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TMI Blog2018 (1) TMI 1555X X X X Extracts X X X X X X X X Extracts X X X X ..... ary of M/s. Citibank, NA USA.It filed its return of income on 30/10/2011 disclosing Nil income. The AO completed assessment u/s. 143(3) r.w.s.144C(3) of the Act determining income at Rs. Nil. However loss returned by the assessee was reduced. ITA No/7418/Mum/13 2.First Effective Ground of appeal, raised by the assessee,is about loss on cancellation/roll over of Forward Foreign Exchange Contract (FFEC).During the assessment proceedings the AO found that the assessee had entered into International Transactions(IT.s)with its Associate Enterprise(AE).He made a reference to the Transfer Pricing Officer(TPO)for computing the Arms Length Price(ALP) of the IT.s. 3.During the Transfer Pricing (TP) proceedings the TPO fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Rs. 52.10crores.In short, he recommended an adjustment of Rs. 35.51 crores. 3.1. The AO served draft assessment order on the assessee. In response to the same it filed a letter dated 24.01.2011,stating that it did not propose to file objections before the DRP. The AO, held that no capital asset was transferred resulting in capital loss that the loss of Rs. 52.10 crores on account of FFEC was to be computed under the head income from other sources. He referred to the orders of the earlier years of the AO and the First Appellate Authority (FAA) as well as the Directions of the Dispute Resolution Panel(DRP) for the AY.2002-03.Finally, he held that the loss of Rs. 52.10 crores was loss from other sources, that same could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are of the opinion that matter should be restored back to the file of TPO/AO for fresh adjudication to consider additional evidences filed by assessee before the FAA. He is directed to afford a reasonable opportunity to the assessee. Effective Ground of the appeal raised by the assessee is allowed in part. ITA/7032/Mum/2013 7.The solitary Ground of appeal, raised by the AO is about holding that the Loss on extension of FFEC had to be considered on capital account. The FAA had held that loss suffered by the assessee constituted capital loss and had to be considered as business Loss. It was agreed by the Representatives of both the sides that the issue raised by the AO stands decided by the order of the Tribunal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the learned Sr. Counsel for the assessee. The assessee is a non- resident company and has invested in the equity shares of Citicorp Finance India Ltd., which was done by bringing the capital in foreign currency in March 1997. In order to protect its investment in accordance with the provisions of F.E.M.A. (Foreign Exchange Management Act), wherein overseas investors are allowed to hedge their capital investment in India and accordingly, the assessee had entered into forward contract which are periodically rolled over. On account of this periodical roll over of forward contracts, the assessee has realized a net gain in India at Rs. 2,93,47,992. Such a forward exchange contract to provide a hedging mechanism against adverse foreign exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Apollo Tyres Ltd. (supra), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of debentures. The income from sale of debenture has been assessed as capital gain. Therefore, respectfully following the decision of the Tribunal in the case of sister concern Citicorp Banking Corporation, Bahrain ( supra ) we hold that gains arising from early settlement of forward foreign exchange contract has to be treated as capital gain. We accordingly set aside the orders of the CIT(A) and allow the appeals filed by the assessee." Since no contrary decision has been brought to our notice, we respectfully follow the ratio laid down by the aforesaid decisions which has been consistently followed by the Tribunal, Mumbai Benches, and hold that the income arising from forward exchange contract is assessable as capital gain. Conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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