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TMI Blog2020 (11) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP adjustment, for notional interest, on delay in realisation of trade debts from AEs. When the assessee is adopting the uniform policy for none charging interest on export receivable from AE and none AE and moreover the transaction with regard to sale of cut and polished diamonds has been accepted by the TPO at ALP, no notional interest was warranted. In the result Grounds No. 1 to 5 of the appeals are allowed. Disallowance of mark to market loss - assessee is following mercantile system accounting and AS-11 - HELD THAT:- The Hon ble Supreme Court in case of Woodward Governor India (P) Ltd., [ 2009 (4) TMI 4 - SUPREME COURT] held that losses on revaluation of unmature foreign exchange forward contract and such are not notional losses and are allowable as expenditure u/s 37 of the Act. In M/S. D. CHETAN CO. [ 2016 (10) TMI 629 - BOMBAY HIGH COURT] held that forward contracts for purpose of hedging in course of normal business activities of import and export done to cover up losses on account of differences in foreign exchange valuations would not be speculative activity, but business activity.Therefore, we direct the AO to delete the disallowance. In the result, Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice as required in terms of proviso to section 92C(3) of the Act for his proposal to make transfer pricing adjustment in respect of notional interest on export receivables by the appellant from its Associated Enterprises ('AEs'). 2 In the facts and circumstances of appellant's case and in law, the learned CIT(A) grossly erred in upholding that delayed realisation of export sale proceeds is a separate and independent international transaction under section 92B of the Act independent of the international transaction of sale of cut and polished diamonds to AEs. 3 In the facts and circumstances of appellant's case and in law, the learned CIT(A) grossly erred in upholding upward transfer pricing adjustment of ₹ 151,01,456/- u/s 92 of the Act towards notional interest on delayed realisation of export receivables by the appellant from its AEs. 3.1 Ld. CIT(A) failed to appreciate the uniformity of act of appellant of not charging interest from AES as well as Non-AEs customers for delay in realisation of export proceeds and hence assessee's practice of not charging interest on delayed realisation of export proceeds from AES shall be treated as arm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High court cage of CIT vs. HDFC Bank Ltd. (ITA No.:330 of 2012). 2. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing, selling and marketing of cut and polished diamonds. The assessee filed its return of income for the A.Y 2009- 10 on 29.09.2009, declaring income of ₹ 7,86,19,210/- under the normal provisions of the Act. Along with the return of income, the assessee furnished a report in Form 3CEB and reported following international transactions with its associated enterprises (AE). Sr. No. Description of Transaction Amount Most Appropriate Method used 1 Purchase of raw Materials 76,83,74,820 TNMM 2 Purchase of Polished diamonds 34,05,32,235 TNMM 3 Sale of cut and polished diamonds 484,15,19,543 TNMM 3. Consequent upon reporting of international transaction of more than ₹ 15 Crore, the assessing officer (AO) made reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f forward contract by taking view that the contracts have been settled after close of financial year. The AO also followed the order for earlier year (AY 2008-09) wherein similar disallowance was made. 7. The AO, further, noted that assessee has shown dividend income of ₹ 1.62 lakhs as dividend income. The assessee was asked to furnish the details of expenditure incurred for earning such exempt income. The assessee filed its reply and contended that no expenses are incurred for earning such exempt income and hence no disallowance u/s 14A of the Act called for. The assessee also contended that during this relevant year the assessee had not made any new investment. The investments made in the past were out of the assessee s own fund. Further, there are no indirect expenses for the purpose of earning dividend income during the year nor there is any use of fund borrowed during the year. The assessee in this without prejudices contentions furnished making of disallowances u/s 14A of the Act @ 0.5% of average value of exempt investment. Thus, the assessee offered disallowance u/s 14A of ₹ 2.49 lakhs. The contention of the assessee was not accepted by the AO, the AO disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench mark on transactional net margin method (TNMM) and found to be in order and thus no adjustment is warranted on account of delay in receivable. In support of his submission the Ld. AR relied upon the decision of Rushabh Diamonds Vs ACIT, [2016] 68 taxmann.com 141 (Mumbai-Trib). 11. The Ld. AR further submits transfer pricing officer ought to have appreciated that AEs have also made pre payment against their receivables even if the ALP to be computed then same had to be computed by aggregating the impact of delay in same cases pre payment in other cases reliance is made on the following cases: Barclys Bank PLC Vs. ADIT, [2018] 100taxmann.com476 (Mumbai - Trib), DCIT Vs. Indo American Jewellary Ltd., [2012] 50 SOT 528 (Mumbai), Jewellmark India P. Ltd Vs. ITO (ITA No. 432/M/2014). 12. On the other hand, Ld. DR for the revenue submitted the order of TPO/CIT(A). The Ld. DR for the revenue submits that after the amendment in Sec. 92B of the Act any benefit arising out of capital finance is an international transaction. 13. We have considered the submissions of both the parties deliberated on various case laws relied upon by the AR of the assessee. We have note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of foreign currency fluctuation. The assessee is following mercantile system accounting and AS-11, would revalue the outstanding foreign currency monitory items and the closing rate at the rate as on 31st March. Accordingly, the debtors and creditors, borrowing and uncertain forward contracts were restated at the yearend applying the closing rate of the foreign currency and gain / loss on such conversations were charged to profit and loss account. During the relevant period the assessee suffered foreign exchange fluctuation loss of ₹ 6.69 Crore. The details of which was furnished before the lower authorities. This included foreign exchange fluctuation loss of ₹ 2.86 Crore on yearend conversion of its outstand forward contracts, details of export invoices related to these contracts as on 31st March 2009 were furnished to the lower authorities. Copies of the same are placed at page no. 299 to 302 of the paper book. The AO disallowed ₹ 2.86 crore to yearend conversion of foreign forward exchange contract treating it to be a notional loss and by taking view that contracts were outstanding and settled in subsequent year. The assessee has been consistently following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward contract mature during the year has been allowed. 19. The Ld. AR for the assessee further submits that the Hon ble Bombay High Court in CIT Vs. D Chetan Co. 390 ITR 36 (Bom), while considering the decision of Badridas Gauridu P Ltd., (supra) and order in assessee s own case for AY 2008-09, held that the order of Badridas Gauridu P Ltd., (supra) was not brought to the notice of Tribunal when Tribunal rendered its decision in S. Vinod Kumar (supra). The Hon ble High court held that forward contract in foreign exchange when incidental to carrying of business of exporter and then to cover up of losses on account of difference in foreign exchange valuation would not be speculative activity but a business activity. Accordingly, Ld. AR of the assessee submits that decision in earlier i.e AY 2008-09 should not be followed in the year under consideration. 20. The Ld. AR also relied upon the decision of the Tribunal in ACIT Vs. Shree BalKrishnan Exports, ITA No. 4185/M/2014, wherein it has been held that earlier year decision of Tribunal is no longer applicable in view of the later decision of High Court in case of D. Chetan Co.(supra). 21. On the other hand, the Ld. DR fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Respondentassessee's regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue's contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar Diamonds (P.) Ltd. (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical/similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar Diamonds (P.) Ltd. (supra), the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT v. Bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Gauridu P Ltd., was not brought to the notice of Tribunal when it rendered the decision in Vinod Kumar Diamonds (assessee s) case. It was reiterated by Hon ble High Court that forward contracts for purpose of hedging when incidental to carrying on business of exporter and then cover up losses on account of difference in foreign exchange valuation, would not be speculative activity but a business activity. 27. Considering aforesaid factual and legal discussion and keeping in view the decision of Hon ble Supreme Court in Woodward Governor India P. Ltd., (supra) that losses on revaluation of unmatured foreign exchange forward contract and such losses are not notional losses and are allowable as business expenditure u/s 37(1) of the Act. Further, in case of D Chetan Co., wherein, the Hon ble High Court reiterated its earlier decision in Badridas Gauridu P Ltd, that forward contract in foreign exchange when incidental for carrying on business of export and are done to cover up losses on account difference in foreign exchange valuation would not be speculative activity but a business activity. Therefore, we direct the AO to delete the disallowance. In the result, Ground No. 6 7o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Resources Ltd.,85 taxmann.com 190. 30. On the other hand, Ld. DR supported the orders of the authorities below. 31. We have considered the rival submissions of both the parties and deliberated various case law relied upon by the assessee. We have noted that during the year under consideration the assessee has earned exempt income of ₹ 1.62 lakhs only. The AO disallowed interest expenses under Rule 8D(ii) of ₹ 30,13,853/-. We have perused the profit and loss account of the assessee copy of which is available in the paper book filed by the assessee. We have noted that the assessee s reserves and surpluses as on 31.03.2007 is ₹ 93.24 Crore and share capital of ₹ 9.8 Crore. The total investment as per schedule 6 of profit and loss account is only ₹ 4.98 Crore. Moreover, most of the investments were made in past. Considering the decision of Jurisdictional High Court in HDFC Bank (supra) and Reliance Utility (supra) no disallowance under Rule 8(D)(ji) is warranted in case the reserve and surplus of the assessee are in far excess to the investment made by the assessee. Considering the decision of Jurisdictional High Court and the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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