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TMI Blog2015 (5) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... y during the year nor there was provision of any ascertain liability accrue during the year under consideration. By observing above facts, the ld. AO further holding that the claim of deduction of said loss of Rs. 9.52 crores was probably made with the intention to suppress the taxable income for the year under consideration and the AO made impugned disallowance in this regard. The assessee preferred an appeal before the CIT(A) which was allowed on this point and the impugned addition made by the AO on account of loss on diminution of the fertilizers bonds was deleted. Now the aggrieved Revenue is before this Tribunal in this second appeal with the sole ground as reproduced hereinabove. 4. The ld. Departmental Representative (DR) submitted that the AO rightly observed that the amount of loss of Rs. 9.52 crores on valuation of bonds at the end of the year was being claimed in computation of taxable income as business loss for the reason that these bonds were in the nature of business assets notwithstanding the fact that in the accounts of assessee the said bonds have been categorized under the head of "current investment assets". The ld. DR vehemently contended that the AO was righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed vs. CIT, 161 ITR 365 (SC) and decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs. D.S. Bisht & Sons, 243 ITR 179 (Del.) the claim of the assessee is allowable. The ld. AR submitted that while investment was made by the assessee under commercial expediency then the same did not bring an asset of a capital nature and the loss was, therefore, allowable as business loss. The ld. AR further pointed out that the assessee had no intention to hold these bonds till the date of their maturity and it was in need of funds to carry on its business and, therefore, bonds have been actually sold partly during the current year and the balance was sold in the subsequent year. The ld. AR further pointed out that the difference in the amount of loss/profit on actual sale of bonds has been duly accounted for in the books of account of the relevant assessment year and revenue authority has not disputed the said claim. 8. It is pertinent to note that the ld. DR has also placed reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Steriplate Pvt. Ltd. (2011) 338 ITR 547 (P&H) and decision of Hon'ble Orissa High Court in the case of Tripati Dri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar ending 31.03.2009, wherein the above fertilizer bonds have been shown as "other current assets (trade)" under the head "Current assets, loans and advances". It is argued by the ld. AR that the facts relating to the above bonds were clearly mentioned in Note No. 2 of the Statement of computation of taxable income reproduced in para 5 above. It is submitted that the loss on valuation of bonds is clearly allowable as business loss as the bonds were in the nature of business assets notwithstanding the inadvertent grouping of the same under the head "current investment" in the Balance Sheet as on 31.03.2008. It is further submitted that the appellant has been crediting the amount of fertilizer subsidy in its profit and loss account as part of sale of products as per the consistent method of accounting being followed by the assessee from year to year. It was submitted that Note No. 1(v)(b) of Schedule 13 of the Printed Accounts on page 66 provides for accounting policy for revenue recognition, wherein it has been stated that fertilizer subsidy is accounted for by the company as income on accrual basis. Reference was also made to the letter dated 16.12.2010 submitted to the AO, a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, we note that the Department has not agitated the issue of loss on sale of investments/fertilizer's bonds suffered by the assessee during the year under consideration, but the main controversy revolves on the issue of loss recorded by the assessee on diminution of the fertilizer's bonds in the hand at the end of the year which was shown as other current assets (trade) under the head "current assets, loans and advances". The ld. AR has also drawn our attention towards order of ITAT Mumbai, 'D' Bench in the case of Reliance Industries Ltd. Vs. CIT (2014)-TIOL-160-ITATMUM and submitted that it is a well accepted principle that the assessee is entitled to adjust the actual cost of imported assets as acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates then in the same manner loss on fertilizer's bonds given to the assessee by the Government of India under compulsion which were received by the assessee unwillingly under commercial expediency then the loss arising on account of fluctuation in the market rate of bonds at the end of year can be considered as ascertain losses and allowable as a business expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be squared up at the end of the financial year. The assessee booked the expected loss in such contracts on MTM basis. The assessee thus claimed a loss as calculated on MTM basis claiming that he was following this practice consistently. That it was also as per recognized Accounting Standard. AO rejected the claim on the ground that the derivative contracts were not stock in trade as there was no cost of acquisition. He finally held that the loss on account of "MTM" basis was thus a notional loss and was contingent in nature and could not be allowed to be set off against taxable income. On appeal, the ld. CIT(A) allowed the same by agreeing with the contention of the assessee that such loss on such valuation which is called "MTM" has to be allowed even though it may appear to be a notional loss. The Tribunal while confirming order of ld. CIT(A) and allowing the said loss placed reliance on the decision of Hon'ble Apex Court in the case of Woodward Governor India (P.) Ltd. (supra) and also the decision of Tribunal in the case of Edelweiss Capital Ltd V/s ITO in ITA No.5324/Mum/2007 (AY- 2004-05) dated 10.11.2010 and the decision in the case of Ramesh Kumar Damani V/s Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was entitled to adjust actual cost on imported assets acquired in foreign currency on account of fluctuation in the rate of exchange in terms of section 43A. On appeal by the department, the Hon'ble High Court reversed the decision of the Tribunal on both the issues. On further appeal to the Apex Court, the decision of the High Court was reversed and it was held that (a) that the loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet was allowable as an expenditure u/s 37(1), and (b) that the assessee was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance sheet dates, pending actual payment of the liability u/s 43A, prior to its amendment by Finance Act, 2002. 11. In view of above decisions, it is clear that the loss due to foreign exchange fluctuation in foreign currency transactions in derivatives has to be considered on the last date of accounting year and it is deductible u/s 37(1) of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is also received in lieu of cash/Indian National Rupee (INR) and the same is also shown as current trading assets in the books of accounts as per well accepted accounting principles. 13. As observed by ITAT Mumbai in the case of Reliance Industries Limited (supra) the loss due to foreign exchange fluctuation in foreign currency transaction is derivatives has to be considered on the last date of accounting year and the same is deductible u/s 37 of the Act in the same manner the CIT(A) was right in holding that the difference in the amounts of loss/profit on actual sale of points has been duly accounted for in the books of accounts of the relevant assessment year and the loss of Rs. 9.52 crores on account of diminution in the market value of the fertilizers bonds held at the end of the year as business assets cannot be disallowed and such disallowance cannot be sustained on facts or in law. We, therefore, are of the considered opinion that the conclusion arrived by the CIT(A) is just and proper and we are unable to see any valid reason to interfere with the same and hence, we decline to interfere with the impugned order on this issue. Accordingly, sole ground of the Revenue being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investment of Rs. 20 crores in Sriram Bioseeds Ventures Ltd. was made on 28.02.2008 through HDFC Bank and copy of current account was also placed along with written synopsis/submissions of the assessee. The ld. AR further added that during the first appellate proceedings the CIT(A) examined details of investments including disallowance on account of interest after examining the factual position and after being satisfied that the investments has been made out of own funds of the assessee company. The ld. AR also placed a copy of the appellate order of the CIT(A) for A.Y. 2010-11 and drawn our attention towards paragraph no. 3.1 at page 7, 8 & 9 of the impugned order and submitted that the CIT(A) in the subsequent assessment year 2010-11 has not make any disallowance in regard to interest expenditure and has made disallowance u/s 14A read with Rule 8D(iii) of the I.T. Rules after giving credit of suomoto disallowance of the assessee. The ld. DR fairly accepted that the assessee was granted relief by the CIT(A) in A.Y. 2010-11 in the said manner and there was no disallowance on account of interest expenditure in F.Y. 2009-10 relevant to A.Y. 2010-11. 17. In view of above noted fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves and profits for the respective years which were much more than the amount of investments made in those years. The company has enclosed copies of relevant documents and statements as Annexures A1to A6 and it is observed from these statements that all the investments have been made by the company out of its own funds. During the year ended 31.03.2010 relevant to assessment year under appeal, the company had made three investments aggregating to Rs. 4.16 crores, details of which have been given in Annexure A. The bank statements have been filed in respect of these investments to substantiate the contention that all these investments have been made by the company out of its own funds as pinpointed in Annexure A7 to A9. It emerges from the details that during the current year, the appellant had made the investment of Rs. 4.16 crore out of its own funds as demonstrated with the bank statements and other documentary evidence. No specific disallowance of interest has been made by the AO in the earlier years regarding the tax free investments which are forming part of the total investments of Rs. 58.85 crore. In view of this, the disallowance of interest of Rs. 1,33,27,000 under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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