Adani Enterprises Ltd., Ahmedabad V. The Addl. CIT,Range-1, Ahmedabad

ITA 1545/AHD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85583 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; Additional depreciation; Transactions in derivatives; Question of law; Speculation loss; Bad and doubtful debts; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 10AA; 14A; 115JB; 37(1); 43(5); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI, ACCOUNTANT MEMBER. ITA.NO.1545/AHD/2014 (ASSESSMENT YEAR:2008-09) ADANI ENTERPRISES LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD APPELLANT VS. ADDL. CIT RANGE-1, 3 RD FLOOR, PRATYAKSHKAR BHAVAN, AMBAWADI, AHMEDABAD RESPONDENT PAN: AABCA2804L /BY APPELLANT : SHRI S. N. SOPARKAR, A.R. /BY RESPONDENT : SHRI SUBHASH BAINS, CIT D.R. !'# /DATE OF HEARING : 07.01.2015 $%& !'# /DATE OF PRONOUNCEMENT :30.01.2015 I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 2 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER U/S.263 OF THE INCOME TAX ACT, 1961 OF COMMIS SIONER OF INCOME TAX, AHMADABAD-1, DATED 28.03.2014 FOR A.Y. 2008-09 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT ERRED IN ASSUMING HIS JURISDICTION U/S.263 OF THE I.T. ACT, WHEREAS THE MANDATORY CONDITIONS FOR ASSUMING SUCH JURISDICTION ARE TOTAL LY ABSENT, WITH THE RESULT THAT THE IMPUGNED ORDER PASSED U/S. 263 IS BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN ARRIVING AT A CONCLUSION WITHOUT ANY BASIS WHATSOEVER TO THE EFFECT THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AS WELL AS A PREJUDICIAL TO THE INTER EST OF THE REVENUE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN CANCELLING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ON 24 TH FEBRUARY, 2012 U/S.143(3) OF THE I.T. ACT AND DIRECTING THE ASSESSING OFFICER TO MAKE A FRESH ASSESSMENT. 2. CIT CALLED FOR AND EXAMINED THE ASSESSMENT PROCE EDINGS FOR A.Y. 2008-09 IN ASSESSEES CASE AND OBSERVED TH AT ASSESSMENT ORDER PASSED U/S. 143(3) R.W.S. 144C OF THE ACT ON 24.02.2012 BY ADDITIONAL CIT DETERMINING TOTAL INCO ME AT RS.1,36,99,26,007/- WAS ERRONEOUS IN SO FAR AS IT W AS PREJUDICIAL TO THE INTEREST OF REVENUE ON FOLLOWING GROUNDS: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 3 THE ASSESSEE HAD CHARGED THE P&L ACCOUNT WITH RS.6,04,00,000/- WHICH IS CURRENCY SWAP LOSS ON ACCOUNT OF HEDGING OF RUPEE LOAN WITH DOLLAR LOAN THROUGH OTC CONTRACTS WITH BANKS. THUS, THE LOSS INCURRED ON SUCH HEDGING ACTIVITY WAS SPECULATIVE I N NATURE [NOT EXCLUDED AS PER CLAUSE (D) TO SECTION 4 3(5) AND WAS NOT ALLOWABLE AGAINST INCOME FROM NON-SPECULATI VE BUSINESS. ACCORDINGLY, A NOTICE DATED 10.03.2014 WAS ISSUED A ND WHEREBY ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY APP ROPRIATE ORDER U/S. 263(1) OF THE ACT SHOULD NOT BE PASSED. IN RESPONSE TO SAME, LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE MADE SUBMISSIONS AND HAVING HEARD THE SAME, CIT OBS ERVED THAT ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED I N EXPORT/IMPORT AND DOMESTIC TRADING OF VARIOUS COMMO DITIES. THE RETURN OF INCOME WAS FILED ON 30.09.2008 AND 28 .05.2009 DECLARING TOTAL INCOME OF RS.44.30 CRORES. SAME WA S REVISED ON 28.04.2009 WHEREBY TOTAL INCOME WAS ENHANCED TO RS.117.58 CRORES. ASSESSMENT ORDER U/S. 143(3) R.W .S. 144C WAS PASSED ON 24.02.2012 WHEREBY TOTAL INCOME WAS A SSESSED AT RS.136.99 CRORES AFTER MAKING SEVERAL ADDITIONS/DISALLOWANCES. THE MAJOR ADDITIONS INCLU DES TRANSFER PRICING ADDITION (RS.10.91 CRORES), PRIOR PERIOD EXPENSES (RS.45.09 LACS), BAD DEBTS (RS.1.64 CRORES ), DISALLOWANCE U/S. 14A (RS.3.97 CRORES) AND DEDUCTIO N U/S.80IA (RS.1.23 CRORES). 2.1 SUBSEQUENTLY, ON EXAMINATION OF CASE RECORDS, C IT OBSERVED THAT ASSESSEE HAD CLAIMED CURRENCY SWAP LO SS OF I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 4 RS.6.04 CRORES UNDER THE HEAD FINANCIAL EXPENSES IN THE PROFIT AND LOSS ACCOUNT. SINCE, THIS LOSS WAS RELATED TO HEDGING OF RUPEE LOAN WITH DOLLAR LOAN, THE SAID TRANSACTION W AS NOT ELIGIBLE TRANSACTION AND HENCE THE LOSS INCURRED WA S REQUIRED TO BE TREATED AS SPECULATIVE LOSS U/S.43(5). SUCH SPECULATIVE LOSS COULD NOT BE ADJUSTED AGAINST NORMAL BUSINESS INCOME AS PER THE PROVISIONS OF SECTION 73(1) OF THE ACT. IN RESPONSE TO THE NOTICE, THE BROADLY STAND OF ASSESSEE WAS AS UN DER: (I) IT IS CONTENDED THAT DURING ASSESSMENT PROCEED ING THE ISSUE OF CURRENCY SWAP LOSS WAS THOROUGHLY EXAMINED BY THE AO AND DETAILED SUBMISSIONS WERE FILED ON THE S AME. THEREFORE, THE ASSESSMENT ORDER CANNOT BE REGARDED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E U/S.263. THE ASSESSEE HAS RELIED ON THE SUPREME CO URT DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (243 ITR 83) AND OTHER JUDGMENTS BASED ON THE SAME LINES I.E . WHEN THE AO HAS ADOPTED ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, THEN SUCH ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. (II) THE SWAP CONTRACT TRANSACTIONS ARE IN THE NATU RE OF HEDGING TRANSACTIONS TO HEDGE AGAINST CURRENCY FLUC TUATIONS AND TO REDUCE COST OF BORROWINGS BY SWAPPING CURREN CIES. THE SAME WAS ENTERED INTO BY THE ASSESSEE AS PER RB I GUIDELINES ON RISK MANAGEMENT AND INTER-BANK DEALIN GS. THE AO HAD ACCEPTED THAT THE CURRENCY SWAP LOSS IS WHOLLY IN CONSONANCE WITH THE STATUTORY PROVISIONS OF SECT ION 43(5) OF THE ACT. (III) SECTION 43(5) IS ONLY APPLICABLE TO CONTRACT FOR PURCHASE OR SALE OF A COMMODITY AND HENCE THE PROVISIONS OF SECTION 43(5) CANNOT BE APPLIED TO CURRENCY AND ACCORDINGLY , HEDGING TRANSACTION CANNOT BE REGARDED AS SPECULATI VE TRANSACTION. (IV) THE ITAT CHENNAI BENCH IN THE CASE OF PATERSONS SECURITIES PVT. LTD. (127 ITD 386) HAS HELD THAT DERIVATIVES ARE NOT A CONTRACT FOR PURCHASE OR SALE OF ANY PHYS ICAL COMMODITY AND THEREFORE CANNOT BE TREATED AS SPECUL ATIVE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 5 TRANSACTION U/S 43(5). IN THE CASE OF FRIENDS & FRI ENDS SHIPPING PVT. LTD., THE GUJARAT HIGH COURT HAS HELD THAT LOSS INCURRED DUE TO FLUCTUATION IN FOREIGN EXCHANG E WHILE IMPLEMENTING THE EXPORT CONTRACTS WHICH COULD NOT B E EXECUTED IS TO BE TREATED AS BUSINESS EXPENSES. HEN CE, EXCEPTION TO CLAUSE (D) WILL APPLY TO CURRENCY SWAP LOSS AND THE SAID LOSS IS DEDUCTIBLE AS BUSINESS EXPENDITURE . 2.2 WITH REGARD TO ENQUIRY CONDUCTED BY ASSESSING O FFICER, CIT OBSERVED THAT NO SUCH INQUIRIES HAVE BEEN CONDU CTED BY ASSESSING OFFICER. ASSESSING OFFICER HAS SIMPLY ACC EPTED THE CLAIMS OF ASSESSEE AND FAILED TO MAKE ANY ENQUIRY W HICH WAS CALLED IN THE CIRCUMSTANCES OF THE CASE. AT THE SA ME TIME CIT OBSERVED THAT ANALYSING THE CLAIM OF ASSESSEE IN DE TAIL, ELABORATION HAS BEEN DONE IN ASSESSMENT ORDER BUT T HE CHAIN OF EVENTS SHOULD SHOW THAT THERE WAS APPLICATION OF MIND. ASSESSING OFFICER DID NOT APPLY HIS MIND WHILE ALLO WING HE CLAIM. ASSESSING OFFICER IS NOT SUPPOSED TO TAKE A VIEW WITHOUT MAKING PROPER ENQUIRIES AND WITHOUT PROPER EXAMINAT ION OF THE CLAIM MADE BY THE ASSESSEE. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF FACTS STATED IN RETURN WHEN CIRCUMSTANCES OF CASE ARE SUCH AS TO PROVOKE AN INQUIRY. IT IS INCUMBENT ON THE ASSESSING OFFICER TO MAKE FURTHER INQUIRY TO FURTHE R INVESTIGATE THE FACTS STATED IN THE RETURN. THE WORD ERRONEOU S IN SECTION 263 INCLUDES FAILURE TO MAKE SUCH INQUIRY. THE ORD ER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF A LL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. CIT OBSE RVED THAT REVISIONAL POWER CONFERRED ON THE COMMISSIONER U/S. 263 IS OF WIDE AMPLITUDE. ANY ORDER PASSED BY ASSESSING OFFI CER WITHOUT I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 6 INQUIRY AND INVESTIGATION IS ERRONEOUS AND PREJUDIC IAL TO THE INQUIRY. 2.3 REGARDING APPLICABILITY OF PROVISIONS OF SECTIO N 43(5), CIT OBSERVED THAT PROVISION OF SECTION 43(5) APPLIED TO THE FACTS OF THE PRESENT CASE. AFTER DETAILED DISCUSSION, CIT H ELD THAT TRANSACTION IN QUESTION IS SPECULATIVE TRANSACTION WITHIN THE BROAD MEANING OF SECTION 43(5) AND RESULTANT LOSS C ANNOT BE SET OFF AGAINST PROFITS AND GAINS OF NON SPECULATIV E BUSINESS AS PER THE PROVISIONS OF SECTION 73(1) OF THE ACT. AS SESSING OFFICER HAS NOT ANALYZED THE SUBMISSIONS MADE BY ASSESSEE. ASSESSING OFFICER HAS NOT EXAMINED THE SPECULATIVE NATURE OF CURRENCY SWAP TRANSACTIONS ENTERED INTO BY ASSESSEE DUE TO WHICH SPECULATIVE LOSS OF RS.6.04 CRORE HAS BEEN UN DULY ALLOWED AGAINST NORMAL BUSINESS OF ASSESSEE. AS A RESULT THEREOF, THERE WAS SUBSTANTIAL LOSS OF REVENUE TO T HE EXCHEQUER SINCE ASSESSEES CLAIM OF SPECULATIVE LOSS AGAINST NON SPECULATIVE PROFIT HAS BEEN ALLOWED WITHOUT PROPER ANALYSIS OF FACTS AND APPLICABLE PROVISIONS OF LAW. ACCORDINGL Y, CIT HELD THAT ASSESSMENT ORDER FOR A.Y. 08-09 PASSED U/S. 14 3(3) R.W.S. 144C DATED 24.02.2012 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HENCE, ASSESSING OFFICER WAS DIRECTED TO PASS A FRESH ASSESSMENT ORDER AFTER ALLOWING OPPORT UNITY TO ASSESSEE AS PER LAW. 3. SAME HAS BEEN OPPOSED BEFORE US. LEARNED AUTHORI ZED REPRESENTATIVE HAS RAISED VARIOUS CONTENTIONS. LEA RNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT CIT ERRED IN I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 7 ASSUMING HIS JURISDICTION U/S.263 OF THE ACT, WHERE AS MANDATORY CONDITIONS FOR ASSUMING SUCH JURISDICTION WAS TOTALLY ABSENT, WITH THE RESULT THAT IMPUGNED ORDER PASSED U/S. 263 IS BAD IN LAW. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT ERRED IN ARRIVING AT A CONCLUSION WITHOUT ANY B ASIS WHATSOEVER TO THE EFFECT THAT THE ASSESSMENT ORDER PASSED BY ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDIC IAL TO THE INTEREST OF REVENUE. LEARNED AUTHORIZED REPRESENTA TIVE MAINLY RELIED ON THE STATEMENT OF FACTS-CUM-SYNOPSIS FILED BEFORE CIT RUNNING INTO 49 PAGES, WHEREIN VARIOUS CONTENTIONS HAVE BEEN RAISED ON ISSUE AT HAND WHICH WILL BE DEALT BY US A T APPROPRIATE PLACE IN THIS ORDER. LEARNED AUTHORIZED REPRESENTATIVE TOOK US TO THE VARIOUS FACTUAL AND L EGAL SUBMISSIONS FILED BEFORE ASSESSING OFFICER TO IMPRE SS UPON US THAT ORDER OF THE ASSESSING OFFICER IS NEITHER ERRO NEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF REVENUE SO AS TO INVOKE PROVISIONS OF SECTION 263. ACCORDINGLY, SAME SHOUL D BE SET ASIDE. ON OTHER HAND, LEARNED DEPARTMENTAL REPRESE NTATIVE MADE DETAILED FACTUAL AND LEGAL SUBMISSIONS TO SUPP ORT THE FACTS THAT ORDER OF CIT PASSED U/S. 263 IS VALID ON E, WHICH WILL BE DEALT IN DETAIL IN THIS ORDER. ACCORDINGLY, LEA RNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ORDER OF CIT SHOULD BE UPHELEARNED IN SUM AND SUBSTANCE, LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF CIT PASSED U/S. 263 ON FACTS AND LAW. 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT ORDER OF ASSESSING OFFICER HAS BEEN I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 8 REVERSED UNDER THE PROVISION OF SECTION 263 OF THE ACT. FOR THE SAKE OF CONVENIENCE WE REPRODUCE SECTION 263, WHICH READS AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME TAX OFF ICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPOR TUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THER EON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. 4.1 THE POWER OF SUO MOTU REVISION U/S. 263(1) IS I N THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED IF CIRCUMSTANCES SPECIFIED THERE UNDER EX IST. THERE ARE TWO SITUATIONS MUST EXIST SO AS TO ENABLE COMMI SSIONER TO EXERCISE POWER OF REVISION U/S.263, NAMELY (I) THE ORDER IS ERRONEOUS (II) BY VIRTUE OF BEING ERRONEOUS PREJUDICE HAS BEE N CAUSED TO THE INTERESTS OF REVENUE. 4.2 THE STAND OF LEARNED AUTHORIZED REPRESENTATIVE HAS BEEN THAT ONCE INQUIRY HAS BEEN CONDUCTED BY ASSESSING O FFICER ON THE ISSUE INVOLVED THEN ORDER PASSED BY ASSESSING O FFICER IS NOT ERRONEOUS. FOR THIS PROPOSITION, LEARNED AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF HONBLE GU JARAT HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX-I VS. A MIT CORPN. [2012] 21 TAXMANN.COM 64 (GUJ.), WHICH DEALS THE IS SUE OF ERRONEOUS OF THE ORDER AND REGARDING ISSUE OF PREJU DICIAL TO INTEREST OF REVENUE. LEARNED AUTHORIZED REPRESENTA TIVE RELIED I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 9 ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CA SE OF CIT VS. FRIENDS AND FRIENDS SHIPPING (P.) LTD. [2013] 35 TA XMANN.COM 553 (GUJARAT). LEARNED AUTHORIZED REPRESENTATIVE A LSO RELIED ON VARIOUS LEGAL PROPOSITION TO SUPPORT HIS STAND T HAT ORDER OF ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDIC IAL TO THE INTEREST OF REVENUE WHICH WILL BE DEALT BY US WHILE DECIDING THIS ISSUE IN LATER PARA OF THIS ORDER. 4.3 ON THE POINT OF INQUIRY, LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT ASSESSING OFFICER HAS ISSUED NOTICED DATED 23.08.2001 U/S.142(1) AS COMPILED ON PAGE 1 TO 5 OF THE PAPER BOOK FILED ON BEHALF OF ASSESSEE AND CERTIFIED TO BE FILED BEFORE ASSESSING OFFICER, WHICH READS AS U NDER: YOU ARE REQUESTED TO FURNISH THE FOLLOWING INFORMATION/DETAILS. THIS LETTER IS PART OF THE NOT ICE U/S.142(1) OF THE I.T. ACT, AND TO BE TREATED AS SU CH. 1. PLEASE GIVE YEAR WISE DETAILS OF 'IMPORT ENTITLE MENT LICENSES' OF ALL TYPES DUE TO THE COMPANY AND STATE AS TO WHICH OF THESE WERE ACCOUNTED AND OFFERED TO TAX IN EARLIER YEARS. 2. YOU HAVE CLAIMED RS.18,11,52,776 AS DEDUCTION UN DER 80IA OF THE ACT FOR THE YEAR. IN THIS REGARD PLEASE GIVE FOLLOWING INFORMATION. A) WHICH UNDERTAKING/ENTERPRISE IS CLAIMING THE DEDUCTION, ITS LOCATION AND ADDRESS, WHAT IS THE 'ELIGIBLE BUSINESS' OF UNDERTAKING, GIVE A DETAILED NOTE. B) GIVE THE COPY OF AGREEMENT THE ENTERPRISE ENTERE D WITH THE AUTHORITIES REFERRED IN S. 80IA(4)(B) C) GIVE INFRASTRUCTURE FACILITY DEVELOPED AND INVESTMENT MADE DETAILS OVER THE YEARS, WHICH IS TH E INITIAL YEAR OF CLAIM AND GIVE YEAR WISE DEDUCTION CLAIMED AND STATUS IN ASSESSMENTS? I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 10 D) PLEASE DEMONSTRATE THAT THE UNDERTAKING SATISFIE S ALL OTHER CONDITIONS OF SECTION 80IA E) PLEASE PRODUCE THE AUDITED ACCOUNTS OF THE UNDERTAKING AND THE P&L AND BALANCE SHEET WITH ENCLOSURES AND GIVE WORKING OF THE DEDUCTION. F) WHAT ARE THE TRANSACTIONS OF THE SAID UNDERTAKIN G WITH THE SISTER CONCERNS/ASSOCIATE CONCERNS AND GIVE DETAILS OF QUANTITY AND VALUE OF THESE TRANSACTIONS. 3. YOU HAVE MADE INVESTMENTS OF RS.1494.77 CRORES A ND EARNED RS.1431639 AS DIVIDEND, FURTHER RS. 177,27,82,245 IS EARNED AS SHARE OF PROFIT FROM ADA NI EXPORTS WHICH IS EXEMPT FROM TAX. HOWEVER NO EXPENDITURE RELEVANT TO THE INCOME HAS BEEN DISALLO WED BY YOU. PLEASE EXPLAIN AS TO WHY RULE 8D SHOULD NOT BE APPLIED TO DISALLOW THE EXPENDITURE UNDER SECTION 1 4A. 4. THE COMPANY DURING THE YEAR HAS RECEIVED DFCE LI CENSES WORTH RS.211.61 CRORES FOR IMPORT OF MATERIALS WITH OUT PAYING DUTIES. THIS BENEFIT HAS ACCRUED DURING THE YEAR WITH CERTAINTY. EXPLAIN AS TO WHY THE AMOUNT OF RS . 211.61 CRORES SHOULD NOT BE ADDED TO INCOME FOR THE YEAR. 5. PENALTY PAID AS PER 3CD REPORT IS RS. 16217975, WHERE AS RS.10550490 ONLY HAS BEEN DISALLOWED IN COMPUTATION. EXPLAIN AS TO WHY THE REMAINING AMOUNT RS.5667485 SHOULD NOT BE DISALLOWED AND ADDED TO INCOME. ALSO EXPLAIN FURTHER AS TO WHY RS.703750 TH E 'OTHER PENALTY PAID SHOULD NOT BE DISALLOWED AND A DDED TO INCOME. 6. YOU HAVE CHARGED TO P & L ACCOUNT RS.17.27 CRORE S UNDER 'PROVISION FOR DOUBTFUL DEBTS/WRITE OFF. HOWEVER ON LY RS. 22799885 HAS BEEN DISALLOWED IN COMPUTATION. (PROVI SION FOR DOUBTFUL DEBTS AS PER SCHEDULE-8 IS RS. 3.61 CR .) PLEASE SHOW CAUSE AS TO WHY THE REMAINING AMOUNT OF RS. 15 CRORES SHOULD NOT BE DISALLOWED AND ADDED TO INC OME. 7. PLEASE GIVE BREAKUP OF THE PROVISION FOR DOUBTFU L DEBTS AND WRITE OFF DEBTS ALONG WITH NOTE AS TO HOW THESE DEBTS HAVE BECOME BAD. PLEASE STATE WHETHER THESE DEBTS H AVE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 11 BEEN ACTUALLY WRITTEN OFF IN THE BOOKS, IF SO GIVE PROOF OF WRITE OFF WITH CERTIFICATION. FURTHER PLEASE DEMONS TRATE WITH EVIDENCE THAT THESE DEBTS WERE OFFERED TO TAX IN EARLIER YEARS AND SATISFY THE CONDITIONS OF SECTION 36(2). 8. PLEASE SHOW CAUSE AS TO WHY PROVISION FOR DOUBTF UL DEBTS SHOULD HOT BE ADDED TO THE BOOK PROFIT FOR THE PURP OSE OF 115JB WORKING. 9. DIVIDEND FROM M/S ADANI GLOBAL LTD RS.4559363 H AS NOT BEEN OFFERED TO TAX. EXPLAIN AS TO HOW THE DIVIDEND RECEIVED FROM NON-RESIDENT COMPANY IS EXEMPT FROM T AX IN INDIA. 10.COMPANY RECEIVED RS.141.61 CRORES ON REDEMPTION OF INVESTMENTS WHICH INCLUDE RS. 710445 TOWARDS EXCHAN GE RATE DIFFERENCE (GAIN). PLEASE EXPLAIN AS TO WHY TH IS AMOUNT SHOULD NOT BE ADDED TO INCOME. IF IT HAS ALR EADY BEEN ACCOUNTED, PLEASE GIVE DETAILS. 11.YOU HAVE DISALLOWED ONLY RS.16855490 OUT OF TOTA L PRIOR PERIOD EXPENSES OF RS.2,19,15,076. EXPLAIN AS TO WH Y THE REMAINING AMOUNT OF RS.5353722 SHOULD NOT BE DISALLOWED AND ADDED TO INCOME AS THIS EXPENDITURE ALSO DOES NOT RELATE TO THE PRESENT YEAR. 12.WHAT IS CURRENCY SWAP. YOU HAVE CHARGED RS.6.04 CRORES OF CURRENCY SWAP LOSSES TO P & L ACCOUNT. PL EASE EXPLAIN AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOW ED AND ADDED TO INCOME. 13.PLEASE SEE ANNEXURE XI TO 3CD REPORT. FOLLOWING AMOUNT COVERED BY SECTION ARE UNPAID BONUS UNPAID RS. 382978 INTEREST ON BUYERS CREDIT RS.349685 INTEREST ON LC RS.209599 PLEASE EXPLAIN AS TO WHY THESE AMOUNTS SHOULD NOT B E DISALLOWED AND ADDED TO INCOME UNDER SECTION 43B OF THE ACT. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 12 14.WHAT IS TARGET PLUS SCHEME'. PLEASE GIVE DETAIL S OF ACHIEVEMENTS MADE BY THE COMPANY UNDER THE SCHEME AND YEAR WISE BENEFIT DUE TO THE COMPANY UNDER THE SCHEME. PLEASE FURNISH LEDGER ACCOUNTS OF THE SAME SINCE 2004. 15.IT IS SEEN THAT YOU HAVE CHARGED RS.1.96 CRORES TO P & L ACCOUNT IN RESPECT OF DERIVATIVE CONTRACTS. PLEASE GIVE THE NATURE OF EXPENDITURE ALONG WITH THE RELEVANT ACCOU NT. ALSO SHOW CAUSE AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOWED AND ADDED TO INCOME. 16.IT IS SEEN THAT COMPANY OWNS OFFICE PREMISES BY VIRTUE OF INVESTMENT IN SHARES. SHARES ARE DISTINCT ASSETS AN D DEPRECIATION IS NOT PROVIDED ON THESE ASSETS BY THE IT ACT. PLEASE GIVE THE DEPRECIATION CLAIMED ON THESE SHARE S IN THE ACCOUNTS AND EXPLAIN AS TO WHY THE DEPRECIATION SHOULD NOT BE DISALLOWED AND ADDED TO INCOME. 17.COMPANY HAS INCURRED RS.236124 TOWARDS CLUB EXPENSES GIVE DETAILS. PLEASE EXPLAIN AS TO HOW THE SE EXPENSES CAN BE CONSIDERED FOR WHOLLY AND EXCLUSIVE LY FOR BUSINESS PURPOSES. 18.COMPANY HAS TAKEN HUGE TERM LOANS AND FOREIGN CURRENCY LOAN AND PAYING INTEREST. HOWEVER AT THE S AME TIME COMPANY HAS EXTENDED INTEREST FREE LOANS TO OT HER COMPANIES LIKE ADANI HABITAT LTD (RS.147.35 CRORES) ADANI MINING LTD (1.81 CR), MIRAJ IMPEX LTD. (RS. 1 0.58 CR). PLEASE EXPLAIN AS TO WHY PROPORTIONATE INTERES T PAID SHOULD NOT BE DISALLOWED UNDER SECTION 36(1)(III) O F THE ACT. 19.IT IS SEEN FROM THE RECORDS THAT THE COMPANY OWN ED A UNIT IN NEW SEZ AT SACHIN SURAT DOING MANUFACTURING AND EXPORT OF GOLD ARTICLES LIKE BANGLES, CHAINS AN D MEDALLIONS AND DEDUCTION U/S 10AA WAS CLAIMED IN EARLIER YEARS. THIS YEAR, THERE IS NO SUCH CLAIM. P LEASE GIVE DETAILS AND EXPLAIN THE POSITION OF THE SEZ UN IT AND DISPOSAL OF ITS ASSETS AND RELEVANT ENTRIES IN BOOK S. 20.PROFIT OF RS.886391123 IS SHOWN TWICE FROM THE S AME FIRM 'ADANI EXPORTS' HAVING PAN: AAMFA8563G. IN THE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 13 COMPUTATION OF INCOME STATEMENT. EXPLAIN THE DOUBLE ENTRY. GIVE P & L ACCOUNT AND BALANCE SHEET, AUDIT REPORTS OF ADANI EXPORTS ALONG WITH SCHEDULES AND ANNEXURES. 21.VERIFICATION OF REPORTS SHOWS THAT THE COMPANY H AS MADE SALES OF RS. 2,164.45 CRORES TO ADANI EXPORTS. PLEA SE GIVE NATURE OF SALES TO ADANI EXPORTS. PLEASE GIVE DETAI LS OF PURCHASES MADE BY THE COMPANY CORRESPONDING TO THE SAID SALES, QUANTITY WISE AND IN VALUE WISE. ALSO G IVE INCIDENTAL EXPENSES RELEVANT TO THE PURCHASES. 22.COMPANY HAS RECEIVED RS.116.52 CRORE AS INTEREST FROM THE LOANS ADVANCED TO ADANI INFRASTRUCTURE AND DEVELOPERS PVT LTD BUT NO INTEREST WAS RECEIVED FRO M VYOM TRADE LINK PVT LTD AND ADANI RETAIL LTD. PLEASE GIVE RATE OF INTEREST CHARGED FROM ADANI INFRASTRUCTURE AND DEVELOPERS PVT LTD. ALSO GIVE AC COUNT STATEMENTS OF ADANI INFRASTRUCTURE AND DEVELOPERS P VT LTD AND VYOM TRADE LINK PVT LTD IN YOUR BOOKS. 23.PLEASE GIVE DETAILS FOREIGN EXCHANGE RECEIVED AN D FOREIGN EXCHANGE PAID AND GROSS FOREIGN EXCHANGE GAIN/LOSS. PLEASE GIVE EXCHANGE RATE FLUCTUATION WHICH IS ADJU STED AGAINST ANY ASSETS DURING THE YEAR. ALSO GIVE DETAI LS OF EXCHANGE RATE FLUCTUATION CHARGED TO P & L ACCOUNT. PLEASE GIVE DETAILS OF INTEREST PAID OUTSIDE INDIA ON ANY LC/LOAN AND TAX DEDUCTED THEREON AS PER SECTION 195 OF THE ACT. 24.PLEASE GIVE DETAILS OF SHAREHOLDINGS OF DIRECTOR S HAVING MORE THAN 10% VOTING RIGHTS AND GIVE THEIR LEDGER ACCOUNT FOR THE YEAR. 25.PLEASE GIVE DETAILS OF TERM LOANS AND WORKING CA PITAL LOANS (7166.36 CR) TAKEN LIKE BANK (BRANCH, LOAN AC COUNT NUMBER, ADDRESS) NATURE OF LOAN, COPY OF THE LOAN SANCTION LETTER AND THE DETAILS OF THE SECURITIES O FFERED TO THE BANK FOR AVAILING THE LOAN/CREDIT. ALSO GIVE CO PIES OF I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 14 STATEMENTS OF ASSETS FILED TO THESE BANKS AS ON 31.03.2009 IN RESPECT OF THESE LOANS. PLEASE GIVE D ATE OF PAYMENT OF INTEREST FOR VERIFICATION OF COMPLIANCE TO S. 43B PROVISIONS. 26.DURING THE YEAR THERE ARE SUBSTANTIAL ADDITIONS TO FIXED ASSETS. PLEASE PRODUCE THE VOUCHERS TO SUBSTANTIATE THE ACQUISITION OF ASSETS AND ALSO GIVE NOTES SUPPORTIN G THE USE OF THE SAME DURING THE YEAR WITH EVIDENCE. PLEA SE STATE WHETHER ANY ADDITIONAL DEPRECIATION HAS BEEN CLAIMED FOR THE YEAR, IF SO GIVE DETAILS. PLEASE STATE WHETHER ANY 'LAND LEASE OR ACCESS RIGH TS' ARE OBTAINED BY YOU AND GIVE DETAILS OF LEASE RENT WRIT TEN OFF FOR THE YEAR. 27. PLEASE STATE WHETHER ALL OVER HEADS AND TAX, DUTY C ESS ETC. INCLUDED IN TURNOVER AND INVENTORIES (RS.914.8 9 CR) IN COMPLIANCE TO PROVISIONS SECTION 145A. IF NOT, G IVE DETAILS OF TAXES LIABLE TO BE INCLUDED IN TURNOVER AND INVENTORIES. 28.PLEASE FURNISH BREAKUP OF THE RECEIVABLES/ SUNDR Y DEBTORS (RS.1141,47 CR) IN DESCENDING ORDER ALONG W ITH ADDRESS, PAN FOR FIRST 25 PARTIES ALONG WITH LEDGER ACCOUNTS. 29.PLEASE GIVE BREAKUP OF LOANS AND ADVANCES (NOTE 11) IN DESCENDING ORDER ALONG WITH ADDRESS, PAN AND LEDGER A/C FOR FIRST 25 PARTIES. 30.PLEASE FURNISH BREAKUP OF THE SUNDRY CREDITORS A ND OTHER LIABILITIES IN DESCENDING ORDER ALONG WITH AD DRESS, PAN FOR FIRST 25 PARTIES ALONG WITH LEDGER ACCOUNTS . 31.PLEASE GIVE NATURE OF CAPITAL WORK-IN-PROGRESS ( RS. 17.15 CR) AND OPENING CAPITAL WORK-IN-PROGRESS (RS.3.26 C R) ALONG WITH BREAKUP AND DETAILED WORKING OF THE SAME . PLEASE GIVE DETAILS OF PRE OPERATIVE EXPENSES OR CO ST OF BORROWINGS ADDED TO CAPITAL WORK IN PROGRESS. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 15 32.WHAT IS PROFIT ON SALE/RELINQUISHMENT OF DEVELOP MENT RIGHTS (RS. 35.12 CR). PLEASE GIVE A NOTE ALONG WIT H RELEVANT DOCUMENTS AND LEDGER ACCOUNT. 33.PLEASE GIVE DETAILED BREAKUP OF FOLLOWING A) OTHER OPERATING INCOME (RS. 192.32 CR) B) BUSINESS SUPPORT SERVICES 34.PLEASE GIVE NOTE ON ASSETS SOLD. ALSO GIVE DETA ILS OF GRASS LOSS /PROFIT ON SALE OF ASSETS. 35.PLEASE GIVE DETAILS OF - LOSS OF STOCK/ IMPAIRME NT OF ASSETS/ OBSOLESCENCE OF SPARES/ DIMINUTION OF VALUE OF INVESTMENTS ACCOUNTED IN THE BOOKS OR CHARGED TO P & L ACCOUNT ALONG WITH BASIS OF ACCOUNTING. 36.THERE ARE SUBSTANTIAL PAYMENTS TO RELATED PARTIE S, PLEASE GIVE DETAILS AND JUSTIFY THE PAYMENTS IN COMPARISON TO MARKET RATES. 37.PLEASE CLARIFY WHETHER ALL THE DISALLOWANCES QUA NTIFIED BY THE AUDITOR IN VARIOUS COLUMNS OF FORM 3CD AND ANNEXURES A TO G OF FORM 3CD OF AUDIT REPORT HAVE B EEN DISALLOWED BY YOU IN COMPUTATION. IF NOT PLEASE GIV E DETAILS AND REASONS. 38.PLEASE GIVE DETAILS OF PREMIUM PAID, LOSSES ON SETTLEMENTS, AND PROVISION FOR LOSSES FOR CASH FLOW HEDGES IN RESPECT OF DERIVATIVE CONTRACTS WHICH HAVE BEEN CHARGED TO P & L ACCOUNT, PREFER NOTES A(T)] 39.PLEASE GIVE DETAILS OF ALL BROUGHT FORWARD LOSSE S AVAILABLE FOR SET OFF AS PER YOUR CLAIM MADE IN THE RETURNS A ND AS PER ASSESSMENTS COMPLETED BY THE DEPARTMENT IN THE RELEVANT YEARS. 40.PLEASE GIVE FOLLOWING ON A CD OR DVD. A) ALL LEDGER ACCOUNTS OF INCOME AND EXPENDITURE IN EXCEL FORMAT B) ALL QUARTERLY RETURNS IN FORMS 26Q AND 27Q (AND FORM 27A FOR EACH QUARTERLY RETURN IN HARD COPY) I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 16 LEARNED AUTHORIZED REPRESENTATIVE BEFORE US DREW SP ECIFIC ATTENTION TO THE PAGE NO.2 OF SAID COMPILATION, WHE REIN ASSESSING OFFICER VIDE QUERY NO.12 MADE CERTAIN ENQ UIRY TOUCHING ISSUE AT HAND, WHICH READS AS UNDER: 12. WHAT IS CURRENCY SWAP. YOU HAVE CHARGED RS.6. 04 CRORES OF CURRENCY SWAP LOSSES TO P&L ACCOUNT. PLE ASE EXPLAIN AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOW ED AND ADDED TO INCOME. 4.4 ABOVE REFERRED SHOW CAUSE NOTICE AND QUERIES RA ISED BY ASSESSING OFFICER, WAS REPLIED BY ASSESSEE VIDE ITS LETTER DATED 29.11.2011 ALONG WITH ITS ANNEXURE 1, WHICH HAS BEE N COMPILED AT PAGE NOS. 21 TO 35 OF PAPER BOOK FILED BEFORE US AGAIN CERTIFIED TO BE FILED BEFORE CONCERN ASSESSIN G OFFICER AND READS AS UNDER: IN CONNECTION WITH THE ABOVE ASSESSMENT PROCEEDING S, WE ARE PLEASED TO SUBMIT THE REMAINING DETAILS POIN T-WISE AS PER NOTICE U/S 142(1) OF THE IT ACT IN ADDITION TO OUR EARLIER SUBMISSION DATED 1 ST OCTOBER, 2011 HEREIN UNDER: (12) YOUR GOOD SELF HAS SOUGHT EXPLANATION REGARDIN G CURRENCY LOSS OF RS 6.04 CRORES. IN THIS REGARD WE SUBMIT THAT THE ASSESSES COMPANY IS A 'FIVE STAR EXPORT HOUSE' AND EXPORTS VARIOUS TYPES OF COMMODITIES. FURTHER, WE SUBMIT THAT THE ASSESSEE COMPANY HAS BORROWED MONEY FOR THE PURPOSE OF ITS BUSINESS I.E. GLOBAL TRADING OF VARIOUS COMMODITIES. AS PER THE T ERMS ENTERED INTO WITH BANKS FOR FOREIGN CURRENCY WORKIN G CAPITAL LOAN, THE BANKS SANCTIONED FOREIGN CURRENCY WITH A CONDITION THAT THE ASSESSEE COMPANY WOULD ENTER INTO A CURRENCY SWAP ARRANGEMENT FOR THE SAID FOREIGN CURRENCY LOAN. ACCORDINGLY, THE ASSESSEE COMPANY HAS ENTERED INTO CURRENCY SWAP TRANSACTION IN RESPECT OF OUTSTANDING FOREIGN CURRENCY LOANS AS PER THE PREVALENT RBI GUIDELINES. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 17 FURTHER, THE COPY OF LEDGER ACCOUNT OF CURRENCY SWA P LOSS OF RS 6.04 CRORES AND SAMPLE COPIES OF SOME OF THE SWAP CONTRACTS ENTERED INTO WITH BANK VIZ BARCLAYS BANKS PLC IS ENCLOSED FOR YOUR GOOD SELFS PERUSAL. (ANNEXURE-1) ON PERUSAL OF THE SAME IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS ENTERED INTO CURRENCY SWAP TRANSACTIONS IN RESPECT OF FOREIGN CURRENCY LOANS I.E. US$ LOANS WHICH ARE CONVERTED I NTO JAPANESE YEN (JPY). IN THIS CONTEXT, THE WORTH NOTING PART OF RBI GUIDE LINE WHICH IS USUALLY REFERRED TO IN A SWAP CONTRACT WIT H AN AUTHORIZED DEALER (USUALLY 'BANK') IS REPRODUCED HEREIN UNDER: THAT AS ON DATE AND AS ON THE DATE OF THE MATURITY OF THE TRANSACTION, THE COUNTERPARTY HAS AND SHALL HAV E THE UNDERLYING EXPOSURE FOR WHICH THE TRANSACTION H AS BEEN ENTERED INTO AS A HEDGE AND AS ON DATE THERE I S NO OTHER HEDGE ALREADY IN PLACE FOR THE SAID EXPOSURE- --' THE ABOVE CLAUSE IN SWAP CONTRACTS AMPLY CLARIFIES THE FACT THAT THE SWAP CONTRACT IN FOREIGN CURRENCY CAN BE ENTERED INTO ONLY IN CASE THE ENTERPRISE IS HAVING UNDERLYING AS FOREIGN CURRENCY DENOMINATED LOANS BOTH AT THE TIME OF ENTERING INTO TRANSACTION AS WE LL AS AT THE TIME OF MATURITY OF TRANSACTION. (EMPHASIS PROVIDED) TO SUMMARISE, THE COMPANY HAS ENTERED INTO SWAP CONTRACTS FOR THE UNDERLYING BEING FOREIGN CURRENCY DENOMINATED LOANS TAKEN FOR THE PURPOSE OF GLOBAL TRADING BUSINESS OF THE ASSESSEE COMPANY AS IS EVID ENT ON PERUSAL OF SAMPLE COPIES OF CONTRACTS WITH BANKS AND NOTES FORMING PART OF SCHEDULE - SECURED LOANS BEING PART OF THE BALANCE SHEET. SINCE, THE ASSESSE E COMPANY HAS ENTERED INTO CURRENCY SWAP CONTRACTS FO R WORKING CAPITAL LOANS WHICH IS PRE-REQUISITE FOR TH E DYNAMIC BUSINESS OF EXPORT AND IMPORT OF COMMODITIES, THE LOSS OF RS 6.04 CRORES BEING INCUR RED IN RESPECT OF CIRCULATING/WORKING CAPITAL IS AN ALLOWABLE EXPENSE U/S 37 OF THE IT ACT AS IS HELD I N I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 18 VARIOUS JUDICIAL PRONOUNCEMENTS. THE ASSESSEE COMPANY PLACES RELIANCE ON THE LANDMARK DECISION IN THIS CONTEXT OF THE HON'BLE SUPREME COURT IN THE CA SE OF SUTLEJ COTTON MILLS LTD VS C1T REPORTED IN 116 I TR 1 (SC).THE RELEVANT PART OF HEAD NOTE OF THE SAID DEC ISION READS AS UNDER: 'WHETHER WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN VALUE OF FOREIGN CURRENCY HELD BY HIM, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINAR ILY BE TRADING PROFIT OR LOSS IF FOREIGN CURRENCY IS HE LD BY ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET O R AS PART OF CIRCULATING CAPITAL EMBARKED IN BUSINESS - HELD, YES - WHETHER, HOWEVER, IF FOREIGN CURRENCY I S HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUCH P ROFIT OR LOSS WOULD BE OF CAPITAL NATURE - HELD, YES ' (15) YOUR GOOD SELF HAS SOUGHT AN EXPLANATION REGAR DING ALLOWABILITY OF LOSS OF RS 1.96 CRORES ON DERIVATIV ES CONTRACTS. WE ARE SUBMITTING HEREWITH THE BREAK UP OF THE SAID LOSS OF RS 1.96 CRORES AND COPIES OF THE RELEVANT LEDGER ACCOUNTS. (ANNEXURE-2) ON PERUSAL OF THE SAME, YOUR GOOD SELF WOULD FIND THAT THE SAID L OSS CONSISTS OF RS 0.73 CRORES IN RESPECT FOREX DERIVAT IVE CONTRACTS AND RS 1.23 CRORES IN RESPECT OF COMMODIT Y DERIVATIVE CONTRACTS. IN SO FAR AS LOSS ON FOREX DERIVATIVES CONTRACTS IS CONCERNED, WE SUBMIT THAT THE SAID LOSS IS IN THE NATURE OF MARK TO MARKET LOSS I N RESPECT OF FORWARD CONTRACTS ENTERED INTO BY THE ASSESSEE COMPANY IN RESPECT OF TRADE OBLIGATIONS AN D ACCORDINGLY, THE SAID LOSS BEING IN THE NATURE OF T RADING EXPENDITURE IS ALLOWABLE U/S 37 OF THE IT ACT AS IT IS INCURRED DURING THE COURSE OF CARRYING ON OF THE BUSINESS AND PARTICULARLY IN VIEW OF THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD REPORTED IN 312 ITR 254 (SC).TK HEAD NOTE OF THE SAID DECISION IS REPRODUCED HEREIN UNDER FOR READY REFERENCE: 'SECTION 37(1), READ WITH SECTION 145, OF THE INCOM E- TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF - I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 19 ASSESSMENT YEAR 1998-99 - WHETHER EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN CIRCUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS', EVEN THOUGH SAID AMOUNT H AS NOT GONE OUT FROM POCKET OF ASSESSEE - HELD, YES - WHETHER LOSS SUFFERED BY ASSESSEE ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AS ON DATE OF BALANCE S HEET IS AN ITEM OF EXPENDITURE UNDER SECTION 37(1) - HEL D, YES - WHETHER ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A GIVEN PERIOD OF TIME NE EDS TO BE PRESUMED TO BE CORRECT TILL ASSESSING OFFICER COMES TO CONCLUSION FOR REASONS TO BE GIVEN THAT SA ID SYSTEM DOES NOT REFLECT TRUE AND CORRECT PROFITS - HELD, YES - WHETHER AN ENTERPRISE HAS TO REPORT OUTSTANDI NG LIABILITY RELATING TO IMPORT OF RAW MATERIAL USING CLOSING RATE OF FOREIGN EXCHANGE AND ANY DIFFERENCE, LOSS O R GAIN, ARISING ON CONVERSION OF SAID LIABILITY AT CL OSING RATE SHOULD BE RECOGNIZED IN PROFIT AND LOSS ACCOUN T FOR REPORTING PERIOD -HELD, YES' FURTHER, THE LOSS OF RS 1.23 CRORES IS INCURRED IN, RESPECT OF HEDGING TRANSACTIONS IN COMMODITY DERIVATIVES ENTERED INTO ON COMMODITY EXCHANGES. ON PERUSAL OF DETAILS SUBMITTED TO YOUR GOOD SELF AND ANNEXURE XVII OF THE TAX AUDIT REPORT, IT IS EVIDENT THAT THE ASSESSEE COMPANY DEALS IN VARIOUS AGRO PRODUCTS VIZ PULSES, RICE, SUGAR, SOYABEAN OIL ETC AND TO HEDGE AGAINST THE FLUCTUATION IN THE PRICE OF AG RO PRODUCTS, THE ASSESSEE COMPANY ENTERED INTO COMMODITY DERIVATIVES TRANSACTIONS IN THE YEAR UNDE R CONSIDERATION. SINCE, THE LOSS OF RS 1.23 CRORES IS INCURRED ON DERIVATIVE CONTRACTS TO HEDGE AGAINST T HE FLUCTUATION IN THE PRICE OF AGRO PRODUCTS WHICH IS TRADED BY THE ASSESSEE COMPANY, THE SAID HEDGING LO SS BEING REALIZED TRADING EXPENDITURE IS ALLOWABLE U/S 37 OF THE IT ACT IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS. (17) THE ASSESSEE COMPANY HAS INCURRED RS 2,36,124 TOWARDS CLUB EXPENSES. THE LEDGER ACCOUNT ALONG WIT H VOUCHERS AND INVOICES ARE SUBMITTED HEREWITH. (ARMEXURE-3) ON PERUSAL OF THE SAME, IT IS CLEAR THAT I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 20 THE SAID EXPENSES ARE INCURRED FOR THE RESIDENTIAL ACCOMMODATION AND FOOD & BEVERAGES FOR THE VENDORS AND EMPLOYEES OF THE COMPANY. YOUR GOOD SELF WOULD APPRECIATE THAT THE SAID EXPENSES ARE NECESSARY TO EFFECTIVELY RUN THE BUSINESS OF THE COMPANY AND THE EXPENSE INCURRED IS MINISCULE AS COMPARED TO THE REVENUE OF THE ASSESSEE BEING LISTED COMPANY. SINCE THE CLUB EXPENSE HAS BEEN INCURRED FOR THE RESIDENT IAL ACCOMMODATION AND FOOD & BEVERAGES OF VENDORS AND EMPLOYEES, THE SAME IS ACTUALLY AND WHOLLY INCURRED FOR THE BUSINESS OF THE ASSESSEE COMPANY AND THE SAME IS ALLOWABLE U/S 37 OF THE IT ACT. MOREOVER, T HE SAID CLUB EXPENSE INCURRED SHOULD BE ALLOWED U/S 37 OF THE IT ACT AS WHOLLY AND EXCLUSIVELY INCURRED FO R THE BUSINESS OF THE ASSESSEE COMPANY AS IT IS AKIN TO INCURRING EXPENSES FOR RESIDENTIAL ACCOMMODATION IN A HOTEL OR GUEST HOUSE AND FOR FOOD & BEVERAGES IN AN Y OTHER RESTAURANT OR IN THE ASSESSEE'S OWN OFFICE PREMISE FOR THE VENDORS AND EMPLOYEES OF THE COMPAN Y WHICH IS OTHERWISE ALLOWABLE U/S 37 OF THE IT ACT. (23) THE DETAILS OF NET FOREIGN EXCHANGE FLUCTUATIO N LOSS OF RS 12,74,96,613 AS DISCLOSED IN SCHEDULE 18-FINANCE CHARGES OF AUDITED FINANCIAL STATEMENT ALONG WITH LEDGER ACCOUNTS IS SUBMITTED HEREWITH. FURTHER, THE DETAILED EXPLANATION REGARDING VARIOUS TYPES OF WORKING/CIRCULATING LOANS/CREDIT FACILITIES ON ACCO UNT OF WHICH THE SAID FOREX LOSS (NET) IS INCURRED IS A LSO SUBMITTED HEREWITH (ANNEXURE-4). FURTHER, THE ASSESSEE COMPANY HAS BEEN CONSISTENTLY ENTERING INT O THE VARIOUS TYPES OF FOREIGN CURRENCY WORKING/CIRCULATING LOANS/CREDIT FACILITIES AND IT HAS OFFERED FOR TAX THE GAIN ARISING ON SUCH TRANSACTIO NS AS WELL AS IT HAS BEEN ALLOWED SAID LOSS 3 EXPENSE IN THE YEAR IN WHICH IT IS INCURRED ON YEAR ON YEAR BASIS. IN SO FAR AS ADJUSTMENT OF FOREX FLUCTUATION TO ASS ET IS CONCERNED, WE SUBMIT THAT NO AMOUNT HAS BEEN ADJUSTED AGAINST THE VALUE OF ASSET IN VIEW OF THE FACT THAT THERE IS NO OUTSTANDING FOREIGN CURRENCY LOAN TAKEN FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASS ET. ACCORDINGLY, THE QUESTION OF ADJUSTING THE VALUE OF I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 21 FOREX FLUCTUATION IN THE VALUE OF ASSETS IN TERMS O F SEC 43A OF THE IT ACT DOES NOT ARISE. THE DETAILS OF INTEREST PAID OUTSIDE INDIA ON LC AN D LOAN TO VARIOUS BANKS ALONG WITH NATURE OF LOAN/CRE DIT FACILITY IS SUBMITTED HEREWITH. (ANNEXURE-5) THE E-TDS RETURNS EVIDENCING TDS DEDUCTED U/S 195 OF THE IT A CT ON SAID LOAN/CREDIT FACILITY IS ALREADY SUBMITTED V IDE POINT NO 40 OF OUR EARLIER SUBMISSION. (25) IN CONTINUATION OF DETAILS SUBMITTED IN RESPEC T OF INTEREST ON TERM LOANS, WE SUBMIT HEREWITH THE VARI OUS DATES OF PAYMENT OF INTEREST ON BUYERS'S CREDIT AND LOCAL LC. WE MAY SUBMIT THAT THE ASSESSEE COMPANY HAS ALREADY DISALLOWED, THE SAID INTEREST EXPENSE A S DISCLOSED IN ANNEXURE XI OF THE TAX AUDIT REPORT, I N THE RETURN OF INCOME. (ANNEXURE-6) (26) THE BLOCK OF ASSET WISE VOUCHERS AND INVOICES EVIDENCING ADDITION/ACQUISITION TO FIXED ASSETS ARE SUBMITTED HEREWITH FOR YOUR GOOD SELFS VERIFICATION (ANNEXURE-7) ON PERUSAL OF THE SAID DETAILS, IT IS EVIDENT THAT THE MAJOR ADDITION IS IN THE BLOCK OF VEHICLES, COMPUTERS, FURNITURE FIXTURES ETC WHICH I S PUT TO USE AS SOON AS THEY ARE ACQUIRED AS IS EVIDENT O N PERUSAL OF THE DETAILS SUBMITTED HEREWITH. FURTHER, THE ASSESSEE COMPANY SUBMITS THAT IT IS HAVING AN IN HOUSE INTERNAL AUDIT DEPARTMENT AND EXTERNAL AUDITO RS WHO DO STATUTORY AUDIT AS WELL AS TAX AUDIT AND THEREFORE, THE DATE OF PUT TO USE HAVE BEEN VERIFIE D BY ALL OF THEM. FURTHER, WE CONFIRM THAT THE ASSESSES COMPANY HAS NOT CLAIMED ADDITIONAL DEPRECIATION ON THE PLANT & MACHINERY. IN SO FAR AS DETAILS OF LEASE RENT IS CONCERNED, WE SUBMIT THAT RS 1.56 CRORES (NET) IS CHARGED OFF TO PROFIT & LOSS ACCOUNT AS LEASE RENT IN RESPECT OF LEASING ARRANGEMENTS ENTERED INTO BY THE ASSESSEE COMPANY. THE COPY OF THE LEDGER ACCOUNT OF LEASE RENT IS SUBMITTED HEREWITH. (ANNEXURE-8) MOREOVER, WE SUBMIT THAT THERE IS NO LEASE OF LAND ARRANGEMENT ENTERED INTO BY THE ASSESSEE COMPANY. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 22 (27) YOUR GOOD SELF HAS SOUGHT AN EXPLANATION REGAR DING COMPLIANCE WITH THE PROVISIONS OF SECTION 145A OF T HE IT ACT IN RESPECT OF INVENTORIES. IN THIS REGARD, W E SUBMIT THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GLOBAL TRADING OF VARIOUS COMMODITIES A ND IS NOT A MANUFACTURER. ACCORDINGLY, THE ASSESSEE COMPANY SUBMITS THAT TAXES, DUTY, CESS PAID TO BRIN G GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AR E INCLUDED IN THE VALUE OF PURCHASES, SALES AND INVENTORIES. NO CENVAT CREDIT IN RESPECT OF THE SAME HAS BEEN CLAIMED OR RECEIVED BY THE ASSESSEE COMPAN Y AS IS EVIDENT ON PERUSAL OF CLAUSE NO 12B AND 22 (A ) OF THE TAX AUDIT REPORT. ACCORDINGLY, WE SUBMIT THAT T HE ASSESSEE COMPANY HAS DULY COMPLIED WITH THE PROVISIONS OF SECTION 145A OF THE IT ACT. (35) THE ASSESSEE COMPANY SUBMITS THAT IT HAS NOT C HARGED TO PROFIT & LOSS ACCOUNT ANY LOSS ON ACCOUNT OF IMPAIRMENT OF ASSETS, OBSOLESCENCE OF SPARES OR DIMINUTION IN THE VALUE OF INVESTMENTS. THOUGH THE ASSESSEE COMPANY HAS INCURRED LOSS OF RS 20,98,259 ON ACCOUNT OF LOSS OF GOODS DUE TO ACCIDENT, THE SA ME HAS BEEN COMPENSATED BY THE INSURANCE COMPANY. THE LEDGER ACCOUNTS OF LOSS OF GOODS DUE TO ACCIDENT AN D TRANSIT LOSS RECOVERY ARE SUBMITTED HEREWITH. (ANNEXURE-9) (36) YOUR GOOD SELF HAS SOUGHT THE DETAILS OF PAYME NT MADE TO RELATED PARTIES AND ITS JUSTIFICATION WITH MARKE T RATES. ON PERUSAL OF ANNEXURE IX OF THE TAX AUDIT & REPORT, IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS MAINLY ENTERED INTO SUBSTANTIAL TRANSACTIONS WITH MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD (MPSEZ), ADANI WILMAR LTD (AWL) AND ADITYA CORPEX PVT LTD. I N SO FAR AS TRANSACTIONS WITH MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD ARE CONCERNED, WE SUBMIT THAT THE ASSESSEE COMPANY HAS PAID SERVICES CHARGES FOR PORT HANDLING SERVICES PROVIDED TO THE ASSESSEE COMPANY. WE ARE SUBMITTING HEREWITH THE INVOICES RAISED BY MPSEZ ON THE ASSSESSEE COMPANY ALONG WITH INVOICE RAISED BY MPSEZL ON HINDUSTAN ZINC LTD AND PEC LTD I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 23 AS COMPARABLES. FURTHER, THE ASSESSEE COMPANY HAS ENTERED INTO TRANSACTIONS FOR PURCHASE OF GROUND NU T OIL AND PURCHASE OF SOYABEAN MEAL. WE ARE SUBMITTIN G HEREWITH INVOICE RAISED BY AWL ON THE ASSESSEE COMPANY ALONG WITH LEDGER ACCOUNT OF VENDOR OF AWL WHO HAS RAISED INVOICE ON AWL EVIDENCING BACK TO BACK PURCHASE PRICE FOR THE SAID PRICES. FURTHER, T HE ASSESSEE COMPANY HAS PURCHASED CUT & POLISHED DIAMONDS FROM ADITYA CORPEX PVT LTD. PLEASE FIND ATTACHED HEREWITH THE INVOICE RAISED BY ADITYA CORP EX PVT LTD ON THE ASSESSEE COMPANY AND INVOICE RAISED ON ANAND TRADE MOVERS (GUJ) PVT LTD BY ADITYA CORPEX P VT LTD AS A COMPARABLE TRANSACTION. (ANNEXURE-10) ON PERUSAL OF ABOVE TRANSACTIONS COUPLED WITH PARTY WISE COMPARABLES PROVIDED BY US, IT IS EVIDEN T THAT THE ASSESSEE HAS ENTERED INTO TRANSACTIONS WIT H ITS RELATED PARTIES AT PREVALENT MARKET PRICE. (38) THE DETAILS OF LOSS IN RESPECT OF CASH FLOW HE DGES IN RESPECT OF DERIVATIVE CONTRACTS AS REFERRED TO IN N OTE NO A(T) ARE ALREADY SUBMITTED VIDE POINT 23 HEREIN ABO VE AND HENCE, THE SAME IS NOT SUBMITTED AGAIN. (39) ON PERUSAL OF DETAILS OF BROUGHT FORWARD LOSS AS SHOWN IN ANNEXURE XV OF THE TAX AUDIT REPORT AND CLAIMED IN RETURN OF INCOME, IT IS EVIDENT THAT THE SAID BROUG HT FORWARD LOSSES ARE SHORT TERM AND LONG TERM CAPITAL LOSSES OF A.Y.2002-03, 2003-04,2004-05 AND 2005-06 WHICH ARE ALLOWED AS SUCH IN THE ASSESSMENT ORDERS OF THE SAID YEARS. FURTHER, IN RESPECT OF LONG TERM CA PITAL LOSS OF A.Y.2006-07 AND 2007-08 ARE CONCERNED, WE ARE SUBMITTING THAT THE SAID LOSES HAVE BEEN ALLOWE D TO US. WE ARE SUBMITTING HEREWITH THE COPIES OF ASSESSMENT ORDER OF A.Y.2006-07 AND 2007-08 FOR YOU R GOOD SELVES READY REFERENCE. (ANNEXURE-11) 4.5 IT SHOWS THAT DETAILED ENQUIRY HAS BEEN DONE BY ASSESSING OFFICER INCLUDING ISSUE OF CURRENCY SWAP LOSS OF RS .6.04 CRORE AND SAME HAS BEEN REPLIED IN DETAIL ALONG WITH OTHE R DETAILS ALSO MENTIONED ABOVE. EVEN CIT HAS RAISED THE ISSUE U/S.263 I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 24 REGARDING SAID LOSS OF RS.6.04 CRORE ON ACCOUNT CUR RENCY SWAP LOSS, WHICH CIT HAS REPRODUCED ON PAGE 1 OF HIS ORD ER WHICH IS AS UNDER: THE ASSESSEE HAD CHARGED THE P&L ACCOUNT WITH RS.6,04,00,000/- WHICH IS CURRENCY SWAP LOSS ON ACC OUNT OF HEDGING OF RUPEE LOAN WITH DOLLAR LOAN THROUGH O TC CONTRACTS WITH BANKS. THUS, THE LOSS INCURRED ON S UCH HEDGING ACTIVITY WAS SPECULATIVE IN NATURE [NOT EXC LUDED AS PER CLAUSE (D) TO SECTION 43(5) AND WAS NOT ALLOWAB LE AGAINST INCOME FROM NON-SPECULATIVE BUSINESS. 4.6 CIT HAS STARTED THE ENQUIRY ON THE ISSUE AT HAN D WHICH HAS ITS GENESIS FROM ORDER OF CONCERN ASSESSING OFF ICER. IN SUCH SITUATION, IT IS NOT PROPER ON PART OF CIT TO OBSERVE THAT ASSESSING OFFICER HAS MADE NO ENQUIRY, SO HIS ORDER IS ERRONEOUS. CIT HAS ISSUED SHOW CAUSE NOTICE DATED 10.03.2014 U/S. 263 OF THE ACT TO THE ASSESSEE INTE R ALIA STATED AS TO WHY ORDER PASSED BY CONCERN ASSESSING OFFICER U/S.143(3) R.W.S. 144C OF THE ACT ON 24.02.2012 AS DISCUSSED A BOVE DETERMINING TOTAL INCOME AT RS.1,36,99,26,007/- WAS ERRONEOUS IN SO FAR IT WAS PREJUDICIAL TO THE INTER ESTS OF REVENUE ON ABOVE MENTIONED GROUND. ASSESSEE CATEGORICALLY REPLIED THE SAID SHOW CAUSE NOTICE VIDE ITS REPLY DATED 14.03.2 014. THE SUBSTANCE OF THE SAID REPLY OF ASSESSEE HAS ALSO BE EN INCORPORATED BY ASSESSEE IN STATEMENT OF FACTS-CUM- SYNOPSIS FILED BEFORE US RUNNING INTO PAGE NOS. 4 TO 33 WHIC H WILL BE DEALT IN DETAIL BY US IN COMING PARA. ACCORDING TO LEARNED AUTHORIZED REPRESENTATIVE CIT WHILE PASSING THE ORD ER HAS NOT PROPERLY APPRECIATED THE FACTS AND LAW AND CONCLUDE D THAT NO SUCH INQUIRY HAS BEEN CONDUCTED BY ASSESSING OFFICE R. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 25 ACCORDING TO HIM ASSESSING OFFICER SIMPLY ACCEPTED THE CLAIM OF ASSESSEE AND FAILED TO MAKE ANY INQUIRY. SO FAR AS THE INQUIRY ON THE ISSUE INVOLVED MADE BY ASSESSING OFF ICER IS CONCERNED, ASSESSING OFFICER MADE ENQUIRIES VIDE IT S LETTER DATED 23.08.2001 U/S.142(1) AS DISCUSSED ABOVE. ASS ESSEE HAS REPLIED THE SAME IN DETAIL VIDE ITS REPLY DATED 29/ 11/2011 AS DISCUSSED ABOVE. SO IT IS NOT APPROPRIATE TO ALLEG E THAT ASSESSING OFFICER HAS MADE NO ENQUIRY OR INSUFFICIE NT ENQUIRY. WE FIND THAT HONBLE GUJARAT HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX-I VS. AMIT CORPN. (2012) 21 TAXMAN.COM 64 (GUJ.) HAS HELD THAT ASSESSING OFFICE R WHILE FRAMING ASSESSMENT ORDER IS SUPPOSED TO CALL ALL RE CORD OF THE ASSESSEE AND HAVING PERUSING THE SAME ORDER IS PASS ED THEN ASSESSMENT ORDER COULD NOT BE REVISED IN EXERCISE O F REVISIONAL POWER U/S.263. EVEN IN CASE BEFORE US, WE FIND THA T NOTICE DATED 23.08.2011 ISSUED BY THE ASSESSING OFFICER U/ S. 142(1), WHEREIN ASSESSING OFFICER HAS ALMOST RAISED 40 ISSU ES AND ON EACH OF THE ISSUE, ASSESSEE HAS REPLIED THE SAME IN DETAIL TO CONCERNED ASSESSING OFFICER AS DISCUSSED ABOVE. HA VING CONSIDERED THE SAME, ASSESSING OFFICER REACHED TO C ERTAIN CONCLUSION. IN SUCH SITUATION, IT CANNOT BE ALLEGE D THAT ASSESSING OFFICER HAS NOT APPLIED HIS MIND ON THE I SSUE AT HAND, BEFORE REACHING TO CERTAIN CONCLUSION. IT WA S EXPLAINED BEFORE ASSESSING OFFICER THAT ASSESSEE COMPANY BORR OWED MONEY FOR THE PURPOSE OF ITS BUSINESS I.E. GLOBAL T RADING OF VARIOUS COMMODITIES. AS PER TERMS ENTERED INTO WIT H BANKS FOR FOREIGN CURRENCY WORKING CAPITAL LOAN, BANKS SANCTI ONED I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 26 FOREIGN CURRENCY WITH A CONDITION THAT ASSESSEE COM PANY WOULD ENTER INTO A CURRENCY SWAP ARRANGEMENT FOR THE SAID FOREIGN CURRENCY LOAN. ACCORDINGLY, ASSESSEE COMPANY HAD EN TERED INTO CURRENCY SWAP TRANSACTION IN RESPECT OF OUTSTA NDING FOREIGN CURRENCY LOANS AS PER THE PREVALENT RBI GUI DELINES. THE COPY OF LEDGER ACCOUNT OF CURRENCY SWAP LOSS OF RS. 6.04 CRORES AND SAMPLE COPIES OF SOME OF THE SWAP CONTRA CTS ENTERED INTO WITH BANK VIZ BARCLAYS BANKS PLC WERE FILED BEFORE ASSESSING OFFICER. IT IS NOT IN DISPUTE THAT ASSES SEE COMPANY HAS ENTERED INTO CURRENCY SWAP TRANSACTIONS IN RESP ECT OF FOREIGN CURRENCY LOANS I.E. US$ LOANS WHICH WAS CON VERTED INTO JAPANESE YEN (JPY). SPECIFIC GUIDELINES WHICH IS U SUALLY REFERRED TO IN A SWAP CONTRACT WITH AN AUTHORIZED D EALER (USUALLY 'BANK') IS REPRODUCED HEREIN UNDER: THAT AS ON DATE AND AS ON THE DATE OF THE MATURITY OF THE TRANSACTION, THE COUNTERPARTY HAS AND SHALL HAVE TH E UNDERLYING EXPOSURE FOR WHICH THE TRANSACTION HAS B EEN ENTERED INTO AS A HEDGE AND AS ON DATE THERE IS NO OTHER HEDGE ALREADY IN PLACE FOR THE SAID EXPOSURE---' ABOVE CLAUSE IN SWAP CONTRACTS AMPLY CLARIFIES THE FACT THAT THE SWAP CONTRACT IN FOREIGN CURRENCY CAN BE ENTERED IN TO ONLY IN CASE THE ENTERPRISE IS HAVING UNDERLYING AS FOREIGN CURRENCY DENOMINATED LOANS BOTH AT THE TIME OF ENTERING INTO TRANSACTION AS WELL AS AT THE TIME OF MATURITY OF TRANSACTION. THUS, ASSESSEE COMPANY HAS ENTERED INTO SWAP CONTRACTS FO R THE UNDERLYING BEING FOREIGN CURRENCY DENOMINATED LOANS TAKEN FOR THE PURPOSE OF GLOBAL TRADING BUSINESS OF ASSESSEE COMPANY. SINCE, ASSESSEE COMPANY HAD ENTERED INTO CURRENCY S WAP I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 27 CONTRACTS FOR WORKING CAPITAL LOANS WHICH IS PRE-RE QUISITE FOR DYNAMIC BUSINESS OF EXPORT AND IMPORT OF COMMODITIE S, LOSS OF RS 6.04 CRORES BEING INCURRED IN RESPECT OF CIRCULA TING/WORKING CAPITAL WAS AN ALLOWABLE EXPENSE U/S. 37 OF THE ACT AS HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS. HON'BLE SUPREME C OURT IN THE CASE OF SUTLEJ COTTON MILLS LTD VS C1T REPORTED IN (1979) 116 ITR 1 (SC).THE RELEVANT PART OF HEAD NOTE OF TH E SAID DECISION READS AS UNDER: 'WHETHER WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN VALUE OF FOREIGN CURRENCY HELD BY HIM, ON CONVERSION INTO ANOTHER CU RRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PRO FIT OR LOSS IF FOREIGN CURRENCY IS HELD BY ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAP ITAL EMBARKED IN BUSINESS - HELD, YES - WHETHER, HOWEVER , IF FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS F IXED CAPITAL, SUCH PROFIT OR LOSS WOULD BE OF CAPITAL NATURE - HE LD, YES ' 4.7 AS STATED ABOVE, COMPLETE DETAILS AND BREAK-UP OF AFORESAID CURRENCY SWAP LOSS ALONGWITH A SAMPLE CON TRACT WITH BARCLAYS CAPITAL FORMED PART OF ANNEXURE-I TO THE AFORESAID LETTER DATED 29 TH NOVEMBER, 2011. THE ASSESSING OFFICER CONSIDERED ALL THE RELEVANT ISSUES DURING C OURSE OF ASSESSMENT PROCEEDINGS AND VARIOUS REPLIES AND EXPL ANATIONS FILED ON BEHALF OF ASSESSEE-COMPANY AND HAVING DULY CONSIDERED VIS-A-VIS THE DOCUMENTARY EVIDENCES AND THE AUDITED ACCOUNTS. THEREAFTER THE ASSESSMENT ORDER WAS PASSED WHEREIN TOTAL INCOME WAS DETERMINED BY ASSESSING OF FICER AT RS.136,99,26,00/- AS AGAINST RETURNED INCOME (AS PE R REVISED RETURN) OF RS.117,58,16,576/-. ASSESSING OFFICER MA DE SEVERAL I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 28 ADDITIONS AND DISALLOWANCES. HE AFTER PROPER APPLI CATION OF MIND ACCEPTED THE ASSESSEE'S CLAIM REGARDING CURREN CY SWAP LOSS OF RS.6,04,00,000/- AND NO DISALLOWANCE ON THI S ISSUE WAS MADE. IT IS CORRECT THAT THERE IS NO DISCUSSION ON THIS ISSUE IN ASSESSMENT ORDER BUT ALL THE ACCOMPANYING FACTS AND CIRCUMSTANCES ESTABLISH BEYOND ANY DOUBT THAT THIS ISSUE WAS SPECIFICALLY AND THOROUGHLY EXAMINED BY ASSESSING O FFICER AND HE ARRIVED AT LEGALLY CORRECT VIEW THAT CURRENCY SW AP LOSS WAS IN THE NATURE OF A LEGITIMATE ALLOWABLE BUSINESS EX PENDITURE. 4.8 AS MENTIONED ABOVE, IN THE WRITTEN SUBMISSIONS DATED 29 TH NOVEMBER, 2011, ASSESSEE COMPANY HAD INVITED THE ATTENTION OF ASSESSING OFFICER TO THE GUIDELINES IS SUED BY THE RESERVE BANK OF INDIA REGARDING ENTERING INTO SWAP CONTRACT AND THE RELEVANT PORTION OF THE RESERVE BANK OF IND IA GUIDELINES WAS ALSO REPRODUCED IN AFORESAID SUBMISS IONS. RESERVE BANK OF INDIA VIDE ITS LETTER DATED 2 ND JULY, 2007 ISSUED MASTER CIRCULAR ON RISK MANAGEMENT AND INTER -BANK DEALINGS. FOR READY REFERENCE THE RELEVANT TEXT OF THIS LETTER READS AS UNDER: MASTER CIRCULAR ON RISK MANAGEMENT AND INTER-BANK DEALINGS RUPEE ACCOUNTS OF NON-RESIDENT BANKS, INTER- BANK DEALINGS, FOREIGN EXCHANGE DERIVATIVE CONTRACTS, ETC. ARE GOVERNED BY THE PROVISIONS IN NOTIFICATION NO. FEMA 1/2000-RB, REGULATION 4(2) OF NOTIFICATION NO. FEMA 3/RB-2000 AND NOTIFICATION NO . FEMA 25/RB-2000 DATED MAY 3, 2000 AND SUBSEQUENT AMENDMENTS THERETO. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 29 2. THIS MASTER CIRCULAR CONSOLIDATES THE EXISTING INSTRUCTIONS ON THE SUBJECT OF 'RISK MANAGEMENT AND INTER-BANK DEALINGS' AT ONE PLACE. THE LIST OF UNDERLYING CIRCULARS/NOTIFICATIONS IS SET OUT IN APPENDIX. 3. THIS MASTER CIRCULAR IS ISSUED WITH A SUNSET CLAUSE OF ONE YEAR. THIS CIRCULAR WILL STAND WITHDR AWN ON JULY 1, 2008 AND WOULD BE REPLACED BY AN UPDATED MASTER CIRCULAR ON THE SUBJECT.' 4.9 THE VIEW ADOPTED BY ASSESSING OFFICER WHILE ALL OWING ASSESSEE CURRENCY SWAP LOSS WAS WHOLLY IN CONSONANC E WITH THE STATUTORY PROVISIONS OF SECTION 43(5) OF INCOME TAX ACT, WHICH IS REPRODUCED BELOW FOR READY REFERENCE: '[5] 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODIT Y, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERC HANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOO DS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LO SS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWA RD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE T O I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 30 GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; O] (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE 35[(AC)] OF SECTI ON 236 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE;] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION.FOR THE PURPOSES OF THIS CLAUS E, THE EXPRESSIONS (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SY STEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT. 1956 (42 OF 1956) OR THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 199 6 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN TH E CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A ] AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (II) 'RECOGNISED STOCK EXCHANGE' MEANS A RECOGNISE D STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 23 8 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED39 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE;' I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 31 4.10 AFORESAID SECTION APPLIES ONLY TO SUCH TRANSAC TIONS IN WHICH A CONTRACT FOR PURCHASE OR SALE OF A COMMODIT Y, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULT IMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSF ER OF COMMODITY OR SCRIPS. THE WORD 'COMMODITY', BY NO S TRETCH OF IMAGINATION, CAN COVER CURRENCY WHICH IS ONLY A MED IUM OF EXCHANGE WITH WHICH GOODS AND SERVICES CAN BE BOUGH T AND SOLEARNED THE LEGISLATURE, WHILE ENACTING AFORESAI D PROVISION, THOUGHT IT NECESSARY TO EXPRESSLY INCLUDE STOCKS AN D SHARES AS BEING COVERED UNDER 'COMMODITY', WHICH MEANS THAT B UT FOR SUCH EXPRESSED INCLUSION, THE WORD 'COMMODITY' WOUL D NOT HAVE COVERED EVEN STOCKS AND SHARES. OBVIOUSLY, CUR RENCIES CANNOT BE COVERED BY THE WORD 'COMMODITY'. IN SUCH SITUATION, PROVISION OF SECTION 43(5) CANNOT BE APPLIED TO CUR RENCIES. WITHOUT PREJUDICE TO ABOVE, BY VIRTUE OF THE PROVIS O TO SECTION 43(5), HEDGING TRANSACTION CANNOT BE REGARDED AS SP ECULATIVE TRANSACTIONS. AFORESAID PROVISO DOES NOT CONTAIN A NYTHING TO PROVIDE FOR AN EXCEPTION ON ACCOUNT OF HEDGING CONT RACTS IN RESPECT OF CURRENCIES WHEREAS IT SPECIALLY COVERS R AW MATERIAL, MERCHANDISE, STOCK AND SHARES. IT SHOWS THAT LEGI SLATURE WAS CLEAR IN ITS MIND THAT SINCE THE WORD 'COMMODITY I TSELF CANNOT TAKE IN ANY CURRENCY AS SUCH, THERE CAN BE NO QUEST ION FOR PROVIDING AN EXCEPTION IN THAT REGARD IN THE PROVIS O. 4.11 WE FIND THAT ITAT CHENNAI BENCH IN CASE OF DCI T VS. PATERSONS SECURITIES PVT, LTD. (127 ITD 386) HAS HE LD AS UNDER: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 32 '3. WE HAVE HEARD THE RIVAL SUBMISSIONS, THE AVAILA BLE MATERIAL ON RECORD AND HAVE ALSO CAREFULLY TREATED THROUGH THE RELEVANT PROVISIONS OF THE ACT AND RELA TED PRECEDENTS THEREOF. BEFORE WE VENTURE TO DECIDE THE CONTROVERSIAL ISSUE, WE HAVE TO UNDERSTAND AS TO WH AT EXACTLY DERIVATIVE MEANS AND WHAT IS EXACT MEANING OF TRANSACTION IN RESPECT OF TRADING IN DERIVATIVE INS OFAR AS INCOME-TAX IS CONCERNED. AFTER CLEARLY UNDERSTANDING THE ACTUAL LEGAL MEANING OF THE DERIVATIVE TRADING VIS-A-VIS THE SPECULATIVE TRANSA CTION, WE CANNOT RESIST OURSELVES TO ARRIVE AT THE SAME CONCLUSION ON WHICH THE LEARNED CIT(A) HAS ACTUALLY ARRIVED. A DERIVATIVE IS A FINANCIAL INSTRUMENT, TH E PRICE OF WHICH HAS A STRONG CORRELATION WITH AN UNDERLYIN G COMMODITY, CURRENCY, ECONOMIC VARIABLE OR FINANCIAL INSTRUMENT. THE DIFFERENT TYPES OF DERIVATIVES ARE 'FUTURE CONTRACTS, FORWARD, SWAPS AND OPTIONS'. THE Y ARE TRADED ON DERIVATIVES MARKETS OR OVER THE COUNT ER (OTC). THE MARKET TRADED DERIVATIVES ARE STANDARD B UT THE OTC TRADES CAN BE CUSTOMIZED WITH REGARD TO MATURITY, QUANTITY, OR PRICING STRUCTURE FOR A PART ICULAR CLIENT. THE DISCLOSURE OF DERIVATIVES IN FINANCIAL STATEMENTS IS REQUIRED BY 'FINANCIAL REPORTING STANDARD-13'. A SPECULATIVE TRANSACTION AS PER SECT ION 43(5) MEANS A TRANSACTION IN WHICH THE CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR & ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF COMMODITY OR SCRIP. A DERIVATIVE CAN ALSO BE TRADED ON THE VALUE OF THE UNDERLYING SHARES BUT ARE NOT A TR ADE IN ANY ACTUAL STOCK. IT DOES NOT HAVE A PHYSICAL EXISTENCE. DERIVATIVES ARE NOT A CONTRACT FOR PURCH ASE OR SALE OF ANY PHYSICAL COMMODITY AS SUCH. SO, THES E ARE NOT SPECULATIVE TRANSACTIONS IN THE STRICT SENS E OF TERMS OF SECTION 43(5). FOR THE DEFINITION OF DERIV ATIVES SECTION 2(AC) OF THE SECURITIES CONTRACT (REGULATIO N) ACT, 1956 CAN BE CONSULTED. IT DERIVES ITS VALUE FR OM THE PRICES OR INDEX OF PRICES, OF THE UNDERLYING SECURITIES. 4. THE MUMBAI BENCH OF THE ITAT IN I.T.A. NO. 3182/MUM./2004 HAS HELD THAT TRADING IN DERIVATIVES I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 33 CANNOT BE CONSIDERED AS A SPECULATIVE TRANSACTION. THEREFORE, SET-OFF OF LOSS OF DERIVATIVE TRADING AG AINST THE PROFITS OF THE SHARE TRADING BUSINESS IS PERMIS SIBLE. HENCE, WE CONFIRM THE IMPUGNED FINDING OF THE ID. CIT(A) AND DISMISS THE SOLE GROUND OF THIS APPEAL. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED.' IT SHOWS THAT SET OFF OF LOSS OF DERIVATIVE TRADING AGAINST THE PROFIT OF SHARE TRADING BUSINESS IS PERMISSIBLE. 4.12 WE ALSO FIND THAT HONBLE JURISDICTIONAL GUJAR AT HIGH COURT IN CASE OF CIT V. FRIENDS AND FRIENDS SHIPPIN G PVT. LTD. RENDERED ON 23.8.2011 IN TAX APPEAL NO. 251 OF 2010 HELD AS UNDER: HAVING THUS HEARD THE LEARNED ADVOCATES FOR THE PA RTIES AND HAVING PERUSED THE DOCUMENTS ON RECORD, WE FIND THAT THE ISSUE IS COVERED BY THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF BADRIDAS GAURIDA (P) LTD. AND THE CALCUTTA HIGH COURT IN THE CASE OF SOORAJMULL NAGAR MULL (SUPRA). IN THE DECISION OF THE BOMBAY HIGH COURT, THE ASSES SEE WAS IN THE BUSINESS OF EXPORT OF COTTON. THE ASSESSEE H AD ENTERED INTO FORWARD CONTRACT WITH BANKS IN RESPECT OF FOREIGN EXCHANGE. SOME OF THESE CONTRACTS COULD NOT BE HONOURED FOR WHICH THE ASSESSEE HAD TO PAY RS.13.50 LACS WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. T HE ASSESSEE CLAIMED THE SUM AS BUSINESS LOSS. REVENUE WAS OF THE OPINION THAT THE LOSS WAS SPECULATIVE IN NATURE . BOMBAY HIGH COURT FOLLOWING THE DECISION OF THE CALCUTTA H IGH COURT IN THE CASE OF SOORAJMULL NAGARMULL [SUPRA) HELD TH AT THE EXPENDITURE WOULD NOT BE COVERED UNDER SECTION 43 [ 5) OF THE ACT AS SPECULATIVE TRANSACTION. IT WAS OBSERVED AS UNDER: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 34 'THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANG E. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WA S AN EXPORT HOUSE. THEREFORE, FOREIGN EXCHANGE CONTRA CTS WERE BOOKED ONLY AS INCIDENTAL TO THE ASSESSEE'S REGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORD ED A CATEGORICAL FINDING TO THIS EFFECT IN ITS ORDER. THE ASSESSING OFFICER HAS NOT CONSIDERED THESE FACTS. UNDER SECTION 43(5) OF THE INCOME-TAX ACT, 'SPECULA TIVE TRANSACTION' HAS BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF COMMOD ITY IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF SUCH COMMODITY. HOWEVER, AS STATED ABOV E, THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXPORTER OF COTTON. IN ORDER TO HED GE AGAINST LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR EXPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLA IM DEDUCTION IN RESPECT OF RS.13.50 LAKHS AS A BUSINES S LOSS. THIS MATTER IS SQUARELY COVERED BY THE JUDGME NT OF THE CALCUTTA HIGH COURT, WITH WHICH WE AGREE IN THE CASE OF C1T V. SOORAJMULL NAGURMULL (1981) 129 ITR169.' BEFORE THE CALCUTTA HIGH COURT, THE ASSESSEE WAS A FIRM ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF JUT E. IN COURSE OF BUSINESS, THE ASSESSEE WOULD ENTER INTO F ORWARD CONTRACT IN FOREIGN EXCHANGE IN ORDER TO COVER THE LOSS WHICH MAY ARISE DUE TO DIFFERENCE IN FOREIGN EXCHANGE VAL UATION. IN ONE SUCH CONTRACT, THE ASSESSEE HAD TO PAY TO THE B ANK DIFFERENCE OF RS.80,491/- WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE ASSESSING OFFI CER DISALLOWED THE CLAIM. THE HIGH COURT HELD THAT THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE AND THE FOREIG N EXCHANGES WERE ONLY INCIDENTAL TO THE ASSESSEE'S RE GULAR COURSE OF BUSINESS AND THE LOSS WAS THUS NOT A SPEC ULATIVE LOSS BUT INCIDENTAL TO THE ASSESSEE'S BUSINESS AND ALLOWABLE AS SUCH. FACTS IN THE PRESENT CASE ARE VERY SIMILAR . ADMITTEDLY, THE ASSESSEE IS NOT A DEALER IN FOR3EIG N EXCHANGE. FOR THE PURPOSE OF HEDGING THE LOSS DUE T O FLUCTUATION IN FOREIGN EXCHANGE WHILE IMPLEMENTING THE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 35 EXPORT CONTRACTS, THE ASSESSEE HAD ENTERED INTO FOR WARD CONTRACT WITH THE BANKS. IN SOME CASES, THE EXPORT COULD NOT BE EXECUTED AND THE ASSESSEE HAD TO PAY CERTAIN CHARGES TO THE BANK AND THEREBY INCURRED CERTAIN EXPENSES. THESE EXPENSES THE ASSESSEE CLAIMED BY WAY OF EXPENDITURE TOWARDS BUSINESS. WE DO NOT FIND THAT THE TRANSACTI ON CAN BE STATED TO BE IN SPECULATION AS TO COVER UNDER SU BSECTION (5) OF SECTION 43 OF THE ACT.' THUS, IT EMERGED FROM ABOVE LEGAL DISCUSSION THAT O NCE TRANSACTIONS IN CURRENCIES CANNOT ATTRACT THE VERY DEFINITION OF EXPRESSION 'SPECULATIVE TRANSACTION' CONTAINED IN C LAUSE [5] OF SECTION 43, THERE IS NO ROOM FOR SUGGESTING THAT TH E EXCEPTION CONTAINED IN CLAUSE (D) OF PROVISO THERETO DOES NOT APPLY TO TRANSACTIONS BY WAY OF CURRENCY SWAP IN FOREIGN CUR RENCY. IN THE RESULT, LOSS ON ACCOUNT OF SUCH CONTRACTS, ENTE RED INTO FOR THE PURPOSE OF HEDGING, IS DEDUCTIBLE AS BUSINESS E XPENDITURE. ACCORDING TO US, ASSESSING OFFICER HAS ADOPTED LEGA LLY TENABLE VIEW IN ITS FACTS AND CIRCUMSTANCES THOUGH NOT DISC USSED SPECIFICALLY. 4.13 THE NORMAL PRACTICE WITH DEPARTMENT IS THAT AS SESSMENT ORDER CONTAINS DETAILED DISCUSSION ONLY ON SUCH ISS UES WHICH ARE DECIDED AGAINST ASSESSEE AND ISSUE WHICH ARE DE CIDED IN ASSESSEES FAVOUR DO NOT CONTAIN ANY MUCH DISCUSSIO N OR ANY DISCUSSION IN THE ASSESSMENT ORDER. IN SUCH SITUAT ION, IT IS NOT APPROPRIATE FOR COMMISSIONER TO INVOKE HIS JURISDIC TION U/S. 263 OF THE INCOME TAX ACT, WITH A VIEW TO REVERSE T HE COMPLETED ASSESSMENT ORDER ON ALLEGED GROUND THAT SUCH ASSESS MENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. TO SUM UP, WE FIND THAT ASSESSMENT ORDER WAS PASSED AFTER THOROUGH I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 36 SCRUTINY AND AFTER DUE APPLICATION OF MIND ON RELEV ANT ISSUES ON THE POINT. CLAIM OF CURRENCY SWAP LOSS OF RS.6, 04,00,000/- WAS SPECIFICALLY INQUIRED INTO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND ASSESSING OFFICER RAISED ALL RELEVANT QUERIES ON THIS ISSUE. ASSESSEE FILED DET AILED REPLIES ON THIS ISSUE ACCOMPANIED BY ALL DOCUMENTARY EVIDEN CES IN SUPPORT OF ITS CLAIM. ASSESSING OFFICER AFTER DUE A PPLICATION OF MIND CONCLUDED THAT THE CURRENCY SWAP LOSS WAS ALLO WABLE HAVING REGARD TO THE PROVISIONS OF SECTION 43(5) OF THE ACT. 4.14 EVEN IF IT IS ASSUMED THAT TWO DIFFERENT POSSI BLE VIEWS COULD HAVE BEEN TAKEN ON THIS ISSUE, THE FACT REMAI NS THAT THE ASSESSING OFFICER HAS ADOPTED A LEGALLY TENABLE AND POSSIBLE VIEW AFTER TAKING INTO CONSIDERING THE FACTS AND CI RCUMSTANCES AS DISCUSSED ABOVE. SUCH VIEW ADOPTED BY ASSESSING OFFICER CANNOT BE SAID TO BE A LEGALLY UNSUSTAINABLE VIEW. 4.15 IT IS ESTABLISHED LEGAL POSITION THAT EVERY LO SS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE AND WHEN ASSESSING OFFICER ADOPTED ONE OF THE COURSES P ERMISSIBLE IN LAW WHICH RESULTS INTO LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND ASSESSING OFFICER HAS TAKEN ONE VI EW WITH WHICH CIT DOES NOT AGREE, IT CANNOT BE TREATED AS A N ERRONEOUS ORDER SO AS TO BE PREJUDICIAL TO THE INTEREST OF RE VENUE, EVEN IF THERE IS NO SPECIFIC DISCUSSION IN THIS ASSESSMENT ORDER ON THIS ISSUE. THE FACTS AND CIRCUMSTANCES AS ON RECORD SU GGESTS THAT I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 37 THERE WAS DUE APPLICATION OF MIND ON THE PART OF AS SESSING OFFICER WITH REGARD TO THE ISSUE AT HAND. 4.16 WE FIND THAT HON'BLE GUJARAT HIGH COURT DECISI ON IN THE CASE OF CIT V. ARVIND JEWELERS 259 ITR 502 HAS HELD AS UNDER: 'THE PROVISIONS OF SECTION 263 OF THE INCOME-TAX AC T. 1961, CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER. IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTR ACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRO NEOUS ORDER PASSED BY THE ASSESSING OFFICER AND EVERY LOS S OF AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CA NNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. WHEN AN ASSESSING OFFICER ADOPTS ONE OF THE COURSES PERM ISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR W HERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS T AKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME- TAX OFFICER IS UNSUSTAINABLE IN LAW. THE ASSESSEE-FIRM HAD FILED ITS RETURN OF INCOME DISCLOSING A NET LOSS OF RS. 2,777 IN THE BUSINESS OF PURCHASE AND SALE OF ORNAMENTS AND JEWELLERY. THE INCOME-TAX OFFICER ISSUED NOTICES UNDER SECTIONS 14 3 (2) AND 142(1) OF THE INCOME-TAX ACT ALONG WITH THE REQUIREMENT LETTER. AFTER CONSIDERING THE MATERIAL PRODUCED BY THE ASSESSEE AND THE EXPLANATION OFFERE D, THE INCOME-TAX OFFICER FRAMED THE ASSESSMENT DETERMINING THE TOTAL INCOME AT RS. 32,900. THE COMMISSIONER OF INCOME-TAX HELD THAT THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IN SO FAR AS THE INCOME-TAX OFFICER HAD NO T CARRIED OUT ANY INVESTIGATION EITHER WHILE ADDING CERTAIN AMOUNTS IN THE TOTAL INCOME OR WHILE ACCEPT ING THE ASSESSEE'S EXPLANATIONS ON THE VARIOUS POINTS. THE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 38 TRIBUNAL SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX. ON A REFERENCE: HELD, THAT THE FINDING OF FACT BY THE TRIBUNAL WAS THAT THE ASSESSEE HAD PRODUCED RELEVANT MATERIAL AND OFFERED EXPLANATIONS IN PURSUANCE OF THE NOTICES IS SUED UNDER SECTION 142(1) AS WELL AS SECTION 143(2) OF T HE ACT AND AFTER CONSIDERING THE MATERIAL AND EXPLANATIONS, THE INCOME-TAX OFFICER HAD COME TO A DEFINITE CONCLUSION. SINCE THE MATERIAL WAS THERE O N RECORD AND THE SAID MATERIAL WAS CONSIDERED BY THE INCOME-TAX OFFICER AND A PARTICULAR VIEW WAS TAKEN, THE MERE FACT THAT DIFFERENT VIEW CAN BE TAKEN SHOU LD NOT BE THE BASIS FOR AN ACTION UNDER SECTION 263. T HE ORDER OF REVISION WAS U JUSTIFIED.' IT SHOWS THAT EVEN IF TWO POSSIBLE VIEWS ARE POSSIB LE ON MERITS, AND ASSESSING OFFICER HAS ADOPTED ONE VIEW AFTER AP PRECIATION OF FACTS, HIS ORDER CANNOT BE SAID TO BE ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE TO INVOKE P ROVISION OF SECTION 263. WE ALSO FIND THAT HONBLE SUPREME COU RT IN CASE OF MALABAR INDUSTRIAL COMPANY LTD, V. CIT (2000) 24 3 ITR 83 (SC) AND AGAIN HON'BLE SUPREME COURT DECISION IN CA SE OF CIT V. G. M. MITTAL STAINLESS STEEL P. LTD. (2003) 263 ITR 255 (SC) HAS TAKEN SIMILAR VIEW. WE ALSO FIND THAT HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. MAHENDRAKUMAR BANSAL 297 ITR 99, HAS HELD THAT MERELY BECAUSE THE INCOME TAX OFF ICER HAD NOT WRITTEN A LENGTHY ORDER, IT WOULD NOT ESTABLISH WITHOUT BRINGING ON RECORD SPECIFIC INSTANCES THAT THE ASSE SSMENT ORDER PASSED U/S. 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HONBLE BOMBAY HIGH COURT DECISION IN CASE OF CIT VS. GABRIAL [INDIA] LTD. 203 ITR 188 HAS HELD T HAT IF ASSESSING OFFICER HAS RAISED QUERIES AND THE ASSESS EE HAS FILED I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 39 WRITTEN SUBMISSIONS/EXPLANATION, MERELY BECAUSE THE RE IS NO DISCUSSION IN THE ASSESSING OFFICER'S ORDER ON THE RELEVANT ISSUE, IT CANNOT BE SAID THAT SUCH ORDER BECOMES ER RONEOUS. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE DELHI HIGH C OURT IN CASE OF CIT VS. HINDUSTAN COCO COLA BEVERAGES P. LT D. 331 ITR 192 (DEL.). WE ALSO FIND THAT HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ANIL KUMAR SHARMA, 335 ITR 83 (DEL.) HAS HELD AS UNDER: 'THERE IS A DISTINCTION BETWEEN 'LACK OF INQUIRY' A ND INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION T O THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E INCOME-TAX ACT, 1961, MERELY BECAUSE HE HAS A DIFFE RENT OPINION IN THE MATTER: HELD, DISMISSING THE APPEAL, THAT THE PRESENT CASE WOULD NOT BE ONE OF 'LACK OF INQUIRY' EVEN IF THE INQUIRY: WA S TERMED INADEQUATE. THE TRIBUNAL FOUND THAT COMPLETE DETAIL S WERE FILED BEFORE THE ASSESSING OFFICER AND THAT HE APPL IED HIS MIND TO THE RELEVANT MATERIAL AND FACTS, ALTHOUGH S UCH APPLICATION OF MIND WAS NOT DISCERNIBLE FROM THE ASSESSMENT ORDER. THE TRIBUNAL HELD THAT THE COMMIS SIONER IN PROCEEDINGS UNDER SECTION 263 ALSO HAD ALL THESE DETAILS AND MATERIAL AVAILABLE BEFORE HIM, BUT HAD NOT BEEN ABLE TO POINT OUT DEFECTS CONCLUSIVELY IN THE MATERIAL, FOR ARRIVING AT A CONCLUSION THAT PARTICULAR INCOME HAD ESCAPED ASSESSMENT ON ACCOUNT OF NON APPLICATION OF MIND BY THE ASSESSING OFFICER. THE TRIBUNAL WAS RIGHT AND THE O RDER OF REVISION WAS NOT VALID.' IN ABOVE CASE, THE HON'BLE DELHI HIGH COURT HAS REL IED ON ITS EARLIER DECISION IN CASE OF CIT VS. SUNBEAM AUTO LT D., 332 ITR 167 HAS OBSERVED AS UNDER: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 40 '. . . . AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT O RDER, THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER, WHICH APPARENTLY DOES NOT GIV E ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS RE VENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE I NDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPL IED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE ASSESSING OFFICER IN THE ASS ESSING ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RE SPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, O NE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICA TION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESSEE IS RI GHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINC TION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UN DER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFE RENT OPINION IN THE MATTER.' 4.17 APPLYING RATIO OF CIT VS. SUNBEAM AUTO LIMITED (2011) 332 ITR 167 (DEL), PUNE A BENCH HAS DECIDED SIMIL AR ISSUE IN FAVOUR OF ASSESSEE IN SMT. SHAKUNTALA S. SANGHAVI V S. ACIT, JALGAON IN ITA NO. 956/PN/2013 BY OBSERVING AS UNDE R: 6. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE WAS A PARTNER IN ERSTWHILE FIRM M/S. DEEPAK FOODS WHICH WAS ENGAGED IN THE BUSINESS OF PRODUCING TUTIFRUTI. M/S. DEEPAK FOODS USED TO SELL THE PRODUCT UNDER THE BRAND NAME NILONS. THE A SSESSEE RETIRED AS A PARTNER IN M/S. DEEPAK FOODS ON 17.03. 2008. AT THE TIME OF RETIREMENT, THE ASSESSEE RECEIVED TO TAL AMOUNT OF RS.21,66,52,000/-. IN THE RETURN FILED BY THE ASSESSEE FOR A.Y. 2008 - 09, THE ASSESSEE DID NOT O FFER ANY AMOUNT TO TAX WHICH WAS RECEIVED BY HER AT THE TIME OF RETIREMENT FROM THE PARTNERSHIP FIRM. THE COPY OF T HE RETURN OF INCOME FILED BY THE ASSESSEE HAS BEEN ENCLOSED B Y I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 41 ASSESSEE ON PAGES 5-22 OF ITS PAPER BOOK. HOWEVER, THE ASSESSEE HAD GIVEN A NOTE TO THIS RETURN WHEREIN TH E FACT OF GOODWILL RECEIVED WAS MENTIONED. 6.1 AS STATED ABOVE, THE CONCERNED CIT HAS PASSED T HE ORDER U/S 263 INTER ALIA HELD THAT THE ASSESSMENT O RDER PASSED WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FIRSTLY, THE CIT HAS STATED THAT TH ERE WAS NO PROPER ENQUIRY AND THE ASSESSING OFFICER HAS NOT CO NDUCTED NECESSARY ENQUIRY AND APPLIED MIND REGARDING THE AM OUNT RECEIVED BY THE ASSESSEE. HE HAS SIMPLY ACCEPTED T HE RETURN FILED BY THE ASSESSING WITHOUT VERIFYING THE FACTS OF THE CASE. CIT FURTHER STATED THAT THE AMOUNT RECEI VED BY THE ASSESSEE AT THE TIME OF RETIREMENT OVER AND ABO VE THE CAPITAL ACCOUNT BALANCE WAS TAXABLE AS LONG TERM CA PITAL GAIN IN THE HANDS OF THE ASSESSEE. THE CIT IN PARA 13 OF HIS ORDER HAS STATED THAT THE ASSESSEE IS LIABLE TO PAY CAPITAL GAIN ON THE AMOUNT RECEIVED BY HER. 6.2 ACCORDING TO THE CONCERNED CIT, THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT RECEIVED BY HER IS TOWARDS HER SHARE IN THE ASSETS OF THE FIRM INCLUDING THE GOODW ILL WAS NOT FOUND CORRECT. THE CIT HAS MENTIONED THAT FIRS TLY THE ENTIRE TRANSACTION HAS BEEN ROUTED IN A MANNER TO A VOID TAX. IT WAS POINTED OUT THAT M/S. LESMA LTD., A COMPANY INCORPORATED IN CYPRUS INVESTED RS.67.09 CRS. IN A COMPANY CALLED SANGHAVI FOODS PVT. LTD. THE SHARE CAPITAL O F SANGHAVI FOODS PVT. LTD. WAS INCREASED FROM RS.1.33 CRS. TO RS.2.66 CRS. AND THE SHARES WERE ISSUED AT A PREMIU M OF RS.67.09 CRS. LATER ON, SANGHAVI FOODS PVT. LTD. IN VESTED RS.52.42 CRS. IN M/S. DEEPAK FOODS AND OUT OF THE S AID AMOUNT RS.21.52 CRS. WAS WITHDRAWN BY THE ASSESSEE WHICH IS SUBJECT MATTER OF TAX AS DEALT BY THE CONC ERNED CIT ABOVE. 6.3 THE CIT HAS STATED THAT THE AMOUNT OF GOODWILL HAS BEEN DECIDED ON AN ARBITRARY BASIS WITHOUT RECOGNIZ ING THE PRINCIPLES OF NATURAL JUSTICE. HE HAS REFERRED TO THE PROFIT EARNED BY M/S. DEEPAK FOODS AND HAS STATED THAT IT WAS IMPOSSIBLE TO DETERMINE THE GOODWILL AT SUCH A HUGE FIGURE. ACCORDING TO HIM, THE ENTIRE TRANSACTION HAS BEEN R OUTED I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 42 UNDER THE GARB OF GOODWILL AND THEREFORE, HE HAS ST ATED THAT THE AMOUNT RECEIVED OF RS.21.52 CRS. SHOULD BE TAXE D ON A PROTECTIVE BASIS UNDER THE HEAD INCOME FROM OTHER S OURCES. AS STATED ABOVE, THE CIT HAS GIVEN THE FOLLOWING DI RECTIONS. A. FIRSTLY, HE HAS STATED THAT THE GOODWILL SHOULD BE COMPUTED AS PER THE SUPER PROFIT METHOD AND THE AMOUNT RECEIVED BY THE ASSESSEE IN EXCESS OF THE GOODWILL AMOUNT SHOULD BE TAXED AS LONG TERM CAPITA L GAIN. B. ALTERNATELY, HE HAS STATED THAT THE AMOUNT OF RS.21 .52 CRS. SHOULD BE TAXED AS INCOME FROM OTHER SOURCES. 6.4 THE STAND OF THE ASSESSEE HAS BEEN THAT THE ORD ER PASSED BY THE CIT U/S 263 IS NOT JUSTIFIED. THE CI T HAS HARPED ON THE ISSUE THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE ISSUE OF RECEIPT OF AMOUNT OF RS.21.52 CRS. AT THE TIME OF RETIREMENT AND HENCE, THE ASSESSMENT ORDER PASSED IS ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T HAS NOT MERELY SET ASIDE THE ORDER OF THE ASSESSING OFFICER BUT HAS GIVEN SPECIFIC DIRECTIONS TO TAX THE AMOUNT RECEIVE D OF RS.21.52 CRS. AS AN INCOME OF THE ASSESSEE. IN THE RETURN OF INCOME, THE ASSESSEE HAD CLARIFIED THAT SHE HAD RET IRED FROM THE FIRM M/S. DEEPAK FOODS AND HAD RECEIVED AN AMOU NT AS GOODWILL WHICH WAS CLAIMED EXEMPT FROM TAX. THUS, T HE FACT THAT THE ASSESSEE HAD RECEIVED AS GOODWILL WAS MENT IONED BY THE ASSESSEE IN HER RETURN ITSELF. 6.5 WITH REGARD TO THE ISSUE WHETHER THE AMOUNT REC EIVED IS TAXABLE AS LONG TERM CAPITAL GAINS. WE FIND THA T ITAT, PUNE IN THE CASE OF RAJNISH BHANDARI [ITA NO. 469/P N/11] HAS HELD THAT THE AMOUNT RECEIVED OVER AND ABOVE TH E CAPITAL ACCOUNT BALANCE AT THE TIME OF RETIREMENT I S NOT TAXABLE. WHILE ARRIVING AT ABOVE DECISION, ITAT HA D RELIED UPON ANOTHER DECISION OF ITAT, PUNE IN THE CASE OF RIYAZ SHAIKH [ITA NO.352/PN/06]. THE RELEVANT PORTION OF THE RAJNISH BHANDARI IS AS UNDER: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 43 '2. THE ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS AS TO WHETHER THE AMOUNT OF RS 54,59,083/- RECEIVED BY THE ASSESSEE ON RETIREMENT FROM THE PARTNERSHIP FIR M IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAIN ARISIN G ON TRANSFER OF PARTNERSHIP RIGHTS. THE FACTS, IN BRIEF , ARE THAT THE ASSESSEE, A PARTNER IN VARIOUS PARTNERSHIP FIRMS , RETIRED FROM THE PARTNERSHIP FIRM M/S RAVIR AJ ASSOCIATES W.E.F. 31.3.2007, RELEVANT TO THE ASSESS MENT YEAR 2007-08, VIDE DEED OF RETIREMENT OF THE SAME D ATE. HE WAS A PARTNER TO THE EXTENT OF 37.5% OF THE SHAR ES AND WAS PAID RS 54,59,0837- OVER AND ABOVE THE BALANCE IN HIS CAPITAL ACCOUNT. THE ASSESSEE CLAIME D THIS AMOUNT AS CAPITAL RECEIPTS NOT LIABLE TO TAX. THE ASSESSING OFFICER, HOWEVER, TAXED THE SAID AMOUNT A S LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER DERIV ED SUPPORT FROM A DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHEVANTIBHAI C. MEHTA V. IT O 83 TTJ 542 (PUNE). THE ASSESSEE TOOK UP THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 3. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE RELIED ON A SUBSEQUENT DECISION OF OUR CO- ORDINATE BENCH IN THE CASE OF MR RIYAZ A SHAIKH V. ITO VIDE ITA NO 352/PN/06 DATED 29.10.2010, WHEREIN THE TRIBUNAL HELD THAT AMOUNTS RECEIVED BY THE PARTNER ON HIS RETIREMENT ARE EXEMPT FROM CAPITAL GAINS TAX. T HE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SINCE DELETED THE IMPUGNED ADDITION AND AGAINST THIS DECISION, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ADDITIONAL CONSIDERATION RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF RELINQUISHMENT OF HIS PRE EXISTING RIGHTS IN THE PARTNERSHIP FIRM, AND THEREFORE, THE SAME WAS IN TH E NATURE OF CAPITAL GAIN LIABLE TO TAX AS PER THE PRO VISIONS OF SECTIONS 45 READ WITH SECTION 2 (47) FT) & (II) OF THE ACT. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 44 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE RESPONDENT- ASSESSEE DEFENDED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND FILED A CO PY OF THE ORDER OF OUR CO-ORDINATE BENCH IN THE CASE O F MR RIYAZ A SHAIKH (SUPRA) IN SUPPORT OF THE STAND OF T HE ASSESSEE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. WE FIND THAT THE COMMISSIONER O F INCOME-TAX (APPEALS) HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY FOLLOWING THE ORDER OF OUR CO-ORDIN ATE BENCH IN THE CASE OF MR RIYAZ A SHAIKH (SUPRA), WHEREIN ON IDENTICAL ISSUE, THE TRIBUNAL HAS HELD A S UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS NOTED EARLIER, THE SHORT POINT INVOLVED IN THIS APPEAL RELATES TO TAXABILITY OF AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM PARTNERSHIP FIRM. THE HON 'BLE SUPREME COURT IN THE CASE OF MOHANBHAI PAMABHAI (SUPRA) FOLLOWING ITS JUDGMENT IN THE CASE OF SUNIL SIDDHARTHBHAI V. CIT156ITR 509 (SC) HELD THAT WHEN A PARTNER RETIRED FROM THE FIRM AND RECEIVED HIS SHARE OF AN AMOUNT CALCULATED ON THE VALUE OF THE NET PARTNERSHIP ASSETS INCLUDING GOODWILL OF THE FIRM, THERE IS NO TRANSFER OF INTEREST OF THE PARTNER IN THE GOODWILL, AND NO PART OF THE AMOUNT RECEIVED IS ASSESSABLE AS CAPITAL GAIN UNDER SECTION 45 OF THE ACT. THE JUDGMENT OF THE HUMBLE GUJARAT HIGH COURT IN THE CASE OF MOHANBHAI PAMABHAI (SUPRA) REPORTED AS 91 ITR 393 (GUJ) WAS AFFIRMED. SUBSEQUENTLY, IN THE CASE OF CIT V R LINGMALLU RAGHUKUMAR, 247 ITR 801 (SC), THE SUPREME COURT HELD, WHILE AFFIRMING THE PRINCIPLE LAID DOWN IN THE CASE OF MOHANBHAI PAMABHAI (SUPRA) THAT WHEN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM AND THE AMOUNT OF HIS SHARE IN NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABILITIES IS DETERMINED, THERE IS NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY THE RETIRED PARTNER TO THE CONTINUING PARTNERS AND I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 45 THE AMOUNT RECEIVED BY THE RETIRING PARTNER IS NOT 'CAPITAL GAIN' UNDER SECTION 45 OF THE ACT. FURTHER , THE LEARNED COUNSEL FOR THE APPELLANT HAS CORRECTLY POINTED OUT THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TRIBHUVANDAS G PATIL (SUPRA) FOLLOWED IN THE CASE OF NA MODY (SUPRA) HAS BEEN REVERSED BY THE HON 'BLE SUPREME COURT IN THE CASE OF TRIBHUVANDAS G PATEL REPORTED IN 236 ITR 515 (SC) ON THIS ASPECT OF THE MATTER. IN FACT, THE HON'BLE BOMBAY HIGH COURT IN A RECENT DECISION IN THE CASE OF PRASHANT S JOSHI (SUPRA) HAS NOTED THE AFORESAID LEGAL POSITION. IN THIS CIRCUMSTANCES THE RELIANCE PLACED BY THE AUTHORITIES BELOW ON THE JUDGMENT OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF PRASHANT S JOSHI (SUPRA) HAS ALSO NOTED THE OMISSION OF SECTION 47(II) OF THE ACT AND INSERTION OF SECTION 45(4) OF THE ACT WITH EFFECT FROM 1.4.1988. CONSIDERING THE ENTIRETY OF THE LEGAL POSITION, IT HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT THAT AMOUNTS RECEIVED BY THE PARTNER ON HIS RETIREMENT, ARE EXEMPT FROM CAPITAL GAINS TAX. IN THIS VIEW OF THE MATTER, WE FIND IT APPROPRIATE TO ALLOW THE CLAIM OF THE ASSESSEE AND ACCORDINGLY THE ORDER OF THE CIT(A) IS SET ASIDE. THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION. THUS, IN GROUND NOS 2 & 3, ASSESSEE SUCCEEDS AS ABOVE.' THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND ACCORDINGLY, AFFIRM HIS ORDER. THE REVENUE FAILS ON THIS GROUND OF APPEAL.' NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE WITH REGARD TO ABOVE LEGAL PREPOS ITION. THE ASSESSEE FURTHER CLARIFIED THAT THE DECISION OF ITAT, PUNE IN THE CASE OF RIYAZ SHAIKH HAS BEEN CONFIRMED BY HON'BLE JURISDICTIONAL OF BOMBAY HIGH COURT, INTER ALIA HELD THAT THE AMOUNT RECEIVED AT THE TIME OF RETIREMENT IS EXEMPT FROM TAX. THE RELEVANT OPERATIVE PARA OF THE SAID O RDER IS AS UNDER: I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 46 '2. WE FIND THAT BY THE IMPUGNED ORDER, THE TRIBUNA L WHILE HOLDING THAT AMOUNTS RECEIVED BY A PARTNER ON HIS RETIREMENT FROM PARTNERSHIP FIRM ARE EXEMPT FRO M CAPITAL GAINS TAX RELIED UPON THE DECISION OF THIS COURT IN THE MATTER OF PRASHANT S. JOSHI V/S. INCOME TAX OFFICER & ANR. REPORTED IN [2010] 324 ITR 154 (BOM) . COUNSEL FOR THE REVENUE IS UNABLE TO POINT OUT AS T O HOW THE DECISION IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) INTER ALIA HOLDING THAT NO CAPITAL GAINS AR E PAYABLE BY AN ERSTWHILE PARTNER ON AMOUNTS RECEIVED ON RETIREMENT WOULD NOT BE APPLICABLE TO THE PRESEN T CASE. THE ONLY SUBMISSION ON BEHALF OF THE REVENUE IS THAT THERE WAS AN EARLIER DECISION OF THIS COURT IN THE MATTER OF N.A. MODY V/S. CIT REPORTED IN [1986] 162 ITR 420 AND IT HAS NOT BEEN CONSIDERED IN THE DECIS ION RENDERED IN THE MATTER OF PRASHANT S. JOHSI (SUPRA) . 3. IN THE IMPUGNED ORDER, THE TRIBUNAL DOES REFER T O THE DECISION OF THIS COURT IN THE MATTER OF N.A. MO DY (SUPRA) AND STATES THAT IT FOLLOWS THE DECISION OF THIS COURT IN THE MATTER OF CIT V/S. TRIBHUVANDAS G. PAT EL REPORTED IN 115 ITR 95 AND THE SAME HAS BEEN REVERSED BY THE APEX COURT IN TRIBHUVANDAS G. PATEL V/S. CIT REPORTED IN 263 ITR 515. THIS COURT IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) HAS ALSO REFERR ED TO THE DECISION OF TRIBUVANDAS G. PATEL (SUPRA) RENDER ED BY THIS COURT AND ITS REVERSAL BY THE APEX COURT. MOREOVER, THE DECISION OF THIS COURT IN THE CASE OF PRASHANT S. JOSHI (SUPRA) PLACED RELIANCE UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V/ S. R. LINGAMALLU RAJKUMAR REPORTED IN [2001] 247 ITR 801, WHEREIN IT HAS BEEN HELD THAT AMOUNTS RECEIVED ON RETIREMENT BY A PARTNER IS NOT SUBJECT TO CAPITA L GAINS TAX. IN THE ABOVE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION OF LAW'' AGAIN, NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE WITH REGARD TO DEVELOPMENT ON THE ISSUE. WE FIND THAT THE CLAIM MADE BY THE ASSESSEE IS CORRECT. THE CIT HAS RELIE D UPON THE DECISION IN THE CASE OF SHEVANTIBHAI C. ME HTA (SUPRA) WHICH WAS CONSIDERED IN THE CASE OF RAJNISH I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 47 BHANDARI (SUPRA) INTER ALIA HELD THAT THE AMOUNT RECEIVED ON RETIREMENT FROM PARTNERSHIP IS NOT TAXA BLE. SECONDLY, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RIYAZ SHAIKH (SUPRA) HAS ALSO AFFIRMED THAT THE AMOUNT RECEIVED BY A PARTNER AT THE TIME OF RETIREM ENT IS NOT TAXABLE. THUS, CONSIDERING THE RECENT DECISI ONS OF JURISDICTIONAL BOMBAY HIGH COURT AND ITAT, PUNE AS DISCUSSED ABOVE, THE ORDER OF ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS AS TO BE PREJUDICIAL TO THE INTEREST OF REVENUE TO INVOKE THE PROVISIONS OF SECTION 263 OF ACT. 6.7 REGARDING THE CONTENTION OF CIT THAT THE ENTIRE TRANSACTION WAS AN ARRANGED TRANSACTION. ACCORDING TO HIM, THE AMOUNT RECEIVED BY THE ASSESSEE AS GOODWILL WAS NOT CORRECT SINCE THE GOODWILL OF M/S. DEEPAK FOODS WAS MUCH LESS. THE COPY OF THE BALANCE SHEET OF DEEPAK FOODS FOR F.Y. 2007-08 HAS BEEN PLACED ON PAGES 123 TO 129 OF THE PAPER BOOK FILED BY ASSESSEE REVEALS THAT THE TOTAL REVEN UE WAS RS. 9.19 CRS. AND THE NET PROFIT WAS RS.85.49 LAKHS. TH E CONCERNED CIT IN HIS ORDER HAS CONSIDERED THE TURNO VER AND PROFIT OF M/S. DEEPAK FOODS FOR THE EARLIER YEARS A ND HAS HELD THAT THE GOODWILL SHOULD BE COMPUTED AS PER TH E SUPER PROFIT METHOD. ACCORDING TO THE CIT, THE GOODWILL AS PER THE SUPER PROFIT METHOD WOULD BE WORKED OUT AT A MUCH L OWER FIGURE. IN THIS REGARD, WE FIND THAT THE CIT HAS N OT APPRECIATED THE FACT THAT LESMA LTD. HAD ACQUIRED R S.1.33 CRS. SHARE CAPITAL IN M/S. SANGHAVI FOODS PVT. LTD. AT A PREMIUM OF RS.67.09 CRS AND THE SANGHAVI FOODS IS A RELATED CONCERN. NOW, FOR F.Y. 2007-08, THE TURNOVE R OF SANGHAVI FOODS WAS RS. 6.02 CRS AND IT HAD INCURRED A LOSS OF RS. 55 LACS. THUS, GOING BY THE LOGIC OF THE CIT , THERE WAS NO REASON AS TO WHY LESMA LTD. PAID RS. 67.04 CRS. FOR ACQUISITION OF SHARES OF SANGHAVI FOODS WHEN ITS GO ODWILL AS PER THE SUPER PROFIT METHOD WORKED OUT TO MUCH LOWE R A FIGURE. THIS DEMONSTRATES THAT IN THE COMMERCIAL WO RLD, THE SALE AND PURCHASE TRANSACTIONS ARE NOT ENTERED INTO AS PER THE BOOK RESULTS BUT THEY ARE ENTERED INTO CONSIDER ING THE FUTURE POTENTIAL OF A BUSINESS WHICH A PURCHASER ANTICIPATES. IN ITS FACTS AND CIRCUMSTANCES, M/S. DEEPAK FOODS HAD A MUCH STRONGER FINANCIAL POTENTIAL AS CO MPARED TO M/S. SANGHAVI FOODS. THE CIT HAS NOT APPRECIATED THAT I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 48 M/S. DEEPAK FOODS HAD A BRAND NAME AND ITS PRODUCT WAS HAVING GOOD MARKET AT THE RELEVANT POINT OF TIME. T HUS, THE AMOUNT INVESTED IN M/S. DEEPAK FOODS AND M/S. SANGH AVI FOODS IS ON ACCOUNT OF THE BRAND NAME 'NILONS', DEA LER NETWORK, CUSTOMER LOYALTY, ETC. THE CIT HAS NOT ADO PTED PRACTICAL APPROACH WHILE DETERMINING GOODWILL. HE F AILED TO APPRECIATE THE OTHER FACTORS LIKE BRAND NAME AND CU STOMER BASE, WHICH PLAY A VERY VITAL ROLE IN DETERMINING T HE QUANTUM OF GOODWILL. CONSIDERING THESE FACTORS, THE AMOUNT RECEIVED IS REASONABLE. THE CIT HAS NOT PROPERLY APPRECIATED THE UNDER CURRENT FACTORS IN ITS COMMER CIAL BACKGROUND, WHICH IS NOT JUSTIFIED. IN VIEW OF ABO VE LEGAL DISCUSSION, THE AMOUNT RECEIVED BY ASSESSEE IS EXEM PT FROM TAX. 6.8 THE CIT ON AN ALTERNATE BASIS HELD THAT THE AMO UNT OF RS. 21.52 CRS. IS TAXABLE AS INCOME FROM OTHER SOURCES, SIMPLY IN CASE THE AMOUNT RECEIVED ON RETIREMENT IS NOT TAXABLE AS CAPITAL GAIN. THE AMOUNT RECEIVED COULD NOT BE TAXED AS INCOME FROM OTHER SOURCES, SIMPLY BECAUSE A RECEIPT IS NOT A CAPITAL GAIN CHARGEABLE TO TAX U/S .45. ONE SHOULD NOT JUMP TO THE CONCLUSION THAT THE RECEIPT IN QUESTION IS NOT A CAPITAL RECEIPT AT ALL. THERE CA N BE CAPITAL RECEIPTS WHICH ARE NOT CHARGEABLE TO TAX U/S.45 OF ACT. MERELY BECAUSE THE RECEIPT IN QUESTION IS NOT TAXAB LE AS A CAPITAL GAIN IT COULD NOT BE CONCLUDED THAT THE IMP UGNED RECEIPT IS A REVENUE RECEIPT CHARGEABLE TO TAX AS I NCOME FROM OTHER SOURCES. THIS VIEW IS FORTIFIED BY THE DECISI ONS MUMBAI BENCH IN THE CASE OF NIYATI B YODH [4 SOT 941 (MUM) ], WHEREIN, THE PAYMENT RECEIVED BY LEGAL HEIR OF TENA NT UNDER A TRIPARTITE AGREEMENT BETWEEN SUCH LEGAL HEIRS, LA NDLORD AND PURCHASER FOR HANDING OVER PEACEFUL POSSESSION TO THE PURCHASER BEING CAPITAL RECEIPT COULD NOT BE BROUGH T TO TAX AS INCOME FROM OTHER SOURCES. THE SIMILAR VIEW HAS BEEN EXPRESSED IN THE CASE OF CIT VS. SMT. T.P. SIDHWA ( 1982) 133 ITR 840 (BOM), WHEREIN IT WAS HELD THAT THE INC OME FROM HOUSE PROPERTY EARNED BY ONE WHO WAS NOT OWNER WAS HELD NOT ASSESSABLE UNDER THE HEAD INCOME FROM OTHE R SOURCES. THE MERE FACT THAT RENT RECEIVED IN THE A BSENCE OF OWNERSHIP COULD NOT BE BROUGHT TO CHARGE U/S.9 WOUL D NOT ENABLE THE REVENUE TO BRING IT UNDER THE RESIDUARY HEAD I.E. INCOME FROM OTHER SOURCES. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 49 6.9 REGARDING THE ALLEGATION OF CIT THAT THE ASSESS EE HAS RESORTED TO TAX PLANNING. AS PER THE ABOVE DISCUSS ION, THE RETIREMENT OF PARTNER DOES NOT AMOUNT TO A TRANSFER FOR THE PURPOSES OF CAPITAL GAINS. THE COURT HAS HELD THAT IF TRANSACTIONS ARE ARRANGED AS PER LAW, SIMPLY BECAUS E THEY LEAD TO TAX REDUCTION, IT DOES NOT MEAN THAT THESE TRANSACTIONS ARE TO BE REJECTED AS TAX PLANNING MEA SURES. THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SH ARES AND SECURITIES [326 ITR 1] HAS HELD THAT IN CASE, T HE ASSESSEE COMPANY PURCHASED THE SHARES CUM DIVIDEND, RECEIVED THE DIVIDEND THEREAFTER, WHICH WAS TAX FRE E AND LATER ON, SOLD THE SHARES EX DIVIDEND AND CLAIMED T HE CAPITAL LOSS. IT WAS HELD THAT ASSUMING THAT THE ASSESSEE MADE THE USE OF PROVISION OF SECTION 10(33), SUCH USE COULD NOT BE SAID TO BE ABUSE OF LAW. EVEN ASSUMING THAT THE TRA NSACTION WAS PRE PLANNED, THERE WAS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION AND HENCE, THE LOSS WAS ALLOWED. WE ALSO FIND THAT THE HONBLE SUPREME COU RT IN THE CASE OF PORRITS AND SPENCER (2010) 329 ITR 222 (P & H) HAS HELD THAT ONCE THE TRANSACTION IS GENUINE, MERE LY BECAUSE IT IS ENTERED INTO WITH A MOTIVE TO AVOID T AX, IT WOULD NOT BECOME A COLOURABLE DEVICE AND THE LOSS I S ALLOWABLE. 6.10 WE FURTHER FIND THAT THE CIT HAS GIVEN HIS FINDING THAT THE ASSESSING OFFICER DID NOT CONDUCT NECESSAR Y ENQUIRY AND APPLIED HIS MIND REGARDING THE AMOUNT R ECEIVED BY THE ASSESSEE. IN THIS REGARD, WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (2011) 332 ITR 167 (DEL) HELD THAT THE PROVISIONS O F SECTION 263 SHOULD NOT BE INVOKED FOR INADEQUATE ENQUIRIES BUT IT MAY BE INVOKED IN THE CASE OF ABSENCE OF ENQUIRY. IT IS NOT CASE OF CIT THAT ENQUIRY HAS NOT BEEN CONDUCTED BUT ONLY ALLEGATION IS THAT THE ASSESSING OFFICER DID NOT CO NDUCT NECESSARY ENQUIRY. NECESSARY ENQUIRY, ADEQUATE ENQ UIRY OR INSUFFICIENT ENQUIRY IS SUBJECTIVE OUTLOOK. IT VAR IES PERSON TO PERSON. SO, CIT CANNOT THRUST HIS SUBJECTIVE OUTLO OK UPON THE ASSESSING OFFICER WHO IN FACT HAS MADE CERTAIN ENQUIRIES WITH REGARD TO ISSUE AT HAND AT THE RELEVANT POINT OF TIME. IN VIEW OF ABOVE LEGAL AND FACTUAL DISCUSSION, THE ORDER OF CIT U/S.263 IS NOT JUSTIFIED AND THE SAME IS QUASHE D. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 50 EVEN IN CASE BEFORE US IT IS NOT THE CASE OF NO ENQ UIRY BY ASSESSING OFFICER. EVEN THEN CIT HAS TAKEN ADVERSE VIEW. ACCORDING TO CIT, VIEW ADOPTED BY ASSESSING OFFICER DOES NOT SUIT TO HIM CIT WHICH IS NOT JUSTIFIED. WE ALSO F IND THAT HONBLE GUJARAT HIGH COURT CIT VS. R.K. CONSTRUCTIO N CO. 313 ITR 65 (GUJ.) HAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT SINCE ALL THE N ECESSARY DETAILS WERE FURNISHED TO THE ASSESSING OFFICER, TH ERE WAS NO REASON FOR THE COMMISSIONER TO INVOKE THE REVISIONA L JURISDICTION UNDER SECTION 263 OF THE ACT. THE ASSE SSING OFFICER HAD TAKEN A PARTICULAR VIEW ON THE BASIS OF THE EVIDENCE PRODUCED BEFORE HIM. ON THE BASIS OF THE E VIDENCE BEFORE THE ASSESSING OFFICER AND MATERIALS WHICH WE RE COLLECTED BY THE COMMISSIONER IN REVISIONAL PROCEED INGS, THE COMMISSIONER HAD TAKEN A DIFFERENT VIEW. HOWEVER, I N THE REVISIONAL PROCEEDINGS UNDER SECTION 263. IT WAS NO T OPEN FOR THE COMMISSIONER TO TAKE SUCH A DIFFERENT VIEW. THERE WAS NOTHING ON RECORD TO SUGGEST THAT THE VIEW TAKE N BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. HONBLE DELHI HIGH COURT IN CASE OF CIT VS. DLF LTD ., 350 ITR 555 (DEL.). HELD THAT IT IS NOT MERE PREJUDICIAL T O THE REVENUE OR A MERE ERRONEOUS VIEW WHICH CAN BE REVISED, UNDE R SECTION 263 OF INCOME-TAX ACT. THERE SHOULD BE ADDED ELEMEN T OF 'UNSUSTAINABILITY' IN THE ORDER OF ASSESSING OFFICE R, WHICH CLOTHES THE COMMISSIONER WITH JURISDICTION TO ISSUE NOTICE, AND PROCEED TO MAKE APPROPRIATE ORDERS UNDER PROVISION OF SECTION 263. HONBLE SUPREME COURT IN CASE OF CIT VS. GREE NWORLD CORPORATION, 314 ITR 81 (SC) OBSERVED THAT SCOPE OF PROVISIONS OF SECTION 263 OF THE ACT IS NO LONGER RES INTEGRA. THE POWER TO EXERCISE SUO MOTU POWER OF REVISION IN TERMS OF SEC TION 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND SA ME CAN BE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 51 EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THERE IN, VIZ., (1) THE ORDER IS ERRONEOUS ; (2) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE, EXIST. HONBLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (SUPRA) HAS HELD THAT PH RASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY ASSES SING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCO ME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN L AW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHIC H THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF REV ENUE UNLESS THE VIEW TAKEN BY INCOME-TAX OFFICER IS UNSUSTAINAB LE IN LAW. NEITHER IT IS NECESSARY NOR IT IS POSSIBLE TO DISCU SS IN THE ASSESSMENT ORDER, THE ISSUES WHICH ARE ACCEPTED AFT ER SATISFYING HIMSELF REGARDING THE FACTS AND LAW INVO LVED THEREIN. ASSESSING OFFICER HAS TO DISCUSS IN THE BODY OF ASS ESSMENT ORDER, ONLY THOSE ISSUES WHICH ARE NOT ACCEPTED BY HIM AND FOR WHICH HE SEEKS TO MAKE AN ADDITION TO TOTAL INCOME. WE FIND THAT ORDER OF ASSESSING OFFICER SHOWS THAT HE HAS R AISED SPECIFIC QUERY AND ASSESSEE HAS GIVEN SPECIFIC REPL Y ON FACTS AND LAW ON THE ISSUE OF CURRENCY SWAP LOSS OF RS. 6 .04 CRORES, AS MENTIONED EARLIER. I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 52 4.18 WE FIND THAT AHMEDABAD A BENCH IN ITA NO. 1096/A/2011 AND 910/A/2014 DT. 17-10-2014 IN CASE O F CADILLA HEALTH CARE LTD., AHMEDABAD V. CIT, AHMEDAB AD-1 HELD AS UNDER: CONSIDERING THE AFORESAID FACTS IT IS SEEN THAT FO R A.Y. 2006- 07 AND A.Y. 2008-09, AO HAD HAD MADE FULL INQUIRIES BY RAISING THE QUERIES WITH RESPECT TO THE ISSUE UNDER CONSIDERATION AND THE SAME WERE ALSO REPLIED BY THE ASSESSEE AND ON RECEIPT OF THE REPLIES ACCEPTED THE CLAIM OF THE ASSESSEE. WE FURTHER FIND THAT H'BLE APEX COURT IN THE CASE OF CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 ( SC) HAS HELD THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, I T CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT IS A GENERALLY NOTICED THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO EXAMIN ES NUMEROUS ISSUES AND GENERALLY, THE ISSUES WHICH ARE ACCEPTED DO NOT FIND MENTION IN THE ASSESSMENT ORDE R AND ONLY SUCH POINTS ARE TAKEN NOTE OF ON WHICH THE ASS ESSEE'S EXPLANATIONS ARE REJECTED AND ADDITIONS/DISALLOWANC ES ARE MADE. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT PROVISIONS OF S. 263 CANNOT BE RESORTED TO AND FOR WHICH WE DR AW SUPPORT BY THE DECISION OF H'BLE BOMBAY*HIGH COURT IN THE CASE OF GABRIEL INDIA LTD (SUPRA). WE ALSO DRAW SUP PORT FROM THE DECISION OF H'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HONDA SIAL POWER 333 ITR 547 (DEL), WHERE IT HAS BE EN HELD THAT WHEN A REGULAR ASSESSMENT IS MADE U/S 143(3) A PRESUMPTION CAN BE RAISED THAT THE ORDER HAS BEEN P ASSED UPON ON APPLICATION OF MIND. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE VIEW TAKEN BY THE AO WAS AN IMPERMISSIBLE VIEW AND WAS CONTRARY TO LAW OR WAS UPON ERRONEOUS APPLICATION O F LEGAL PRINCIPLES NECESSITATING THE EXERCISING OF REVISION ARY POWERS U/S 263. FURTHER, THE CASES LAWS RELIED UPON BY THE REVENUE ARE DISTINGUISHABLE ON FACTS AND THEREFORE CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IN THE VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRE SENT CASE FOR AY 2006-07 AND FOR AY 2008-09, CIT WAS NOT JUST IFIED IN RESORTING TO THE REVISIONARY POWERS U/S 263 OF THE ACT. WE I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 53 THEREFORE SET ASIDE THE ORDERS OF CIT FOR AY 2006-0 7 AND AY 2008-09, SETTING ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. THUS THE GROUND OF ASSESSEE ARE ALLOWED IN BOTH THE YEARS. 4.19 REGARDING MERIT OF THE CLAIM, WE FIND THAT CUR RENCY SWAP LOSS OF RS. 6.04 CRORES WAS DIRECTLY COVERED IN FAV OUR OF ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. FRIENDS AND FRIENDS SHIPPING PVT. LT D [SUPRA], WHEREIN ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS WITH BANKS TO HEDGE AGAINST ANY LOSS ARISING TO FLUCTUAT ION IN FOREIGN CURRENCY. IN SOME CASES, EXPORT COULD NOT BE EXECUTED AND ASSESSEE HAD TO PAY CERTAIN CHARGES TO BANKS. ASSESSEE TREATED SAID CHARGES AS BUSINESS LOSS AND CLAIMED D EDUCTION. HOWEVER, ASSESSING OFFICER DISALLOWED SAID LOSS HOL DING IT TO BE SPECULATIVE IN NATURE. MATTER TRAVELLED UP TO HON BLE HIGH COURT, WHEREIN IT WAS HELD THAT FOREIGN EXCHANGE CO NTRACTS AS INCIDENTAL TO ASSESSEES EXPORT BUSINESS AND INCURR ED LOSS IN SAID CONTRACTS, SAID LOSS WAS NOT IN NATURE OF SPEC ULATIVE LOSS BUT SAME WAS ALLOWED AS BUSINESS LOSS. THUS, MATTE R WAS DECIDED IN FAVOUR OF ASSESSEE. IN SUCH SITUATION, ORDER PASSED BY ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF REVENUE. IN RESPONS E TO QUERY RAISED BY BENCH WHETHER CURRENCY LOSS OF RS. 6.04 C RORES CONSISTS OF ALL THE LOSSES OR ANY PROFIT EARNED IN THIS CURRENCY SWAP AGREEMENTS. THE LEARNED AUTHORIZED REPRESENTA TIVE DREW OUR ATTENTION TO PAGES 29 AND 30 OF THE COMPIL ATION WHERE LEDGER ACCOUNT OF CURRENCY SWAP WAS COMPILED. HE AL SO POINTED OUT THAT IN CERTAIN CURRENCY SWAP TRANSACTIONS, PRO FIT IS ALSO I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 54 EARNED AND HENCE, SUM OF RS. 6.04 CRORES IS NET FIG URE OF LOSS. THUS CASE ON MERIT ALSO TILT IN FAVOUR OF ASSESSEE. 4.20 COMING TO THE ARGUMENT OF LEARNED DEPARTMENTAL REPRESENTATIVE WHO HAS RELIED ON FOLLOWING DECISION S: I. CIT VS. INFOSYS TECHNOLOGIES LTD. 17 TAXMANN.COM 203 (KAR.), WHEREIN ASSESSING OFFICER ALLOWED CLAIM WIT HOUT ANY DISCUSSION, ORDER WAS HELD TO BE BOTH ERRONEOUS AND PREJUDICIAL AS QUASI JUDICIAL AUTHORITY IS REQUIRED TO GIVE REASONS FOR ANY ALLOWANCE. THE APPEAL BEFORE US IS BEING DECIDED AT THE STRENGTH OF DECISION OF JURISDICTION AL HIGH COURT AS DISCUSSED. II. CIT V. JAWAHAR BHATTACHARJEE 24 TAXMANN.COM 215 (GAU.), WHEREIN ASSESSMENT ORDER PASSED ON WRONG AS SUMPTION OF FACTS, ON INCORRECT APPLICATION OF LAW, WITHOUT DUE APPLICATION OF MIND ARE NOT BEYOND THE SCOPE OF SEC TION 263. IN CASE BEFORE US THERE IS NO WRONG ASSUMPTION BY ASSE SSING OFFICER AND CASE HAS BEEN DECIDED IN ITS FACTS AND CIRCUMSTANCES. 4.21 LEARNED DEPARTMENTAL REPRESENTATIVE ALSO RELIE D ON FOLLOWING CASE TO SUPPORT THE ORDER OF CIT(A). I. CIT V. USHA INTERNATIONAL LTD. 348ITR 485 [DEL.] II. BHARAT OVERSEAS BANK LTD. VS. CIT 152 TTJ 546 ( CHENNAI) III. MALABAR INDUSTRIES LTD. VS. CIT 243 ITR 23 (SC ). IV. ASMAN INVESMTENT LTD. V DCIT ITA NO. 1262/A/201 1, ITAT AHMEDABAD I.T.A. NO. 1545/AHD/2014 A.Y. 2008-09 (ADANI ENTERPRISES LTD. VS. ACIT) PAGE 55 4. THERE IS NO DISPUTE TO THE PROPOSITION THAT ASSE SSING OFFICERS ORDER CAN BE REVISED IN CASE OF ASSESSEE MADE NO INQUIRY IN THE ASSESSMENT ORDER. BUT IN CASE BEFOR E US ENQUIRY HAS BEEN DONE. SO IT CAN NOT BE SAID THAT ASSESSIN G OFFICER HAS PASSED ORDER WITHOUT ANY ENQUIRY OR APPLICATION OF MIND. SO, THE CASES RELIED BY LEARNED DEPARTMENTAL REPRESENTA TIVE DOES NOT HELP THE REVENUE. IN VIEW OF ABOVE DISCUSSION, CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ORDER OF ASSESSING O FFICER BY INVOKING PROVISION OF 263 OF ACT BECAUSE ASSESSING OFFICER HAS DECIDED THE ISSUE AFTER MAKING ENQUIRES AS DISCUSSE D ABOVE. MOREOVER, ON MERIT ALSO CASE TILT IN FAVOUR OF ASSE SSEE. SO ORDER OF CIT U/S. 263 IS QUASHED. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF JANUARY, 2015. SD/- SD/- (N. S. SAINI) (SHAILENDR A KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R TRUE COPY S.K.SINHA ' ' ' ' !( !( !( !( )(&! )(&! )(&! )(&! / COPY OF ORDER FORWARDED TO:- 1. ,- / REVENUE 2. / ASSESSEE 3. 00! 1 / CONCERNED CIT 4. 1- / CIT (A) 5. (56 !, , / DR, ITAT, AHMEDABAD 6. 69: ;< / GUARD FILE. BY ORDER / ' , =/ 0, , ?