Suzlon Energy Ltd. v. Asstt. CIT

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The Tax Publishers2017 TaxPub(DT) 1199 (Ahd-Trib) : (2017) 188 TTJ 0278 Suzlon Energy Ltd. v. Asstt. CIT INCOME TAX ACT, 1961 --Business loss--AllowabilityForeign exchange fluctuation loss----Foreign exchange forward contracts had been entered into for genuinely restricting bona fide risk, i.e., exposure of the assessee in respect of its exports and imports transactions. Such contracts could, therefore, be viewed on a standalone basis as speculative transactions. These were integral part of assessee's business transactions and any loss or gains arising thereunder was deductible.--Assessee claimed deduction of foreign exchange loss arising under forward contracts having been entered into with bankers for managing and controlling foreign exchange fluctuation risk in relation to import and export transaction. Relying upon CBDT Instruction No. 3 of 2010, AO disallowed assessee's claim on the ground that the loss had not crystallized and was only notional. *Held:* It was clear that foreign exchange forward contracts had been entered into for genuinely restricting bona fide risk, i.e., exposure of the assessee in respect of its exports and imports transactions. Such contracts could not, therefore, be viewed on a standalone basis as speculative transactions. These were integral part of assessee's business transactions and any loss or gains arising thereunder deductible. As for the CBDT instruction, it is only elementary that any instructions issued by the CBDT cannot bind the assessee. It is actually contrary to the assessee's claim. Assessee had been consistently following the mercantile system for foreign exchange losses and gains all along, consistent with the Accounting Standards. In view of this, AO was not justified in denying assessee's claim. Income Tax Act, 1961 Section 28(i) *REFERRED :* FAVOUR : In assesee's favour. A.Y. : 2008-09 INCOME TAX ACT, 1961 --Transfer pricing--International transactions Issuance of corporate guarantee----Since Explanation to section 92B inserted with effect from 1-4-2012 is stated be clarificatory in nature, therefore, same could not be supposed to having retrospective application and AO was not, therefore, justified in invoking the explanation during the relvant year and treating issuance of corporate guarantee as international transaction prior to 1-4-2012.--Assessee had extended corporate guarantee in respect of loan taken by AE abroad. No benchmarking exercise was performed by assessee in respect of the said transaction. AO treated issuance of corporate guarantee as an international transaction in view of Explantion to section 92B and worked out arm's length guarantee commission.Held: Explanation to section 92B inserted with effect from 1-4-2012 is stated be clarificatory in nature, therefore, same could not be supposed to having retrospective application. The Explanation has to be treated as prospective in nature as effective from at best the asst.yr. 2013-14. Hence, AO was not justified in treating issuance of corporate guarantee as international transaction during the relevant year, i.e., prior to 1-4-2012. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 1199 (Ahd-Trib) : (2017) 188 TTJ 0278

Suzlon Energy Ltd. v. Asstt. CIT

INCOME TAX ACT, 1961

--Business loss--AllowabilityForeign exchange fluctuation loss----Foreign exchange forward contracts had been entered into for genuinely restricting bona fide risk, i.e., exposure of the assessee in respect of its exports and imports transactions. Such contracts could, therefore, be viewed on a standalone basis as speculative transactions. These were integral part of assessee's business transactions and any loss or gains arising thereunder was deductible.--Assessee claimed deduction of foreign exchange loss arising under forward contracts having been entered into with bankers for managing and controlling foreign exchange fluctuation risk in relation to import and export transaction. Relying upon CBDT Instruction No. 3 of 2010, AO disallowed assessee's claim on the ground that the loss had not crystallized and was only notional. Held: It was clear that foreign exchange forward contracts had been entered into for genuinely restricting bona fide risk, i.e., exposure of the assessee in respect of its exports and imports transactions. Such contracts could not, therefore, be viewed on a standalone basis as speculative transactions. These were integral part of assessee's business transactions and any loss or gains arising thereunder deductible. As for the CBDT instruction, it is only elementary that any instructions issued by the CBDT cannot bind the assessee. It is actually contrary to the assessee's claim. Assessee had been consistently following the mercantile system for foreign exchange losses and gains all along, consistent with the Accounting Standards. In view of this, AO was not justified in denying assessee's claim.

Income Tax Act, 1961 Section 28(i)

REFERRED :

FAVOUR : In assesee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

--Transfer pricing--International transactions Issuance of corporate guarantee----Since Explanation to section 92B inserted with effect from 1-4-2012 is stated be clarificatory in nature, therefore, same could not be supposed to having retrospective application and AO was not, therefore, justified in invoking the explanation during the relvant year and treating issuance of corporate guarantee as international transaction prior to 1-4-2012.--Assessee had extended corporate guarantee in respect of loan taken by AE abroad. No benchmarking exercise was performed by assessee in respect of the said transaction. AO treated issuance of corporate guarantee as an international transaction in view of Explantion to section 92B and worked out arm's length guarantee commission.Held: Explanation to section 92B inserted with effect from 1-4-2012 is stated be clarificatory in nature, therefore, same could not be supposed to having retrospective application. The Explanation has to be treated as prospective in nature as effective from at best the asst.yr. 2013-14. Hence, AO was not justified in treating issuance of corporate guarantee as international transaction during the relevant year, i.e., prior to 1-4-2012.