9911796707
TMI Blog2022 (7) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... nerating heavy liability on account of unexplained fluctuation in the foreign exchange in global market, therefore, the hedging contract were abandoned by the assessee and whatever the liability arose was paid off accordingly the net liability for such hedging had been provided in the books of account as foreign exchange hedging loss and claimed as a revenue expenditure. In our opinion the derivative transaction entered into with the bank for the purpose of securing expected business loss arising out of foreign exchange fluctuation cannot not termed as speculative since the same is particularly carried out to safeguard expected business loss. In the present case the assessee during the course of its regular business entered into derivative contract for the purpose of hedging its business loss arising out of exchange fluctuation in its day to day business activity and there was no element of speculation involved. No derivative contract could be entered into without underlying assets. A derivative means a financial instrument whose value changes in response to change in a specific interest rate, security price, commodity price, foreign exchange rate, index of price or rates, a credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction in the investment during the year under consideration. The assessee also claimed to have received the dividend income through RTGS, therefore the disallowance made by the AO was not justified. Similar issue having identical facts was a subject matter of the assesse s appeal for the preceding assessment year 2010-11 [ 2019 (7) TMI 1601 - ITAT CHANDIGARH] direct the AO to verify the calculation made by the assessee vis a vis the calculation made in the earlier year which were accepted by the ITAT and restrict the disallowance accordingly to Rs. 4,39,093/- and since the assessee had already disallowed a sum of Rs. 66,419/- under section 14A(1) of the Act, the said amount is to be reduced and the remaining amount may only be disallowed. Disallowance of the interest paid on working capital loan and long term loan - HELD THAT:- As noticed various Courts in the case of Hero Cycles (P) Ltd. [ 2015 (11) TMI 1314 - SUPREME COURT] , Bright Enterprises Pvt. Ltd.[ 2015 (11) TMI 342 - PUNJAB HARYANA HIGH COURT] held that no disallowance of interest is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent Assesses and Department are directed against the separate order each dated 18/12/2014 of the Ld. CIT(A)-3, Ludhiana. 2. Since the issues involved are common and the appeals were heard together, so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance, we will deal with the appeal in ITA No. 153/Chd/2015 relating to M/s Oswal Woolen Mills Ltd. for the A.Y. 2011-12. 4. Following grounds have been raised by the assessee in this appeal: 1. That the worthy CIT(A)-3, Ludhiana erred in law and on facts in upholding the addition of Rs. 13,32,96,175/- being the amount of foreign exchange hedging loss incurred during the course of appellant's regular business by treating the same as speculative transaction. Direction may be given to allow the said loss as business loss. Without prejudice and in alternative, directions be given to Assessing Officer to carry forward the unabsorbed loss of this year under derivative transactions to the subsequent year. 2. a. That the worthy CIT(A)-3, Ludhiana erred in law and on facts in upholding the disallowance of Rs. 1,32,24,640/- u/s 14A of the Act made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthy CIT(A)-3, Ludhiana erred in law and on facts in not deleting the whole addition of Rs.2632429/- made by assessing officer under proviso to section 36(i)(iii) on account of borrowed amount utilized from mixed funds from C.C A/c for purchase of fixed assets. Directions be given to delete the total addition sustained by worthy CIT (A) -3 made out of interest paid to bank on C.C. A/c for working capital which was actually utilized for the said specific purpose.. 5. That the appellant craves, leave to add, amend, alter, modify or substitute all or any of the above mentioned Ground of appeal before the appeal is finally heard and disposed off. 5. Vide Ground No. 1 the grievance of the assessee relates to the sustenance of addition of Rs. 13,32,96,175/- made by the AO on account of foreign exchange hedging loss incurred during the course of regular business by treating the same as speculative transaction. 6. The facts relating to this issue in brief are that the assessee was engaged in the manufacturing and export of cotton /blended yarn and manufacturing of hosiery garments. The assessee also had a wholly owned subsidiary i.e; M/s Monte Carlo Fashions Limited and manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims." 6.2 In response the assessee submitted as under: "The complete detail of foreign exchange difference of Rs, 4.25 Crore is enclosed as annexure - 4. The net amount of foreign exchange difference pertains to booking of foreign currency in the course of its regular business. The Company booked foreign exchange against import commitments and export obligations. This is a necessary business expenditure and may be allowed. The company has not followed AS-11, had the company followed the accounting standard with regard to foreign exchange rates, the net profit before Tax would have been lower by Rs. 49 Lacs approx. This has been clarified in notes on accounts at item No. C(iv) on page 24 of the Printed Balance Sheet. The-company has been adjusting foreign currency exchange rate difference to the fixed assets which pertains to the purchase of fixed assets." 6.3 The AO again asked the assessee vide notice under section 142(1) of the Act dated 18/12/2013, the following questions: '11. From the computation of income is has been observed that an amount of Rs. 12,53,86,979/- has been reduced from the total income. Please justify the deduction. Also submit a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd finally ascertained during the year, therefore, the same may be allowed as claimed in the return." 6.8 The AO mentioned in para 3.8 and 3.8.1 of the assessment order dt. 21/03/2014 that the issue relating to " mark to market" had been clarified by instruction no. 3/2010 of 23/03/2010 and that the speculative transaction is defined by section 43(5) of the Act, for the cost of repetition these are not reproduced herein. The AO after considering the submissions of the assessee observed that the loss claimed by the asessee was as a result of agreement with ICICI Bank and the assessee had incurred loss as per following details : Murex strategy Deal date Deal type Maturity Date Outstanding (Rs.Millions) Initial Credit in account -0.15 MX03943 10-Aug-07 INR to CHF POS 14-may-08 -1.47 MX03943 10-Aug-07 INR to CHF POS 14-may-08 86.95 MX03726 10-Aug-07 USD/JPY KIKO 8-Aug-08 29.50* MX03612 12-Jul-07 INR to JPY COS 14 July 08 (interest settlement) 1.79 MX03612 12-Jul-07 INR to JPY COS 13 Jan 09 (interest settlement) 12.06 MX03612 12-Jul-07 INR to JPY COS 13 July 09 (interest settlement) 10.47 MX03612 12-Jul-07 INR to JPY COS 12 Jan 10 (inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of any kind or nature whatsoever against our company or its directors, arising out of the derivative transactions entered till date under ISDA Agreement entered between your bank and our company M/s Oswal Woolen Mills Ltd., Both the parties will file application for withdrawl of suit and original application in their respective case within fifteen days from the date of signing this letter or the next date of hearing of the case, whichever is earlier, subject to realization of the payment by ICICI Bank. " 6.10 The AO observed that the directions were not in relation to business carried on by the assessee and it had not been worked out on the last day of the financial year or reporting date. Hence there were no loss to the assessee which could have been set off against the income from business. He further observed that the assessee had claimed that the loss of Rs. 13.33 crores debited in the books was directly relatable to the business which was factually incorrect as the assessee was involved in the business of manufacturing yarn, textile etc. but the loss had been incurred in foreign currency transaction entered into with ICICI Bank Ltd. under a master agreement of foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is involved in the business of yarn, textile etc. but the loss is on account of speculation in currency. III. There is no 'mark to market' loss as claimed by the assessee. Even if there is 'mark to market' loss the same is not allowable in the case of the assessee as held by the Hon'ble ITAT Mumbai in the case M/s S. Vinodkumar Diamond Pvt. Ltd. vs Addl. C.I.T. Range5(3), Mumbai vide ITA No.506/Mum/2013 dated 03.05.2013, because it is not in relation to the business carried on by it. IV. Booking and cancellation of Forward Contract of exchange were not in respect of specified export or import. V. The forward transactions made by the assessee must have a direct connection with the goods manufactured or the merchandise sold. VI. The assessee is not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. It is not covered by provisions of section 43(5)(a) of the I.T. Act. VII. The transaction of currency has not been carried out by the assessee in any recognized stock exchange. Hence it cannot be treated as business loss in view of clause (d) of section 43(5) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement with ICICI Ltd. was for currency transactions. The head note of this agreement was "ISDA (International Swaps & Derivatives Association Inc.) Master Agreement dated 17.03.2007". (v) As per the agreement/ swap confirmations the foreign currencies can be swapped like INR-USD-CHF. Under the heading 'deal type' the conversion of currencies could be done from Indian rupees to CHF POS i.e. Swiss Frank and also from USD to CHF or vice versa. (vi) The appellant has not entered into the foreign exchange contracts in any Recognized Stock Exchange. Hence it cannot be treated as business loss in view of clause (d) of section 43(5) of the I.T. Act. (vii) The appellant has not entered into any hedging transaction for items imported or exported by it. Booking and cancelation of Forward Contract of foreign exchange was not in respect of specified export or import. The appellant is not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. To be hedging transactions, the forward transactions made by the appellant must have a direct connection with the goods manufactured or the merchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 (All), (v) P.L. KN. Meenakshi Achi v. CIT (1974) 96 ITR 375 (Mad) and (vi) A. Mukhukumara Pillai v. CIT (1974) 96 ITR 557 (Mad). (vii) CITv. Ram Chandra Gupta & Co. (1968) 69 ITR 254 (Cal) (viii) Bhandari Rajmal Kusalraj v. CIT (1974) 96 ITR 401 (Mys) 8.3 The Ld. CIT(A) observed that the assessee had raised the following contention in support of its claim that the loss incurred on account of foreign exchange transaction was a business loss: (a) The transactions relating to foreign exchange were hedging transactions (b) The transactions were entered in with the view to cover the liability under FCCB amounting to more than Rs. 200 Crores. (c) Provision of section 43(5) were not applicable in the appellant's case as currency was not a commodity as referred to in section 43(5) of the Act. 8.4 The Ld. CIT(A) did not accept the claim of the assessee that the foreign exchange were hedging transactions for the reason that the assessee had not entered into any transaction for items imported and exported by it which is the pre-requisite for a transaction to be hedging in respect of goods manufactured and / or sold by the assessee. The reliance was placed on the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dt. 17/10/2014 Reference was also made to the clarification regarding losses on account of derivative transaction in foreign exchange issued by CBDT vide Instruction No. 03/2010 dt. 23/03/2010 which clarified that in a case where a loss on a foreign-derivative transaction arose on actual settlement / conclusion of the contract and was not a notional or marked to market book entry, a further question would arise as to whether such a loss was on account of speculative transaction as contemplated in section 43(5) of the Act. The Ld. CIT(A) also observed that the Proviso (d) below sub-section(5) of section 43 of the Act inserted by the Finance Act, 2005, with effect from 1/04/2006 lays down that any eligible transaction in respect of trading in derivatives referred to in clause (a(c) of section 2 of the Securities Contracts (Regulation) Act, 1956, which had been carried out in a recognized stock exchange shall not be treated as a speculative transaction and any loss in a speculative transaction can be set off only against profit from speculative transaction. 8.7 The Ld. CIT(A) held that the AO was fully justified in holding that the loss incurred by the assessee on account of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of regular business, the ICICI Bank having fiduciary relationship with the assessee had suggested to hedge the liability as permitted under FEMA & RBI through derivatives contracts. Accordingly, the assessee company had to cover up its financial liability under import which was to be paid in foreign currency to the suppliers, entered into derivative contracts with the banks and as per banking guidelines, the said bank asked the assessee to file board approval which authorized the assessee company to enter into hedging transaction and that the board approval for the same was obtained as a result thereof vide resolution dt. 27/12/2006, copy of which is placed at page no. 33 of assessee's paper book which was also furnished to the authorities below. It was further stated that the assessee company filed detailed submissions dt. 17/11/2014 (copy of which is placed at page no. 34 to 37 of the assessee's paper book), before the Ld. CIT(A) Ludhiana on the issue that Foreign Currency Transactions were made to hedge the financial liability related to normal business of goods imported for the manufacturing and sales & export of goods. However, unfortunately ever since in the beginning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the financial liability of the company because of unexpected fluctuations in foreign exchange currency in global market compelled as a matter of commercial expediency, to be viewed from the point of view of the assessee, to settle the derivate loss during the year relevant to the assessment year and therefore, the amount of said loss was rightly claimed as business expenditure/loss by the assessee. The intention of the assessee, thus, was to hedge the transaction for securing business loss. Such type of hedging transactions, it is well settled, are recognized as per law in India and one such decision in regard thereto is the decision rendered by the Hon'ble High Court of Madras in the case of Rajshree Sugars & Chemicals Limited Vs. Axis Bank Limited & Anr., 2008 SCO On Line Mad 746 : AIR 2011 Madras 144. Hedging transactions of financial liability are not opposed to public policy nor void agreements under Section 23 of the Indian Contract Act, 1872 moreso when such a transaction is not expressly included by the legislature treating the assessee entering into such a transaction as being engaged in the business of speculation and/or such a transaction as a speculative transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid submissions relies upon the Judgments/Orders rendered by the Hon'ble High Courts and various coordinate Benches of the Hon'ble Income Tax Appellate Tribunals which are as follows: (i) Commissioner of Income-tax v. Soorajmul! Nagarmull [1981] 129 ITR 169 (Calcutta)/[ 1981] 22 CTR 6 (Calcutta); (ii) Commissioner of Income-tax v. Badridas Gauridu (P.) Ltd[2003] 261 ITR 256 (Bombay)/[2004] 187 CTR 453 (Bombay); (iii) Commissioner of lncome-tax-16, Mumbai v. D. Chetan & Co [2017] 390 ITR 36 (Bombay)/[2017] 295 CTR 365 (Bombay); (iv) Commissioner of lncome-tax-16, Mumbai v. Vishindas Holaram [2014] 50 taxmann.com 337 (Bombay)/[2015] 229 Taxman 30 (Bombay); (v) Commissioner of Income-tax v. Friends and Friends Shipping (P.) Ltd. [2013] 35 taxmann.com 553 (Gujarat)/[2013] 217 Taxman 267 (Gujarat); (vi) Commissioner of Income-tax - III v. Panchmahal Steel Ltd. [2013] 33 taxmann.com 10 (Gujarat)/[2013] 215 Taxman 140 (Gujarat); (vii) SCM Garments (P.) Ltd. v. Deputy Commissioner of Income-tax, Central Circle-III, Coimbatore [2015] 59 taxmann.com 395 (Chennai - Trib); (viii) Majestic Exports v. Joint Commissioner of Income-tax, Tripur Range, Triupu [2015] 62 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /04/2021 (Bangalore Trib) • The DCIT v. Kunnam Granite Works, (2022)136 taxmann.com 415 (Chennai Trib) • SCM Garments (P) Ltd. v. DCIT [2015] 59 taxmann.com 395 (Chennai Trib) • The DCIT, Rajkot v. DML Exim (P.) Ltd. [2020] 118 taxmann.com 491 (Rajkot Trib) 11. In his rival submissions the Ld. CIT DR reiterated the observations made by the authorities below and strongly supported the impugned order passed by the Ld. CIT(A). It was further submitted that the assessee had not entered in derivative contract in any recognized stock exchange and had also not entered into any hedging transaction for items imported or exported by it. It was stated that the foreign currency transaction or loss incurred had nothing to do with the business of the assessee rather it was a speculative in nature and that the assessee could not demonstrate how those transactions were directly linked with the business of the assessee. It was further stated that the transactions had been done without taking actual delivery therefore the provisions of section 43(5) of the Act were applicable as the transactions were speculative in nature. 12. The Ld. CIT DR accordingly submitted that the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was hedged to meet the financial loss on account of fluctuation of foreign currency to cover the financial liability of the assessee company. The assessee as a matter of commercial expediency because of unexpected flucutations in foreign exchange currency was compelled to settle the derivative loss during the year under consideration and claimed the said loss as business expenditure. The intention of the assessee was to hedge the transaction for securing business loss. Such type of transaction are recognized as per law in India. 13.1 On a similar issue the Hon'ble Madras High Court in the case of Rajshree Sugars & Chemicals Limited Vs. Axis Bank Limited & Anr. Reported at AIR 2011 Madras 144 held that hedging transaction of FCCB's liability are not opposed to the public policy nor void agreements under section 23 of the India Contract Act, 1872. 13.2 In the present case the assessee was engaged in manufacturing of yarn, processed fabrics, sugar and export of cotton yarn, its business did not extend to dealing in foreign exchange. However, to cover up the expected loss on fluctuation of foreign exchange on the liability incurred during the course of regular business, the ICICI Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit rating or credit index which requires no initial net investment or little net investment relative to other types of contract that have a similar response to changes in market condition and it is settled at a future date, in such type of cases, risk embedded in underlying assets is to be protected by means of derivative contracts invented by the banking institutions but it is neither with the intention nor it can be foreign exchange delivery. It is for the purpose of protection of difference in exchange rate by determination of value of a given currency in a given period. In India, in the case of foreign currency derivative, interest rate derivative and credit derivative, RBI is empowered to regulate for the regulatory purposes. The RBI Act has defined the derivative as under; "Derivative means an instrument, to be settled at a future date, whose value is derived from change in interest rate, foreign exchange rate, credit rating or credit index, price of securities (also called "underlying") or a combination of more than one of them and includes interest rate swaps, forward rates agreements, foreign currency swaps, foreign currency rupee swaps, foreign currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase or sale should be of a share, stock or commodity; (iii) There should be periodical or ultimate settlement of the contract; (iv) Settlement to be otherwise than by actual delivery or transfer. 5.7 In order to attract the definition of a speculative transaction, all the characteristics mentioned in the said definition is required to be satisfied. Definition of a speculative transaction vis-a-vis forward cover are as follows:- (i) A forex cover is a contract for purchase or sale and thus the first characteristic as per section 43(5) is satisfied. The third and fourth characteristic of periodic and ultimate settlement and settlement other than by actual delivery would be satisfied in a forex cover transaction. (ii) The second characteristic is that the purchase should be of a share, or stock or commodity. A forex cover is not a contract for the purchase of a share or a stock. In a forex cover, the purchase or sale is towards foreign currency. Therefore it has to be seen whether foreign currency can be equated with the term "commodity" such that its purchase or sale triggers the definition of a speculative transaction under the Act. 5.8 The term "commodity&q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hedge the import payments and repayments of the loans therefore the transaction entered into by the assessee was not speculative transaction. 13.6 Similarly the ITAT Chennai Bench 'A' in the case of DCIT Vs. Kunnam Granite Works (supra) held in para 8 & 9 as under: 8. We have heard both the parties, perused the materials available on record and gone through orders of "me authorities below. The facts borne out from record clearly indicated that assessee had entered into business of export of monument granite blocks to Japan Companies through their Chinese Intermediaries. The Chinese Intermediaries would be making the payment in USD with a future possibility of the direct payment by Japan customers in Japanese Yen depending on the currency fluctuation. As agreed by the parties, the assessee had achieved export sales of Rs. 50.53 Crs. for the FY relevant to the AY 2009-10. Since, the assessee had huge export receivables from customers, it had entered into a Forex derivative transaction with State Bank of India to hedge the foreign currency risk involved in these transactions. The assessee has treated profit or loss arised on account of fluctuation of foreign currency as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading loss as any other loss. In this case, the facts available on record clearly shows that the assessee being an export of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. The Ld. CIT(A) after considering the relevant facts has rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, is in the nature of business loss, but not speculative loss, which is covered u/s.43(5) of the Act. Facts remain unchanged. The Revenue failed to bring on record further evidences to prove the findings of facts recorded by the Ld. CIT(A) are incorrect. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismissed the appeal filed by the Revenue. In the present case also the assessee entered into forex derivative transaction with the ICICI Bank to hedge the foreign currency risk involved in the transaction therefore the expenses claimed by the assessee were revenue in nature, for the reasons that the derivative transaction entered into by the assesse was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on account of the dollar bookings by way of advance contracts entered into by assessee with the banks against which the realization of dollar at the time of export is adjusted and the extent of the unutilized dollar booked in advance by the assessee with the bank which remained outstanding at the end of the month, was closed by the bank by crediting/debiting the assessee's account to the extent of the unused dollar left behind out of the dollar booking for want of export realization, is speculative I nature. According to the AO, this settlement is done on a month to month basis by the ban and there is no squaring up of transactions by way of actual realization of dollar. On the other hand, the Id. AR submitted that, in the appellant's export business, there is always a risk of fluctuating foreign currency at the time of realization of sale proceeds. Therefore in order to hedge against the loss, the appellant enters into forward contracts with its bank and tries to minimize the risk on account of fluctuation in foreign exchange against the future export sales realization. It is also seen that, forward contracts are extensively used to get export receivables hedged against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the Ld. AO on the premise that hedging of currency is incidental to appellant's business and thus the same is allowable business expenditure, in the present facts and circumstances of the case so as to warrant interference. We, thus, find no merit in the case made out by the Revenue. Hence, the order is passed in the affirmative i.e. in favour of the assessee and against the Revenue. In the present case also the assessee was not a dealer in foreign exchange, it had entered into forward contract with ICICI Bank for the purpose of hedging the loss due to fluctuation of foreign exchange while implementing export contract therefore the foreign exchange loss incurred by the assessee was not speculative one under section 43(5) of the Act. The same was incidental to the assessee's business and hence allowable. 13.8 Similar view has been taken by the ITAT Chennai Bench 'C' in the case of SCM Garments(P.) Ltd. Vs. DCIT (supra) wherein relevant findings has been given in para 7 to 11 which read as under: 7. We have heard the rival submissions and carefully perused the material on record and case laws relied by both the parties. In this case before us, one of the major busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Further, in the case of the assessee before us, the following facts emerge and the legal issues involved are discussed and summarized herein below:- (i) The assessee has entered into forex derivative transactions only in order to contain the foreign currency fluctuation risk. (ii) Thus, the loss on account of forex derivative transactions are directly attributable to the normal business of the assessee. (iii) The loss incurred by the assessee is realistic and not notional. (iv) Only money changers and banks are allowed to trade in foreign currency and the assessee is neither a money changer nor a bank. (v) The assessee has only utilized the service of nationalized bank in order to iron out the loss arising out of foreign currency fluctuation risk by entering into forex derivative contract. (vi) The Special Bench of the ITAT, Kolkata Bench in the case of Shri Capital services Ltd Vs. ACIT in 121 ITD 498(Kol.)(SB) has held that foreign currency is neither commodity nor shares as defined U/s. 43(5) of the Act. (vii) The Instructions issued by CBDT Instruction No.03/2010 dated 23.03.2010 has recognized the loss out of forex derivatives on actual settlement/conclusion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in the course of the business of the assessee These regulations do not permit the assessee to enter into forex derivative contract as a separate business. (xiii) Section 73(1) of the Act restricts the set off of speculation loss against the other business income in only those cases were speculative transactions carried on by the assessee are of such nature so as to constitute a business by itself. It is pertinent to mention here that RBI does not permit any bank under its umbrella to entertain its client in any separate business of forex derivative transactions. Permission is granted only for the clients of the bank to hedge on foreign exchange in order to minimize the risk of the foreign currency exposure arising out of import and export trade. (xiv) The Hon'ble jurisdictional Madras High Court in the case M/s.Rajashree sugars and chemicals Ltd Vs. Axis Bank Ltd., in O.A Nos.251 & 252 of 2008 in C.S.No.240 of 2008 O.A. Nos.526 & 527 of 2008 in C.S No.240 of 2008A. Nos.1926, 1927, 2446 and 2447 of 2008 in S.S No.240 of 2008 vide order dated 14.10.2008 reported in 8 MLJ 261 has held that derivative transactions ceased to be speculative transactions or wages because pricing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading in derivatives referred to in clause 35[(ac)] of section 236 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;] shall not be deemed to be a speculative transaction. Explanation.-For the purposes of this clause, the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or subbroker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this effect in its order. The Assessing Officer has not considered these facts. Under s.43(5) of the IT Act, 'Speculative transaction" has been defined to mean a transaction in which a contract for the purchase or sale of a commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect to Rs.13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court, with which we agree, in the case of Ld. CIT Vs. Soorajmull Nagarmull (1981) 22 CTR (Cal.) 8: (1981) 129 ITR 169 (Cal.) B. In the case of CIT Vs. Sooraj Mull Nagarmull, reported in (1981) 129 ITR 169(Cal.) wherein it was held that the assessee used to carry on export and import of jute business. In the course of normal business it used to enter into foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not relate to any capital asset and accordingly allowable. E. In the case of Munjal Showa Ltd. Vs. Dy.CIT, reported in (2005) 94 TTJ (Del.) wherein it was held that profit on cancellation of forward contract in foreign currency entered into for safeguarding against loss by fluctuation in foreign currency for purchase of plant and machinery with loan obtained in foreign exchange is capital receipt and not speculative profit. F. In the case of CIT Mumbai Vs. Vishindas Holaram, reported in (2014) taxmann.com 37(Bombay) it was held that once main business of assessee is identified, if some incidental activities or transactions or dealing in foreign exchange is undertaken but that is also related to some extent to main business activity, then, it could not be said that assessee is in speculative business. G. In the case of CIT Vs. Climate System Pvt. Ltd., reported in 2014 (8) TMI 901 - Delhi High Court wherein it was held that exchange fluctuation arising on the revenue account transaction should be allowed as deductable expenditure. 11. Thus to sum up in the present case before us, the assessee is an exporter of garments who has entered into forex derivative transactions thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 8 & 9 as under: 8. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from record clearly indicated that assessee had entered into business of export of monument granite blocks to Japan Companies through their Chinese Intermediaries. The Chinese Intermediaries would be making the payment in USD with a future possibility of the direct payment by Japan customers in Japanese Yen depending on the currency fluctuation. As agreed by the parties, the assessee had achieved export sales of Rs. 50.53 Crs. for the FY relevant to the AY 2009-10. Since, the assessee had huge export receivables from customers, it had entered into a Forex derivative transaction with State Bank of India to hedge the foreign currency risk involved in these transactions. The assessee has treated profit or loss arised on account of fluctuation of foreign currency as income or expenses, as the case may be, in the relevant AYs. The Department has accepted the income declared by the assessee on account of Forex gain whenever the assessee has earned gain from appreciation in foreign currency. However, disputed loss claimed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. The Ld. CIT(A) after considering the relevant facts has rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, is in the nature of business loss, but not speculative loss, which is covered u/s.43(5) of the Act. Facts remain unchanged. The Revenue failed to bring on record further evidences to prove the findings of facts recorded by the Ld. CIT(A) are incorrect. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismissed the appeal filed by the Revenue. In the present case also the assessee entered into hedging contract with its banker i.e; ICICI Bank to minimize the possible fluctuation in foreign currency which resulted in a loss, so it was a business loss or revenue loss. 13.10 We therefore by considering the totality of the facts as discussed herein above and by respectfully following the aforesaid referred to decisions of the Coordinate Benches at different stations delete the impugned addition made by the AO and sustained by the Ld. CIT(A). 14. Next issue vide Ground No. 2 relates to the sustenance of disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,667 7. Printing & Stationary 4,298,901 8. Travelling and conveyance 9,506,845 9. Vehicle expenses 8,126,666 106,353,029 On the basis of the above computation the assessee company has already added back Rs. 66,419/- u/s 14A of the IT. Act. The principle of proportion has been approved by the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. The assessee further submits that the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co has held that the expenses relatable to income which do not become part of total income, has to be apportioned on the basis of taxable income & non taxable income. The Bombay High Court has relied upon the decision & principles laid down by Hon'ble Supreme Court in the case ofC.I.T V/s WALFORT SHARE & STOCK PVT. LTD reported in 233 CTR - 42 (ST). The assessee itself has computed the disallowance on the basis of proportion as mentioned by the Apex Court & Bombay High Court. Rule 8 D can be applied only in the cases where the assessing officer is not satisfied with the disallowance made by the assessee on the basis of expenditure shown in the books. In our case the expenditure to be disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s except for fixed assets of textile unit spelt out under tuff scheme. Further during the year under consideration the company's total borrowed working capital loan is Rs. 199.38 Cr. and against which current assets of the company, which entitles the company to borrow from bank, is Rs. 377.67 Cr.. According to the net current asset ratio, working capital and the current ratio should be 1:1.33 so long as this ratio is satisfied obviously there cannot be any other inference than that money borrowed from bank have been invested in working capital for the purposes of business. The complete detail of current assets as against working capital loan is as under: Inventories 264.83 Cr. Sundry Debtors 140.24 Cr. Cash & Bank Balance 37.04 Cr. 442.11 Cr. Loans & Advance 118.05 Cr. 560.16 Cr. Less: Current Liabilities & Provisions 182.49 Cr. 377.67 Cr. Working capital loan 199.38 Cr. 1.89:1 In view of above it is clear that the interest paid on term loan and working capital was for the purpose of income earned which is subjected to tax. The interest paid to others has been apportioned for computing disallowance u/s 14A. Further, it is submitted that investments during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of assets was not correct because the assessee had to contribute its own funds for investment in assets and normally the financial institutions finance only the remaining part. The AO pointed out that the total term loan during the year was of Rs. 177.12 crore and the total share capital and reserves were of Rs. 275.97 crores i.e; Rs. 453.09 crores where as the gross block was of Rs. 516.75 crores. He was of the view that normally the interest free funds available with the assessee would have been invested in the fixed assets and nothing was left for investment in shares except the interest bearing funds i.e working capital loan and other unsecured loans. According to the AO the disallowance on this account came to Rs. 1,82,24,640/- and as the assessee had already disallowed a sum of Rs. 66,419/- in the computation of income, further disallowance of Rs. 1,81,58,221/- was made under section 14A of the Act. 16. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that the application of Rule 8D in the assessee's case was not justified as the assessee had itself worked out the disallowance under section 14A of the Act on the basis of well recognized m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 (P&H) • Avon Cycles Ltd. in ITA No. 1143/Chd/2011 vide order dt. 17/01/2013 (Chd Trib) • CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 • CIT Vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) • Anil Kumar Singhania Vs. ACIT in ITA Nos. 1349 & 1350/Chd/2012 vide order dt. 08/08/2014 (Chd Trib) • DCIT, Circle-1, Ludhiana Vs. Sunder Forging in ITA No. 803/Chd/2011 vide order dt. 17/05/2012 (Chd Trib) • JCIT (OSD) Circle-1, Ludhiana Vs. Sunder Forging in ITA No. 1059/Chd/2011 vide order dt. 17/05/2012 (Chd Trib) • ACIT, C-V, Ludhiana Vs. Sigma Cartons(P) Ltd. in ITA No. 769/Chd/2011 vide order dt. 10/07/2012 (Chd Trib) • CIT Vs. Walfort Share & Stock Brokers(P) Ltd. (2010) 326 ITR 1 (SC) • ACIT C-V, Ludhiana Vs. M/s Chadha Super Cars P. Ltd., in ITA No. 36/Chd/2012 vide order dt. 28/12/2012 (Chd Trib) • M/s Chadha Super Cars P. Ltd., Vs. ACIT C-V, Ludhiana in ITA No. 1241/Chd/2011 vide order dt. 28/12/2012 (Chd Trib) • HSBC Invest Direct (India) Ltd. Vs. DCIT, Range 8(ii) in ITA No. 3485 & 3944/Mum/2012 vide order dt. 17/10/2014 (Chd Trib) • M/s Munjal Castings Vs. ACIT in ITA No. 774/Chd/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from past investments made during the earlier years. The said fact could be deduced and got supported from the findings recorded by the AO in para no. 4 of the assessment order wherein it has been mentioned that the total investment as on 31/03/2011 was Rs. 29.04 Crores as shown in the balance sheet against Rs. 58.09 Crores in earlier years which clearly shows that the investment had been reduced substantially during the year under consideration. It was further submitted that the funds available with the assessee company as on first day of the previous year were of Rs. 194.06 Crores as per the balance sheet on the assessment records, therefore, in view of the settled principles of law that where the assessee received dividend by way of exempt income from the investments made in the earlier years from interest free funds (own funds) available with the assessee and such own funds were much larger as compared to investment, the disallowance by applying the provisions of section 14A of the Act would be erroneous and unsustainable. 18.2 It was contended that as against the addition made under section 14A of the Act read with rule 8D of the Income Tax Rule 1962 by the AO and sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the amount of Rs. 1,82,24,640/- by invoking the provision of section 14A of the Act read with rule 8D of the Income Tax Rule and the assessee itself disallowed a sum of Rs. 66419/- which had been accepted by the Ld. CIT(A). 20.1 On a similar issue the Hon'ble Karnatakak High Court in the case of Canara Bank Vs. ACIT, Bangalore (supra)held in para 12 of the said order as under: "12. In the instant case, facts set out above demonstrates the income is derived by the dividends u/s. 10[33] of the Act and interest on tax free bonds u/s. 10[15][h] of the Act and interest on long term finance to infrastructure companies u/s. 10[23G] of the Act. In other words, the persons with whom the amounts are invested by the assessee are crediting the aforesaid amount to the assessee's account by way of a bank transfer. Therefore, no human agency is involved in collecting these dividends and interest for which the assessee has to incur any expenditure. This is the consequence of computerization, online transaction through NEFT [National Electronic Fund Transfer], RTGS [Real Time Gross Settlement] and also DEM AT Accounts. The assessing authority should take note of these developments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. However, we find that the assessee while taking the total administrative expenses has not considered the personal expenses and other allowances. The authorized representative of the assessee, before us, has submitted another chart, wherein, the personnel expenses and other allowances have been included and thereby the proportionate of disallowance out of administrative expenses has been computed as under:- "Disallowance u/s 14A In case of regular computation Amount (In Rs.) 1.Amount of dividend income 10656014 2. Operating income 6336864325 3 % of dividend income 0.00168 4. Amount of expenses 556724538 5. Proportionate amount of disallowance of expensed to earn dividend 936183 Details of expenses a. Interest paid to others 21202161 b. Administrative expenses 130240267 c. Personal expenses and allowances other 405282110 556724538" 7. None of the lower authorities have pointed out any defect in the computation of proportionate disallowance computed by the assessee except that certain part of the administrative expenses were not taken into consideration which has been taken into consideration in the computation made above. Even the assessee has clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Bombay High Court in the case of 'Godrej & Boyce' (supra) while making the disallowance. Neither the Assessing Officer nor the Ld. CIT(A) has pointed out any defect in the working given by the assessee in computing suomotu disallowance except that a certain part of tax relating to the personnel expenditure and other allowances were not taken into consideration. In the working given before us, as reproduced above, whereby, the proportionate amount of disallowance of expenditure to earn dividend income has been computed at Rs. 9,36,183/- by including the personnel expenditure and certain other expenses, as noted above. In view of this, the disallowance of administrative expenses is restricted to Rs. 9,36,183/-. However, the assessee will get the benefit /set off at the suomotu disallowance offered by the assessee in the return of income at Rs. 1,33,928/- and accordingly the addition is restricted to Rs. 8,02,255/-. In view of our findings given above, the appeal of the assessee is treated as partly allowed. 20.4 For the year under consideration also the assessee had given calculation at page no. 20 of the submission dt. 17/02/2020 as under: A. Disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar.. The investment made in earlier years were from the sufficient funds out of internal accruals and own funds available with the company. The amount of interest on term loan and working capital limit debited in financial expenses are not attributable to long term, investment. These amounts of loan was directly utilized for the purpose of business for which the loans were obtained. This fact is obvious from the figures of term loan as well as the investment in fixed assets by the company. Your kind self would observe from the balance sheet at page 14 that during the year term loan was Rs. 177.12 Cr. as against Rs. 147.49 Cr. for the immediately preceeding year As against the term loan, my block assets is Rs. 300.98 Cr. (please see page 11 of balance sheet), which is sufficient to demonstrate the utilization of entire term loan for purchase of fixed assets. Besides, please note that the entire term loan is taken for purchase of fixed assets which under no circumstances can be utilized for any other purposes except for fixed assets. Further during the year under consideration, the company's total borrowed working capital is Rs. 199.38 Cr. and against which current assets of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment was not allowable under section 36(1)(iii) of the Act. He further observed that the assessee had made a general statement that the term loan had been utilized for the purpose of fixed assets or the borrowing for the purpose of working capital had been utilized for the net current asset which was not sufficient to demonstrate that the assessee had utilized its own funds for the purpose of investment in shares and that the onus was on the assessee to demonstrate that the internal accruals had been utilized for the purpose of investment in shares. He also observed that the figures appearing in the balance sheet were as on particular day i.e; 31st March, so, it could not be presumed that the same state of affairs existed for the whole financial year. According to him there was no linkage on the day of making investment in shares as regards the position of cash available with the assessee i.e; with reference to own funds or borrowed funds. 22.2 The AO referred to the judgment of the Hon'ble Punjab & Haryana High Court in para 5.9 to 5.10 of the assessment order dt. 21/03/2014 in the case of Abhishek Industries Limited, reported at 286 ITR 1 and the decision of ITAT Chandigarh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(iii) of the Act, being funds utilized for non business purposes, exceeds the amount of interest disallowed under section 14A of the Act read with rule 8D of the Income Tax Rules 1962. The said excess component amount would go to form the cost of shares which was allowable under section 48 of the Act. The reliance was placed on the following case laws: * Felspar Credit and Investment (P) Limited. Vs. CIT 346 ITR 121 (Madras) * CIT Vs. Trishul Investments Limited 305 ITR 434 (Madras) * Sunena Garg, Chandigarh Vs. DIT vide order dt. 13/05/2011 in ITA No. 543/Chd/2010 (Chd Trib) * CIT Vs. Maithreyi Pai 152 ITR 247 (Kar.) 22.3 The AO made the disallowance of Rs. 1,53,17,042/- under section 36(1)(iii) of the Act by observing in para 5.15 of the assessment order as under: 5.15 In view of the case laws cited above Interest attributable to investment in shares would be part of its cost u/s 48(ii) of the I.T. Act. Average investment in shares is Rs.43:56 crores. Interest allocable to investment in shares applying the. debt equity ratio comes to Rs.3,13,63,200/-. Interest attributable to investment in shares has also been worked out in disallowance u/s 14A of the I.T. Act r.w. Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element of interest which is relatable to investment/exempt income are to be considered for the purpose of disallowance. Moreover the formula adopted by the assessing officer is totally wrong because debt equity ratio of the current year cannot be taken for the purpose of disallowance. The appellant has already discharged its onus by demonstrating the figures from the balance sheet that company had sufficient funds available with it. It is humbly prayed that addition made by Ld. Assessing Officer u/s 36(l)(iii) at Rs. 5,98,87,308/- may be directed to be deleted, especially when the interest on the amount presumed to be invested in shares from borrowed funds has been considered in disallowance u/s 14A of the Act. " 23.1 Copy of the aforesaid submission were forwarded to the AO by the Ld. CIT(A), in response the AO vide his report dt. 18/09/2014 submitted as under; "The AO has made an addition of Rs. 5,98,87,308/- u/s 36(l)(iii) of the l.T. Act, 1961. I have gone through the assessment order passed by the AO vide order dated 21.03.2013. The perusal of the order shows that the AO has discussed in detail in Para 6 of assessment order. The AO has mentioned in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant has contended that the interest expenses have also ben considered for the purpose of disallowance u/s 14A of the Act and that no disallowance can be made under two different sections. I don't agree with this contention of the appellant, the AO has clearly pointed out in the assessment order that infact there was no disallowance as such u/s 36(i)(iii) and it wasa mere case of re-allocation of interest expenditure on different heads." 23.4 He also held that the disallowance made under section 14A of the Act was telescoped with reallocation of the expenses towards the cost of shares so there was no double disallowance made by the AO. Accordingly the disallowance made by the AO was confirmed. 24. Now the assessee is in appeal. 25. The Ld. Counsel for the asessee reiterated the submissions made before the authorities below and further submitted that the addition made by the AO under section 36(1)(iii) of the Act was not sustainable and that no such addition was made from the assessment years 2014-15 onwards in the case of the assessee itself by the AO. A reference was made to the page nos. 54 to 108 of the assessee's paper book which are the copies of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. If sufficient own funds are available, no disallowance is called for. This ground may be treated as set aside to the file of Assessing Officer. So respectfully following the aforesaid referred to order of this Bench of the Tribunal the issue under consideration is set aside to the file of the AO to be decided as per the directions given in the aforesaid referred to order dated 12/10/2017 in the case of M/s Monte Carlo Fashions Ltd. Vs. ACIT in ITA No. 1341/Chd/2016 for the A.Y. 2012-13. Accordingly this ground is allowed for statistical purposes. 28. The next issue vide Ground No. 4 relates to the sustenance of addition of Rs. 2,63,24,29/- made by the AO under proviso to section 36(1)(iii) on account of borrowed amount utilized from mixed funds lying in C.C. account, for purchase of fixed assets. 29. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest had been worked out from the date of payment to date of capitalization. He also observed that the assessee had submitted that although the interest was not required to be capitalized as the payments had been made out of the own sources but the working had been submitted as a matter of cooperation. The AO did not accept the aforesaid submissions of the assessee and observed that if the assessee was having its own funds then there was no need of raising borrowings and a part of funds were to be utilized from its own sources including unsecured loans for raising funds from banks. He also observed that investment in the gross block of assets was much more than the share capital and reserves as well as the term loans. The AO mentioned that the total term loans during the year were at Rs. 177.12 crores and the total share capital and reserves were at Rs. 275.97 crores i.e; Rs. 453.09 crores where as the gross block was Rs. 516.75. The AO made the disallowance of Rs. 2,63,24,29/- by observing at page no. 50 to 53 of the assessment order as under: i.) The assessee's argument that the payments for purchase of assets have been made out of own sources is not correct for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion lays stress on the non inclusion of interest after the assets has been put to use. No doubt that this explanation was inserted with the viewpoint to reduce the misuse of investment allowance being made by various assesses, but it also clarifies the position in regard to the assessee. The intention of the legislature has further been explained vide circular No.461 dated 09.07.1986. Para 2 of this circular are reproduced here under: - "It -is an accepted accounting principle that where an asset is acquired out of borrowed funds, the interest paid or payable on such funds constitutes the cost of borrowing and not the cost of the assets acquired with those funds. It is for this reason that as per the clear guidelines issued by the institute of chartered accountant of India, the interest on moneys which are specifically borrowed for the purchase of the fixed assets may be capitalized only relating to the period prior to the assets coming in to production i.e. relating to the erection stage of the assets. However, once the production starts no interest on borrowing for the purchase of the assets should be capitalized." 6.3 It is also to be noted that the Finance Act 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the observations made in the assessment order and pointed out that the assessee had not furnished clear cut evidence of purchase of fixed assets out of non borrowed funds with respect to which no interest had been capitalized and that since the assessee had mixed funds therefore onus was on the assessee to show that the plant and machinery was purchased from own sources and own borrowed funds were not utilized for this purpose. 30.1 The Ld. CIT(A) after considering the submissions of the assessee and remand report of the AO observed that the assessee had made addition to the fixed assets to the extent of Rs. 135.4996 crores during the year and had shown capital work in progress to the extent of Rs. 39.9533 crores and had taken term loan during the year to the extent of Rs. 546.79 crores. According to the Ld. CIT(A)the borrowed funds were used for investment in assets and towards capital work in progress which required to be capitalized in accordance with the provisions of the proviso to section 36(i)(iii)of the Act. The Ld. CIT(A) did not agree with this contention of the assessee that no borrowed funds were used and the fixed assets were purchased out of own funds and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing provision w.e.f 01.04.2004 relevant to assessment year 2004-05. The proviso inserted to the existing provision of section 36(1)(iii) is reproduced as under: " Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." The judgment of various Courts in the case of Hero Cycles (P) Ltd. Vs. CIT, Ludhiana C.A. No. 514 of 2008 dt. 05/11/2015, Bright Enterprises Pvt. Ltd. Vs. CIT, Jalandhar (2016) 381 ITR 107 (P&H) held that no disallowance of interest is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. If sufficient own funds are available, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring that such profits are included in the definition of income as per section 2(24)(xii) of the I.T. Act, 1961 and also not noticing the decision of Hon'ble ITAT, Chennai in the case of M/ s Sripathi Paper & Boards Pvt. Ltd. Vs. DCIT, Circle 1(2), Coimbatore in ITA No. 1452/Mds/2012 dated 29.11.2012 for the A.Y. 2009-10 (copy enclosed). 5. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 38. First issue agitated by the Department vide Ground No. 3 read with Ground No. 1 & 2 relates to the allowing the deduction of additional depreciation amounting to Rs. 2,36,55,831/-. 39. The facts related to this issue in brief are that the assessee vide letter dt. 14/02/2014 claimed additional depreciation on the machinery installed and put to use. The AO did not discuss this claim of the assessee in the assessment order. The assessee submitted to the Ld. CIT(A) as under: " It is submitted that it is an accepted and admitted fact that appellant acquired and installed new machinery in the preceding year, when the Ld. Assessing Officer allowed the normal depreciation as well as additional depreciation in the said year. But on the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under the I. T. Act to make amendment in the return of income at the assesseement stage without revising the return. This argument of revenue is well supported by the decision of Hon 'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT, 284 ITR 323 in which the Hon 'ble Court has dismissed the appellant of the assessee on the issue whether the appellant assessee could make a claim for deduction other than by filing a revised return. Also the assessee has relied upon the case law DCIT vs. SIL Ltd. 148 TTJ 213 (Delhi). It is pertinent to mention that the facts in this case are totally different to the case of the assessee. In this decision since 50% of the depreciation was already allowed by the AO in the immediately proceedings assessment year, hence, the balance 50% of the additional depreciation was allowed after factual verification, no such facts exist in the case of the assessee. Moreover, the other case laws given by the assessee lack any citation details, hence cannot be discussed. Thus, in view of the discussion above, the contention of the assessee is incorrect. Kindly decide this ground of appeal on the basis of these facts & rejecting the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Punjab & Haryana High Court in CIT vs. Ramco International (supra), we are of the view that the claim of deduction made by the assessee u/s 80P(2)(a)(iii) of the Act is to be considered in the present facts and circumstances of the case, even though the assessee had raised said claim by way of letter dated 15.12.2004 and had not furnished any revised return of income. " 8.6 Respectfully following the decisions of the Hon'ble ITAT in the case of Budhewal Cooperative Society Ltd (Supra), I hold that the claim of additional depreciation made by the appellant during the course of assessment proceedings vide letter dated 14.02.2014 was a valid claim. That being so the AO was not justified in rejecting the claim of the appellant pertaining to additional depreciation merely on the ground that the claim was made through a letter and not through revised return. 8.7 Now coming to the merits of the claim. The issue is squarely covered by the various decision relied upon by the appellant as reproduced in para 8.2 above. The AO has not referred to any contrary decision on this issue. 8.8 The AO is directed to examine the appellant's claim for additional depreciation is requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any revised return of income. " We therefore by respectfully following the aforesaid order dated 24/05/2013 in the case of M/s Budhewal Co-operative Society Ltd. do not see any valid ground to interfere with the findings given by the Ld. CIT(A). 44. The next issue vide Ground No. 4 read with Ground No. 1 & 2 relates to the deduction of Rs. 1,21,52,807/- accrued on account of carbon credits. 45. The facts related to this issue in brief are that the assessee had shown income of Rs. 1,74,28,246 under the head "carbon credit received" which was based upon the total carbon emission reduction made by the company during the calendar year. It was based upon the power generation by the assessee company. Since there was difference in power generation (MWH) as shown in balance sheet and the computation submitted, the assessee was asked to give the reason for such difference. In response the assessee submitted that there was difference in total generation of power and net power generated because some part of power was used in house for the generation of power. The Assesse also claimed that the amount of carbon credit should be considered as capital receipt. The reliance was placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court. We may further inform you that the identical issue has already been decided by your kind self in the case of Nahar Industrial Enterprises Ltd. in appeal No. 78/IT/2013-14 (copy enclosed as Annexure-VIII). In the said order it was held that the Carbon Credit receipts is not a revenue receipts but capital receipts. It is humbly prayed that since the issue is covered by the order of this Hon'ble appellate authority, therefore by following the said order the assessing officer may kindly be directed to consider Carbon Credits as capital receipts. " 46.1 The submission of the assessee were forwarded to the AO who narrated the facts mentioned in the assessment order in his report dt. 18/09/2014. The Ld. CIT(A) by following his earlier order for the A.Y. 2010-11 allowed the claim of the assessee. The relevant findings have been given in para 9.6 of the impugned order which read as under; 9.6. I have carefully considered the appellant's submissions. I have carefully considered the appellant's submissions. Similar issue was decided by me in the appellant's own case for assessment year 2010-11. In this order dated 19.02.2014 in appeal No. 78/IT/CIT(A)II/Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 122/Chd/2014 for the A.Y. 2010-11 in assessee's own case, copy of the said order was furnished which is placed on record. 50. After considering the submissions of both the parties and material available on the record it is noticed that an identical issue having similar facts was a subject matter of the Departmental appeal in assessee's own case in the preceding assessment year 2010-11 wherein the appeal of the department was dismissed by observing in para 2 to 4 of the order dt. 16/12/2015 which read as under: 2. The brief facts are that Assessing Officer noted that assessee had shown income of Rs.1.21 Cr under the head Carbon Credit Receipts. This income was based upon total carbon emission reduction made by company during the year. The assessee had claimed these receipts to be capital receipts. The Assessing Officer held that these receipts were revenue receipts and added to the income of the assessee. The assessee filed written submissions before ld. CIT(Appeals) which is quoted in the appellate order in which the assessee explained that the said claim was made on the basis that CER undoubtedly known as Carbon Credit Commodity and are quoted in stock exchange like MCX and NCD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was held as under:- "Held, dismissing the appeal, that the assessee was carrying on the business of power generation for the assessment year 2007-08. Carbon credit was not an offshoot of business of the assessee but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. There was no cost of acquisition or cost of production to get entitlement for the carbon credits. Therefore, the income from sale of carbon credits was to be considered as capital receipt and not liable to tax under any head of income under the Income-tax Act, 1961." 9. Further, this decision has been followed by Chennai Bench in two cases of Ambika Cotton Mills Ltd v DCIT (supra) and Sri Velayudhaswamy Spinning Mills P. Ltd v DCIT (supra). Even Jaipur Beach has followed this decision in the case of Shree Cement Ltd Vs. Addl CIT (supra). No doubt the DR has been able to point out the contrary decision rendered by Cochin Bench of the Tribunal in the case of Apollo Tyres Ltd v ACIT (supra). Since the decision of Hyderabad Tribunal Bench has already been confirmed by the Hon'ble Andhra Pradesh High Court and there is no c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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