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TMI Blog2009 (2) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ed substantial question of law: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the sum of Rs.68,66,673/- received by the assessee upon cancellation of forward foreign exchange contract was a capital receipt?" 3. The Assessment Year in question is 1993-94, relevant accounting period being Financial Year ended on 31.03.1993. During course of assessment proceedings u/s. 143(3) of the Income Tax Act, 1961 (the Act), the Assessing Officer having noted the fact of assessee having received sum of Rs.68,66,673/- on cancellation of forward foreign exchange contract (hereinafter referred to as "the contract") called upon the assessee to explain as to why the said amount should not be brought to tax. The explanation tendered by the assessee has been summarized in the assessment order in paragraph Nos. 4.4(a) to 4.4(c). The Assessing Officer has thereafter treated the surplus realised on cancellation of the contract as not liable to tax by observing as under : "5. I have carefully considered the submissions made by the Assessee co. and have gone through the decisions relied upon by the Assessee co. It is undisputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not liable to tax. The Tribunal has thereafter recorded that the assessee company is a manufacturer of textile fabrics and for this purpose imports various machineries and equipments by raising loans in foreign currency. The assessee entered into forward foreign exchange contract towards the liability incurred by the assessee to make payment to the seller of machineries and equipments so as to guard against the fluctuations in the rate of foreign currency. It has further been recorded by the Tribunal that Reserve Bank of India has formulated a policy which permits companies to enter into forward contracts for foreign exchange to be drawn by the companies with a view to limit or regulate exposure of the Indian Companies. The Tribunal has further found that the assessee company is not engaged in the business of financing or dealing in foreign exchange and as such, the exchange acquired by the assessee, does not partake the character of a trading asset. It is further found that the foreign exchange acquired under the contract is for the purpose of discharging an obligation on capital account i.e. towards borrowing made for the purpose of importing capital assets by entering into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by CIT and that as noted in paragraph No.16 of the order u/s. 263 of the Act, the CIT himself was not sure whether the profit earned on cancellation of the contract was a revenue receipt or a capital gain liable to tax, considering the directions issued to the Assessing Officer to tax the surplus either as profits on revenue account or as capital gains. The Tribunal has therefore stated that powers u/s. 263 of the Act are not to be exercised lightly and orders of subordinate authorities should not be cancelled or set aside on mere whims and fancies. That for exercising such jurisdiction, there must be compelling reasons permitting CIT to interfere by exercising powers u/s. 263 of the Act. It is this order of the Tribunal which is under challenge in the present Tax Appeal. 9. Mr.B.B.Naik, learned Standing Counsel appearing for Appellant-Revenue submitted that the Tribunal had committed an error in interfering with the order made by CIT because the surplus in question was liable to be taxed on revenue account, the same having been received on cancellation of contract, which had nothing to do with the original transactions of import of capital goods. Referring to the obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the Assessing Officer having made necessary inquiries and applied his mind while coming to the conclusion that the receipt in question was on capital account. That the Tribunal had found the said view to be more reasonable. In this context, the learned Advocate placed reliance on the Apex Court decision in the case of Malabar Industrial Co. Ltd. Vs. CIT, (2000) 243 ITR 83 and decision of this Court in the case of CIT Vs. Nirma Chemicals Works P. Ltd., (2009) 309 ITR 67, to submit that where the view taken by the Assessing Officer was one of the two views possible, CIT may not exercise jurisdiction under section 263 of the Act. That the Tribunal's order was required to be sustained even on this count also. 11. The facts reveal that, as noted by the CIT, for this very purpose the Assessing Officer, after framing original assessment, had issued notice u/s. 148 of the Act on 3.2.1995, for Assessment Years 1992-93 and 1993-94 for this very issue. The said notices were challenged by way of Writ Petition before this Hon'ble High Court and in the judgment rendered in assessee's own case (1996)222 ITR 68 this Court took note of the fact that out of amount received o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Tribunal suffers from any legal infirmity. The observation of the Tribunal: "Against the instalment of loan payable and interest payable on such loans, the assessee-company has entered into contract covering the foreign exchange components to guard against the fluctuation in the rate of the foreign currency as appearing in paragraph No.9 of the order has to be read in context of the following finding which appears in the same paragraph: The foreign exchange acquired under the contract is for the purpose of discharging an obligation on capital account, i.e. for borrowing for the purpose of importing capital asset by entering into the foreign exchange forward contract, the assessee-company was merely wishing to freeze its capital liability to discharge debts/borrowing in foreign exchange". Hence, undue emphasis on behalf of the Revenue by picking up one sentence out of the entire order and trying to build a case thereon to submit that at least some portion of the surplus was relatable to interest and thus on revenue account does not merit acceptance. It is necessary to note that the very same sentence appears in judgment rendered by this Court in assessee's own case in the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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