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TMI Blog2023 (9) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that the AO has rightly reopened the assessment by issuing notice u/s 148. Thus, we hold that the reopening is valid. On perusal of the reasons recorded by the AO, we find that the assessee has not filed fully and truly all the relevant material facts for completing the assessment. There is no need to record separately that there is a failure on the part of the assessee to file fully and truly all the materials for completing the assessment. Therefore, the arguments are rejected. Disallowance of provision for foreign exchange losses - Assessee has created a total provision towards restatement of the liability in foreign currency. Since the assessee failed to establish as to how the provision was calculated on a scientific basis in accordance with the method of accounting, the AO disallowed the entire claim and brought to tax. CIT (A) observed that the assessee has adopted an ad-hoc rate of ₹.50.22 per USD, which was not supported by any document. CIT (A) sustained the loss to the extent and allowed relief to the extent - We have perused the details filed by the assessee in the form of paper book as was filed before the CIT (A) and find that the ld. CIT (A) has rightly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue are directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, dated 16.01.2018 relevant to the assessment year 2009-10. The Revenue has raised following grounds: 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The learned CIT(Appeals) erred in allowing relief to the assessee company to the extent of Rs 9,79,10,317/- out of the disallowance of Rs. 40,98,03,268/- made by the Assessing Officer(AO) on account of provision for loss on restatement of foreign exchange, in the assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 in the assessee's case, by upholding the disallowance to the extent of Rs. 31,18,92,950/- only. 2.1 The ld. CITA) is not justified in holding that disallowance to the extent of Rs. 31,18,92,950/- in respect of transactions relating to Chennai Unit is upheld when the amount of loss on forex fluctuations claimed by the assessee and disallowed by the AO in respect of Chennai Unit was Rs. 31,57,41,203/-, thus giving relief to the assessee to the extent of Rs. 38,48,253/-. 2.2 Having regard to the holding of the AO that the provisions for loss on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be produced by the assessee to substantiate its claim, the ld.CIT(A) ought to have confirmed the entire disallowance of Rs. 40,98,03,268/- made by the AO in the assessment order passed u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 in the assessee's case. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing officer restored. 2. In its appeal, besides challenging confirmation of quantum additions towards disallowance of provision for forex loss of ₹.31,18,92,950/- and disallowance of loss on forward contracts at ₹.41,31,84,699/-, the assessee has challenged reopening of assessment under section 147 of the Income Tax Act, 1961 [ Act in short]. 3. Brief facts of the case are that the assessee I engaged in the business of providing fuel management solutions for fossil fuel users and supply of fossil fuel. The assessment under section 143(3) of the Act was completed on 31.03.2013 assessing total income of the assessee at ₹.8,27,24,670/- against returned income of ₹.8,20,15,541/-. Thereafter, notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had international transactions with its AEs. The TPO passed on order dated 17.10.2011 making a downward adjustment of Rs. 18,72,25,570/- to the purchases made by the assessee from its AEs. A draft assessment order u/s. 143(3) r. W.s. 92CA was passed on 23.12.2011 determining the income as Rs. 42,19,93,630/-. The DRP vide its order/s. 144C(5) dated 31. 08.2012 revised the adjustments made in the TPO. Consequently, the TPO, in its order dated 07.09.2012 made a revision to the downward adjustment of Rs. 3,07,39,105/- to the purchases. Finally, the total income Was assessed u/s. 143(3) r.w.s. 92CA(3) on 19.10.2013, assessing the total income as Rs. 29,52,99,177/-. On verification of Annual Report for the AY 2007-08 (relevant to AY 2008-09) it is seen that the assessee had claimed Rs. 5,20,72,552/- towards foreign exchange loss. In the Note to Accounts- Sch.24 (Pg. 21)- 6. Foreign Currency Transactions (AS-11), it is stated that transactions in foreign Currency is recorded at the exchange rate existing at the time of transaction and exchange differences arising from foreign currency transaction are dealt within the Profit Loss account. Current Assets and Current Liabilities related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as reasons recorded by the Assessing Officer for reopening of assessment. From the reasons recorded, it is very clear that the assessee has not disclosed fully and truly all the relevant materials and facts to complete the assessment. Particularly, no details are filed in respect of loss on restatement of foreign exchange during the course of 143(3) proceedings. Therefore, the Assessing Officer has rightly invoked the provisions of section 147 of the Act. 6.2 In so far as disallowance of loss on forward contract, the assessee has not filed any details during the original assessment proceedings under section 143(3) of the Act. Therefore, the Assessing Officer has rightly issued notice under section 148 of the Act. 6.3 As per the proviso to section 147 of the Act, it is the duty of the assessee to disclose all the material facts fully and truly to complete the assessment. In this case, we find that the assessee has not filed any details in respect of claim made by the assessee. Therefore, the Assessing Officer, by issuing notice under section 148 of the Act dated 18.03.2015, reopened the assessment, which is in accordance with law. So far as paper book page 132 is concerned, some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restatement of the liability in foreign currency. In this connection, before the Assessing Officer, the assessee has produced two ledger accounts - one for a provision of ₹.31,57,41,203/- and the other account creating a provision to the extent of ₹.9,40,62,064/-. The two amounts aggregate to the sum of ₹.40,98,03,268/-. The assessee has further provided a breakup of the amount in a table. As per the details submitted by the assessee, the Assessing Officer has noted that a provision of ₹.31.57 crores has been created for 20 transactions, out of which 4 transactions are in respect of purchases or which there are no forward cover whereas the balance 16 transactions are in respect of purchases for which there is a forward cover. In Mumbai branch, there are in all 4 transactions, all of which are not covered by any forward cover. It was explained before the Assessing Officer that their method of accounting required the transactions which are not supported by any forward contract to be restated at the rate of exchange prevailing on the last day of the relevant previous year. As regards transactions that are covered by forward contracts, they are to be restated at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to produce the forward cover contracts against each of these 16 transactions to show that they have been restated at the rates agreed in the forward cover agreement. In this connection, the appellant expressed their inability to produce the forward cover in respect of all the transactions. They finally were able to produce forward cover transactions in respect of two voyages. A reference to these two contracts also indicates that the appellant has not restated the payable at the rate as per the forward contract. In fact, it is found that in respect of all the 16 transactions, the appellant has used the same rate of Rs. 50.22 per USD whereas it was unable to produce any forward cover contract wherein this rate was agreed. When this aspect was pointed out to the appellant, the appellant stated orally that the rate of Rs. 50.22 represents the average rate of the forward cover contracts entered into by the appellant. Though it is neither the appellant's method of accounting to adopt the average rate nor is there any such general practise followed, the appellant was still asked to substantiate even that understanding. However, the appellant was unable to produce any calculation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cover contract, wherein this rate was agreed. Thus, the ld. CIT (A) observed that the assessee has adopted an ad-hoc rate of ₹.50.22 per USD, which was not supported by any document. Accordingly, the ld. CIT (A) sustained the loss to the extent of ₹.31,18,92,950/- and allowed relief to the extent of ₹.9,79,10,317/-. We have perused the details filed by the assessee in the form of paper book as was filed before the ld. CIT (A) and find that the ld. CIT (A) has rightly confirmed the disallowance of ₹.31,18,92,950/- and granted relief of ₹.9,79,10,317/-. We do not find any merits in the arguments of the ld. Counsel for further relief over and above the relief granted by the ld. CIT(A). Thus, we find no infirmity in the order passed by the ld. CIT(A). 9.2 Thus, the ground raised by the assessee towards confirmation of disallowance of ₹.31,18,92,950/- is dismissed. Similarly, the ground raised by the Revenue of deletion of addition to the extent of ₹.9,79,10,317/- stands dismissed. 10. The next ground raised in the appeal of the assessee relates to confirmation of addition of loss on forward contracts at ₹.41,31,84,699/-. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rate on the date of remittances as against the rate booked at the time of purchase has resulted in further loss to the appellant. This loss can be allowed only when the appellant shows that rate of settlement is spot rate and there was no forward cover or alternatively rate of settlement is the forward rate and produce the forward contract. As per Annexure to their letter dated 13.12.2017, all transactions of loss appear to be on account of forward covers. But the contracts are not produced. Therefore, there is no ground to allow the deduction. Further as already explained the appellant is claiming a further deduction in respect of remittances made against the opening balance of sundry creditors. In this connection the appellant failed to explain why any further deduction on account of payment against opening balance was allowable when the appellant had already restated the sundry creditors at the end of the preceding year on the basis of the forward cover rate applicable in respect of the same. Therefore in any event, in respect of payments made against the opening balance, there is no ground for any further deduction on account of exchange difference. 44. As regards the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancelled during the year nor was it able to produce any document in respect of the underlying transaction towards which the forward cover was taken initially. The appellant was also unable to explain the circumstances under which the forward cover transactions were cancelled and whether the cancellation was premature. Therefore, the Assessing Officer's conclusion that the net gain or loss represents a speculative transaction as the appellant has merely paid or received the difference between the spot rate and the agreed rate, is correct. Such gain or loss is clearly in the nature of a speculative loss unless the appellant could have placed on record the underlying transactions against which the same was entered. 47. The Mumbai Bench of the ITAT in the case of Jaimin Jewellery Exports P. Ltd, v. ACIT (2014) 43 Taxman.com 380 had occasion to consider a similar issue. The ITAT held that such profit or loss on cancellation can be considered as business loss or business profit only if they are supported by underlying transactions of actual purchase / sale. The following paragraphs are relevant in this regard: 11. In view of the above discussions, it can be safely held that in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess transaction has to be considered as speculative loss only and that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. Further, the Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for the purpose of considering the business loss and only the transactions which are completed to be considered for the purpose of determining the business loss from these foreign exchange forward contract. With this observation, we remand this issue to the file of the Assessing Officer for fresh consideration. 7. Before us, the ld. Representative relied on the judgment of Gujarat High Court in CIT v. Friends and Friends Shipping P. Ltd. [2013] 217 Taxman 267, for the proposition that if the assessee failed to take delivery within the period indicated in contract and the assessee had given instructions to bank for cancellation of contract on payment of agreed charges to the bank these transactions cannot be considered as speculative transaction. However, there is no finding in this judgment towards this effect and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the date of remittances as against the rate booked at the time of purchase has resulted in further loss to the assessee. As rightly pointed out by the ld. CIT(A), we are also of the opinion that this loss can be allowed only when the assessee shows that rate of settlement is spot rate and there was no forward cover or alternatively rate of settlement was the forward rate and produce the forward contract. Admittedly, the assessee has not produced forward contract either before the Assessing Officer or before the ld. CIT (A) or even before the Tribunal. Moreover, the assessee has not produced any evidence whatsoever in respect of the underlying transactions, cancellation of the forward cover contract, the circumstances under which they were cancelled and whether same was a premature cancellation. Since the assessee could not produce even a single document for cancellation, the ld. CIT (A) dismissed the ground raised by the assessee. Before the Tribunal also the assessee has not furnished any document in support of its claim. Under the above facts and circumstances, we uphold the order passed by the ld. CIT (A) on this issue and thus, the ground raised by assessee is dismissed. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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