TMI Blog2018 (11) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has discharged the onus cast on it to explain the incurrence of loss in question and, therefore, we deem it fit and proper to allow the stand of the assessee of treating the amount of ₹ 3,55,95,000/- as a ‘business loss’. Thus, on this aspect, assessee succeeds. Addition u/s 14A - disallowance of interest expenditure - Held that:- In any case, in the earlier assessment year of 2009-10, no interest disallowance was made by the Assessing Officer himself qua the said investment. The said assertion of the appellant is borne out of record inasmuch as in the earlier paras we have already dealt with the disallowance u/s 14A of the Act for Assessment Year 2009-10 wherein the only investment was in the shares of BSE and the Assessing Officer himself has not made any disallowance out of interest expenditure. In such a factual background, the disallowance computed by the Assessing Officer out of interest expenditure by applying Rule 8D(2)(ii) of the Rules is misplaced and is hereby directed to be deleted. So far as the disallowance out of Administrative expenses made by the Assessing Officer by applying Rule 8D(2)(iii) of the Rules is concerned, no specific arguments have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business prudence. 4. Insofar as Ground of appeal no. 1 is concerned, the learned representative for the assessee explained that the issue relates to assessability of income received by the assessee from renting of property alongwith facilities of a Business Service Centre . The claim of the assessee was that the same was assessable under the head Income from Other Sources whereas as per the income-tax authorities, such income is liable to be assessed under the head Income from House Property . It has been pointed out that an identical controversy came-up before the Tribunal in Assessment Year 2008-09 and vide its order in ITA No. 2510/Mum/2013 dated 27.05.2016, the matter was restored back to the file of the Assessing Officer for a decision afresh and in the set-aside proceedings, the Assessing Officer vide his order u/s 143(3) r.w.s. 254 of the Act dated 27.12.2017 has assessed such income under the head Income from House Property , a position which has since been accepted by the assessee. In this background, the action of the income-tax authorities in the instant year to assess the rental income under the head Income from House Property is sustained and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Joint Investments Pvt. Ltd. vs CIT, ITA No. 117 of 2015 dated 25.02.2015. For the said reason, we find no reasons to uphold the impugned disallowance which is hereby directed to be deleted. 7. The third and substantive Ground in this appeal is with regard to the action of income-tax authorities in treating the loss incurred by the assessee on premature cancellation of forward exchange contracts of ₹ 3,55,95,000/- as speculation loss . The relevant facts in this regard are that the appellant company, inter-alia, is in the business of dealing in rough and polished diamonds and its activities involve import of rough diamonds and export of polished diamonds thereof. Considering the nature of assessee s business, assessee is required to safeguard against the exchange fluctuations and, for that purpose, during the year under consideration it had entered into eight forward contracts in foreign exchange. Out of said eight contracts, six matured at their contracted dates and the other two were prematurely cancelled by the assessee. The loss incurred on such premature cancellation of forward contracts amounted to ₹ 3,55,95,000/-, which was treated by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us decisions of higher Courts, it is held by the ITAT that in the case of exporters/importers forward contracts of foreign exchange are in the nature of hedging transactions if they match with the export/import turnover. It is further held by the ITAT that (i) the loss on hedging transactions of the exporters/importers are business loss if the loss arises on the maturity of forward contracts of foreign currency (ii) when the assessee claims loss on pre-mature cancellation/termination of the forward contract, then assessee needs to answer as to why it went for premature termination for claiming the loss on such premature cancellation as business loss or damages and if the assessee does not provide specific explanation for pre-mature cancellation, then such losses will be disallowed. In the light of this recent decision of the jurisdictional ITAT, the claim of the appellant does not succeed, because in the instant case the appellant has incurred loss by premature cancellation of contracts of foreign currency which were terminated before the due date of maturity. The contracts of this category which were terminated premature are therefore, in the nature of speculation as the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a business loss and not as a speculation loss . 12. On the other hand, the ld. DR reiterated the reasoning taken by the CIT(A) to disallow the loss, which we have already noted in some detail in the earlier paras and is not being repeated for the sake of brevity. 13. We have carefully considered the rival submissions. Pertinently, the assessee is engaged in the business of import and export of diamonds and, at any given point of time, it would have outstanding on account of export receivables and import payables. It is a commonly accepted feature of assessee s business of export and import that foreign exchange forward cover is taken up with the bankers in order to hedge the future foreign exchange liabilities. In the case of assessee too, the fact-position shows that assessee had undertaken foreign exchange forward contracts on eight occasions while on six occasions, the contracts expired at their maturity period and nature of the resultant loss/profit has not been disturbed by the Assessing Officer. In fact, at page 30 of the Paper Book is placed the details of the foreign exchange loss incurred during the year of ₹ 5,00,52,780/- which, inter-alia, includes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 2008 to November, 2008, the average volume of imports per month was approximately ₹ 60 crores (approx. USD 12 million based on exchange rate prevailing at that time) and based on such volume, assessee entered into forward contracts of USD 20 million, which was approx. 1.67 months of purchase/imports. Assessee contended that post conversion to company, business fell drastically and the average imports during the period December, 2008 to March, 2009 came down to ₹ 8.16 crores, i.e. a fall of almost 86% in the volume of business. In this scenario, the forward contracts already entered into would have reflected almost 6-month purchase volumes. Assessee had also explained that post conversion into company, due to market recession and also due to the changed status, it took time for the business of the assessee to stabilise and, therefore, it affected the level of export realisations which, in turn, affected the volume of imports during the period relatable to the forward contracts in question. Once assessee understood this decline, assessee took steps to minimise the loss and the forward contracts had to be cancelled because otherwise continuation of the forward contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of forward contracts was to contain avoidable future loss on account of adverse movement in the value of foreign exchange and the circumstances under which such a decision was taken, has also been sufficiently narrated. In the absence of any controversion of the same, we find that the assessee has discharged the onus cast on it to explain the incurrence of loss in question and, therefore, we deem it fit and proper to allow the stand of the assessee of treating the amount of ₹ 3,55,95,000/- as a business loss . Thus, on this aspect, assessee succeeds. 16. In the result, appeal of the assessee for Assessment Year 2009-10 is partly allowed. 17. Insofar as appeal for Assessment Year 2010-11 is concerned, one of the issues relates to the assessability of rentals from business service centre, which is similar to that considered by us in the earlier paras by way of Ground of appeal no. 1 in relation to Assessment Year 2009-10 and, therefore, our decision in Assessment Year 2009-10 will apply mutatis mutandis in this appeal also and accordingly, this Ground for Assessment Year 2010-11 is dismissed. 18. The only other issue in this appeal is with regard to the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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