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2016 (7) TMI 456 - ITAT MUMBAI

2016 (7) TMI 456 - ITAT MUMBAI - TMI - Set off of loss from settlement of forward contracts for foreign currency against income from ‘other sources’- Held that:- As relying on assessee's own case for assessment years 1998-99 and 2005-06 find no error in the orders of the authorities below, in the year under consideration, in holding that the loss arising from settlement of forward contract taken by the assessee to safeguard the foreign exchange loan taken for acquisition of shares/debentures is .....

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y forward of long term capital losses incurred in financial year - Held that:- In the year under consideration, neither has there been a change in the shareholding pattern of the assessee nor has there been any claim for set off of carried forward of losses of the year’s prior to A.Y. 2005-06. Hence, in our view, and as contended by the learned A.R. for the assessee the conditions precedent for invoking and bringing into play the provisions of section 79 of the Act are absent and have been wrong .....

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on P. Boaz, A. M. This appeal by the assessee is directed against the order of assessment passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act') dated 12.10.2010 for A.Y. 2007-08, in pursuance of the directions issued by the Dispute Resolution Panel-1 (DRP), Mumbai under section 144C(5) of the Act dated 28.09.2010l. 2. The facts of the case, briefly, are as under: - 2.1 The assessee company is a foreign institutional investor (FII) investing in 100% .....

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. 2.2 Aggrieved with this draft order of assessment for A.Y. 2007-08, the assessee preferred its objections thereto before the DRP-I, Mumbai. The DRP-I, Mumbai vide directions issued under section 144C(5) of the Act dated 28.09.2010 disposed off/dismissed the objections raised by the assessee observing as under: - Ground No. 1 - Relating to the set off of loss from settlement of forward contracts for foreign currency of ₹ 6,84,34,804/- against income from other sources . AO s action in tre .....

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the directions issued by the DRP-1, Mumbai under section 144C(5) of the Act vide order dated 28.09.2010, the AO passed the impugned final order of assessment for A.Y. 2007-08 under section 143(3) r.w.s. 144C(13) of the Act vide order dated 12.10.2010, wherein the income of the assessee was determined at ₹ 13,30,09,651/-. 3. Aggrieved by the final order of assessment for A.Y. 2007-08 dated 12.10.2010, the assessee has preferred this appeal raising the following grounds: - 1. The Assessing .....

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and denying carry forward of long term capital losses incurred in financial year relevant to assessment years 2003-04 of ₹ 49,464,507/- and 2004-05 of ₹ 67,363,681/- on the grounds that there was a change in shareholding pattern in April 2004, ignoring the fact that Appellant has not claimed set-off of losses during the year under consideration. 3. The Assessing Officer erred in initiating the penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particular .....

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e assessee, in the year under consideration the assessee had earned STCG of ₹ 7,30,20,556/-, incurred net long term capital losses of ₹ 8,01,43,145/- and short term capital losses on early settlement of forward contract for foreign currency amounting to ₹ 6,84,34,804/- arising on short term capital losses on early settlement of forward contract for foreign currency as a capital loss as disclosed by the assessee in its return of income for A.Y. 2007-08. According to the learned .....

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this year the capital loss is being accepted as such when there was no change in the facts and circumstances in the case on hand. 4.2.2 The learned A.R. for the assessee brought to the notice of the Bench that on appeal by the assessee, a Coordinate Bench of this Tribunal, in the assessee s own case for A.Y. 1998-99 and A.Y. 2005-06 in ITA No. 2877/Mum/2003 and ITA No. 910/Mum/2009 dated 08.06.2011 has decided this issue in the assessee s favour holing that the capital gain/loss arising on earl .....

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(supra) on this issue. It was prayed that directions to be issued to the AO that, in the event of the Hon'ble Bombay High Court decides against the assessee by holding that Capital Gains arising on early settlement of forward contracts for foreign currency is to be assessed as Income from other sources , then the AO ought to re-characterise the said amount for this year in accordance with the consistent view taken by Revenue. 4.2 Per contra, the learned D.R. supported the order of the author .....

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A.Y. 2005-06 in ITA No. 2877/Mum/2003 and ITA No. 910/Mum/2009 dated 08.06.2011 has considered the very same issue and held that the loss arising from early settlement of forward contracts in foreign exchange taken by the assessee to safeguard the foreign exchange loan taken for acquisition of shares/debentures was capital loss. At para 4.3 of the aforesaid order (supra), the Coordinate Bench has held as under: - 4.3 We have perused the records and considered the rival submissions carefully. The .....

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issue has already been considered by the Tribunal in the case of sister concern of the assessee i.e. Citicorp Banking Corporation Bahrain in ITA No.6525/M/09 for the assessment year 2005-06. The Tribunal in the said case referred to the decision of Special Bench in the case of Apollo Tyres Ltd (supra) vs. ACIT, in which nature of income arising from cancellation of foreign exchange forward contracts entered into by the assessee to safeguard the foreign exchange loan taken for purchase of plant a .....

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ntract was treated as capital in nature. The facts in the present case are identical with the only difference that in this case the assessee had acquired the foreign exchange loan for purchase of debentures which are admittedly capital assets. Therefore, in our view the case is covered by the decision of the Tribunal in case of Citicorp Banking Corporation, Bahrain(supra). The case of the assessee is also supported by the decision of DRP in assessee's own case for the assessment year 2007-08 .....

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nt of forward contract taken by the assessee to safeguard the foreign exchange loan taken for acquisition of shares/debentures is capital loss as returned by the assessee. In our considered view, there is no requirement for us to issue directions to the AO as urged by the assessee, since the AO is bound to follow the directions of the Hon'ble High Court when the appeals before their Lordships is decided. Finding no merit in this ground raised and in the light of the decision of the Coordinat .....

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olding pattern in April 2004 (i.e. in A.Y. 2005-06) ignoring the fact that the assessee had not claimed set off of losses during the year under consideration. 5.2 The learned A.R. for the assessee for the assessee contends that the provisions of section 79 of the Act will be attracted only if in the year in which set off is claimed, there is a change in shareholding. According to the learned A.R. for the assessee, in the case on hand, in the period under consideration, i.e. A.Y. 2007-08, there i .....

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r the provisions of section 79 of the Act to come into play. 5.2.2 It is contended that since the assessee has not claimed set off of such losses till date, the question of disallowing the same does not arise now but rather ought to be examined in the year in which the set off is claimed. In this regard reliance was placed on the decision of the Hon'ble Apex Court in the case of CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) wherein it was held that the issue of set off against profits and gain .....

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377; 6,73,63,681/- for A.Y. 2004-05, which was allowed by the AO vide orders of assessment dated 23.10.2006 an 13.12.2006 for those years respectively. The AO in the order of assessment for A.Y. 2007-08 (i.e. the year under consideration) was of the view that since there was a change in the shareholding pattern on 1st April, 2004, the aforesaid loss is to be disallowed in this year by invoking the provisions of section 79 of the Act. On appeal, the DRP upheld this view of the AO. 5.4.2 The issue .....

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From the facts on record, we notice that admittedly the aforesaid long term capital losses incurred by the assessee amounting to ₹ 4,94,64,507/- of A.Y. 2003-04 and of ₹ 6,73,63,681/- in A.Y. 2004-05 were allowed by the AO in the orders of assessment for those years. It is seen from a perusal of the assessee s return of income filed for the year under consideration i.e. A.Y. 2007-08, that no claim for set off has been made in respect of the aforesaid losses of assessment years 2003- .....

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