Dy.Commissioner of Income Tax, Circle-17(2), Hyderabad V. Vijay Textiles Limited, Secunderabad

ITA 1609/Hyd/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5118 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 24-02-2021
• Assessment Year: 2009-2010
• Appeal Filed On: 15-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIVYA K J
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A. NO. 1609/HYD/2017 ASSESSMENT YEAR: 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-17(2), HYDERABAD VS M/S.VIJAY TEXTILES LIMITED, SECUNDERABAD [PAN: AAACV8195L] (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. DIVYA, K.J. DR FOR ASSESSEE : SHRI LAXMINIWAS SHARMA, AR DATE OF HEARING : 06-10-2020 DATE OF PRONOUNCEMENT : 12-10-2020 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS REVENUES APPEAL FOR THE AY.2009-10, DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)5, HYDERABAD, DATED 30-06-2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPAN Y, ENGAGED IN THE BUSINESS OF TEXTILES MANUFACTURING, TRAD ING AND RETAILING, FILED ITS RETURN OF INCOME FOR THE AY.2009- 10 ON 24- 09-2009, ADMITTING TOTAL INCOME OF RS.3,73,47,310/-. THE ASSESSMENT WAS COMPLETED ON 23-12-2011 BY TREATING THE LOSS OF RS.1,41,07,623/- WITH REGARD TO DERIVATIVE TRANSACT IONS AS SPECULATIVE LOSS AND BROUGHT IT TO TAX U/S.43(5) OF THE INCOME TAX ACT [ACT]. ITA NO. 1609/HYD/2017 :- 2 -: 2.1. THEREAFTER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE MATTER TRANSFERRED UPTO ITAT. THE ITAT REMITTED TH E ISSUE BACK TO THE FILE OF AO FOR DECIDING THE SAME AFR ESH IN ACCORDANCE WITH LAW. THUS, THE ASSESSMENT WAS COMPLETED U/S.143(3) R.W.S.148 AND 254 OF THE ACT. 3. DURING THE REMAND PROCEEDINGS, THE AO OBSERVED THA T WHILE COMPUTING THE LOSS ON FOREIGN EXCHANGE, BOOKIN G RATE IN RESPECT OF SBI WAS TAKEN @43.015 US$, BUT SBIS INVOIC E RATE WAS @42.785 US$, THEREBY RESULTING IN A PROFIT OF RS.14,03,000/- INSTEAD OF RS.1,77,81,500/- AND DUE TO THIS REASON, THE ASSESSMENT WAS RE-OPENED U/S.147 OF THE AC T. HE ALSO OBSERVED THAT DURING THE RE-ASSESSMENT PROCEEDING S, THE ASSESSEE HAD SUBMITTED EXPLANATORY NOTES ON FOREIGN EXC HANGE LOSS, SUBMITTING THAT THE ASSESSEE HAD AVAILED A LOAN OF US$ 61 LAKHS DISBURSED ON 04-12-2007 @ RS.39.375/DOLLAR THE DUE DATE BEING 04-06-2008 AND AT THE TIME OF CLOSURE OF FINANCIAL ACCOUNT FOR THE F.Y.2007-08, THE LOAN OF US$ 61 LAKHS WAS RE-STATED IN THE BOOKS @40.10/DOLLAR BEING THE DOLLAR RATE AS ON 31-03-2008, THUS, RESULTING IN NOTI ONAL LOSS OF RS.44,22,500/- AND ON THE DUE DATE OF 04-06-2008, THE BANK HAD DEBITED THE ASSESSEES ACCOUNT WITH US$ 61 LAK HS @43.015 RESULTING IN THE TOTAL LOSS OF RS.2,22,04,000/ - AND AFTER REDUCING THE LOSS ALREADY CONSIDERED IN THE FY. 2007-08, HE ARRIVED THAT THE TOTAL LOSS OF RS.1,77,81,500/-. THE AO, HOWEVER, DID NOT ACCEPT THIS CONTENTION OF ASSESSEE AN D HE DISALLOWED THE LOSS OF RS.1,77,81,500/- AND BROUGHT TH E PROFIT OF RS.14,03,000/- I.E., THE TOTAL OF RS.1,91,84,500/- TO TAX. ITA NO. 1609/HYD/2017 :- 3 -: 4. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO GRANTED RELIEF TO THE ASSESSEE AND AGAINST SUCH REL IEF, NOW THE REVENUE IS IN APPEAL BEFORE US, RAISING THE FOLL OWING GROUNDS: 1. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED BOTH ON FACTS AND IN LA W IN HOLDING THAT THERE IS NO BASIS OF MAKING ADDITION OF RS.1,91,84, 500/- WITH RESPECT TO LOSS ON DERIVATE TRANSACTIONS. 3. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 5. THE CASE IS TAKEN UP FOR HEARING ON 06-10-2020 THR OUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HEARD. 6. LD.DR, RELIED UPON THE ASSESSMENT ORDER WHILE THE LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDERS OF THE CIT(A). 7. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARA OF THE CIT(A)S ORDER IS REPRODUCED HEREIN BELOW: THE DETAILS OF THE FOREIGN CURRENCY LOANS AVAILED BY THE ASSESSEE FROM SBI BY CONVERTING THE AVAILED BALANCES IN WORK ING CAPITAL FACILITY, UNDER FCNR-B SCHEME, WERE AS FOLLOWS: PARTICULARS A.Y.2008-09 A.Y.2009-10 LOAN-I USD 61,00,000/- LOAN-I USD 61,00,000/- DATES 04.12.2007 31.03.2008 04.06.2008 05.06.2008 05.12.2008 EXCHANGE RATE 39.3750 40.1000 43.0150 42.7850 43.0636 DIFFERENCE IN EXCHANGE RATE FOR THE YEAR 0.7250 -2.9150 -0.2786 LOSS FOR THE YEAR 44,22,500 1,77,81,500 -16,99,460 LOSS CLAIMED BY THE ASSESSEE 44,22,500 1,77,81,500 -16,99,460 ITA NO. 1609/HYD/2017 :- 4 -: FROM THE DETAILS DELINEATED ABOVE, IT IS APPARENT T HAT THE FIRST LOAN OF US $ 61,00,000 WAS AVAILED ON 4TH DECEMBER, 2007 FOR A PERIOD OF SIX MONTHS AND AT THAT TIME THE EXCHANGE RATE WAS RS. 39.3750/US$ AND THE MATURITY DATE IS 4TH JUNE, 2008 . THE SAID LOAN WAS SETTLED AT THE RATE OF RS. 43.015/US$. THIS HAS RESULTED IN THE FOREIGN EXCHANGE LOSS OF RS. 2,22,04,000/- [= 61,00 ,000*(39.3750- 43.0150)]. OUT OF THIS RS. 44,22,500/- WAS ACCOUNTE D FOR IN THE FINANCIAL YEAR 2007 -08 (AT THE YEAR-END RATE OF RS .40.100 BEING THE LOSS ACCRUED UP TO 31.03.2008). THE BALANCE LOSS OF RS. 1,77,81,500/- WAS ACCOUNTED FOR IN THE SUBSEQUENT A SSESSMENT YEAR AY 2009-10 UPON MATURITY ON 04.06.2008. THE SECOND LOAN OF THE EQUIVALENT AMOUNT THAT IS US $ 61,00,000 WAS TAKEN ON THE SUBSEQUENT DAY I.E. 05.0 6.2008 AT THE RATE OF RS. 42.785/US$ BY THE ASSESSEE COMPANY ON F OR A PERIOD OF SIX MONTHS AND THE SAME WAS SETTLED BY THE ASSESSEE COMPANY ON 05.12.2008 AT THE RATE OF RS. 43.0636/ US $. RESULT ING IN A LOSS OF RS.16,99,460 IN THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSMENT YEAR 2009-10. STRANGELY THE AO COMPUTED THE GAIN AT RS. 14,03,000 [6100000* (42.7850 - 43.0150)]. THIS DIFF ERENCE IS ONLY DUE TO SBI SELLING RATE AND BUYING RATE ON 04.06.20 08 AND 05.06.2008. ERRONEOUSLY THE AO MADE THE ADDITION, W HEREAS THERE IS NO PROFIT EMANATED OUT OF THE FOREIGN EXCHANGE TRAN SACTION. THUS, I HOLD THAT THERE IS NO BASIS OF MAKING ADDITION OF R S.1,91,84,500 AND HENCE IT IS TO BE DELETED. 8. THUS, IT IS SEEN THAT THE ASSESSEE HAD INITIALLY TAKEN A LOAN OF US$ 61 LAKHS ON 04-12-2007, WHICH GOT CLOSED ON 04- 06-2008 AND HAS RESULTED IN A LOSS OF RS.1,77,81,500 /- DURING THE AY.2008-09 AND AGAIN FOR THE AY.2009-10, THERE WAS ANOTHER LOAN OF US$ 61 LAKHS ON 05-06-2008 AND ON THE CLOSING DATE I.E., ON 05-12-2008, THIS HAS AGAIN RESU LTED IN A LOSS OF RS.16,99,460/-. THE CIT(A) HAS THEREFORE COR RECTLY APPRECIATED THE FACTS OF THE CASE AND HAS ACCORDINGLY D ELETED THE ADDITION MADE BY THE AO. LD.DR HAS NOT BEEN ABLE TO REBUT THE FINDINGS OF THE CIT(A) WITH ANY EVIDENCE TO THE CONTR ARY. IN VIEW OF THE SAME, WE SEE NO REASON TO INTERFERE WITH T HE ORDER ITA NO. 1609/HYD/2017 :- 5 -: OF THE CIT(A) AND THE APPEAL OF THE REVENUE IS ACCORDI NGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2020 SD/- SD/- ( A. MOHAN ALANKAMONY ) ( P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 12-10-2020 TNMM ITA NO. 1609/HYD/2017 :- 6 -: COPY TO : 1.THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 17(2), HYDERABAD. 2.M/S.VIJAY TEXTILE LIMITED, 1-7-4 TO 10 SURYA TOWE RS, SARDAR PATEL ROAD, SECUNDERABAD 3.CIT(APPEALS)-5, HYDERABAD. 4.PR.CIT-5, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.