TMI Blog2015 (5) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in lieu of cash subsidy also deserves to be given the same treatment as foreign exchange because foreign exchange 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.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 ₹ 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. - Decided against revenue. Disallowance u/s 14A on account of interest expenditure - Held that:- the Department has accepted this contention of the assessee that the assessee has not diverted his interest bearing funds for the purpose of investments or any other manner for making investment which accrue tax free income for the assessee. In the same manner, we are further inclined to hold that the Revenue authority has not brought out any fact to establish this fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ₹ 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 right in making disallowance because the claimed loss neither suffered by the assessee company during the year under consideration nor any provision of any ascertain liability accrued to the assessee during the year under consideration, hence, the CIT(A) was not justified in deleting the disallowance. The ld. DR finally prayed that the impugned order on this issue may be set aside by restoring that of the AO. 5. Replying to the above, the ld. AR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 Drinks P. Ltd. Vs. CIT, 112 ITR 721 (Orissa) and submitted that provision for diminution in the value of investment of assets will not reduce books profit and the claim of loss must be real loss and not the notional loss. Therefore, the assessee is not entitled to deduct the same from taxable income. 9. On careful consideration of above submissions, at the very outset, we note that undisputedly the assessee company was forced and compelled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets 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 which has been given in the paper book on page 16, wherein it has been stated that the fertilizer subsidy has always been accounted for as part of sale consideration of fertilizer. Attention was also invited to letter dated 6.12.2010 filed before the AO, a copy which is given in the paper book on page 14-15, wherein also it had been stated that amount of fertilizer subsidy had been accounted for as income in the books of account. The ld. AR has also relied upon the following de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In this order ITAT Mumbai held as under: 8. We have carefully considered the order of ld. Commissioner of Income Tax and the submissions of ld. Representatives of the parties. We have also carefully considered the cases cited before us (supra). It is relevant to state that in the case of Woodward Governor India (P.) Ltd. (supra), the Hon'ble Apex Court observed and held that the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Addl.CIT in ITA No.1443/Mum/2009 (AY- 2006-07)dated 26.11.2010. Copies of which are placed in the compilation of case laws at pages 76 to 84 and pages 85 to 90 respectively. 10. We also observe that similar issue was considered by Hon'ble Apex Court in the case of ONGC Ltd (supra). The assessee a public sector undertaking was engaged in the capital intensive exploration and production of petroleum products for which it had to heavily depend on foreign loans to cover its expenses, both capital and revenue and for payment to non-resident contractors in foreign currency for various services rendered. The assessee made three types of foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, in allowing the said claim of the assessee by AO, the action of the AO is in consonance with the decisions of the Hon'ble Apex Court and also the view taken by the Tribunal in the cases cited hereinabove (supra). Hence, the view taken by AO to allow loss of ₹ 43.78 crores while making assessment u/s 143(3) on account of derivative contract outstanding is not an erroneous view taken by AO, nor the action of AO is prejudicial to the interest of revenue. Hence, the order of Commissioner of Income Tax u/s 263 of the Act to hold that the action of AO is erroneous to the extent the loss considered as I.T.A. No.7223/Mum/2011 allowable on account of derivative contracts outstanding as on the date of balance sheet i.e. 31.3.2008 is neither justified nor in accordance with law. Hence, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 devoid of merits is dismissed. 14. Assessee s appeal ITA No. 1447/D/2012: Ground no. 3 raised by the assessee is of general in nature which needs no adjudication. Ground no. 2 of the assessee challenging the action of the AO to initiate proceeding u/s 271(1)(c) of the Act is premature and we also dismissed the same without any deliberations and adjudication on merits. The remaining sole ground of the assessee reads as under: 1. That the CIT(A) erred in upholding disallowance made by the Assessing Officer in the order of assessment of ₹ 75 lacs u/s 14A of the Act on account of interest expenditure in the facts and circumstances of the case of the appellant. 15. Briefly stated the facts giving rise to this appeal of the assessee are that the AO made d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 facts and circumstances, we note that the assessee company was granted relief by the CIT(A) for A.Y. 2010-11 with following conclusions: 3.1 I have carefully considered the facts of the case and the submissions of the appellant in this regard. In regard to the disallowance under section 14A read with Rule 8D of the Income Tax Rules for interest expenditure, the appellant company gave date-wise details of investments held by the company as on 31.03.2010 and also explained the position regarding disallowance on account of interest with reference to particular investments in earlier years. The company as on 31.03.2010 had total investments of ₹ 58.85 crores and investments aggregating to ₹ 14.98 crore are the investments, income from which is taxable. The company filed the details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emonstrated 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 ₹ 58.85 crore. In view of this, the disallowance of interest of ₹ 1,33,27,000 under Rule 8D(ii) r.w.s. 14A of the Act is not warranted. 18. In view of above, at the outset, we observe that we are unable to see any order of the appellate or higher firm to show that the relief granted by the CIT(A) on this issue in A.Y. 2010-11 vide his order dated 10.06.2014 has been altered, modified or set aside. Hence, we can safely presume that the Department has accepted this contention of the assessee that the assessee has not diverted his interest bearing funds for the purpose of investments or any other manner for making investment which accrue tax free income for the assessee. In the same manner, we are further inclined to hold that the Revenue authority has not brought out any fact to establish this fact that the assessee diverted his interest bearing funds for making investments for earning tax free income. In this situation, we are fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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