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TMI Blog2023 (4) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2008-09 [ 2017 (4) TMI 1009 - ITAT AHMEDABAD ] as held that one of the conditions in Section 35D(1), as it stood at the material point of time, is that either the eligible expenses should be incurred before the commencement of the business, and, in a situation in which the expenses are incurred after the commencement of business, the expenses should be incurred for extension of his undertaking or setting up of a new industrial undertaking. This condition is clearly not satisfied on the facts of the present case as the expenses are incurred after the commencement of the business and it is not even assessee's case that the expenses are incurred for extension of his undertaking or for setting up of new industrial undertaking. - Decided against assessee. Disallowance of modified value added tax (MVAT) - HELD THAT:- CIT(A) has not erred in facts and in law in dismissing the assessee s appeal. The assessee has not been able to give any evidence in support of his contention that he had incorrectly debited the aforesaid sum to the MVAT receivable account and the assessee has also not been able to establish that there is no credit available in the MVAT receivable accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OURT ] and did not point out any factual or legal infirmity in the claim of loss by the assessee. Further, we find no infirmity in the order of Ld. CIT(A), who on appreciation of the facts of the case of the assessee allowed the assessee s appeal on the ground that the loss on foreign currency loan is on revenue account. As in the case of PCIT v. Vedanta Ltd. [ 2023 (1) TMI 72 - SC ORDER ] SLP dismissed against order of High Court that losses incurred by assessee-company due to foreign exchange fluctuation on export proceeds was to be allowed as business expenditure under section 37(1) - Decided in favour of assessee. Disallowance of loss on account of MTM loss in exports - CIT-A deleted the addition - HELD THAT:- In the case of Emmsons International Ltd. [ 2019 (10) TMI 761 - ITAT DELHI ] where assessee engaged in business of international trading in commodities, suffered foreign currency loss on foreign exchange forward contracts, loss so incurred was to be allowed as business loss. Also in the case of Quality Engineering Software Technologies (P.) Ltd. [ 2015 (1) TMI 869 - ITAT BANGALORE ] where assessee-company entered into forward contracts in order to protect its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Suresh Gandhi, A.R. For the Revenue : Shri Sudhendu Das, CIT-DR Shri Atul Pandey, Sr. D.R. ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are five appeals filed by the Assessee and by Department against the order ld. of CIT(A) for assessment year 2009-10 (by the Assessee and the Department) and for assessment years 2010-11, 2011-12 and 2013- 14 (by the Assessee). 2. Since common issues are involved for all the years under consideration, all the appeals are being disposed of by way of a common order. 3. We shall first take up the appeals filed by the assessee and the Department for assessment year 2009-10 and observations wherever applicable shall apply to assessment years 2010-11, 2011-12 and 2013-14 as well. We shall first take up the Assessee s appeals for assessment year 2009- 10. ITA Number 17/Ahd/2017 for assessment year 2009-10 (Assessee s Appeal) Ground No. 1: CIT(A) erred on facts in dismissing the appellant s ground challenging action of the Assessing Officer in referring the case to transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% for bank's margin+ 2% for the guarantee fees. Aggrieved, assessee carried grievance, inter alia, against this effective margin of LIBOR plus 4% to the CIT(A), but without any success. The CIT(A) confirmed the same on the ground that the ALP of corporate guarantee @ 2% is fair and reasonable. The assessee is aggrieved and is in appeal before us. 6. So far as the issue of ALP adjustment being required, in principle, is concerned, learned counsel for the assessee has fairly conceded that this issue must be decided against the assessee at this forum, and that he will carry the matter, if so advised, in further appeal before Hon'ble Courts above. Ground no. 1 and 2, therefore, have to be decided against the assessee and the impugned action of the authorities below, in principle, is to be confirmed. 6. In view of the above since ITAT has decided the issue against the assessee on identical facts in assessee s own case for assessment year 2008- 09, the ground nos. 1 2 of the assessee s appeal are dismissed accordingly. Ground No. 3: Ld. CIT(A) has erred in confirming the above addition made by the Assessing Officer by charging interest @ 7.14%. 7. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. (Emphasis, by underlining, supplied by us) 9. That was also a case in which the lender parent company was taken as the tested party, the loan was advanced to a subsidiary company without much to the credit of its financial credentials and the loan was treated as a high risk loan resulting in adopting the maximum LIBOR rate on which dollar loans were advanced. Yet, Hon ble High Court specifically approved the Tribunals reasoning that the assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis . When such are the views of Their Lordships, it is futile to suggest that the loans advanced by the parents to subsidiary can indeed be taken as BB to D grade investments which refers to, as noted by the TPO himself at page 28 of the order, investments with serious risks of inadequate safety, investments of high risk, investments of substantial risk and investments of default. The approach adopted by the DRP cannot, therefore, meet our approval. 8. In this view of the matter, not only the fiction of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss due to foreign exchange fluctuation amounting to Rs.5,46,50,757/- being relatable to GDR issue is a permanent capital loss of the company and hence benefit of capitalization of the said loss in future will not be available to the company. In view of facts and submissions filed as well as legal position, the observation and findings of the AO though not having any revenue effect during the year under consideration requires to be quashed/vacated and the said loss of Rs.5,46,50,757/- being on revenue account requires to be allowed as a deduction and the total income be revised accordingly. 11. Learned representatives fairly agree that this issue is also covered, against the assessee, by a decision of the coordinate bench in assessee's own case for the assessment year 2007-08 (supra), wherein the coordinate bench has inter alia observed as follows: 15. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has incurred expenses of Rs 75,12,960 on GDR issue and the treated the same as preliminary expenses eligible for amortization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Ltd Vs JVIT [(2010) 36 SOT 348 (Bom)], this decision was in the context of foreign currency convertible bonds which were debt instruments, though convertible into equity at a later stage. That decision has no bearing on the facts of this case. In view of these discussions, we see no merits in this grievance of the assessee either. The stand of the authorities below does not call for any interference. 12. As learned counsel for the assessee has fairly conceded that these issues must be decided against the assessee at this forum, and that he will carry the matter, if so advised, in further appeal before Hon'ble Courts above, and respectfully following the views of the coordinate bench in assessee's own case, we confirm the stand of the authorities below on this point and decline to interfere in the matter. 12. In view of the observations made by the ITAT, ground no. 4 of assessee s appeal is hereby dismissed. Ground No. 5: CIT(A) erred in confirming addition of Rs. 11,76,704/- on account disallowance of modified value added tax (MVAT). 13. The brief facts in relation to this ground of appeal are that when the assessee made purchases an amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. In view of the above observations, we find no infirmity in the order of Ld. CIT(A) and ground no. 5 of assessee s appeal is dismissed. Ground number 6: addition on account of foreign exchange derivatives loss while treating it as speculative in nature 16. The brief facts in relation to this ground of appeal are that the assessee had entered into an agreement with ICICI bank for auction transaction on 06-01-2005, which is the Master Agreement between the assessee and ICICI bank in order to safeguard fluctuation in dollar rates which the assessee company realizes on its exports. During the year under consideration, the assessee claimed the loss of Rs.7,96,68,962/- on account of derivative transaction, by filing a revised computation, during the course of assessment proceedings (the assessee had omitted to make the aforesaid claim in the return of income). The AO did not allow the aforesaid loss by relying on the Supreme Court order in the case of Goetze India Ltd. [2006] 157 Taxman 1 (SC) on the ground that the assessee is precluded from making a fresh claim during the course of assessment proceedings. In appeal, Ld. CIT(A) also dismissed the assessee s appeal by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort case of the Assessing Officer is that since the transaction leading to the impugned loss is a speculative transaction, under section 43(5) of the Act, the loss incurred on the transaction is required to be treated as loss from speculative business which cannot be set off against income of the assesse under the head profits and gains from business and profession . However, in our considered view, this approach itself proceeds on the fallacy that every loss, in the course of or due to a speculative transaction, is to be treated as loss of the speculative business. Explanation 2 to Section 28 states, Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as speculation business shall be deemed to be distinct and separate from any other business , which implies it is only when speculative transactions are of such a nature as to constitute business on standalone basis, the income and losses from such transactions is required to be treated as distinct and separate from any other normal business. In other words, even speculative transactions, as long as such transactions are incidental to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. 19. In our view, the issue is squarely covered against the assessee by the order of Hon'ble Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), wherein the Supreme Court dismissed the SLP against order of High Court that where assessee-company failed to pay employees contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. Again in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC), the Supreme Court held that there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assesseeemployer, thus, said marked difference was to be borne while interpreting obligation of assessee-employer under section 43B. Therefore, the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee did not claim the aforesaid loss in the return of income and claimed it during the course of assessment proceedings. The AO however did not allow the assessee s claim by placing reliance on the decision of Goetze India Ltd [2006] 157 Taxman 1 (SC) and held that the since the assessee did not make the aforesaid claim in the return of income, the assessee cannot be permitted to do the same during the course of assessment proceedings. 23. In appeal, Ld. CIT(A) allowed the assessee s appeal holding that the loss was on account of borrowings for the revenue expenditure. The Ld. CIT(A) observed that from the documents it can be seen that these banks have sanctioned loan to the assessee for purpose of working capital requirements in foreign currency. Accordingly, as the borrowings were on revenue account, the assessee would be eligible for claiming loss of Rs.3,90,79,771/-. 24. Before us, Ld. Departmental Representative placed reliance on the observations made by the AO in the assessment order. We observe that even in the remand proceedings, when the Ld. CIT(A) referred the file back to the AO for his comments on this issue, the AO only relied upon the Supreme Court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is allowable to the assessee. 29. The Department is in appeal before us against the order passed by Ld. CIT(A) allowing relief to the assessee in respect of this ground of appeal. From the facts placed before us, we find no infirmity in the order of Ld. CIT(A). In the case of Emmsons International Ltd. [2019] 112 taxmann.com 205 (Delhi - Trib.), where assessee engaged in business of international trading in commodities, suffered foreign currency loss on foreign exchange forward contracts, loss so incurred was to be allowed as business loss. The Mumbai Special Bench in the case Dy. CIT v. Bank of Bahrain and Kuwait [2010] 41 SOT 290 has held that MTM losses in respect of forward foreign exchange contracts debited to profit and loss account is an allowable expenditure. In the case of Quality Engineering Software Technologies (P.) Ltd. [2014] 52 taxmann.com 515 (Bangalore - Trib.) where assessee-company entered into forward contracts in order to protect its interest against fluctuations in foreign currency, in respect of consideration for export proceeds and there was an actual contract for sale of merchandise, said transaction would not qualify to be called as speculative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee placed reliance on the observations made by the CIT(A) in the appellate order. From the facts placed before us and the observations of ld. CIT(A), we find no infirmity in the order of ld. CIT(A) with respect to this ground of appeal so as to interfere with the same. Notably, even the Assessing Officer in the assessment order for succeeding assessment year 2010-11 has allowed the assessee s claim of expenditure of retrenchment compensation paid to the employees. 35. In the result, ground no. 3 of the Department s appeal is dismissed. Ground No. 4: Ld. CIT(A) erred in deleting addition of Rs. 10,90,000/- made by the Assessing Officer being 1/5th of the expenditure of ICICI loan processing fees. 36. The brief facts in relation to this ground of appeal are that the assessee incurred expenditure of Rs. 54,50,000/- on account of loan processing fees in assessment year 2005-06. The assessee divided the aforesaid expenditure equally into five years i.e. claimed expenditure of Rs. 10,90,000/- beginning with assessment year 2005-06 till assessment year 2009-10. During the course of assessment, the Assessing Officer made an addition of Rs. 10,90,000/- being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 472/A/2014. 43. Accordingly, Grounds of Appeal Numbers 1 and 2 of the assessee s appeal are dismissed. Ground No. 3: Ld. CIT(A) has erred in confirming addition on account of interest charged @5.58% on addition of arm s length price of loan interest 44. We observe that this issue has been decided in favour of the assessee while dealing with Ground of Appeal No. 3 for assessment year 2009-10, since the matter has been decided by the ITAT in favour of the assessee by Hon'ble ITAT in the assessee s own case for assessment year 2008-09 in ITA Number 472/A/2014. 45. Accordingly, Grounds of Appeal Number 3 of the assessee s appeal is allowed. Ground No. 4: Ld. CIT(A) has erred in confirming disallowance of 1/5th of GDR issue expenses claimed by the company as allowable deduction u/s. 35D of the Act 46. We observe that this issue has been decided against the assessee while dealing with Grounds Number 4 of assessee s appeal for assessment year 2009-10 where the counsel for the assessee admitted that the issue has been decided against the assessee by Hon ble ITAT for assessment year 2008-09 in ITA 472/Ahd/2014 and accordingly submitted that he shall not be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer in referring the case to transfer pricing officer for computation of arms length price in relation to alleged international transactions Soma Textile FZE 100% subsidiary of the assessee company. Ground No. 2: Ld. CIT(A) erred in confirming the addition of Rs. 1,86,51,314/- made by the Assessing Officer on account arms length price of loan interest 54. We observe that this issue has been decided against the assessee while dealing with Ground of Appeal Nos. 1 and 2 for assessment year 2009-10, since the matter has been decided by the ITAT against the assessee by Hon'ble ITAT in the assessee s own case for assessment year 2008-09 in ITA Number 472/A/2014. 55. Accordingly, Grounds of Appeal Numbers 1 and 2 of the assessee s appeal are dismissed. Ground No. 3: Ld. CIT(A) has erred in confirming addition on account of interest charged @4.59% on addition of arm s length price of loan interest 56. We observe that this issue has been decided in favour of the assessee while dealing with Ground of Appeal No. 3 of the assessee s appeal for assessment year 2009-10, since the matter has been decided by the ITAT in favour of the assessee by Hon'ble IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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