9911796707
TMI Blog2022 (9) TMI 1598X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, AO was right in treating the income accrued to the assessee as business income and the ld.CIT(A) was also justified in upholding the findings arrived at by the AO on this issue. Disallowance u/s 14A applying the provisions of Rule 8D - HELD THAT:- As in Vireet Investments Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] 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 with the findings arrived at by the FAA on this issue in partly allowing the claim of the assessee in accordance with the judgement of the ITAT Special Bench (supra). Accordingly, ground No. 3 of the assessee is dismissed. TDS u/s 195 - non deduction of TDS on expenses incurred abroad on account of supervision charges at discharge port and expenses incurred abroad on professional and consultancy fees - HELD THAT:- CIT-DR even though vehemently supported the orders of the authorities below, but, did not controvert that the Finance Act, 2010 got assent of the President of India on 08.05.2010, much later that the date wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Allowance of 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 - CIT(A) concluded that the appellant s claim that the expenditure is attributable to revenue account - HELD THAT:- We respectfully noted that their Lordships in case of CIT vs. Vinergy International [ 2016 (8) TMI 1041 - BOMBAY HIGH COURT] 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 outstanding as on 31st March, 2010. Then, in such circumstances the said Circular No. 3/2010 of the CBDT would have no application to the facts of the present case. Therefore, we respectfully hold that the issue is squarely covered in favour of the judgement of Woodward Governor [ 2009 (4) TMI 4 - SUPREME COURT] and the judgement of Vinergy International (supra) and CBDT Circular No. 3/2010 (supra) has no application to assessee s ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the A.O. has not satisfied with the submissions of the assessee and treated the short term capital gains offered by the assessee on sale of shares of Sesa Goa Ltd., as business income and added a sum of Rs. 191,11,60,784/- to the total income of the assessee. Further the A.O. made disallowances under sections 14A, 40(a), foreign exchange fluctuation loss on sale proceeds of EEFC account, capital expenditure from the community development expenses claimed by the assessee, revaluation of closing stock etc., and computed the total income of the assessee company at Rs. 596,87,21,240/-. Aggrieved by the order of the A.O, the assessee carried the matter in appeal before the Ld. CIT(A) who vide order dated 29.12.2017 partly allowed the appeal of the assessee. 3. Aggrieved by the order of the Ld. CIT(A), the assessee is second appeal before the Tribunal by raising the following grounds : 1. The order of the Commissioner of Income Tax (Appeals)-2, Panaji-Goa, [hereinafter referred to as CIT(A)] is opposed to law and facts of the case. 2. (a) The CIT(A) legally erred in confirming the Assessing Officer s (AO) action of treating the Short Term Capital Gains of Rs. 191,11,60,784/- on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . by the Ld. CIT(A) in treating the short term capital gain on account of purchase and sale of shares of M/s. Sesa Goa Ltd., as business income at Rs. 191,11,60,784/-. During the course of hearing, Learned Counsel for the Assessee reiterated the submissions made before the lower authorities and submitted that the assessee company was formed way back in 1957 for carrying out mining business and export of iron ore is it s main business activity. As per the Memorandum of Association of the assessee-company, the assessee-company is permitted to invest it s surplus money in mutual funds and shares of listed companies as an investment activity and not as stock in. The assessee company consistently showing the investments in mutual funds/shares in listed/unlisted companies under the head Investments only and all the earlier assessment proceedings were completed under scrutiny assessment under section 143(3) of the I.T. Act, 1961. Further, the investment made in shares of Sesa Goa Ltd., as is evident from the audited books of account is out of surplus money only and no borrowed funds were utilized. The assessee-company purchased 3,38,03,812 equity shares of M/s. Sesa Goa Ltd., in the F.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come : 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. The assessee relied on the decision of CIT vs. Gopal Purohit (2010) 188 Taxman 140 (Bom) and CIT vs. Vinay Mittal (2012) 208 Taxman 106 (Delhi). The explanation of the Authorised Representative is considered and found not acceptable for the following reasons : (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gain shown by the assessee on sale of shares of Sesa Goa Ltd., is treated as business income and added to the total income of the assessee. 10. Further, from the relevant part of the first appellate order, we observe that the ld. CIT(A) has confirmed the findings of the AO treating the profit accrued to the assessee from purchase and sale of shares of Sesa Goa Ltd. as business income instead of short-term capital gain with the following observations and findings:- 4.3 I have gone through the assessment order and the submissions of the AR of the appellant. During the appellate proceedings, the ledger of Sesa Goa Ltd. shares in the books of the appellant company was called for and the same was produced by the AR vide written submissions dated 29.12.2017. Here it is important to note that the appellant is engaged in mining and export of iron ore and Sesa Goa Ltd. is also engaged in mining and export of iron ore. Thus, the appellant of having a business interest in Sesa Goa Ltd. in the form of acquisition of stake in Sesa Goa Ltd. cannot be ruled out. The appellant started purchasing the shares of Sesa Goa Ltd. after passing a resolution in the board meeting held on 15.09.2008. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not a case of purchase and sale intermittently. The appellant first acquired 3.38 crore shares worth Rs. 362.32 crores and thereafter sold the shares and thus, from the nature of the said purchase and sale transactions, one can come to the conclusion that considering the magnitude of turnover and that to in the shares of a single company, it cannot be for the purpose of investment. It is certainly for the purpose of business or adventure in the nature of trade as held by the AO in the assessment order. 4.7. On the basis of the facts and circumstances of the appellant's case, I am of the opinion that the appellant had normal investments in different shares in relatively smaller quantities which are held to be investments and uniformity and consistency with reference to those investments is maintained by the AO in the assessment order. Whereas, investment in the shares of Sesa Goa Ltd., considering the fact that the appellant is engaged in identical business, same as Sesa Goa Ltd., the acquiring of 3.38 crore shares of Sesa Goa Ltd. has to be treated as investment for the purposes of business and profit received from the sale of shares of Sesa Goa Ltd. should be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny which is like 'putting all eggs in a single basket. Hence, the decision to buy such a large quantity of shares of a single company was a business decision. Further, the turnover in case of the appellant from sale of shares of Sesa Goa Ltd. in the impugned previous year was Rs. 554.23 Crores. All these were indicative of there being a systematic activity which is the activity of business being pursued by the Appellant. 4.10. The decision in the case of Gopal Purohit {supra) is completely distinguishable. In the present case, the appellant has not before the AO or during appellate proceedings led any evidence to show that the transaction in the earlier assessment and the present assessment year are identical, calling for the same treatment in view of the decision of this Court in Gopal Purohit (supra). This is particularly so when it is the Appellant's case that the view taken in the earlier Assessment Year be followed in this year on account of the principle of consistency. I have proved beyond doubt that the transaction of purchase and sale of 3.38 crore shares of Sesa Goa Ltd. was an unique transaction for which the appellant does not have precedents in the past assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly invested in different shares in relatively smaller quantities which are rightly held to be investments and uniformity and consistency with reference to those investments is maintained by the authorities below. However, the authorities below was not agreeable to treat the transaction of purchase and sale of shares of Sesa Goa Ltd. in high magnitude by taking congnizance of the fact that the appellant is also engaged in the identical business of mining, same as Sesa Goa Ltd. and the acquisition of 3.38 crores has to be treated as for the purpose of business and the profit received from the sale of shares of Sesa Goa Ltd. should be treated as business income. The Hon ble jurisdictional High Court of Bombay in the case of CIT vs. Gopal Purohit (supra) categorically held that merely because the assessee has shown the shares as investment in the balance sheet is not a conclusive proof to decide the nature of transaction and head of income. Concurring with the findings arrived at by the ld.CIT(A), we hold that in view of above noted factual matrix of the transaction of sale of 3.38 crore shares is a unique transaction which cannot be compared with the normal investments of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT vs. Gopal Purohit (supra) are not similar to the facts and circumstances of the present case. 15. The ld. Counsel has also relied on the judgement of the Hon ble High Court of Delhi in the case of CIT vs. Viny Mittal (supra) wherein keeping in view the fact that in the earlier assessment year the transactions were accepted by the AO, then, in the subsequent year, the same has to be treated similarly. On respectful and vigilant reading of this judgement, we note that it is not a case of high magnitude purchase and sale and sale of shares of a single company which is doing similar business, therefore, the facts and circumstances in the case CIT vs. Vinay Mittal (supra) are not similar and identical to the present case, therefore, benefit of this judgement is not available for the assessee in the present case. 16. The ld. Counsel has also relied on the judgement of the Hon ble High Court of Bombay in the case of PCIT vs. Business Match Services (I) (P) Ltd. and submitted that where the AO took a view that profit arising from sale of shares was business income in view of the fact that there was no instance of repetitive purchase and sale of shares and, moreover, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -term capital gain and the magnitude of the transaction in the case of purchase and sale of shares of Sesa Goa Ltd. which is in the similar line of business as that of the assessee clearly shows that it is a business income. 18. At this juncture, we take respectful cognizance of the judgement of the Hon ble Supreme Court in the case of Raja Bahadur Kamakhya Narain Singh (supra), which was also vehemently relied on by the ld. Counsel of the assessee, wherein it was held by the Hon ble Apex Court that the magnitude of sale and purchase of shares is a determinant in treating an income as business income or capital gains income. At the cost of repetition, we may again point out that the AO as well as the ld.CIT(A) in the respective assessment and first appellate order, considered the facts and circumstances in which the assessee undertaken the impugned transaction and, thereafter, held that the magnitude of transaction and surrounding circumstances clearly shows that it is a business income and not short-term capital gain. Therefore, in view of the foregoing we reach to a logical conclusion that the AO was right in treating the income accrued to the assessee as business income and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage investment value calculated by taking into consideration only those investments which yielded the assessee-company a tax free dividend income. The Learned Counsel for the Assessee submitted that the average investments in Mutual Funds when calculated on the aforesaid basis is working out to Rs. 228,944,786/- and not at Rs. 233,32,08,055/- and accordingly the disallowance (at 0.50% of average investment) is working out to Rs. 11,44,724/- and not at Rs. 1,16,66,040/- as computed by the AO. This is without prejudice to our preliminary submission that no disallowance is to be made for earning the dividend income as the same is not an exempted income. Hence the entire addition under this sub-rule amounting to Rs. 1,16,66,040/- be deleted in full or in the alternative the disallowance may directed to be restricted to Rs. 11,44,724/-. 23. The ld. Counsel of the assessee has placed reliance on the judgement of the ITAT, Delhi Special Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd., reported as (2017) 188 TTJ 1 (Del-Tribunal) (SB) and submitted that only those investments are to be considered for computing average value of investment which yielded exempt income during the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave decision entirely on a third party with no stakes. Perusal of profit and loss account shows that appellant has debited expenditure pertaining to office expenses, audit expenses, overheads such as telephone, electricity, depreciation etc and portion of said expenses will be attributable to maintenance of the investment portfolio and to the earning of the exempt income as rightly concluded by the A.O. Thus the disallowance by invoking Rule 8D is justified and is in accordance with the Bombay High Court decision in the case of M/s. Godrej and Boyce Manufacturing Co. Ltd. 328 ITR 81. 5.3. Appellant has taken the plea that no dividend was received on some of the investments hence the disallowance under Rule 8D be made only in respect of investments on which dividend is earned. In this connection, the language of Rule 8D(2)(iii) reads as under:- an amount equal to one-half percent 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 last day of the previous year. 5.4. As per language of the statue, disallowance has to be computed in respect of investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision rendered by Calcutta bench of Tribunal, we are unable to accept the same in view of the. clear provisions prescribed in Rule 2(H) of Rule 8D of the Income tax Rules. For the sake of convenience, we extract below the relevant provisions:- B the average of value of investments, 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 . 5.7 A careful perusal of the above said provisions would show that the words does not or shall not have got their own significance, i.e., the words does not refer to the income which has already been received and the words shall not refer to the income that may be received. In our view, the words shall not mandates that the entire investments, the income which shall not form part of the total income are required to be considered, otherwise the words shall not shall loose its significance in the above said provision. Accordingly, we reject the said contentions of the assessee. 7. Similarly in Rule 8(2) (iii) the words 'does not' and 'shall not have been used in respect of exempt income for calculating the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance as per the directions of the ld.CIT(A). Ground No. 4 26. The ld. Counsel of the assessee apropos ground No. 4(a) and (b) submitted that the ld.CIT(A) has grossly erred in confirming the disallowance made by the AO in the sum of Rs. 1,17,09,419/- incurred abroad on account of supervision charges at discharge port and Rs. 5,77,23,014.18 incurred abroad on professional and consultancy fees by invoking the provisions of section 40(a) of the Act. The ld. Counsel also submitted that without prejudice to the ground 4(a), it is also contended that the ld.CIT(A) ought to have deleted the entire addition in view of the fact that the Explanation to section 9(1)(vii) inserted by Finance (No.2) Act, 2010 got asset of the President of India on 08.05.2010 and, hence, not applicable for the present assessment year 2010-11. The ld. Counsel has placed reliance on the following orders:- (i) Judgement of the Hon ble Bombay High Court in the case of DIT vs. TUV Bayren (India) Ltd. reported in (2015) 61 taxmann.com 443 (Bombay); (ii) Order of ITAT Mumbai Bench in the case of TUV Bayren (India) Ltd. vs. DCIT, (2012) 23 taxmann.com 127 (Mum); (iii) Order of ITAT Delhi Bench G in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a is having DTAA with China and Singapore, therefore, these charges are taxable in those countries. The AO did not agree in view of the Explanation 2 to Sec. 9(1)(vii). According to him the interest and fee for technical services/professional services is taxable in the hands of the party who received it outside India as the income is deemed to accrue or arise in India. According to the AO, the Finance Act, 2010 amended Sec. 9(1)(vii) retrospectively w.e.f. 1.6.1976 and as per the amended provisions, income of non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has rendered the services in India. The income arising to the non-resident agent on account of the commission payable to him is to be deemed to accrue or arise in India in respect of soliciting export order and is taxable in view of the specific provision of Sec. 5(2)(b) r.w.s. 9(1)(i) as the right to receive the commission has arisen in India when the order is executed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Explanation 2 to Sec. 9(1)(vii) of the Act. Ultimately, the CIT(A) deleted the disallowance by observing as under : 6.4 I have gone through the assessment order and submission of the appellant. The admitted fact is that, the appellant is engaged in the business of export of iron ore. At the destination of export, again the sampling of exported ore has to be done, for which the payment has been made by the appellant. The appellant did not deduct any TDS because, (i) the consultancy firm was a foreign national, no part of whose income was assessable in India, and ii) the services were rendered outside India. On the other hand, the A.O. held that, since the services rendered are of technical in nature and payment has been sent from India, the income has accrued in India and therefore, TDS was deductible on the payment made. In my considered opinion, the view taken by the A.O. is factually and legally incorrect. Since the services have been rendered outside India, the income shall accrue or arise outside India, where the actual service has been rendered. Nature of service rendered and source country of the payment is immaterial in this context. Second aspect of the issue is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the ld. DR, was taxable in the hands of the party who received it outside India as the said income is deemed to accrue or arise in India. In view of the provisions of Sec. 40(a)(i) any interest or fee for technical services which is payable outside India on which tax is deductible at source under Chapter 17B is not allowable unless TDS is deducted. This is an undisputed fact that in this case the Assessee has not deducted the tax. 30. Therefore, the Tribunal considered the legal position and application of retrospective amendment w.e.f. 1.6.1976 in section 9 brought in by Finance Act, 2010 and further held thus:- We are not going on the merits of the taxability of the payments made by the Assessee to the non-resident company as, in our opinion, once the payments made by the Assessee to the non-residents are of the nature of technical fee, the legal position in view of the retrospective amendment w.e.f. 1.6.1976 in Sec. 9 brought out by the Finance Act, 2010 is indisputably that the said income will be deemed to accrue and arise in India whether or not the non-resident has residence or place of business or business connection in India or the non- resident has rendered servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxation requires an income sourced from a tax jurisdiction to be taxed in this jurisdiction, and residence rule of taxation requires income, earned from wherever, to be taxed in the tax jurisdiction in which earner is resident. In the US tax system, this residence rule is further stretched to cover US taxation of all its citizens irrespective of their domicile, and the source rule is also concurrently followed. It is this conflict of source and residence rules which has been the fundamental justification of mechanism to relieve a taxpayer, whether under a bilateral treaty or under domestic legislations, of the double taxation either by way of exclusion of income from the scope of taxability in one of the competing jurisdictions or by way of tax credits. Except in a situation in which a territorial method of taxation is followed, which is usually also a lowest common factor in taxation policies of tax heavens, source rule is an integral part of the taxation system and any double jeopardy, due to inherent clash of source and residence rule, to a taxpayer is relieved only through the specified relief mechanism under the treaties and the domestic law. It is thus fallacious to proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position has become clear. If the income was not taxable in India it cannot be made taxable in view of the tax treaty. This is a fact that as argued by the ld. AR the retrospective amendment brought by the Finance Act, 2010 was not in existence at the time when the Assessee had made the payments. The ld. AR submitted that the Assessee cannot be penalized for performing an impossible task of deducting TDS in accordance with the law which was brought into the statute book much after the point of time when the tax deduction obligation was to be discharged. In this regard, we perused the decision of the co-ordinate bench in the case of Channel Guide India Ltd. vs. ACIT, 139 ITD 49 (Mum.) as relied by the ld. AR. We noted that in this decision the co-ordinate bench of ITAT held as under : 25. In our opinion, the issue involved in the present case however, is relating to disallowance made u/s.40(a)(i) for nondeduction of tax-at-source from the payment made by the assessee to SSA and as held by Ahmedabad Bench of this Tribunal in the case of Sterling Abrasives Ltd. by its order dated 23.12.2010 cited by the Ld. Counsel for the assessee, the assessee cannot be held to be liable to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT-DR even though vehemently supported the orders of the authorities below, but, did not controvert that the Finance Act, 2010 got assent of the President of India on 08.05.2010, much later that the date when the assessee had made payments to these parties. On behalf of the Revenue, no contrary decision or order has been shown or placed before this Bench which could lead us take a different view. Therefore, we hold that the aforementioned amendment does not create any liability against the assessee as the legal position prevailing at the relevant time, i.e., during FY 2009-10 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 deduction of tax u/s 195 of the Act and since the assessee was not liable at that time to deduct the tax, the disallowance u/s 40(a)(ia) of the Act cannot be made. We accordingly dismiss gound No. 4(a) of the assessee. However, the alternative ground of the assessee, i.e., the ground No. 4(b) is allowed following the orders of the coordinate Bench of ITAT, Panaji in the case of Ajeet Ramakant Phatarpekar (supra). Ground No. 5 32. Apropos ground No. 5, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to create and build a cordial relation between the villagers residing around the mining area and business activity area of the assessee, then, in view of the order of the ITAT, Panaji Bench in the case of M/s Prime Mineral Exports Pvt. Ld. (supra), such expenditure has to be allowed as revenue expenditure. 34. So far as the disallowance on account of expenditure incurred by the assessee on repair and renovation of two temples is concerned, the assessee has made claim that this expenditure comes under the purview of current repairs and this claim was dismissed by the AO as well as the ld.CIT(A) by holding that this expenditure do not come under the purview of current repairs. Undisputedly, the temples were not owned by the assessee company, but, when the assessee has to conduct mining activity in the deep forest and village area, then, for creating and building cordial relations with the villagers residing in the surrounding locality of the mining and business area of the assessee, it is required by the assessee to have healthy relations with such villagers, so that a smooth business and mining activity can be undertaken. Therefore, this expenditure has to be held as incurred ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing ground No. 5 of the assessee by wrongly observing that the Instruction No. 3 of 2010 issued by the CBDT (supra) would have no application to the facts of the case. The ld.CIT-DR submitted that keeping in view the incorrect findings arrived at by the ld.CIT(A), the impugned first appellate order may kindly be set aside by restoring that of the AO on this issue. 37. Replying to the above, the ld. Counsel of the assessee submitted that the AO made addition by considering the wrong and incorrect facts and by wrong application of CBDT Circular No. 3/2010 and the ld.CIT(A) was right in holding that the said Circular is not applicable to the facts of the present case as the foreign exchange loss was not on account of business in derivatives. The ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the order of the Hon ble jurisdictional High Court of Bombay dated 11.08.2016 in ITA 376/2014 in the case of CIT vs. Vinergy International Pvt. Ltd., therefore, the grounds of the Revenue may kindly be dismissed. 38. On careful consideration of the above rival submissions, we observe that the AO has mainly relied on CBDT Circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange loss amounting to Rs. 8,65,74,413/- pertaining to conversion of US dollar currency in EEFC account to Indian rupees at the close of the year. According to the AO, the appellant claimed an unrealised loss due to change in the dollar rate in respect of the amounts of sale proceeds held in EEFC account with SBI, Vasco and Syndicate Bank, Margao amounting to Rs. 1,78,79,317/- and Rs. 6,86,95,096/- respectively. Before the AO, the appellant submitted that the loss on account of foreign exchange fluctuation as on 31.03.2010 should be considered as per accounting standards and it should be an allowable deduction. However, the AO held that once the sale proceeds were received by the appellant, it is accounted as income of the appellant in the books of accounts. The said amount is neither payable or receivable to any third party. Therefore, if the appellant incurs any loss on the said amount, the said loss is notional and cannot be allowed as deduction. The AO further held that the appellant was not under obligation to keep sale proceeds under EEFC account and once the income is received, any further loss due to foreign exchange fluctuation is not a revenue expenditure. Reliance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order and the submissions made by the AR of the appellant. The system of accounting followed by the appellant is that the sale proceeds received in foreign exchange are credited to EEFC/ECFC account which is in foreign exchange. The required amount is converted into Indian rupees and transferred to the regular bank account and balance amount remains in dollar currency. This EEFC/ECFC account is valued in Indian rupees on last day of the Financial year i.e. on 31st March and gain or loss is accordingly accounted. This accounting treatment is given as per the accounting standard 11. Needless to say, impugned currency fluctuation loss has emanated from foreign currency EEFC account in which the sale proceeds of iron ore are deposited by the appellant. Besides AS-11, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to augment the profitability or reduce revenue losses of the appellant. Thus, the business exigencies are implicit as well explicit in the action of the appellant. Thus, I am of the opinion that the plea of the appellant for claim of expenditure is attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Iron and Steel co. (231 ITR 285) also weighs in favour of the appellant. 7.5. For the aforesaid reasons, claim of exchange fluctuation loss in revenue account by the appellant in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAl cannot be faulted. The CBDT notification No. 3 of 2010 applied by the AO to the case of the appellant is on foreign exchange derivative transactions and hence, is not applicable to the facts of the appellant's case. Hon'ble Bombay High Court in the case of CIT Vs Vinergy International Pvt. Ltd. (Tax Appeal No. 376 of 2014 order dated 11.08.2016) has held that the Instruction No. 3 of 2010 issued by CBDT would have no application to the facts of the case if the foreign exchange loss was not on account of derivatives. Therefore, I have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. Accordingly, the addition made by the AO amounting to Rs. 6,94,32,433/- is hereby deleted. 40. In view of the above proposition rendered by the Hon ble jurisdictional High Court of Bombay in the case of CIT vs. Vinergy Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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