Appeal details
Counselvise Citation
[2021] 108 COUNSELVISE.COM (IT) 6348 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 8 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-04-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB-A
Next Hearing Date
06-04-2021
Assessment Year
2012-2013
Appeal Filed On
18-07-2017
Judgement Text
ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO.1249/HYD/2017 ASSESSMENT YEAR: 2012-13 HSBC ELECTRONIC DATA PROCESSING INDIA P LTD HYDERABAD PAN:AAACH8235M VS. ACIT, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.1381/HYD/2017 ASSESSMENT YEAR: 2012-13 DY. CIT, CIRCLE 2(2) HYDERABAD VS. HSBC ELECTRONIC DATA PROCESSING INDIA P LTD HYDERABAD PAN:AAACH8235M (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI RAJAN VORA, REVENUE BY : SRI RAJENDRA KUMAR,DR DATE OF HEARING: 06/04/2021 DATE OF PRONOUNCEMENT: 16/04/2021 ORDER PER SMT. P. MADHAVI 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 CO MPANY WHICH IS ENGAGED IN RENDERING OF ITES AND BPO SERVI CES TO ITS AES, FILED ITS RETURN OF INCOME ON 28.11.2012 DECL ARING TOTAL INCOME OF RS.458,11,74,170/- UNDER NORMAL PROVISION S OF I.T. ACT ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 2 OF 12 AND RS.425,46,44,130/- U/S 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, PURSU ANT TO SELECTION OF THE ASSESSEES RETURN OF INCOME FOR SC RUTINY UNDER CASS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE T O FURNISH CERTAIN DETAILS. THE DETAILS WERE SUBMITTED BY THE ASSESSEE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FRO M THE P&L A/C OF THE ASSESSEE, THE ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE HAS CREDITED RS.7,01,48,671/- TOWARDS FOR EX GAIN UNDER THE HEAD OTHER INCOME AND THE ASSESSEE HAD SHOWN RS.49,11,07,448/- TOWARDS LOSS ON MARK TO MARKET O N FOREIGN EXCHANGE FORWARDS. THE ASSESSING OFFICER ALSO OBSE RVED THAT THE ASSESSEE HAS DEBITED/REDUCED RS.49,11,07,448/- TOWA RDS UNREALIZED HEDGING LOSS TO ARRIVE AT THE NET FORE X GAIN OF RS.7,01,48,671/-. THE ASSESSEE WAS THEREFORE, ASKED TO JUSTIFY THE ALLOWABILITY OF SUCH UNREALIZED HEDGING LOSS IN VIE W OF THE CBDT INSTRUCTION NO.3 OF 2010. THE ASSESSEE FURNISHED IT S REPLY VIDE LETTER DATED 2.2.2016. THE ASSESSING OFFICER, HOWEV ER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS. HE HELD THAT THE LOSS ON FORWARD CONTRACTS IS NOT TO BE ALLOWED AS PER TH E ABOVE CBDT INSTRUCTIONS. HE ACCORDINGLY DISALLOWED THE SAME AN D BROUGHT IT TO TAX. 3. FURTHER, HE ALSO OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.2,86,26,000/- ON THE ISS UE OF ESOPS. THE ASSESSING OFFICER, INSPITE OF TAKING NOTE OF TH E DECISION OF THE HON'BLE SPECIAL BENCH OF ITAT IN THE CASE OF BIOCON PHARMACEUTICALS LTD, OBSERVED THAT THE DEPARTMENTS APPEAL IN THE CASE OF BIOCON PHARMACEUTICALS LTD IS PENDING F OR ADJUDICATION BEFORE THE HON'BLE KARNATAKA HIGH COUR T. THUS, HE DISALLOWED THE SAID EXPENDITURE OF RS.2,86,26,000/- AND BROUGHT ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 3 OF 12 IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT (A), WHO PARTLY ALLOWED THE SAME BY DELETING TH E DISALLOWANCE OF EXPENDITURE ON THE ISSUE OF ESPPS. AGAINST THE C ONFIRMATION OF THE ADDITION OF FORWARD HEDGING LOSS, THE ASSESSEE IS IN APPEAL BEFORE US, WHILE AGAINST THE DELETION OF THE ADDITI ON OF THE DISALLOWANCE OF ESPPS EXPENDITURE, THE REVENUE IS I N APPEAL BEFORE US. 4. AS FAR AS THE REVENUES APPEAL IS CONCERNED, THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHE THER THE CIT(A) IS CORRECT IN HOLDING THAT DISCOUNT ON ISSUE OF ESOP (EMPLOYEE STOCK OPTIONS) IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS. 2) WHETHER THE LD. CIT(A) IS CORRECT IN GIVING RELI EF BY FOLLOWING THE DECISION OF THE BENGALURU SPECIAL BEN CH DECISION IN THE CASE OF M/S BIO CON INDIA LTD EMPLO YEES WELFARE TRUST, IGNORING THE BINDING NATURE OF DECIS ION OF THE JURISDICTIONAL ITAT DECISION IN THE CASE OF MED HA SERVO DRIVERS LIMITED, WHERE IN IT WAS HELD THAT THE DISC OUNT ON ISSUE OF ESOPS IS NOT A DEDUCTIBLE EXPENDITURE ULS 37(1) OF THE INCOME TAX ACT, 1961. 3) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE HON'BLE KARNATAKA HIGH COURT HAS CONFIRMED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AT BENGALURU IN T HE CASE OF BIOCON LTD AND THEREFORE, THE REVENUES APPEAL IS L IABLE TO BE DISMISSED. SINCE THE ISSUE IS COVERED BY THE JUDGEM ENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF BIOCON LTD, DATED 11.11.2020 IN ITA 653 OF 2013, THE REVENUES APPEAL IS DISMISSED. ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 4 OF 12 6. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE IN ITS APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED ASSESSING OFFICER (' AO') GROSSLY ERRED IN: 1. A) DISALLOWING THE UNREALIZED HEDGING LOSS ON FO RWARD CONTRACTS OF RS. 49,11,07,448/-. B) WITHOUT PREJUDICE TO ABOVE, FOLLOWING AN INCONSI STENT APPROACH BY NOT EXCLUDING THE UNREALIZED FOREX GAIN OF RS. 33,35,31,167 FROM THE TAXABLE INCOME; 2. NON CONSIDERATION OF TDS OF RS. 8,25,60,213 RELA TING TO HSBC OPERATIONS AND PROCESSING ENTERPRISE (INDIA) P RIVATE 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 CRAVE S LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE A BOVE GROUNDS OF APPEAL. 7. AS REGARDS GROUND NO.1(A), THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED BY TH E DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESS EES OWN CASE FOR THE A.Y 2014-15. FURTHER HE PLACED RELIANCE UPO N THE FOLLOWING OTHER DECISIONS: A) ITAT MUMBA I IN THE CASE OF LUPIN LTD IN ITA NO.7274/M/2014 DATED 26.10.2016 B) ITAT HYDERABAD IN THE CASE OF KESORAM INDUSTRIES LTD IN ITA NO.1195/HYD/2019, DATED 21.10.2020 C) ITAT KOLKATA IN THE CASE OF SPECIALITY RESTAURAN TS LTD IN ITA NO.1318/KOL/2017 DATED 30.11.2018 . 8. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN THE A SSESSEES OWN CASE FOR A.Y 2014-15 AND THE RELEVANT PARAS ARE REP RODUCED HEREUNDER: ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 5 OF 12 31. AS REGARDS GROUND NO.15 AGAINST THE DISALLOWANC E OF FOREX LOSS ON FORWARD CONTRACTS, THE LEARNED COUNSE L FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR, REP ORTED IN (2009) 312 ITR 254 (S.C). THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE CBDT CIRCULAR NO.03/2010 DATED 23.3.2010. 32. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HON'BLE SUPREME COURT I N THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD HAS HELD TH AT THE LOSS SUFFERED BY AN ASSESSEE ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AS ON DATE OF BALANCE SHEET IS AN ITEM O F EXPENDITURE U/S 37(1) OF THE ACT. RESPECTFULLY FOLL OWING THE SAME, THIS GROUND OF THE ASSESSEE IS ALLOWED. 9. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD, REPORTED IN (2009) 179 TAXMANN 326 (SC) HAS HELD AS UNDER: 10. AS STATED ABOVE, ON FACTS IN THE CASE OF M/S WO ODWARD GOVERNOR INDIA P. LTD., THE DEPARTMENT HAS DISALLOWED THE DE DUCTION/DEBIT TO THE P&L ACCOUNT MADE BY THE ASSESSEE IN THE SUM OF RS. 29,49,088.00 BEING UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCT UATION. AT THE VERY OUTSET, IT MAY BE STATED THAT THERE IS NO DISPUTE T HAT IN THE PREVIOUS YEARS WHENEVER THE DOLLAR RATE STOOD REDUCED, THE D EPARTMENT HAD TAXED THE GAINS WHICH ACCRUED TO THE ASSESSEE ON TH E BASIS OF ACCRUAL AND IT IS ONLY IN THE YEAR IN QUESTION WHEN THE DOL LAR RATE STOOD INCREASED, RESULTING IN LOSS THAT THE DEPARTMENT HA S DISALLOWED THE DEDUCTION/DEBIT. THIS FACT IS IMPORTANT. IT INDICAT ES THE DOUBLE STANDARDS ADOPTED BY THE DEPARTMENT. 11. THE DISPUTE IN THIS BATCH OF CIVIL APPEALS CENT ERS AROUND THE YEAR(S) IN WHICH DEDUCTION WOULD BE ADMISSIBLE FOR THE INCR EASED 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 FOLL OWS: 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 PROFES SION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE P REVIOUS YEAR.' INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION, HOW COMPUTED: SECTION 29: ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 6 OF 12 'THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMP UTED 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 PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDIT URE.' (EMPHASIS SUPPLIED) METHOD OF ACCOUNTING: SECTION 145: '(1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY E MPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR C OMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIF IED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESS EE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVID ED IN SECTION 144.' 13. AS STATED ABOVE, ONE OF THE MAIN ARGUMENTS ADVA NCED BY THE LEARNED ADDITIONAL SOLICITOR GENERAL ON BEHALF OF T HE DEPARTMENT BEFORE US WAS THAT THE WORD 'EXPENDITURE' IN SECTIO N 37(1) CONNOTES 'WHAT IS PAID OUT' AND THAT WHICH HAS GONE IRRETRIE VABLY. IN THIS CONNECTION, HEAVY RELIANCE WAS PLACED ON THE JUDGME NT OF THIS COURT IN THE CASE OF INDIAN MOLASSES COMPANY (SUPRA). RELYIN G ON THE SAID JUDGMENT, IT WAS SOUGHT TO BE ARGUED THAT THE INCRE ASE IN LIABILITY AT ANY POINT OF TIME PRIOR TO THE DATE OF PAYMENT CANNOT B E SAID TO HAVE GONE IRRETRIEVABLY AS IT CAN ALWAYS COME BACK. ACCORDING TO THE LEARNED COUNSEL, IN THE CASE OF INCREASE IN LIABILITY DUE T O FOREIGN EXCHANGE FLUCTUATIONS, IF THERE IS A REVALUATION OF THE RUPE E VIS-`-VIS FOREIGN EXCHANGE AT OR PRIOR TO THE POINT OF PAYMENT, THEN THERE WOULD BE NO QUESTION OF MONEY HAVING GONE IRRETRIEVABLY AND CON SEQUENTLY, THE REQUIREMENT OF 'EXPENDITURE' IS NOT MET. CONSEQUENT LY, THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE WAS MERELY A CONTINGENT/NOTIONAL LIABILITY WHICH DOES NOT CRYSTALLIZE TILL PAYMENT. IN THAT CASE, THE SUPREME COURT WAS CONSIDERING THE MEANING OF THE EXPRESSION 'EXPENDIT URE 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 W ORD 'EXPENDITURE' IS, THEREFORE, REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 7 OF 12 USED. SECTION 37 ENJOINS THAT ANY EXPENDITURE NOT B EING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS SH OULD BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS'. IN SECTIONS 30 TO 36, THE EXPRESSIONS 'E XPENSES 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 EXPRESS ION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIRCUMSTANCES OF A P ARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSESSEE. 14. IN THE CASE OF M.P. FINANCIAL CORPORATION V. CI T REPORTED IN 165 ITR 765 THE MADHYA PRADESH HIGH COURT HAS HELD THAT THE EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIR CUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSE SSEE. THIS VIEW OF THE MADHYA PRADESH HIGH COURT HAS BEEN APPROVED BY THIS COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD. V. CIT REPORTED IN 225 ITR 802. ACCORDING TO THE LAW A ND PRACTICE OF INCOME TAX BY KANGA AND PALKHIVALA, SECTION 37(1) I S A RESIDUARY SECTION EXTENDING THE ALLOWANCE TO ITEMS OF BUSINES S EXPENDITURE NOT COVERED BY SECTIONS 30 TO 36. THIS SECTION, ACCORDI NG TO THE LEARNED AUTHOR, COVERS CASES OF BUSINESS EXPENDITURE ONLY, AND NOT OF BUSINESS LOSSES WHICH ARE, HOWEVER, DEDUCTIBLE ON ORDINARY P RINCIPLES OF COMMERCIAL ACCOUNTING. (SEE PAGE 617 OF THE EIGHTH EDITION). IT IS THIS PRINCIPLE WHICH ATTRACTS THE PROVISIONS OF SECTION 145. THAT SECTION RECOGNIZES THE RIGHTS OF A TRADER TO ADOPT EITHER T HE CASH SYSTEM OR THE MERCANTILE SYSTEM OF ACCOUNTING. THE QUANTUM OF ALL OWANCES PERMITTED TO BE DEDUCTED UNDER DIVERSE HEADS UNDER SECTIONS 3 0 TO 43C FROM THE INCOME, PROFITS AND GAINS OF A BUSINESS WOULD DIFFE R ACCORDING TO THE SYSTEM ADOPTED. THIS IS MADE CLEAR BY DEFINING THE WORD 'PAID' IN SECTION 43(2), WHICH IS USED IN SEVERAL SECTIONS 30 TO 43C, AS MEANING ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS ON WHICH PROFITS OR GAINS ARE COMPUTED UNDER SECTION 28/29. THAT IS WHY IN DECIDING THE QU ESTION AS TO WHETHER THE WORD 'EXPENDITURE' IN SECTION 37(1) INCLUDES TH E WORD 'LOSS' ONE HAS TO READ SECTION 37(1) WITH SECTION 28, SECTION 29 AND SECTION 145(1). ONE MORE PRINCIPLE NEEDS TO BE KEPT IN MIND . ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REAS ONS TO INDICATE THAT THEY ARE UNRELIABLE. ONE MORE ASPECT NEEDS TO BE HI GHLIGHTED. UNDER SECTION 28(I), ONE NEEDS TO DECIDE THE PROFIT S AND GAINS OF ANY BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR. THEREFORE, ONE HAS TO TAKE INTO ACCOUNT STOCK-IN-TR ADE FOR DETERMINATION OF PROFITS. THE 1961 ACT MAKES NO PROVISION WITH RE GARD TO VALUATION OF STOCK. BUT THE ORDINARY PRINCIPLE OF COMMERCIAL ACC OUNTING 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 ENTE RED 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 M ORE 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 ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 8 OF 12 RELEVANT. THIS IS BECAUSE PROFITS/LOSS IS EMBEDDED IN THE CLOSING STOCK. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTIC IPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW IN CREASE PROFITS BEFORE ACTUAL REALIZATION. THIS IS THE THEORY UNDER LYING THE RULE THAT CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRI CE, WHICHEVER IS THE LOWER. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTED IN ACCORDANCE WITH ORDINARY PRINCIPLES OF COMMERCIAL A CCOUNTING, UNLESS, SUCH PRINCIPLES STAND SUPERSEDED OR MODIFIED BY LEG ISLATIVE ENACTMENTS, UNREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALU E OF GOODS REMAINING UNSOLD AT THE END OF THE ACCOUNTING YEAR AND CARRIE D OVER TO THE FOLLOWING YEARS ACCOUNT IN A CONTINUING BUSINESS AR E NOT BROUGHT TO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS STATED A BOVE, LOSS DUE TO FALL IN THE PRICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALLY. AT THIS STAGE, WE NEED TO EMPHAS ISE ONCE AGAIN THAT THE ABOVE SYSTEM OF COMMERCIAL ACCOUNTING CAN BE SU PERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENT. THIS IS WHERE SE CTION 145(2) COMES INTO PLAY. UNDER THAT SECTION, THE CENTRAL GOVERNME NT IS EMPOWERED TO NOTIFY FROM TIME TO TIME THE ACCOUNTING STANDARDS T O BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF IN COME. ACCORDINGLY, UNDER SECTION 209 OF THE COMPANIES ACT, MERCANTILE SYSTEM OF ACCOUNTING IS MADE MANDATORY FOR COMPANIES. IN OTHE R WORDS, ACCOUNTING STANDARD WHICH IS CONTINUOUSLY ADOPTED B Y AN ASSESSEE CAN BE SUPERSEDED OR MODIFIED BY LEGISLATIVE INTERVENTI ON. HOWEVER, BUT FOR SUCH INTERVENTION OR IN CASES FALLING UNDER SECTION 145(3), THE METHOD OF ACCOUNTING UNDERTAKEN BY THE ASSESSEE CONTINUOUS LY IS SUPREME. IN THE PRESENT BATCH OF CASES, THERE IS NO FINDING GIV EN BY THE AO ON THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. EQUALLY, THERE IS NO FINDING GIVEN BY THE AO STATING THAT TH E ASSESSEE HAS NOT COMPLIED WITH THE ACCOUNTING STANDARDS. 15. FOR THE REASONS GIVEN HEREINABOVE, WE HOLD THAT , IN THE PRESENT CASE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUN T OF THE EXCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS A N ITEM OF EXPENDITURE UNDER SECTION 37(1) OF THE 1961 ACT. 10. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT, THE ADDITION OF RS. 49,11,07,448/- ON A/C OF UNREALIZED HEDGING LOSS ON FORWARD CONTRACTS MAD E BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A) IS D ELETED. 11. GROUND NO.1(B) IS ONLY AN ALTERNATIVE ARGUMENT TAKEN BY THE ASSESSEE AND THEREFORE, NEEDS NO ADJUDICATIO N AT THIS STAGE. ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 9 OF 12 12. AS REGARDS GROUND NO.2, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS THIS GROUND. ACCORDINGLY, THIS GROUND OF APPEAL IS REJEC TED AS NOT PRESSED. 12.1 FURTHER, THE ASSESSEE VIDE LETTER DATED 18.11. 2019, FILED ON 22.11.2019 HAS RAISED THE FOLLOWING ADDITI ONAL GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW: DEDUCTION IN RESPECT OF EDUCATION CESS AND SECONDAR Y 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 DEDUCT ION UNDER SECTION 3 7( 1) OF THE ACT WHILE COMPUTING TH E 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 SECT ION 115-0 (@ 16.223%) OF THE ACT ON DIVIDENDS DECLARED AND PAID BY THE APPELLANT TO ITS NON-RESIDENT SHAREHOLD ERS 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 I N EXCESS OF THE RATE PROVIDED UNDER ARTICLE 11 UNDER THE IND IA - UNITED KINGDOM DTAA (I.E. 15%), AND THUS THE TAX PA ID OVER AND ABOVE THE RATE PROVIDED IN THE DT AA IS EL IGIBLE FOR REFUND. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY THE ABOVE GROUND OF APPEAL. 12.2 THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSION S IN SUPPORT OF HIS PRAYER FOR ADMISSION OF ADDITIONAL G ROUNDS: TO THE HON'BLE MEMBERS OF THE INCOME-TAX APPELLATE TRIBUNAL, A BENCH, HYDERABAD 2- ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 10 OF 12 RE: M/S HSBC ELECTRONIC DATA PROCESSING INDIA PRIVA TE LIMITED ('HDPI' OR 'APPELLANT') ASSESSMENT YEAR 201 4-15 - AAACH8235M SUB: REQUEST FOR PERMITTING TO FILE ADDITIONAL GROU NDS OF APPEAL. APPEAL FIXED ON 26 NOVEMBER 2019. ITA NO: 1249/HYD/17 (ASSESSEE APPEAL) ASSESSMENT YEAR: 2012-13 DEAR SIR/ MADAM, THE APPELLANT HAS FILED AN APPEAL BEFORE THE HON'BL E INCOME TAX APPELLATE TRIBUNAL (' IT A T OR 'TRIBUNA L') CHALLENGING THE ORDER DATED 01 MARCH 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 7, HYDERABAD ['LD. CIT(A)'] UNDER SECTION 250 OF THE I NCOME TAX ACT, 1961 ('THE ACT') FOR AY 2012-13 AGAINST TH E ASSESSMENT ORDER PASSED BY LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(2), HYDERABAD ('LD. AO') UNDER SECTION 143(3) OF THE ACT. IN THE ABOVE PREFERRED APPEAL, THE APPELLANT HAS RA ISED GROUNDS CHALLENGING THE ADDITIONS SUSTAINED BY THE LD. CIT(A). THE APPELLANT FURTHER WISHES TO RAISE ADDIT IONAL GROUNDS OF APPEAL AS UNDER: 1. ADDITIONAL GROUND TO CLAIM DEDUCTION OF EDUCATIO N CESS PAID ON INCOME TAX FOR THE YEAR. WITH REGARD TO THE ADDITIONAL GROUND RELATING TO DEDUCTION OF EDUCATIO N CESS, IT IS SUBMITTED THAT THE APPELLANT OUT OF ABUNDANT CAUTION HAD NOT CLAIMED THE SAID DEDUCTION IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION IN THE ABSENCE OF CLARITY IN RESPECT OF THE SAID ISSUE. HOWEVER, RECENTLY, TH E HON'BLE RAJASTHAN HIGH COURT, VIDE ORDER DATED 31 JULY 2018 , IN THE CASE OF CIT VS. CHAMBAL FERTILISERS AND CHEMICA LS LTD. (ITA NO. 52 OF 2018) AND SUBSEQUENT DECISIONS OF HO N'BLE PUNE TRIBUNAL IN CASE OF BAJAJ ALLIANZ GENERAL INSU RANCE COMPANY LTD (ITA NO 1111, I 112/PN/2017) DATED 24 J ULY 2017 AND HON'BLE MUMBAI TRIBUNAL IN CASE OF TATA ST EEL LTD (ITA NO 5616,4043/M/2012) DATED 12 SEPTEMBER 2019, HAS HELD THAT EDUCATION CESS IS ALLOWABLE AS AN EXPENDITURE WHILE COMPUTING THE TOTAL INCOME. IN LIGHT OF THE ABOVE JUDICIAL DEVELOPMENT, THE APP ELLANT WISHES TO FILE AN ADDITIONAL GROUND OF APPEAL FOR C LAIMING DEDUCTION AS AN EXPENSE UNDER SECTION 3 7( 1) OF TH E ACT IN RESPECT OF EDUCATION CESS PAID ON INCOME-TAX. 2, ADDITIONAL GROUND TO RESTRICT AND REFUND THE DIV IDEND DISTRIBUTION TAX ('DDT') ON DIVIDEND DISTRIBUTED/ P AID TO ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 11 OF 12 NON-RESIDENT SHAREHOLDERS IN TERMS OF APPLICABLE DO UBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') WITH REGARD TO ADDITIONAL GROUND RELATING TO CLAIM OF REFUND ON ACCOUNT OF EXCESS OF DOT PAID AS APPLICAB LE 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 201 6 OR DURING PROCEEDINGS BEFORE LD. CIT(A) CONCLUDED O N 1 MARCH 2017. SUBSEQUENTLY, THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. TATA TEA CO. LTD. (85 TAXMANN.CO M 346) VIDE ORDER DATED 20 SEPTEMBER 2017 AND GODREJ & BOY CE MANUFACTURING COMPANY LTD VS. DCIT (81 AXMANN.COM 111), HAS HELD THAT THE DIVIDEND DISTRIBUTION TAX U NDER SECTION I 15-0 IS A TAX ON 'DIVIDEND INCOME' PAID B Y THE COMPANY. FURTHER, THE HON'BLE MUMBAI TRIBUNAL IN CASE SGS IN DIA PRIVATE LTD (ITA NO 2467/MUM.L2014) DATED 3 JULY 20 17 HAS ADMITTED THE ADDITIONAL GROUND RAISED BY THE TA XPAYER COMPANY IN RESPECT OF REFUND OF DOT PAID IN EXCESS OF TREATY RATE AS APPLICABLE ON THE DIVIDEND PAID TO F OREIGN SHAREHOLDERS. ACCORDINGLY, IN VIEW OF THE ABOVE, THE APPELLANT WI SHES TO FILE AN ADDITIONAL GROUND BEFORE YOUR HONOURS TO CL AIM REFUND OF EXCESS DOT PAID ON DIVIDEND DISTRIBUTED T O FOREIGN SHAREHOLDERS AS TABULATED BELOW: S.NO NAME OF THE SHAREHOLDER AMOUNT OF DIVIDEND PAID (NUR) DDT PAID (INR) 1 HSBC HOLDINGS BV NETHERLANDS, UK 3,596,281,936 583,406,837 2 HSBC FINANCE, NETHERLANDS 832 135 3 HSBC GROUP NOMINEES UK, LTD 100,582,456 16,316,989 YOUR HONOURS WOULD APPRECIATE THAT ADDITIONAL GROUN DS CAN BE RAISED AT APPELLATE STAGES, IF THE FACTS IN CONNECTION WITH THE ISSUES RAISED, ARE ON RECORD. IN SUPPORT OF THE SAID PROPOSITION, THE APPELLANT R ELIES ON THE FOLLOWING JUDICIAL PRECEDENTS IN THIS REGARD. A) NATIONAL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383 (SC) B) JUTE CORPORATION OF INDIA LTD. 187 ITR 688 (SC). C) AHMEDABAD ELECTRICITY CO. LTD. 199 ITR 351 (BORN ) FB) ITA NO 1249 & 1381 OF 2017 HSBC ELECTRONIC DATA PR OCESSING INDIA P LTD PAGE 12 OF 12 D) M/S WHEELS INDIA LTD (ITA NO 251/MDS/20 1 0) DAT ED 14 MARCH 2014 E) ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT - IT AT SPECIAL BENCH- ITA NO. 5018/MUM/20 I 0 DATED 21 MAY 2012. IN VIEW OF THE ABOVE, WE REQUEST YOUR HONOURS TO KI NDLY CONSIDER OUR ADDITIONAL GROUNDS OF APPEAL AND DECID E ON MERITS. 12.3 HOWEVER, THESE GROUNDS BEING LEGAL AND NOT RAI SED EITHER BEFORE THE ASSESSING OFFICER OR THE CIT (A), WE DEEM IT FIT AND PROPER TO ADMIT THE SAME AND REMAND THE SAME TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION OF THE ISSUES RAISED THEREIN IN ACCORDANCE WITH LAW. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 14. TO SUM UP, REVENUES APPEAL IS DISMISSED AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH APRIL, 2021. SD/- SD/- (LAXMI PRASAD SAHU) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 16 TH APRIL, 2021. VINODAN/SPS COPY TO: S.NO ADDRESSES 1 HSBC ELECTRONIC DATA PROCESSING INDIA P LTD PLOT NO S.3 & 4, SURVEY NO.64, HITECH CITY, HYDERABAD 500081 2 ACIT/DY. CIT, CIRCLE 2(2) 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 84 3 CIT (A) - 7, HYDERABAD 4 PR. CIT 2, HYDERABAD 5 DR, ITAT HYDERAB AD BENCHES 6 GUARD FILE BY ORDER
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