9911796707
TMI Blog2018 (10) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... norama of these grounds is that the assessee, inter alia, claimed a deduction of Rs. 16,29,32,108/- comprising of two parts, namely, interest on ECB from SC Johnson Europe BV at Rs. 2,67,95,720/- and Premium expense on hedging contract at Rs. 13,61,36,388/-. The assessee mentioned in the Notes to Accounts annexed to the balance sheet that the premium or discount arising at the inception of forward exchange contract was amortised as expense over the life of the contract. On being called upon to explain the position, the assessee submitted that it took a loan of Japanese Yen (JPY 4127100000) from SCJ Europe BV in the financial year 2002-03. In order to hedge itself against foreign currency fluctuation in JPY, the assessee entered into agreements with Citi Bank NA and Barclays Bank Plc. As per the agreement with Citi Bank, the assessee sold JPY 1768500000 for Rs. 715087500 and agreed to pay the same amount paid for purchasing JPY 1768500000 at the time of maturity. Citi Bank undertook to pay interest @ 1.7% on JPY 1768500000 on behalf of the assessee to SCJ Europe BV and the Citi Bank agreed to charge Rs. 34,91,20,000/- from the assessee for paying interest to SCJ Europe BV and bearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27100000. Such loan was taken in the financial year 2002-03. The loan was repayable after a period of five years. In order to secure itself against fluctuation in the foreign currency rate, the assessee entered into hedging contracts with two banks, namely, Citi Bank and Barclays Bank. These banks undertook to save the assessee against any foreign exchange fluctuation risk in Japanese yen vis-à-vis the Indian rupee. Further, both the banks undertook to pay interest at the fixed rate of 1.70% on the loan amount to SCJ Europe BV. In lieu of this, Citi Bank and Barclays Bank agreed to charge a fixed amount of Rs. 34,91,20,000/- and Rs. 46,55,40,500/- respectively. The ld. AR explained that total sum of Rs. 81,46,60,500 (Rs.34,91,20,000/- plus Rs. 46,55,40,500/-) payable by the assessee to the two banks was determined on the basis of interest and hedging risk to be served by the banks during the period of five years. In other words, it was explained that the sum payable was dependent upon the period for which the risk was undertaken, that is, higher the period, higher the amount of compensation to the banks and vice versa. Thus, it follows that both the banks undertook to serve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of Rs. 81.46 crore payable to the banks, which the assessee separately treated as interest in its accounts. During the course of first appellate proceedings, the ld. CIT(A) sought remand report from the Assessing Officer on the assessee's claim of having deducted tax at source on such interest payment, which fact has not been denied by the Assessing Officer. Thus, it becomes apparent that the assessee did deduct tax at source on the interest of Rs. 2.67 crore to the two banks in lieu of service of loan taken from SCJ Europe BV. 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 Rs. 2.67 crore. 6. Next is the other component of Premium on hedging contract at Rs. 13.61 crore. We have noted above that the assessee took loan in the financial year 2002-03 which was repayable after a period of five years and thus entered into agreements with the banks fixing the final exchange date as 25.03.2008. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matching liability during the period of five years and also spread the amount of Premium over a period of five years. Even though the amount was actually payable after a period of five years, but the liability was incurred on year to year basis, and the assessee spread it over such a period on proportionate basis, thereby making the proportionate part eligible for deduction in the year in question. 7. There is another strong reason which justifies deduction of premium in the year under consideration on the proportionate basis. The assessee claimed similar proportionate deductions in preceding three years which were allowed by the Assessing Officer himself. If now we hold to allow deduction for the entire amount at the end of the fifth year, as has been held by the ld. CIT(A), it would mean that the entire amount would have to be allowed at the end of the fifth year. As against 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 deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee rightly claimed deduction for the proportionate part of the Premium payable to Citi Bank N.A. and Barclays Bank. The sustenance of addition by the ld. CIT(A) to the tune of Rs. 13.61 crore and odd is ergo, set aside. The ground raised by the assessee is allowed and that by the Revenue is dismissed. 10. The only other issue raised by the assessee in its appeal is against the confirmation of disallowance of Rs. 2,02,75,187/- in Unit 2 and Rs. 2,53,90,930/- in Unit 3 out of total deduction claimed u/s 80IB of the Act. 11. The facts apropos this ground are that the assessee claimed deduction u/ss 80IB and 80IC of the Act amounting to Rs. 9,10,68,686/- and Rs. 63,69,15,825/- respectively. The assessee claimed deduction u/s 80IB on the net income of Unit Nos. 2 and 3, both at Baddi, Himachal Pradesh and deduction u/s 80IC on income from Unit Nos. 4 and 6, both at Guwahati. There is no dispute insofar as deduction u/s 80IC is concerned. The Assessing Officer observed that another Unit i.e., Unit 1 was fully functional in 'Baddi' which, admittedly, did not qualify for tax holiday. He deputed Inspector of his charge for spot inquiry to know about the manufacturing proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the assessee for allowing deduction on the total income from Unit Nos. 2 and 3, thus, cannot be accepted. 13. Next comes the question of determination of the amount of income not eligible for deduction u/s 80IB. Admittedly, Unit no. 1 has not raised any invoices. Further, our attention has not been drawn towards any material showing segregation of income pertaining to Unit no. 1 from the total income of Unit Nos. 2 and 3, which are making sales and raising composite invoices. It is found that Unit No. 1 is sending its output to Unit Nos. 2 and 3 at a particular excisable value. Similarly, Unit Nos. 2 and 3 also determine the excisable value of their output. In the absence of any other rational basis for allocating income to the Unit 1 from the combined income of Units nos. 2 and 3, we are satisfied that the ratio of the excisable value of the output of Unit 1 vis-à-vis that of Units 2 and 3 will constitute a good basis for bifurcation of income. We hold accordingly and direct the Assessing Officer to first find out the amount of profit from sales made by Unit No. 2. Then, find out separate excisable value of goods transferred from Unit No. 1 to the Unit No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of which order has been placed on record. Though the Department preferred appeal against the order, but, did not assail the correctness of the order of the ld. first appellate authority on this issue. In view of the foregoing discussion, we are satisfied that the ld. CIT(A) was justified in treating Rs. 48.04 lac, being, profit from sale of mutual funds, as short-term capital gain. 16. Ground No.3 of the Revenue's appeal is against the deletion of disallowance of Rs. 1,32,15,178/- made by the Assessing Officer on account of damages and shortages. The assessee claimed deduction on account of shortages and damages to the tune of Rs. 1.32 crore in its Profit & Loss Account, which the Assessing Officer did not allow. The ld. CIT(A) concurred with the assessee's submissions and allowed such deduction. 17. Having heard both the sides and perused the relevant material on record, it is seen that the assessee made a turnover of more than Rs. 300 crore and the damages are only Rs. 1.32 crore. There is no double deduction as made out by the Assessing Officer. Such deduction of Rs. 1.32 crore is towards abnormal loss. Considering the entirety of facts and circumstances of the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank. The AO made disallowance of both the items by treating the same as speculation loss and also covered it u/s 40(a)(ia) of the Act on account of failure of the assessee to withhold tax at source. The ld. CIT(A) allowed deduction for both the interest and premium. He, however, refused to entertain the assessee's claim in respect of disallowance sustained by him in the proceedings for the assessment year 2007-08. 23. While disposing off the appeals of the assessee and Revenue for the assessment year 2007-08, we have held that both the interest and Premium components are deductible and, further, the provisions of section 40(a)(ia) are not attracted. The ld. AR has pointed out that certificates u/s 195(3) have been issued to both the banks for this year as well on the same lines. In view of the foregoing, it becomes clear that the assessee is eligible for deduction of Rs. 15.26 crore. The grounds taken by the Revenue are, therefore, dismissed. As regards the assessee's claim, we find that the same has become infructuous in view of our decision in allowing such deduction in the preceding year itself. 24. Ground No.2 of the assessee's appeal is against the confirmation of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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