9911796707
TMI Blog2022 (9) TMI 1598X X X X Extracts X X X X X X X X Extracts X X X X ..... .2011 was issued and served on the assessee. In response to the notice, the assessee's Authorised Representative appeared before the A.O. and filed the details called for. During the year under consideration, the assessee-company shown short term capital gain of Rs. 191,11,60,784/- on purchase and sale of shares of Sesa Goa Ltd. The company offered this income as short term capital gain. The assessee company was requested to explain why the short term capital gain shown by it should not be treated as business income. The assessee-company submitted that the company shown the purchase of the shares as investment in the books. The company's main business is mining. The company's memorandum of association permits for purchase and sale of shares. In the earlier years department accepted the purchase and sale of share as investment activity of the assessee. The shares of Sesa Goa Ltd., are purchased and sold through dematerialized account and transactions suffered Security Transaction Tax and the period of holding is less than 12 months. Hence, these are treated as short term capital gains. In support of its contention, the assessee relied on the decision of CIT vs. Gopal Purohit (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges at discharge port and Rs. 5,77,23,014/- incurred abroad on professional and consultancy fees by invoking the provisions of section 40 (a) of the Income Tax Act, 1961. (b) Without prejudice, the CIT(A) ought to have deleted the entire addition in the sum of Rs. 6,94,32,433/- in view of the fact that the explanation to section 9(1)(vii) inserted by the Finance Act. 2010 got the assent of the President on 08/05/2010 and hence not applicable for the assessment year under appeal. 5. The Ld. CIT(A) erred in upholding the addition made by the AO towards contribution of Rs. 20,00,000/- given to a school for construction of building by holding that it is in the nature of capital expenditure. Similarly, the CIT(A) erred in confirming the disallowance made by AO of a sum of Rs. 81,16,257/- incurred on repair and renovation of two temples situated in mining areas by holding that they do not come under the purview of current repairs. The whole of the addition in the sum of Rs. 1,01,16,257/- be deleted in full. 6. The Appellant craves leave to add, to alter or vary any of the Grounds of Appeal set out herein above." 4. Grounds of appeal Nos. 1 and 6 are general in nature and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities have rightly made the impugned addition treating the income accrued to assessee as business income. The Ld. D.R. prayed that the orders of the lower authorities be confirmed. 7. We have heard the rival submissions and perused the material available on record. We find that in the instant case the assessee company has purchased shares of 3,38,03,812 in M/s. Sesa Goa Ltd. during AY 2009-10, and all the shares were sold during the impugned A.Y. 2010-11 by holding the shares for a period of more than 06 months. 8. The ld. Counsel has relied on the following judgements:- (i) Raja Bahadur Kamakhya Narain Singh, 77 ITR 253 (SC); (ii) CIT vs. Gopal Purohit, 336 ITR 287 (Bom); (iii) CIT vs. Vinay Mittal, (2012) 208 Taxman 106; (iv) Business Match Services (I) (P) Ltd. vs. DCIT, 43 ITR (T) 15 (Mumbai); (v) PCIT vs. Business Match Services (I) (P) Ltd. (2018) 100 taxmann.com 411 (Bombay); and (vi) PCIT vs. Viksit Engineering Ltd., (2018) 100 taxmann.com 436. 9. From the assessment order, we observe that the AO has treated the profit accrued to the assessee on purchase and sale of shares of M/s Sesa Goa Ltd., as business income instead of short-term capital gain as shown b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown as investments in the books of accounts. This was so held in the case of V. Amiratham Ammal vs. CIT (Mad) 7,4 ITR 739 and Burnside Investment & Holdings Ltd., Vs. CIT (ITAT, Mad), 61 ITD 501. (iv) There is nothing on record to show that purchase of shares was for non- commercial purpose. Shares sold within a short period and the manner in which shares are shown in the balance sheet is not conclusive. Purchase and sale of shares within a short period is to be treated as business income irrespective of the treatment given to the shares in the balance sheet viz. whether shown under the head investment or under the head stock-in- trade. This was so held in the following cases: a. CIT Vs. Karam Chand Thapar & Bros.Pvt. Ltd., (SC) 176 ITR 535 b. New Era Agencies Pvt. Ltd., Vs. CIT (SC) 68 ITR 585 c. Matheson Bosanquet Enterprises Ltd., Vs. DCIT (Mad) 316 ITR 375 V) Transaction in exchange traded derivatives - life of short duration and they do not yield any income like dividend - Income can be derived only on their purchases and sales and so they are held only as stock-in-trade - Hence the income from such transactions is business income and not capital gains, This was so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not show any earlier evidences that the appellant company had made such huge investments in the shares of a single company. The appellant company, no doubt, has been making investments in the shares of some companies year after year but such investments were in smaller quantities and the portfolio was spread over various companies. The appellant does have the investments in the shares of other companies as well. But, after going through the mode and quantity of investment in the shares of a single company i.e. Sesa Goa Ltd., it can be reasonably be held that the buying of shares of Sesa Goa Ltd. was not for the purpose of investment but was a major business decision to acquire a particular percentage of stake in Sesa Goa Ltd.. Therefore, acquiring of 3.38 crores shares of a single company cannot be merely with an intention to make investment and to earn dividend from such investment. 4.5. The said shares purchased during Financial year 200809 were sold by the appellant during Financial year 2009-10 from 14.04.2009 to 13.06.2009 for a total consideration of Rs. 554.23 crore and earning gain of Rs. 191.11 crores. 4.6. From the above analysis, it is quite clear that the magnitude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has carried out series of transactions to purchase the shares of a single company which normally an investor will never do. This proves beyond doubt that the appellant had business motive of acquiring a stake in Sesa Goa Ltd., which cannot be considered as normal investment. It needs to be remembered that the appellant purchased 3.38 crore shares of Sesa Goa Ltd. for total consideration of Rs. 362.32 crores. (b) In majority of the cases, shares are purchased in huge quantity and holding period of shares were not significant and was in the range of 6 to 8 months. Further, the shares were purchased first in F. Y. 2008-09 and sold in F. Y. 200910. (c) Further, the value of the shares transacted by the appellant runs into crores of rupees. It cannot be said that the appellant has carried out investments in those shares and that to the shares of a single company, Sesa Goa Ltd. 4.9. All the above facts are indicia of the Appellant had some business interest or strategy of acquiring a percentage stake in Sesa Goa Ltd. which is in identical business as that of the appellant. The transaction in question can also be called as 'adventure in the nature of trade' as all 3.38 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances pertaining to the present issue, we observe that the assessee purchased shares of Sesa Goa Ltd., during F.Y. 2008-09 (AY 2009-10) and sold the same during the next FY 2009-10 pertaining to present AY 2010-11 during the period from 14.04.2009 to 13.06.2009 for a total consideration of Rs. 554.23 crores and earning gain of Rs. 191.11 crores. The ld. Counsel of the assessee, during the arguments have agreed to the submissions of the ld.CIT-DR that for analyzing the intention of the assessee as to whether it wants to invest or do business, the magnitude of purchase and sale of shares of a single company i.e., Sesa Goa Ltd., was very large as the assessee had purchased 3.38 crores shares within a period of less than one year. In our considered opinion, the present case is not pertaining to purchase and sale of shares intermittently as the appellant first acquired 3.38 crore shares worth Rs. 362.32 crores and, thereafter, sold the entire shares and, therefore, from the nature and magnitude of transactions of purchase and sale of shares of only one company, it can be safely concluded that it cannot be for the purpose of investment only and for the purpose of business or adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in one financial year and after holding for some months the sale of the same during immediately next FY is a strategic business decision as the turnover in the case of appellant from sale of shares of Sesa Goa Ltd., during the impugned previous year 2009-10 was Rs. 554.23 crores which is clearly indicative that there was systematic and strategic business decision which was not an investment but was an activity of business and adventure in the nature of trade undertaken by the appellant. 14. Undisputedly, the assessee has shown the amounts pertaining to the transaction of purchase of shares of Sesa Goa Ltd. as investment in the balance sheet, but, the Hon'ble jurisdictional High Court of Bombay in the case of Gopal Purohit (supra) as also relied on by the ld. Counsel of the assessee, has held that though the entries in the books of account alone are not conclusive proof to decide the nature of income. In the present case, in peculiar facts and circumstances of the present case, it was the case of the Revenue that the assessee had effected purchase of shares of one company which is doing similar business as that of the assessee and the shares were purchased continuously and cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g holding the shares for a short period, then, this will not convert the capital gain into business income and, thus, the amount in question has to be taxed as short-term capital gain. On respectful and careful reading of this judgement, we observe that in this case the assessee claimed short-term capital gain and, during assessment proceedings, the Respondent-assessee was called upon to show as to why income shown as short-term capital gain should not be treated as business income and the assessee replied that its regular business is to trade in engineering goods metal and other commodities. It had also made investments in shares over the last 10-15 years without any borrowings. When we analyse the facts and circumstances of the present case, we clearly noted that on the issue involved in the present case, the AO has noted certain reason to dislodge the contention of the assessee in para 3 of the assessment order (supra) and, thereafter, by relying on the judgements of the Hon'ble Supreme Court in the case of CIT vs. Karam Chnd Thapar & Bros Pvt. Ltd. (supra), New Era Agencies Pvt. Ltd. vs. CIT (supra) and the judgement of the Hon'ble Madras High Court in the case of Matheson Bosa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od, therefore, the A.O. invoked the provisions of Section 8D of I.T. Rules, 1962 along with provisions of Section 14A and computed the disallowance of Rs. 1,16,66,040/-. While making the net addition of Rs. 1,05,21,316/-, the A.O. reduced an amount of Rs. 11,44,724/- which was already claimed as expenditure against the exempt income by the assessee company i.e., [Rs. 1,16,66,040 (-) Rs. 11,44,724/- = Rs. 1,05,21,316/-]. 21. Aggrieved by the order of the A.O. the assessee carried the matter in appeal before the Ld. CIT(A). The Ld. CIT(A) observed that the A.O. while determining the disallowance has considered the shares of M/s. Sesa Goa Ltd., as investment for the purpose of section 14A r.w. Rule 8D, which action of the A.O. in treating the gain from sale of shares of M/s. Sesa Goa Ltd., as business income has been confirmed the Ld. CIT(A) in his appellate order. Therefore, the Ld. CIT(A) directed to A.O. to reduce the amount used in purchase of shares of M/s. Sesa Goa Ltd., from the average investment and to re-work the disallowance under section 14A r.w. Rule 8D of I.T. Rules. Accordingly, the Ld. CIT(A) partly allowed the claim of assessee. 22. Still aggrieved, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant, disallowance u/s 14A is applicable to the facts of the appellant's case. It is an admitted fact that the appellant had earned tax-free dividend income of Rs. 5,83,58,130/- during the year out of the investments made, however the appellant has suo-moto disallowed megre expenditure of Rs. 11,44,724/- which was claimed incurred for earning the said exempt income. During the assessment proceedings, A.O. has applied Rule 8D and worked out the administrative cost disallowance at Rs. 1,16,66,040/-. I find the appellant's contention that megre expenditure of Rs. 11,44,724/- is incurred for the average investments worth Rs. 233,32,08,055/- for purpose of maintaining the investments that earn tax free income has been rightly rejected by the A.O. The appellant has an average investment portfolio of more than Rs. 233 crores and it is impossible to believe that the making of investment (which earns the exempt income) is a passive activity involving no input or no cost. In fact, making or continuing with any investment in a particular share/ mutual funds etc and even the time when to exit from one investment to another, all these activities are well coordinated and well informed man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. ' 5.5. Hon' Tribunal has after analysing the issue has held as under: "5. We have considered the rival submissions of the Id. representatives. In our view, the contention of the Id. A.R. that the disallowance under Rule 8(2)(iii) in respect of administrative and managerial expenses out of the common pool of expenses in relation to exempt income is to be made even if no exempt income is earned out of such investments. Rule 8(2)(iii) is clear in this respect which for the sake of convenience is reproduced as under: "an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 6. A perusal of the above rule shows that for the purpose of calculation of disallowance under this rule, the value of investments not only income from which "does not" but also "shall not" part of the total income are to be considered. While dealing with an identical issue, the co-ordinate bench of the Tribunal in the case of "Sitsons India (P.) Ltd. vs. ACIT" 2014 (44) Taxmann.com 340, while analyzing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings recorded by the ld.CIT(A), we clearly noted that the ld. CIT(A) while adjudicating and dismissing ground No. 2 of the assessee concluded that the acquiring of shares of Sesa Goa Ltd. was a business decision and, therefore, the gain earned on sale of said shares has to be brought to tax ax income from business or business income. Thereafter, while disallowing ground No. 3 of the assessee pertaining to disallowance u/s 14A of the Act r.w.r 8D of 1962, the ld.CIT(A) in para 5.6 (supra) also took care of the above conclusion pertaining to ground No. 2 and directed the AO to reduce the amount in Sesa Goa as shares from the average investment/work, the disallowance u/s 14A of the Act r.w.r. 8D(2)(iii) of the Rules. We are of the view that the direction of the ld.CIT(A) in para 5.6 (supra), he has also taken respectful congnizance of the order of ITAT Delhi Special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra) wherein it was held that only those investments are to be considered for computing the average value of investment under rule 8D(2)(iii) of the Rules, which yielded exempt income during the year. Therefore, we are unable to see any reason to interfere wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. Therefore, we respectfully hold that the above judgement of the Hon'ble High Court of Bombay in the case of DCIT vs. TUV Bayren, order of the ITAT Mumbai in the case of TUV Bayren (supra) and order of the ITAT Delhi in the case of ONGC (supra) having dissimilar facts and circumstances, have no application to the facts and circumstances of the present case. Therefore, benefit of these judgements/orders are not available to the assessee in the present case. 28. Further, the Hon'ble High Court of Bombay in the case of PCIT vs. Ajeet Ramakant Phatarpekar (supra) considered five substantial questions of law as noted in para 4 of the judgement, but, the issue pertaining to payments made by the assessee to foreign parties for monitoring and supervision charges was not a substantial question of law before the Hon'ble High Court. Therefore, reliance on this judgement is misplaced. 29. So far as the order of ITAT Panaji Bench in the case of ACIT vs. Ajeet Ramakant Phatarpekar (supra) is concerned, the Tribunal, in the first part of the order, considering the facts and circumstances of the present case, concluded the issue as follows:- "4. Ground No. 2 relates to deletion of the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een Article 12 and Article 8 and in view of the specific provision of Article 12 the royalties and technical/consultancy fees may also be taxed in the contracting state in which they arise and according to the laws of that state. The non-resident will only get double taxation benefit in their respective countries but they have to pay the tax in India for services rendered by them and therefore, the Assessee was liable to deduct TDS as per the provisions of Sec. 195. The Assessee went in appeal before the CIT(A) and submitted that the Assessee has made payment to Zhao Long (Asia) Ltd., Hong Kong amounting to Rs. 17,43,033/- and Delong Mineral & Logistic PTE Ltd. of Rs. 11,44,950/-, payment to Zhao Long (Asia) Ltd. is for monitoring, supervision of discharged cargo, draft survey, joint sampling of discharged cargo, photographs, sample preparation and sealing of samples, analysis of grade etc. and payment to Delong Mineral & Logistic PTE Ltd. was for supervision of the vessel at the discharge port, the nonresidents did not have any permanent establishment in India and there has to be territorial nexus with the earning of the income, no services are rendered in India and neither the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere placed at pg. 134-140 of the paper book. From all the bills it is apparent that these services were rendered in the People's Republic of China. Similarly, the Assessee has paid a sum of Rs. 11,44,950/- to De Long Minerals and Logistics Pte Ltd., Singapore for supervision of the vessel at the discharge port. The payment has been made through DBS Bank Ltd., Singapore. Details of the payments made are given at pg. 133 of the paper book. From these payments, it is apparent that the payment of Rs. 2,58,506/- does not relate to the impugned assessment year. Rest of the payments was made prior to 31.3.2010. The Revenue was of the opinion that due to retrospective amendment made by the Finance Act, 2010 w.e.f. 1.6.1976 the income of the non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of subsection (1) and shall be included in the total income of the nonresident whether or not the non-resident has residence or place of business or business connection in India or the non-resident has rendered services in India. The destination sample charges are consultant/technical charges paid for gradation of the iron ore exported and due to explanation-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of section 9(1), and shall be included in his total income, whether or not (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 10. The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income earned within its borders. Under this system, any foreign income that is earned outside of its borders is not taxed by the tax jurisdiction, but then apart from tax heavens, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed by the ld. DR that the non-resident did not have residence or place of business or business connection in India. The nonresident has also not rendered services in India. The source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as there was no provision under Sec. 9(1), the income received by the non-resident as per the existing law at the time when the Assessee made the payment, in our opinion, was not taxable in India under the Income Tax Act. We are not going through the tax treaty which under Article 12 provides that any fees for technical/consultancy services arising in a contracting state and paid to a resident of other contracting state may be taxed in that other state. This article also provides that such royalty and technical/consultancy fees may also be taxed in the contracting state in which they arise or accrue according to the laws of the state. Prior to the insertion of explanation to Sec. 9(1) by the Finance Act, 2010 with retrospective effect, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. In view of the above discussion, we are of the view that the amount in question paid by the assessee to SSA was not taxable in India in the hands of SSA either u/s.9(1)(vi) or 9(1)(vii) as per the legal position prevalent at the relevant time and the assessee therefore was not liable to deduct tax at source from the said amount paid to M/s. SSA and there was no question of disallowing the said amount by invoking the provisions of sec.40(a)(i). In that view of the matter, we delete the disallowance made by the AO u/s.40(a)(i) and confirmed by Ld. CIT (A) and allow ground No. 1 of the assessee's appeal." The ld. DR even though vehemently contended but did not deny that the Finance Act, 2010 got the assent of the President on 8.5.2010 much later than the date when the Assessee had made the payment to these parties. Even the ld. DR could not site any contrary decision. Therefore, we hold that the aforementioned amendment does not create any liability against the Assessee as the legal position prevailing at the relevant time has to be considered when the payment was made by the Assessee to the non-resident party. Accordingly, we hold that the Assessee was not liable for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not come under the purview of current repairs. The ld. Counsel further submitted that this expenditure has also been incurred to maintain and establish cordial relation and betterment of the villages residing around the vicinity of the mines and working area of the assessee and the assessee having incurred this expenditure out of business expediency as without incurring such expenditure it is not possible to conduct smooth functioning of mining, therefore, both the expenditure may kindly be allowed as revenue expenditure incurred out of business expediency without acquiring any capital asset. The ld. Counsel has placed vehement reliance on the order of the ITAT Panaji Bench in the case of M/s Prime Mineral Exports Pvt. Ltd., dated 28.08.2013, in ITA No. 28 & 52/PNJ/2013 for AY 2008-09 and judgement of the Hon'ble Supreme Court in the case of L.H. Sugar Factory & Oil Mills (P) Ltd. vs. CIT, reported as 125 ITR 293 (SC). 33. On careful consideration of the above submissions, we are of the considered view that it is not the case of the AO or the ld.CIT(A) that the assessee has made any bogus or false claim or the assessee has acquired any capital asset by incurring the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee and the assessee was not under obligation to keep sale proceeds under EEFC account? Once income is received, it is capital and any loss on account of the same cannot be revenue expenditure. 3. For the above grounds and any additional grounds that may be agitated during the course of the hearing it is prayed that the order of the Ld. CIT(A)-2, Panaji may be quashed and that of the AO restored." 36. The ld. CIT-DR submitted that the Ld. CIT(A) erred in allowing fluctuation loss on sale proceeds of EEFC account, while such a notional loss being contingent in nature cannot be allowed to be set off against the taxable income. The ld. CIT-DR further contended that the Ld. CIT(A) has also erred in allowing the said loss claimed which were already received by the assessee and the assessee was not under obligation to keep sale proceeds under EEFC account and once income is received, it is capital and any loss on account of the same cannot be claimed to be revenue expenditure. The ld.CIT-DR also drew our attention towards relevant para 7 of the assessment order and submitted that the CBDT Circular No. 3/2010 dated 23.03.2010 clearly states that the notional loss/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the loss suffered by an assessee due to fluctuation of foreign exchange as on the date of balancesheet in respect of purchase and sales of goods (payment have to be made / received) is allowable as expenditure under Section 37(1) of the Act. 5. The grievance of the Revenue before us is that Instruction No. 3 of 2010 dated 31st March, 2010 issued by the CBDT in respect of loss on account of foreign exchange derivatives is subsequent to the Apex Court's decision in Woodward Governor India (P) Ltd. (supra) and was not considered by the Tribunal. This instruction according to the Revenue would govern the issue. 6. In the present facts, we find that the loss was not on account of derivatives but are in fact losses and gains in foreign exchange relating to the purchase and sales transactions i.e. creditors and debtors outstanding as on 31st March, 2010. Therefore, the Instruction No. 3 of 2010 issued by CBDT would have no application to the facts of the present case. In fact, the issue arising herein would be covered by the principles laid down sby the Apex Court in Woodward Governor India (P) Ltd. (supra). 7. Accordingly, as the impugned order of Tribunal followed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reinstate the closing balance available in the said accounts into Indian Rupees by applying the exchange rate of 31st March of the relevant financial year. As per the said standard the gain or loss as the case may be on account of this reinstatement has to be either credited to Profit and Loss Account (if gain) or has to be charged off to Profit and Loss Account (if loss). Accordingly the company had charged off sum of Rs. 8,65,74,413/- (17,879,317 + 68,695,096) as exchange loss for the year ended 31.03.2010 relevant to assessment year 2010-11. Hence the same is to be allowed in full. There is no occasion of any notional loss on account of this transaction as alleged. The AO however got confused with the accounting of derivatives and of financial instruments held by the company. The relying of the AO on the CBDT instruction is wholly misplaced. The CBDT instruction will come into operation only when the appellant company enters into foreign exchange derivative transactions. The appellant company never entered into any such transactions and as such incurring loss on "marked to market" basis did not arise at all. The appellant company has never traded in derivatives or in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant is obliged to follow the accounting standards prescribed to determine business income under the head "business or profession". I find that the Hon'ble Supreme Court in the case of Woodward Governor India (P) Ltd. (312 ITR 254) has observed that AS-11 is mandatory in nature. In the light of observations made in Woodward Governor India (P) Ltd. (supra), I am of the view that loss arising on foreign exchange fluctuation loss has been rightly accounted for as a revenue expense in the Profit & Loss account in accordance with accounting fiat of AS-11. 7.4. The Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. (116 ITR 1) had canvassed the principle of law that where any profit or loss arises to an assessee on account of depreciation in foreign currency held by him on conversion from another currency, such profit and loss would ordinary be trading loss if the foreign currency held by the assessee on revenue account as trading asset or as a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the loss should be capital in nature. The aforesaid principle of law is required to be applied to the facts of case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at by the ld.CIT(A) in para 7.2 to 7.5 of the first appellate order wherein it was clearly found that the money currency fluctuation loss was emanated from foreign exchange currency EEFC account in which the sale proceeds of iron ore were deposited by the appellant and the claim of exchange fluctuation loss as revenue account is also based on the argument that the said action was taken to save interest cost and consequently to augment the profitability or to reduce revenue loss of the appellant and the action of the assessee was under the business exigencies which are implicit therein. Thereafter, the ld.CIT(A) concluded that the appellant's claim that the expenditure is attributable to revenue account has considerable merit. 42. We respectfully noted that their Lordships in para 5 of the order in the case of CIT vs. Vinergy International (supra) noted that the CBDT Instruction No. 3/2010 is in respect of loss on account of foreign exchange derivatives and when in the present case it is clear that the loss was not on account of derivatives, but, in fact, the impugned losses and gains in foreign exchange relating to purchase and sale transactions, i.e., creditors and debtors outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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