Indian Stitches Pvt Ltd., Tiruppur V. ACIT, Tiruppur

ITA 1222/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4176 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TRIPURA SUNDARI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Speculation loss
• Section: 43(5)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.1222/MDS/2015 & '& / ASSESSMENT YEAR : 2009-10 M/S INDIAN STITCHES PVT. LTD., 24/64, ASHER NAGAR, 60 FEET ROAD, GANDHI ROAD, TIRUPUR 641 603. PAN : AABCI 1268 C V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SH. T. BANUSEKAR, CA +,)* - . / RESPONDENT BY : SMT. TRIPURASUNDARI, JCIT / - 0' / DATE OF HEARING : 24.05.2017 12' - 0' / DATE OF PRONOUNCEMENT : 29.06.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBAT ORE, DATED 25.02.2015 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ENTERED INTO CURRENCY S WAP TRANSACTION AGAINST THE TERM LOAN EXPOSURES AND OTHER FOREIGN E XCHANGE 2 I.T.A. NO.1222/MDS/15 EXPOSURES WITH ABN AMRO BANK. ACCORDING TO THE LD. REPRESENTATIVE, ABN AMRO BANK WAS PROVIDING TERM LO AN AND WORKING CAPITAL LOAN FACILITIES. ACCORDING TO THE LD. REPRESENTATIVE, THERE WAS OUTSTANDING TERM LOAN OF ` 10 CRORES. THE ASSESSEE INTENDED TO DIVERSIFY THE LIABILITY IN INDIAN RUPEE AND REDUCE THE COST OF INTEREST BY ENTERING INTO SWAP TRANSACTION. IN OTHER WORDS, IN ORDER TO REDUCE THE COST OF INTEREST OR REDUCE THE LOSS THAT MAY OCCUR, THE ASSESSEE HAS ENTERED INTO FOREIGN CURREN CY TRANSACTION WITH ABN AMRO BANK. ACCORDING TO THE LD. REPRESENT ATIVE, IT IS A COMMON PRACTICE IN BUSINESS TO CONVERT INDIAN RUPEE LOAN INTO FOREIGN CURRENCY LOAN OR TO TAKE A FOREIGN CURRENCY LOAN INSTEAD OF INDIAN RUPEE LOAN IN ORDER TO REDUCE THE COST OF IN TEREST BY TAKING INTO ADVANTAGE OF FOREIGN CURRENCY FLUCTUATION IN F OREIGN EXCHANGE RATE. IN FACT, RESERVE BANK OF INDIA PERMITTED THI S KIND OF TRANSACTION BY CONVERTING INDIAN RUPEE LOAN INTO FO REIGN CURRENCY LOAN. 3. ACCORDING TO THE LD. REPRESENTATIVE, FOREIGN CUR RENCY IS NOT A COMMODITY. REFERRING TO SECTION 43(5) OF THE INCOM E-TAX ACT, 1961 (IN SHORT 'THE ACT'), A TRANSACTION FOR PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, PERIODICALL Y OR ULTIMATELY 3 I.T.A. NO.1222/MDS/15 SETTLED OTHERWISE THAN BY WAY OF ACTUAL DELIVERY, H AS TO BE CONSIDERED AS SPECULATIVE TRANSACTION SUBJECT TO EX CEPTIONS PROVIDED THEREIN. FOREIGN EXCHANGE CURRENCY IS NOT A COMMODITY. THEREFORE, PROVISIONS OF SECTION 43(5) OF THE ACT A RE NOT APPLICABLE AT ALL. THE LD. REPRESENTATIVE PLACED HIS RELIANCE ON THE DECISION OF DELHI BENCH OF THIS TRIBUNAL IN MUNJAL SHOWA LTD. V . DCIT (2005) 94 TTJ 227 AND SUBMITTED THAT ON IDENTICAL CIRCUMSTANC ES, THE DELHI BENCH OF THIS TRIBUNAL FOUND THAT FOREIGN CURRENCY OR ANY CURRENCY IS NEITHER COMMODITY NOR SHARE. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE TRANSACTION ENTERED INTO BY THE ASSESSEE IN FOREIGN CURRENCY CANNOT BE CONSTRUED AS SPECULATIVE TRANSACTION AT ALL. THE LD. REPRESENTATIVE FURTHER POINTED OUT TH AT IN ORDER TO SAFEGUARD THEIR TRANSACTION, THE ASSESSEE ENTERED I NTO FOREIGN CURRENCY CONTRACT, THEREFORE, THE SAME CANNOT BE CO NSTRUED AS SPECULATIVE TRANSACTION. THE LD. REPRESENTATIVE HA S ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN RA JSHREE SUGARS & CHEMICALS LIMITED V. AXIS BANK LIMITED IN O.A. NO S.251 AND 252 OF 2008 IN C.S.NO.240 OF 2008, A COPY OF WHICH IS A VAILABLE AT PAGE 81 OF THE PAPER-BOOK. 4 I.T.A. NO.1222/MDS/15 4. REFERRING TO THE ORDER OF THIS TRIBUNAL IN S.P. APPARELS LTD. V. DCIT IN I.T.A. NO.1327/MDS/2014 DATED 17.04.2015, A COPY OF WHICH IS AVAILABLE AT PAGE 170 OF THE PAPER-BOOK, T HE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ON I DENTICAL SET OF FACTS, THIS TRIBUNAL FOUND THAT LOSS INCURRED BY TH E ASSESSEE ON DERIVATIVE TRANSACTION SHALL BE ALLOWED TO BE SET O FF AGAINST THE BUSINESS INCOME OF THE ASSESSEE BY TREATING THE SAM E AS BUSINESS LOSS. ACCORDING TO THE LD. REPRESENTATIVE, IN THE CASE OF S.P. APPARELS LTD. (SUPRA), AN IDENTICAL ISSUE WAS THE S UBJECT MATTER OF DISCUSSION BEFORE THIS TRIBUNAL. THE LD. REPRESENT ATIVE HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF THIS BENCH O F THE TRIBUNAL IN DCIT V. A.V. THOMAS LEATHERS & ALLIED PRODUCTS LTD. IN I.T.A. NO.462/MDS/2014 DATED 08.05.2015, A COPY OF WHICH I S AVAILABLE AT PAGE 190 OF THE PAPER-BOOK. THE LD. REPRESENTATIVE HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF BOMBAY HIGH COURT IN CIT V. INDIAN COMMERCIAL COMPANY PVT. LTD. (1977) 106 ITR 465, A COPY OF WHICH IS AVAILABLE AT PAGE 252 OF THE PAPER-BOOK AND SUBMITTED THAT FOR THE PURPOSE OF CONSIDERING THE LOSS AS SPE CULATIVE LOSS, THERE SHOULD BE A SYSTEMATIC OR ORGANIZED ACTIVITY ON THE PART OF THE ASSESSEE. ACCORDING TO THE LD. REPRESENTATIVE, THE RE IS NO SYSTEMATIC OR ORGANIZED ACTIVITY ON THE PART OF THE ASSESSEE. 5 I.T.A. NO.1222/MDS/15 THEREFORE, THE TRANSACTION CANNOT AT ALL BE CONSTRU ED AS SPECULATIVE TRANSACTION AS HELD BY BOMBAY HIGH COURT. THE LD. REPRESENTATIVE HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF AND HRA PRADESH HIGH COURT IN ACIT V. MAGGAJI SHERMAL (1978) 114 IT R 862. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT RECENTLY THIS TRIBUNAL IN S.P. APPARELS LTD. IN I.T.A. NO.1510/MDS/2015 HAS T AKEN AN IDENTICAL VIEW. 5. ON THE CONTRARY, SMT. TRIPURASUNDARI, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION, THE ASSESSEE HAS EXPOSED ITSELF TO UNLIMITED RISKS WHICH WERE UNFOLDED BY SU BSEQUENT EVENTS. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAD NO EXP ORT OR IMPORT OBLIGATIONS. THE TRANSACTIONS WERE MOSTLY IN THE R EALM OF SPECULATION TO EARN PROFIT BY TAKING ADVANTAGE OF F LUCTUATION IN FOREIGN CURRENCY. THE DERIVATIVE NOTE, ACCORDING T O THE LD. D.R., IS AN OPTION. THE CONTRACT WAS FINALLY SETTLED NOT BY THE DELIVERY OF CHF BUT BY PAYING THE LOSS IN INDIAN RUPEE. REFERR ING TO SECTION 43(5) OF THE ACT, THE LD. D.R. SUBMITTED THAT THE T RANSACTION ENTERED INTO BY THE ASSESSEE WITH ABN AMRO BANK IS A SPECUL ATIVE TRANSACTION. ACCORDING TO THE LD. D.R., PURCHASE A ND SALE OF FOREIGN 6 I.T.A. NO.1222/MDS/15 EXCHANGE DERIVATIVE WAS ULTIMATELY SETTLED OTHERWIS E THAN ACTUAL DELIVERY. EXCEPTIONS REFERRED FROM (A) TO (D) DOES NOT APPLY TO THE ASSESSEES CASE. THE CROSS CURRENCY SWAP DONE BY T HE ASSESSEE UNDERSTOOD IN THE MARKET CIRCLE IS SPECULATIVE TRAN SACTION, THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT IN ORDER TO GUARD FROM LOSS THAT MAY O CCUR, THE ASSESSEE ENTERED INTO A FOREIGN CURRENCY TRANSACTIO N BY CONVERTING INDIAN RUPEE LOAN INTO FOREIGN CURRENCY LOAN. IN T HAT PROCESS, THE ASSESSEE HAS SUFFERED A LOSS OF ` 1,50,60,695/-. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE LOSS SUFFER ED BY THE ASSESSEE IN FOREIGN EXCHANGE FLUCTUATION IS A BUSIN ESS LOSS OR SPECULATIVE LOSS. THE REVENUE CLAIMS THAT IT IS A SPECULATIVE LOSS. THIS TRIBUNAL IN THE CASE OF S.P. APPARELS LTD. (SU PRA) EXAMINED THIS ISSUE ELABORATELY AND AFTER REFERRING TO THE J UDGMENT OF BOMBAY HIGH COURT IN CIT V. BADRIDAS GAURIDU (P) LTD. (200 3) 261 ITR 256, FOUND THAT THE LOSS SUFFERED BY THE ASSESSEE IN FOR EIGN EXCHANGE FLUCTUATION IS A BUSINESS LOSS. THIS ORDER OF THE TRIBUNAL IN S.P. 7 I.T.A. NO.1222/MDS/15 APPARELS LTD. WAS SUBSEQUENTLY FOLLOWED IN A.V. THO MAS LEATHERS & ALLIED PRODUCTS LTD. 9SUPRA). IN THE CASE OF S.P . APPARELS LTD. ALSO FOR THE ASSESSMENT YEAR 2009-10, VEY SAME ORDE R WAS FOLLOWED IN I.T.A. NO.1510/MDS/2015. IN VIEW OF THE ABOVE, WHEN THE ASSESSEE ENTERING INTO FOREIGN CURRENCY TRANSACTION TO GUARD ITSELF FROM THE LOSS THAT MAY BE CAUSED TO THE ASSESSEE DU E TO FOREIGN EXCHANGE FLUCTUATION, CANNOT BE CONSIDERED TO BE SP ECULATIVE LOSS. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL AND JUD GMENT OF BOMBAY HIGH COURT, WE ARE UNABLE TO UPHOLD THE ORDER OF TH E LOWER AUTHORITY. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF ` 1,50,60,695/- IS DELETED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 29 TH JUNE, 2017 AT CHENNAI. SD/- SD/- ( ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 29 TH JUNE, 2017. KRI. 8 I.T.A. NO.1222/MDS/15 - +056 76'0 /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. / 80 () /CIT(A)-3, COIMBATORE 4. PRINCIPAL CIT-3, COIMBATORE 5. 69 +0 /DR 6. :& ; /GF.