the Tribunal, we hold that Rs. 5,75,958/- on account of cancellation of foreign exchange contract in the course of business has to be treated as 'income from business' and consequently, the assessee is entitled to deduction under section 10A of the Act. In this view of the matter, the order of the CIT(A) is set aside and tlie ground raised by the assessee is allowed 6. As the facts and circumstances during the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A cannot be granted qua this income. 16.3. Ld.AR submitted for the Bench that the total other income comprised of four items, the details thereof are given at para 8 of the appellate order. Out of four items, third item was of Rs. 70,46,376/- representing the Sundry Expenses written-off, which were reduced from the profit in the earlier years and therefore should be allowed as part of the profits for the purpose of section 10A, whereas the Ld.AR did not press Item Nos. 1 & 2. 16.4. Ld. DR, on the other hand, submitted for the Bench that the amount which is sought to be claimed a part of the profits for the purpose of Section 10A is only the expenses written-off in the books of account and in no way represented the profit from business and therefore was rightly denied while allowing deduction u/s 10A of the Act. The ld Dr therefore requested that ground raised by the assessee in this regard is to be dismissed. 16.5. After considering the rival submissions and perusing the material on record, we find that the in the other income, there was an item of Rs. 70,46,376/- on account of Sundry Expenses written-off back during the year which were claimed in the earlier year and thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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