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Tower Overseas Ltd. Versus The ACIT, Circle-8, Ahmedabad and Vica-Versa

2016 (7) TMI 561 - ITAT AHMEDABAD

Disallowance of speculation loss u/s.43(5) - hedging transactions or speculative transactions - Held that:- We find that the ld.CIT(A) while deciding the issue has noted that the assessee had done transactions through HDFC Bank and Karvy Stock Broking Ltd., the transactions done through HDFC Bank were very few, whereas the transactions done through Karvy Stock Broking Ltd. were frequent and the number of transactions done with Karvy Stock Broking Ltd. indicated that they were not in the nature o .....

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Broking Ltd. be considered in speculative in nature. Before us, Assessee and Revenue have not placed any material on record to controvert the findings of ld.CIT(A) - Addition made u/s.36(1)(vii) - Held that:- We find that the ld.CIT(A) while deciding the issue in favour of assessee has noted that the transactions with the Directors were of current account type and there was opening credit balance in the account for which the Directors did not charge any interest from the assessee and assess .....

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f assessee - I.T.A. No.1396/Ahd/2012, I.T.A. No.1678/Ahd/2012 - Dated:- 7-7-2016 - SHRI R.P. TOLANI, JUDICIAL MEMBER And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Assessee : Shri Samir S. Jani, AR For The Revenue : Shri K. Madhusudan, Sr.DR ORDER PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : These cross-appeals by the Assessee and Revenue are directed against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad dated 25/05/2012 passed for Assessment Year (AY) 2009- 10. 2. Th .....

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der dated 15/12/2011 and the total loss was determined at ₹ 2,14,88,054/-. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who vide order dated 25/05/2012 (in Appeal No.CIT(A) XIV/ACIT.Cir.8/156/2011-12) granted partial relief to the assessee. Aggrieved by the order of ld.CIT(A), Assessee and Revenue are now in cross-appeals before us. 3. Grounds raised by the assessee in ITA No.1396/Ahd/2012are as under:- 1. The learned CIT(A) has er .....

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us basis that the expenditure incurred for raising the capital by payment to ROC is Capital in nature and also ignoring the judicial precedent cited by the appellant. The same is prayed for allowance. 4. The learned CIT(A) has erred in not adjudicating the Ground No.3 of alternate prayer for allowance ROC fees paid under section 35D. The same is prayed to your honor. 5. The appellant humbly requests that cost be awarded in this appeal on account of arbitrary manner in which the order is passed b .....

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e Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 3. It is therefore, prayed that the order of the Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-aside and that of the order of the Assessing Officer be restored. 4. We first take up the Revenue s appeal in ITA No.1678Ahd/2012. 4.1. First ground is with respect to deleting the disallowance of speculation loss u/s.43(5) of the Act. 4.2. Before us, at the outset, ld.S .....

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of the Act to which the assessee inter-alia submitted that the loss is a usual phenomena in the import export business and is different from mark to margin loss and is fully allowable. AO did not accept the assessee s contention. He after considering the CBDT Instruction No.3 of 2010 dated 23/03/2010, was of the view that the transaction of forex derivative has not been carried out on a recognized exchange and it does not fulfill the condition laid down in section 43(5) of the Act and therefore .....

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under:- 3.3. Decision : I have carefully considered the assessment order and the submission filed by the appellant. The A.O. has disallowed the loss of ₹ 39,33,576/- under the head loss on forward cover transaction by treating it as speculative transaction. The appellant has submitted that it was doing business of importing goods from foreign countries and it has imported goods of more than ₹ 50 crores during the year, the payment for which has to be made after 5-6 months at the pre .....

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- on account of such type of transaction. The transaction was for ₹ 4 lac US $ with HDFC Bank. In this case, the letter of credit through which the import is done was opened in the month of June and July and the payment due date was in the month of February and March. To safeguard against the future risk the appellant had hedged ₹ 4 lac US $ with HDFC Bank on 27/08/2008 after the opening of LC. Since the appellant expected the dollar to rise up to 52, he decided to cancel the contrac .....

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he foreign exchange transaction, were also done through Karvy Stock Broking Ltd. The appellant has further relied on the decision of Gujarat High Court in the case of M/s. Friends and Friends Shipping Pvt. Ltd. in Tax Appeal No. 251 of 2010 dated 23/08/2011. After considering the factual position, the submission of the appellant and the finding of the A. O., I am of the opinion that the claim of the appellant is partly correct. It is noted from the ledger account of the foreign exchange profit / .....

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nth of January, February and March which show that the transactions are not in the nature of hedging transaction but are in the nature of speculative transaction. It is also noted that the transactions are in trading of Currency Futures. The law laid down by the Honourable Gujarat High Court in the case mentioned by the appellant is also similar. The Honourable Court has held that the onus is on the appellant to prove that the transaction was not speculative but hedging. The transaction that are .....

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nsaction done through HDFC Bank as nonITA No.1396/Ahd/2012 (By Assessee) and ITA No.1678/Ahd/2012 (By Revenue) Tower Overseas Ltd. vs. ACIT Asst.Year - 2009-10 - 7 - speculative and business loss. The transactions carried out through Karvy Stock Broking Ltd. should accordingly be treated as speculative in nature and the loss is accordingly directed to be disallowed. Therefore, the loss to that extent will be allowed as business loss and the balance is directed to be treated as speculative loss w .....

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ns done through Karvy Stock Broking Ltd. as speculative transactions. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) while deciding the issue has noted that the assessee had done transactions through HDFC Bank and Karvy Stock Broking Ltd., the transactions done through HDFC Bank were very few, whereas the transactions done through Karvy Stock Broking Ltd. were frequent and the numbe .....

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efore could be considered as hedging transactions, whereas the transactions through Karvy Stock Broking Ltd. were in the nature of speculative transactions. He accordingly directed the loss incurred on the transactions through HDFC Bank be allowed and the loss incurred on the transactions with Karvy Stock Broking Ltd. be considered in speculative in nature. Before us, Assessee and Revenue have not placed any material on record to controvert the findings of ld.CIT(A). In view of the aforesaid fac .....

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or the purpose of non-business use and therefore to the extent of interest paid on the amount advanced to Director cannot be allowed as deduction. He thereafter worked out the interest disallowance @ 11.5% and disallowed ₹ 2,16,762/- Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who after considering the submission of the assessee, deleted the addition by observing as under:- 5.3. Decision: I have carefully considered the assessment .....

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er ₹ 4 crores of share application money which are interest free. In addition to these funds, the reserves and surplus of ₹ 93,45,302/- were also there in the beginning of the year and, therefore, it had sufficient interest free funds to give the interest free loan to the director. I am inclined to accept the submission given by the appellant. The appellant had sufficient interest free funds and the decision of Reliance Utilities and Power Limited (2009) 313 ITR 340 (Bom) is squarely .....

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