TMI Blog2016 (12) TMI 1815X X X X Extracts X X X X X X X X Extracts X X X X ..... e in view of the decision of the Hon ble Jurisdictional High Court in the case of CIT v. First Leasing Co. of India Ltd. [ 2007 (7) TMI 222 - MADRAS HIGH COURT] . Further, in the case of CIT v. Secure Meters Ltd. [ 2008 (11) TMI 66 - HIGH COURT RAJASTHAN] has also held that the debentures when issued were a loan and, therefore, whether they were convertible or non-convertible did not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure. In this case, it is not clear from the orders of authorities below for which purpose; the assessee has entered into currency swap forex derivatives. If the assessee has entered into forex derivatives contract for the purpose of issue of debentures/equity shares, then the loss claimed by it would be admissible as revenue expenditure and otherwise not. The Assessing Officer is directed to verify the same and decide in accordance with law. Thus, the ground raised by the assessee is allowed for statistical purposes. Interest receipts as income of the assessee - assessee credited the interest receipts to Capital Work in Progress - HELD THAT:- Under the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2012 and 04.06.20914 for the assessment years 2008-09 and 2010-11 respectively. The assessee is also in appeal for the assessment year 2008-09. 2. The appeal of the Revenue in I.T.A. No. 851/Mds/2012 is found to have been filed late by nine days in filing the appeal. The Assessing Officer has filed an affidavit for condonation of delay by stating that the records of the case were unable to trace out in time inadvertently got mixed up with other files and thereby there was short delay of nine days in filing the appeal before the Tribunal. By referring to the affidavit, the ld. DR has requested for condoning the delay and to admit the appeal for hearing. The ld. Counsel for the assessee did not seriously object to the submissions of the ld. DR. Accordingly, we condone the delay of three days in filing the appeal and admit the appeal for hearing. I.T.A. Nos. 851/Mds/2012 and 2235/Mds/2014 3. At the time of hearing the ld. Counsel for the assessee has submitted that the tax effect in both the appeals filed by the Revenue is less than the monetary limit of ₹.10,00,000/- fixed by the CBDT to file an appeal by the Revenue before the Tribunal as per the CBDT Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Switzerland, the assessee has entered into a currency swap between Indian rupees and Swiss Francs. He argued that the derivatives are excluded under the proviso (d) to section 43(5) of the Act. Therefore, the ld. Counsel for the assessee has pleaded that the loss incurred by the assessee in the above process should be allowed as revenue expenditure. 4.4 On the other hand, the ld. DR strongly supported the orders of authorities below and submitted that the assessee has not satisfied the condition laid down in the provisos (a) and (d) to section 43(5) of the Act, the loss suffered by the assessee company on account of forward contracts is speculative in nature and can be adjusted only with speculation gain and not against business income. Further, he relied on the decision in the case of CIT vs. K.Mohan Co(Exports) (P) Ltd.(2010) 39 DTR 97. 4.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. It is an undisputed fact that the assessee company has entered into a currency swap between Indian rupees and Swiss Francs. The assessee company is engaged in the business of manufacture of white sugar. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l amount of loan of INR 10 crores is enclosed. The difference in amount arising in the course of repayment of CHF 28,30,705/- to UTI Bank against the earlier receipt of INR 10,00,00,000/- from them in April, 2007, of ₹.1.95 crores is debited to the Profit Loss Account for the year as explained in Note No. 27 to the accounts following the prescribed accounting standards and as a result of fluctuation in forex rates. The amount actually been paid on 17.04.2008. Proof of payment of ₹.1.95 crores to Axis Bank [UTI working capital account extract for the period] is enclosed. The claim for deduction as admissible is on this ground as a business expenditure incurred, the contract being entered into, to reduce cost of borrowing in INR, for business purposes and it was in force for the whole of the year from 05.04.2007. In the case of the assessee, the Assessing Officer has observed that the principal swap was entered into with Axis Bank [when it was formerly known as UTI Bank] in April, 2007, for a period of one year and it was settled on the due date 17.04.2008. Though the assessee had no business exposure for trading in sugar either as an importer or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, the Assessing Officer held that it is a clear case of speculation business, which cannot be allowed to be set off with the normal business income and brought to tax. 4.11 Regarding applicability of provisions of section 43(5) of the Act, the relevant provisions are reproduced as under: Section 43 (5): speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) The contract was not in respect of any goods or raw-materials. (ii) The assessee was not a dealer in stocks or shares. (iii) The assessee was not a member of Stock Exchange. (iv) The transaction was not carried out in the recognized Stock Exchange. (v) The assessee is not trading in commodity derivatives. In the instant case, the derivatives do not pertain to commodity/stock/shares. It pertains to foreign exchange and it is well settled that a foreign exchange is commodity only in the hands of banks and authorized foreign exchange dealers as only banks and foreign exchange dealers are authorized to trade in foreign exchange and not others as per RBI guidelines in view of the decision of the Delhi Benches of the ITAT in the case of Munjal Showa Ltd. v. DCIT 94 TTJ 227. 4.13 In this case, the ld. CIT(A) has observed that the assessee has taken term loan from erstwhile UTI Bank, now Axis Bank of ₹.10 crores vide sanction letter dated 16.08.2006. The assessee has entered into with Axis Bank under currency option transactions on 11th April, 2007 and the delivery date was 17th April, 2008. Before the Assessing Officer, by filing proof of payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred on issue of debentures/equity shares, whether convertible or non-convertible is an allowable deduction as revenue expenditure in view of the decision of the Hon ble Jurisdictional High Court in the case of CIT v. First Leasing Co. of India Ltd. 304 ITR 67. Further, in the case of CIT v. Secure Meters Ltd. 321 ITR 611, the Hon ble Rajasthan High Court has also held that the debentures when issued were a loan and, therefore, whether they were convertible or non-convertible did not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure. 4.15 However, in this case, it is not clear from the orders of authorities below for which purpose; the assessee has entered into currency swap forex derivatives. If the assessee has entered into forex derivatives contract for the purpose of issue of debentures/equity shares, then the loss claimed by it would be admissible as revenue expenditure and otherwise not. The Assessing Officer is directed to verify the same and decide in accordance with law. Thus, the ground raised by the assessee is allowed for statistical purposes. 5. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (being interest realized on short term deposit with Banks outside India made from ECB funds) (Total interest receipts credited to capital work in progress is ₹ 1,95,02,045/- (refer Note18). The balance ₹ 7,59,148/- represents interest realized on short term deposits made with State Bank of India, Coimbatore, from out of unutilized funds from the ECB loan). After considering the submissions of the assessee and in view of the section 2(24) of the Act and as per the decision of section 2(28A) of the Act, the word 'interest' means interest payable in any manner in respect of any moneys borrowed or debit incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized and therefore, the Assessing Officer has treated the interest of ₹.1,95,02,045/- as income of the assessee and brought to tax. 5.2 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has observed as under: 7.3 I have gone t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed by December 2008. Commercial production commenced from January 2009. The aggregate project cost for the same was ₹.230 crores to partly finance which the ECB loan of ₹.125 crores (YEN loan equivalent to US $ 30 million) was taken from Banks and financial institutions outside India, viz. Bank of India (Tokyo Branch), Barclays Bank plc (Hong Kong Branch), State Bank of India (Osaka Branch), UCO Bank (Hong Kong Branch), and which loan was arranged by Barclays Bank Plc. The project cost incurred upto 31.3.2008 was shown as Capital WIP in fixed asset schedule. Under the terms of loan, the funds availed/drawn and brought into India had to be utilized immediately for the units and were not available for other purposes. Accordingly, the loan funds were withdrawn in tranches. The unutilized amounts were held by the lending bankers as short term deposits on which interest has been received by the assessee company for the period it was so held. On the other hand for the loan amounts so involved, the assessee was charged interest by the lending Banks. Interest on ECB loan paid during the year was ₹.10,01,57,046/- which has been capitalized and included in the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground before the Tribunal, and if such request was made, the Tribunal had to consider it on the merits. 5.6 Hence, respectfully following the above decision of the Hon ble Jurisdictional High Court (supra), we confirm the order of the ld. CIT(A) on this issue and dismiss the ground raised by the assessee. 6. During the course of hearing, the ld. Counsel for the assessee has prayed for admission of additional ground of appeal raised for the first time before the Tribunal with regard to the amount realized by transferring Carbon Credits Certified Emission Reductions [CER], which is not liable to be included in the total income of the assessee was inadvertently credited in the profit and loss account as income in Co-Generation Division and added to the total income of the assessee. By relying on the decision of the Hyderabad Benches of the Tribunal in the case of My Home Power Ltd. v. DCIT in ITA No. 1114/Hyd/2009 vide order dated 02.11.2012, the ld. Counsel for the assessee has pleaded that amount realized of ₹.7,19,14,997/- by transferring carbon credits is to be considered as a capital receipt and excluded from the total income computed. The ld. DR did not serio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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