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2018 (10) TMI 678 - AT - Income TaxPremium expense on hedging contract - speculative transaction or not - TDS liability - interest component on ECB - assessee claimed that premium or discount arising at the inception of forward exchange contract was amortised as expense over the life of the contract - TDS liability - The Assessing Officer opined that the transactions under consideration with these banks were in the nature of speculative transactions u/s 43(5) of the Act and, hence, the loss was not deductible. Alternatively, he opined that the assessee was required to deduct tax at source before making payment of interest and Premium to the two banks u/s 195 of the Act. In the absence of the assessee having deducted tax at source, the AO held the amount to be not deductible in terms of the provisions of section 40(a)(ia) read with section 195 of the Act. Held that:- The assessee, did not enter to agreements with the two banks for sale or purchase of any commodity, which was to be settled otherwise than by the actual delivery. On the other hand, it is a case of a hedging transaction and the consideration is for securing the assessee against any fluctuation loss in foreign currency and service of loan by means of interest. Thus, it is clear that the provisions of section 43(5) of the Act are clearly not attracted. Interest component on ECB - Held that:- As the loan was taken, admittedly, for the business purpose, interest thereon, which is a part of the overall compensation to the banks, thus has to be allowed as deduction. As tax was properly deducted on such interest component and paid to the exchequer, we hold that the ld. CIT(A) rightly appreciated the facts in deleting addition of ₹ 2.67 crore. Premium on hedging contract - Held that:- the deductions have already been allowed by the Assessing Officer in the preceding three years, which assessments have attained finality. To that extent, there will be double deduction in the fifth year, which cannot be permitted. We, therefore, hold that the assessee was justified in claiming deduction of the proportionate part of the Premium on year to year basis. TDS liability - Held that:- Having issued certificates u/s 195(3) of the Act to the two banks, the Revenue was not within its power to require deduction of tax at source from the amount of Premium payable to these two banks, which was claimed as deduction. We, therefore, hold that the assessee rightly claimed deduction for the proportionate part of the Premium payable to Citi Bank N.A. and Barclays Bank. Deduction u/s 80IB - Held that:- the income relatable to the goods manufactured in Unit-1 cannot be allowed deduction u/s 80IB, even though the ultimate sale is made by Unit Nos.2 and 3 using, inter alia, the output of Unit-1 as their respective input. The contention of the assessee for allowing deduction on the total income from Unit Nos. 2 and 3, thus, cannot be accepted. Decided against the revenue and partly in favor of assessee.
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