TMI Blog2021 (10) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee s case are identical to the case of Sri Ramalingeswara Rice Oil Mill of this Tribunal, relied upon by the Ld.CIT(A). This Tribunal in the case of Sri Ramalingeswara Rice Oil Mill [ 2016 (10) TMI 924 - ITAT VISAKHAPATNAM] held that the losses are crystalised and the foreign exchange loss incurred by the assessee is business loss. Waiver of loan by way of One Time Settlement (OTS) - deemed income - Remission or cessation of liability under section 41(1) - HELD THAT:- In the instant case, the assessee did not get any such benefit or the cessation of liability in respect of expenditure or trading liability incurred in the earlier years. The sum of ₹ 26.03 crores was not a profit and loss item, for which the assessee claimed any deduction or loss of expenditure. Therefore, there is no case for making the addition u/s 41(1) of the Act. This Tribunal while dealing the issue in the case of Vasavi Polymers on similar facts held that the AO is not permitted to tax the principal amount as income. As per SRI VASAVI POLYMERS P. LTD. [ 2020 (6) TMI 401 - ITAT VISAKHAPATNAM] there is no dispute that the benefit by the assessee was in respect of Principal amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake three to four weeks time, hence, to safeguard the profits against the fluctuations in the foreign currency, the company enters into hedging contracts. The company used to enter into forward contracts with the bankers to hedge the currency. These forward contracts are used by exporters to get their exports receivable hedged against adverse currency movements. During the year, the assessee company claimed the loss on forward contracts at ₹ 45,69,33,047/- as revenue expenditure under the head administrative expenses . The assessee during the year mainly exported rice, and maize to foreign countries. The assessee company furnished the detailed note on losses from Forex Derivatives, copy of export packing credit loan statement by State Bank of India, Velpur. The Assessing Officer (AO) found that the maximum amount of ₹ 45.69 crores forex loss was debited to the Profit and loss account on account of Forex loss. The AO viewed that the assessee does not have the crystallized contracts on hand or obligation to export the rice. The company went on entering into the forward contracts for hedging even in the months of January 2008 to March 2008 and beyond upto 31.03.2009 thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivative contracts entered are far more than the export of agri products. Foreign exchange derivatives transactions were entered into by the assessee company directly with Banks and not through recognized stock exchanges, distinguishing them from being characterized as eligible derivative transactions, c) No actual settlement / contract booked in Profit Loss A/c., thereby resulting in reduction in Book Profit. The CBDT has instructed that such a notional loss would be contingent in nature and hence, cannot be allowed to set off against taxable income, d) The basis for disallowing forex derivatives loss incurred by the assessee is that these losses are unrealized' and present only in the books of accounts. e) The assessee has not furnished any details regarding the purpose of entering into the hedging contracts, They entered into forward contracts on anticipated turnovers. f) Though the assessee says it derivative, the assessee himself is not clear about whether it is expenditure or loss. Even if it is considered as expenditure, the derivative contracts have been entered into by violation of RBI guidelines and norms. Hence, this cannot be allowed as expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India, upon future projections of exports of agri commodities. All the export contracts of the company are in foreign currency i.e. USD. In the year 2007, the USD came under severe pressure against the Indian rupee and forex experts have anticipated the USD to touch ₹ 37 in the course of time. If this had actually happened, it would not have been viable to export rice at that time. Suspecting this eventually, the company went ahead by way of forward contract for all their possible USD receivables till March 2009. Since the USD rose substantially by that time, the company had to square off transactions at differential rate of ₹ 10 per USD due to ban imposed on rice exports by the government and incurred huge loss of ₹ 45.69 cr. Even though the government banned the rice export without giving any specific period, the company has been exporting other agricultural commodities, apart from rice. Further, the government stated that the ban on rice is for temporary period and the company expected to lift the ban within six months period. The sole basis for disallowing forex derivatives loss incurred by the assessee was losses under the reason that the losses were unrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by RBI and the losses were incurred during the course of business of the assessee. The assessee is not in the trade of foreign exchange and is engaged in the business of export of agri products and the loss was incurred in the course of business. Therefore, the facts of the assessee s case are identical to the case of Sri Ramalingeswara Rice Oil Mill of this Tribunal, relied upon by the Ld.CIT(A). This Tribunal in the case of Sri Ramalingeswara Rice Oil Mill (supra) held that the losses are crystalised and the foreign exchange loss incurred by the assessee is business loss. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal which reads as under : 16. In the present case on hand, the assessee is into the business of export of rice and other commodities. During the previous financial year, it has achieved export turnover of about ₹ 80 crores. The forward exchange contracts are entered in the previous financial year, which was not disputed by the A.O. Though there is no export turnover for the current financial year, this is because of a ban imposed by the Government of India, on export of rice and other commodities. As right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of this case, we are of the view that foreign exchange loss incurred by the assessee on account of entering into forward contracts with banks for the purpose of hedging loss in connection with its import/export business has to be regarded as business loss. The CIT(A) after considering the relevant explanations rightly deleted the additions made by the A.O. We do not see any reasons to interfere with the order of CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. 7. Against the order of this Tribunal, the department went on appeal before the Hon ble High Court of Telangana, in ITTA 395/2017 the Hon ble High court of Telangana dismissed the appeal of the revenue by an order dated 10/07/2017. Since the facts identical, respectfully following the view taken by the Tribunal in the case cited supra, we hold that the Ld.CIT(A) has rightly deleted the addition and no interference is called for. Accordingly, appeals of the revenue for the A.Y. 2009-10, 2012-13 and 2013-14 are dismissed on this issue. 8. The next issue for the A.Y. 2013-14 challenged by the assessee in cross objection is waiver of loan by way of On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The AO is permitted to tax the allowance or the deduction or expenditure incurred in the earlier assessment year and subsequently during any previous year obtained the benefit in cash or in any other manner whatsoever the amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. The same shall be deemed as income in the year in which the assessee obtained the benefit of remission or cessation of liability under section 41(1) of the Act . In the instant case, the assessee did not get any such benefit or the cessation of liability in respect of expenditure or trading liability incurred in the earlier years. The sum of ₹ 26.03 crores was not a profit and loss item, for which the assessee claimed any deduction or loss of expenditure. Therefore, there is no case for making the addition u/s 41(1) of the Act. This Tribunal while dealing the issue in the case of Vasavi Polymers on similar facts held that the AO is not permitted to tax the principal amount as income. For the sake of clarity and convenience, we extract relevant part of the order of Vasavi Polymers which reads as under : 7. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to interfere with the order of the Ld.CIT(A) and accordingly, we uphold the same. The appeal of the revenue is dismissed. 12.1 In the instant case there is no dispute that the benefit by the assessee was in respect of Principal amount but not the expenditure debited to the Profit and loss account and the facts are identical to the case supra. The department did not bring any other case to controvert the case cited above. Therefore, respectfully following the view taken by this Tribunal in the case of Vasavi Polymers, we hold that the Ld.CIT(A) erred in confirming the addition, therefore, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. The cross objection of the assessee on this ground is allowed. 13. For the A.Y. 2009-10, the assessee filed cross objections supporting the order of the Ld.CIT(A). Since the appeal of the revenue is dismissed, cross objections become infructuous, hence dismissed. 14. For the A.Y. 2012-13, the assessee filed cross objections challenging the confirmation of additions of ₹ 50,000/- in respect of donation and for deletion of addition of ₹ 10,45,500/- in respect of loading and unloading charges in G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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