M/s Ess Ess Steel Casting & Rolling Mills, Ludhiana V. ACIT, Circle- V, Ludhiana

ITA 1217/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5140 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 09-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANKAJ BHALLA
• Keywords: Speculative transactions
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 1217/CHD/2017 ASSESSMENT YEAR: 2012-13 M/S ESS ESS STEEL CASTING & ROLLING VS. THE ACIT, CIRCLE V, MILLS PVT. LTD., LUDHIANA KANGAWAL ROAD, LUDHIANA PAN NO. AAACE7365H (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PANKAJ BHALLA, CA RESPONDENT BY : SMT. CHANDERKANTA, SR.DR DATE OF HEARING : 21.12.2017 DATE OF PRONOUNCEMENT : 19.03.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S), [HEREINAFTER REFERRED TO AS CIT(A)]-2, LUDHIANA DATED 13.6.2017 . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THAT THE LD. CIT(A)-2, LUDHIANA HAS WRONGLY PASSED THE ORDER U/S 250(6) OF THE INCOME-TAX ACT, 1961 AGAINST LAW & FACTS OF THE CASE. ITA 1217/CHD/2017- M/S ESS ESS STEEL CASTING & ROLLING MILLS PVT LTD., LUDHIANA 2 2. THAT THE LD. CIT(A)-2, LUDHIANA ERRED IN LAW & FACTS IN CONFIRMING DISALLOWANCE OF RS. 5,63,850/- U/S 43(5) OF THE INCOME-TAX ACT, 1961, WITHOUT ANY BASE & REASON THEREOF. 3. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT D URING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS. 5,63,850/- AS FOREIGN EXCHANGE LOSS. HE OBSERVED THAT THERE WAS NO SALE / PURCHASE OF AN Y ARTICLE FROM FOREIGN FIRMS / COMPANIES AND, HENCE, THERE WAS NO QUESTION OF LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. ON BEI NG ASKED TO EXPLAIN, THE ASSESSEE EXPLAINED THAT THE AFORESAID EXPENDITURE WAS IN FACT ON ACCOUNT OF INTEREST AND HEDGING CHARGES PAI D TO STATE BANK OF INDIA, LUDHIANA FOR FORWARD BOOKING OF LOAN AMOUNT OF US$ 4,20,000. THE ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED W ITH THE ABOVE EXPLANATION OF THE ASSESSEE AND HELD THAT THE FOREI GN CURRENCY TRANSACTIONS DID NOT RELATE TO THE BUSINESS OF THE ASSESSEE. THAT THE ASSESSEE HAD NOT BEEN ABLE TO PROVE THAT THE HEDGIN G WAS AGAINST CERTAIN BILLS OF PURCHASE AND SALES. HE ACCORDINGLY TREATED THE AFORESAID TRANSACTIONS OF HEDGING AS SPECULATIVE TR ANSACTIONS AND DISALLOWED THE AMOUNT OF RS. 5,63,850/- CLAIMED BY THE ASSESSEE AS BUSINESS LOSS / EXPENDITURE. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). HOWEVE R, THE LD. ITA 1217/CHD/2017- M/S ESS ESS STEEL CASTING & ROLLING MILLS PVT LTD., LUDHIANA 3 CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSIN G OFFICER ON THE SAME FOOTING. 5. BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A) , THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LD. COUNSEL FO R THE ASSESSEE HAS EXPLAINED BEFORE US THAT THE ABOVE SAID EXPENDI TURE / LOSS WAS NOT IN RELATION TO ANY SALE / PURCHASE OR IMPORT / EXPO RT TRANSACTIONS. HE HAS SUBMITTED THAT THE LOWER AUTHORITIES HAVE MISDI RECTED THEMSELVES IN THIS RESPECT. HE HAS FURTHER EXPLAINED THAT, IN FACT, THE ASSESSEE HAD TAKEN LOAN IN FOREIGN CURRENCY. THE AFORESAID L OAN WAS TAKEN TAKING INTO CONSIDERATION THE BUSINESS INTEREST OF THE ASSESSEE. THE INTEREST ON LOAN IN FOREIGN CURRENCY WAS PAYABLE AT LOW RATE AS COMPARED TO THE LOAN IN INDIAN CURRENCY. THE ASSES SEE HAD WISELY CALCULATED THE FUTURE LIABILITY ON THE LOAN AND DEE MED IT FIT TO TAKE THE LOAN TERMED AS FCNR(B)DL LOAN; WHICH WAS A DEE MED LOAN SANCTION FOR MEETING THE WORKING CAPITAL REQUIREMEN T OF THE EXISTING BORROWERS OF THE BANK. THE MAJOR ADVANTAGE TO THA T LOAN WAS THAT CORPORATES GOT THIS LOAN AT A CHEAPER RATE. WHILE T AKING THE AFORESAID LOAN, THE ASSESSEE HAD ALSO TAKEN INTO CONSIDERATIO N, THE LIKELY LOSS WHICH SHOULD HAVE TO BE BORNE BY THE ASSESSEE ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATION. THE ASSESSEE, THEREFORE, HEDG ED THE IMPENDING LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WIT H THE BANK. THE LIABILITY AGAINST THE LOAN WAS DULY PRESENTED IN TH E BALANCE SHEET. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER INVITED OU R ATTENTION TO THE CERTIFICATE ISSUED BY THE BANK WHEREIN THE BANK HAS CONFIRMED THAT ITA 1217/CHD/2017- M/S ESS ESS STEEL CASTING & ROLLING MILLS PVT LTD., LUDHIANA 4 THE ASSESSEE HAD AVAILED FOREIGN CURRENCY OF US$ 4, 20,000 LOAN FOR WORKING CAPITAL LIMITS. FURTHER, TO PREVENT ADVERSE EXCHANGE RATE FLUCTUATION, THE SAME HAD BEEN FULLY HEDGED AND THE DIFFERENCE IN BUYING AND SELLING RATE OF US$ AMOUNTING TO RS. 5,6 3,850/- WAS CHARGED. FURTHER, AN INTEREST @ 6.74 PER ANNUM WAS ALSO CHARGED. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS EXPLAINED T HAT DESPITE THE PAYMENT OF HEDGING CHARGES AS WELL AS INTEREST, THE ASSESSEE HAS SAVED SUFFICIENT AMOUNT ON ACCOUNT OF INTEREST EXPE NDITURE. IF THE ASSESSEE WOULD HAVE AVAILED THE LOAN INTO INDIAN C URRENCY, THE ASSESSEE WOULD HAVE BEEN ENDING UP PAYING A MUCH H IGHER AMOUNT THAN THAT HAS BEEN PAID ON ACCOUNT OF INTEREST AND HEDGING CHARGES ON THE FOREIGN CURRENCY LOAN. THE LD. DR COULD NOT RE BUT THE ABOVE SUBMISSIONS OF THE ASSESSEE FROM THE RECORD. 7. WE ARE IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THAT THE AFORESAID LOAN TRANSACTIONS CANNOT BE SAID TO B E A SPECULATIVE TRANSACTIONS. THE ASSESSEE HAD ACTUALLY RECEIVED TH E AMOUNT AND EVEN THE LOAN AMOUNT WAS ALSO RETURNED BY ACTUAL DELIVER Y OF THE PAYMENT. THE INTEREST RATE AND THE HEDGING CHARGES WERE PRE- DETERMINED AND THE ASSESSEE HAD TAKEN A WISE BUSINESS DECISION OF SAVING THE INTEREST EXPENDITURE ON THE WORKING CAPITAL LOAN. IN VIEW OF THIS, THE ADDITIONS MADE BY THE LOWER AUTHORITIES ON THIS ISS UE ARE NOT SUSTAINABLE IN THE EYES OF LAW. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE CIT(A). THE ADDITIONS MADE ON THIS IS SUE ARE DIRECTED TO ITA 1217/CHD/2017- M/S ESS ESS STEEL CASTING & ROLLING MILLS PVT LTD., LUDHIANA 5 BE DELETED. THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.03.2018. SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19.03.2018 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR