TMI Blog2019 (1) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... The loss in issue therefore arises from foreign currency hedging only forming part of revenue head in profit and loss account which is not disputed at Revenue’s behest. Decision in Sutlej Cotton Mills Ltd vs. CIT (1978 (9) TMI 1 - SUPREME COURT) made it clear long back that such gain / loss falls under trading head of foreign currency in question held in revenue account or a trading asset or part of circulating capital. Their lordship latter decision in CIT vs. Woodward Governor India Pvt Ltd (2009 (4) TMI 4 - SUPREME COURT) also discarded Revenue’s inconsistent stands in adopting a different approach qua the very issue in preceding and succeeding assessment years. We take into account all these facts as well as settled legal position to conclude that the CIT(A) has rightly treated assessee’s foreign currency accordingly loss to be revenue expenditure is allowable sec. 37 of the Act. Seeking to revive sec. 14A r.w.s 8D disallowance pertaining to assessee’s exempt income from dividends - Held that:- AO had invoked Rule 8D(2)(ii) & (iii) for computing proportionate interest and administrative expenditure disallowance @ 0.5% of average value of investments involving sums of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his finding under challenge. We thus decline Revenue s instant first substantive ground. 4. The Revenue s second substantive ground pleads that the CIT(A) has erred in law as well as on facts in deleting the disallowance of foreign exchange loss of ₹57,03,854/- thereby treating the same as business loss allowable u/s 37 of the Act. The assessee had debited the total sum of ₹58,10,210/- in its profit and loss account to have been arisen on hedging foreign currency non-resident loan (FCNR). This sum included losses of restatement of receivable on debtors of ₹1,06,356/-. There is further in dispute about the State Bank of India having sanctioned a term loan of ₹22.50 crores to this taxpayer for the purpose of meeting its working capital requirements. The Assessing Officer s assessment dated 28.03.2014 held the impugned sum to be representing losses incurred on foreign exchange fluctuation to principal amount and therefore, it was held capital expenditure only. 5. The CIT(A) accepts assessee s arguments against the impugned disallowance as follows:- VI. Ground 3: Expenditure on account of foreign exchange loss of ₹ 57,03,853/- S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s humbly submitted that the term loan sanctioned by the SBI was for the purpose of meeting working capital requirements and not to purchase any capital asset. The same is evident from the sanction letter dated 15-09-2008, relevant page 43 of the Paper Book. The Rupee Term Loan was converted into FCNR(B) Loan to save on the interest cost since the interest is directly linked to LIBOR. Due to a fall in the value of the Indian Rupee vis- -vis the US Dollar, it suffered foreign exchange losses on loans repayable in foreign currency. As such, the allegation of the Learned AO that the foreign exchange loss is capital in nature is baseless. The hedging loss is revenue in nature and hence deductible u/s. 37(1) of the Act. To buttress the contention of the appellant, reliance is placed on the judgment of the Apex Court in the case of Sutlej Cotton Mills Ltd vs. CIT (116 ITR 001), wherein it was held that, The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition to be changed in a subsequent year. In this regard, reliance in also placed on the judgment of the Apex Court in the case of CIT vs. Woodward Governor India Pvt Ltd (312 ITR 254) wherein it was held that, There is no dispute that in the previous years whenever the dollar rate stood reduced, the Department had taxed the gains which accrued to the assessee on the basis of accrual and it is only in the year in question when the dollar rate stood increased, resulting in loss that the Department has disallowed the deduction/debit.tis fact is important. It indicates the double standards adopted by the Department. Further reliance is placed on the recent judgment in the case of Cooper Corporation Pvt Ltd vs. DCIT (TA No.866/PN/2014) wherein the Tribunal affirmed the taxpayer s argument that the impugned fluctuation loss had direct nexus with the saving in interest costs without bringing any new capital set into existence, and the conversion of rupee term loans into foreign currency loans had served as a hedging mechanism against revenue receipts from exports, and portrayed commercial expediency. The Tribunal placed reliance in the Hon'ble Supreme Court's rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arks 1 Sanctioned amount of Rupee Term Loan 22.50 cr 2 Schedule of Repayment The Term loan is repayable in 14 quarterly instalments commencing from the quarter ending December 2009 3 Converted amount of Rupee Term Loan into FCNR(B) Rs.15 crores for one year. 4 Purpose of conversion To save on interest cost for a period of one year on the term loan by availment of FCNR loan 5 Cost element of FCNR loan LIBOR plus hedging cost The entire FCNR loan was squared off during the year by way of adjustment in Rupee term loan. The assessee has also placed reliance on the decision of the Apex Court in the case of CIT vs. Woodward Governor India Pvt Ltd (312 ITR 254) wherein it was held that There is no dispute that in the previous years whenever the dollar rate stood reduced, the Department had taxed the gains which accrued to the assessee on the basis of accrual and it is only in the year in question when the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 9. This leaves us with Revenue s third and last substantive ground seeking to revive sec. 14A r.w.s 8D disallowance of ₹31,82,084/- pertaining to assessee s exempt income from dividends amounting to ₹1,13,35,140/-. The Assessing Officer had invoked Rule 8D(2)(ii) (iii) for computing proportionate interest and administrative expenditure disallowance @ .5% of average value of investments involving sums of ₹24,16,66/- and ₹7,65,358/- as against taxpayer s suo motu disallowance of ₹1,08,285/- resulting in net disallowance of ₹21,79,166/-. The CIT(A) has directed the Assessing Officer to recompute the impugned disallowance after including exempt income yielding investments only as per this tribunal s order in REI Agro Ltd. Vs. DCIT (2013) 35 taxman.com 404/144 TD 141 (Kol) as upheld in Hon'ble jurisdictional high court s decision in ITA No.220/2013 decided on09.04.2013. We therefore find no reason to disturb the CIT(A) s direction hereinabove to the Assessing Officer for re-computation of sec. 14A r.w.s 8D disallowance in issue. 10. This Revenue s appeal is dismissed accordingly. Order pronounced in open court on 30/11/2018 - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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