TMI Blog2021 (10) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal Commissioner of Income-tax, Bangalore V/s. Softbrands India [P] Ltd. [ 2018 (6) TMI 1327 - KARNATAKA HIGH COURT ] as held this Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act. Allowability of market loss - Whether Tribunal erroneously held the market loss is neither speculative nor contingent in nature when the said market loss is not allowable as per CBDT Instruction No.3/2010 dated 20.03.2010 as actual losses are allowable as non-speculative only if the transactions qualify as eligible derivative transactions under clause [d] of proviso to section 43 [5] ? - HELD THAT:- This issue is covered by the Co-ordinate Bench of this Court in the case of M/s. Quest Global Engineering Services Pvt. Ltd. [ 2021 (3) TMI 434 - KARNATAKA HIGH COURT ] as held loss sustained by the assessee due to fluctuation in foreign exchange while implementing export contract is incidental to assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. Decided in favour of the assessee. - I.T.A.No.492/2016 - - - Dated:- 1-10-2021 - Hon ble Mrs.Justice S.Sujatha And Hon ble Mr. Justice Ravi V. Hosmani For the Appellants : Sri Jeevan J. Neeralgi, Adv. A/W Sri T.N.C.Sridhar, Adv. For Sri E.I.Sanmathi, Adv.) For the Respondent : Sri Chythanya K.K., Adv. JUDGMENT This appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 [ Act for short] challenging the order of the Income Tax Appellate Tribunal, B Bench, Bangalore ['Tribunal' for short] dated 16.03.2016 passed in ITA No.223/Bang/2014 relating to the assessment year 2009-10. 2. The appeal was admitted by this Court to consider the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the assessing authority to include the foreign exchange fluctuation loss or gain as part of the operating income/loss without ascertaining the nexus with the business activity and even when the same cannot be deemed as operating in nature, since they are not critical to operationally activities of the business conducted by the assessee? 2. Whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le SSJ was the member, considering the identical question, placing reliance on the Principal Commissioner of Income Tax and Another V/s. M/s. Softbrands India Pvt. Ltd., [ITA Nos.536/2015 C/w. 537/2015 dated 25.06.2018] has held that no substantial question of law arises for consideration. Accordingly, appeal filed by the Revenue has been dismissed. In view of the said judgment, substantial question of law No.1 is answered in favour of the assessee and against the Revenue. Re. substantial question of law No.2: 4. This issue is covered by the decision of this Court in Principal Commissioner of Income-tax, Bangalore V/s. Softbrands India [P] Ltd . The relevant paragraphs are quoted herein: 44. This Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act. This Court is only concerned with the question of law and that too a substantial one, which has a well defined connotations as ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs. Accordingly, this substantial question of law is answered in favour of the assessee and against the Revenue. Re. substantial question of law No.3: 5. The assessee had entered into forward contract in forex derivatives for contracts worth US Dollars of 7,300,000 [equivalent to INR 363,846,250] outstanding on 31st March 2009. the Assessing Officer has disallowed the forward contract exchange loss by relying on Instruction No.3 of 2010 issued by the CBDT stating that the disallowance of forex derivative loss is mandatory except in a case where the derivative transaction is protected under clause[d] to Section 43[5]. the assessee has contended that the losses on account of forward contract exchange are similar to mark to market losses on option contracts and hence the same are deductible. The Tribunal has held that unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) A binding obligation accrued against the assessee when it entered into foreign exchange forward contracts; (ii) The forward contracts are in respect of consideration for export proceeds, which are revenue items; (iii) The liability is determinable with reasonable certainty when an obligation is pending on the balance sheet date and such a liability cannot be said to be a contingent liability. (iv) The accounting treatment is as per Accounting Standards and the ICAI Guidelines. (v) The principles enunciated by the Hon'ble Apex Court in the case of Woodward Governor India Pvt. Ltd. (supra) are applicable to the facts of the case on hand. 13. .It is not disputed by the revenue that forward contracts were entered to protect the assessee from foreign exchange fluctuation in respect of consideration for export proceeds. The tribunal, therefore, rightly relied on the decision in WOODWARD GOVERNOR INDIA supra while allowing the market to market loss as relating to forward exchange contract as deduction. It is pertinent to mention here that Instruction No.3 of 2010 was issued on 23.03.2010 and same is not applicable for the Assessment Years 2008-09 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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