TMI Blog2021 (4) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... DHAVI DEVI, J.M. Both are cross appeals for the A.Y 2012-13 against the order of the CIT (A)-7, Hyderabad, dated 1.3.2017. 2. Brief facts of the case are that the assessee company which is engaged in rendering of ITeS and BPO services to its AE s, filed its return of income on 28.11.2012 declaring total income of ₹ 458,11,74,170/- under normal provisions of I.T. Act and ₹ 425,46,44,130/- u/s 115JB of the Act. During the assessment proceedings u/s 143(3) of the Act, pursuant to selection of the assessee s return of income for scrutiny under CASS, the Assessing Officer required the assessee to furnish certain details. The details were submitted by the assessee. 3. During the course of assessment proceedings, from the P L A/c of the assessee, the Assessing Officer observed that the assessee has credited ₹ 7,01,48,671/- towards forex gain under the head other income and the assessee had shown ₹ 49,11,07,448/- towards loss on Mark to Market on foreign exchange forwards . The Assessing Officer also observed that the assessee has debited/reduced ₹ 49,11,07,448/- towards unrealized hedging loss to arrive at the net Forex gain of ₹ 7,01,48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the Revenue s appeal is liable to be dismissed. Since the issue is covered by the judgement of the Hon'ble Karnataka High Court in the case of Biocon Ltd, dated 11.11.2020 in ITA 653 of 2013, the Revenue s appeal is dismissed. 6. The following grounds are raised by the assessee in its appeal: Based on the facts and circumstances of the case and in law, the learned Assessing Officer ( AO ) grossly erred in: 1. a) Disallowing the unrealized hedging loss on forward contracts of ₹ 49,11,07,448/-. b) Without prejudice to above, following an inconsistent approach by not excluding the unrealized forex gain of ₹ 33,35,31,167 from the taxable income; 2. Non consideration of TDS of ₹ 8,25,60,213 relating to HSBC Operations and Processing Enterprise (India) Private Limited which was merged with HDPI pursuant to the order of Hon'ble Mumbai High Court; The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal . 7. As regards Ground No.1(a), the learned Counsel for the assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he double standards adopted by the Department. 11. The dispute in this batch of civil appeals centers around the year(s) in which deduction would be admissible for the increased liability under Section 37(1). 12. We quote hereinbelow Section 28(i), Section 29 Section 37(1) and Section 145 of the 1961 Act, which read as follows: Profits and gains of business or profession: Section 28 : The following income shall be chargeable to income-tax under the head Profits and gains of business or profession , - (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. Income from profits and gains of business or profession, how computed: Section 29: The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D. General: Section 37 : (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as merely a contingent/notional liability which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression expenditure incurred while dealing with the question as to whether there was a distinction between the actual liability in presenti and a liability de futuro. The word expenditure is not defined in the 1961 Act. The word expenditure is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head profits and gains of business . In Sections 30 to 36, the expressions expenses incurred as well as allowances and depreciation has also been used. For example, depreciation and allowances are dealt with in Section 32. Therefore, Parliament has used the expression any expenditure in Section 37 to cover both. Therefore, the expression expenditure as used in Section 37 may, in the circumstances of a particular case, cover an amount which is really a loss even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. But the ordinary principle of commercial accounting requires that in the P L account the value of the stock-in- trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year needs to be computed. This is one more reason for reading Section 37(1) with Section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion cess and secondary and higher secondary education cess paid under section 37(1) of the Income-tax Act, 1961 ('Act') 3. The Appellant prays that' the education cess and higher secondary education cess on income tax paid for the year under consideration ought to be allowed as a deduction under Section 3 7( 1) of the Act while computing the total income. Restricting the rate of Dividend Distribution Tax ('DDT') paid on dividend distributed to the Nonresident shareholders as per the Applicable Double taxation avoidance agreement ('DTAA') 4. The Appellant prays that the DOT paid under section 115-0 (@ 16.223%) of the Act on dividends declared and paid by the Appellant to its non-resident shareholders HSBC Holdings BY Netherlands, UK (a tax resident of United Kingdom), HSBC Finance, Netherlands (a tax resident of United Kingdom) and HSBC Group Nominees UK Limited (a tax resident of United Kingdom), is in excess of the rate provided under Article 11 under the India - United Kingdom DTAA (i.e. 15%), and thus the tax paid over and above the rate provided in the DT AA is eligible for refund. The Appellant craves leave to add, alter, de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 3 7( 1) of the Act in respect of education cess paid on income-tax. 2, Additional ground to restrict and refund the Dividend Distribution tax ('DDT') on dividend distributed/ paid to non-resident shareholders in terms of applicable Double Taxation Avoidance Agreement ('DTAA') With regard to additional ground relating to claim of refund on account of excess of DOT paid as applicable as per Treaties on dividend paid to non-resident, the Appellant could not claim the same in the return of income filed on 28 November 2012 or during the course of assessment proceedings concluded on 29 February 2016 or during proceedings before Ld. CIT(A) concluded on 1 March 2017. Subsequently, the Hon'ble Supreme Court in the case of Union of India vs. Tata Tea Co. Ltd. (85 taxmann.com 346) vide order dated 20 September 2017 and Godrej Boyce Manufacturing Company Ltd vs. DCIT (81 axmann.com 111), has held that the dividend distribution tax under section I 15-0 is a tax on dividend income paid by the company. Further, the Hon'ble Mumbai Tribunal in case SGS India Private Ltd (ITA No 2467/Mum.l2014) dated 3 July 2017 has admitted the additional ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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