Income Tax Appellate Tribunal - Chandigarh
M/S Ess Ess Steel Casting & Rolling ... vs Acit, Circle- V, Ludhiana on 19 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER &
Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 1217/Chd/2017
Assessment Year: 2012-13
M/s Ess Ess Steel Casting & Rolling Vs. The ACIT, Circle V,
Mills Pvt. Ltd., Ludhiana
Kangawal Road,
Ludhiana
PAN No. AAACE7365H
(Appellant) (Respondent)
Appellant By : Sh. Pankaj Bhalla, CA
Respondent By : Smt. Chanderkanta, Sr.DR
Date of hearing : 21.12.2017
Date of Pronouncement : 19.03.2018
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals), [hereinafter referred to as CIT(A)]-2, Ludhiana dated 13.6.2017.
2. The assessee has raised following grounds of appeal:-
1. That the Ld. CIT(A)-2, Ludhiana has wrongly passed the order u/s 250(6) of the Income-tax Act, 1961 against law & facts of the case.
ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 2
2. That the Ld. CIT(A)-2, Ludhiana erred in law & facts in confirming disallowance of Rs.
5,63,850/- u/s 43(5) of the Income-tax Act, 1961, without any base & reason thereof.
3. The brief facts relevant to the issue are that during the assessment proceedings the Assessing officer noted that assessee had claimed an expenditure of Rs. 5,63,850/- as Foreign Exchange loss. He observed that there was no sale / purchase of any article from foreign firms / companies and, hence, there was no question of loss on account of Foreign Exchange fluctuation. On being asked to explain, the assessee explained that the aforesaid expenditure was in fact on account of interest and hedging charges paid to State Bank of India, Ludhiana for forward booking of loan amount of US$ 4,20,000. The Assessing officer, however, was not satisfied with the above explanation of the assessee and held that the foreign currency transactions did not relate to the business of the assessee. That the assessee had not been able to prove that the hedging was against certain bills of purchase and sales. He accordingly treated the aforesaid transactions of hedging as speculative transactions and disallowed the amount of Rs. 5,63,850/- claimed by the assessee as business loss / expenditure.
4. Being aggrieved by the order of the Assessing officer, the assessee preferred appeal before the CIT(A). However, the Ld. ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 3 CIT(A) confirmed the addition made by the Assessing officer on the same footing.
5. Being aggrieved by the above order of the CIT(A), the assessee has come up in appeal before us. The Ld. Counsel for the assessee has explained before us that the above said expenditure / loss was not in relation to any sale / purchase or import / export transactions. He has submitted that the lower authorities have misdirected themselves in this respect. He has further explained that, in fact, the assessee had taken loan in foreign currency. The aforesaid loan was taken taking into consideration the business interest of the assessee. The i n t e r e s t o n l o a n i n f o r e i g n c u r r e n c y w a s p a ya b l e a t l o w r a t e a s c o m p a r e d t o t h e l o a n i n I n d i a n c u r r e n c y. The assessee had wisely calculated the future liability on the loan and deemed it fit to take the loan termed as FCNR(B)DL Loan; which was a deemed loan sanction for meeting the working capital requirement of the existing borrowers of the bank. The major advantage to that loan was that corporates got this loan at a cheaper rate. While taking the aforesaid loan, the assessee had also taken into consideration, the likely loss which should have to be borne by the assessee on account of Foreign Exchange Fluctuation. The assessee, therefore, hedged the impending loss on account of Foreign Exchange Fluctuation with the bank. The liability against the loan was duly presented in the balance sheet. The Ld. Counsel for the assessee has further invited our attention to the certificate issued by the bank wherein the bank has confirmed that ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 4 the assessee had availed foreign currency of US$ 4,20,000 loan for working capital limits. Further, to prevent adverse Exchange rate fluctuation, the same had been fully hedged and the difference in b u yi n g a n d s e l l i n g r a t e o f U S $ a m o u n t i n g t o R s . 5 , 6 3 , 8 5 0 / - w a s charged. Further, an interest @ 6.74 per annum was also charged.
6. The Ld. Counsel for the assessee has explained that despite the payment of hedging charges as well as interest, the assessee has saved sufficient amount on account of interest expenditure. If the assessee w o u l d h a v e a v a i l e d t h e l o a n i n t o I n d i a n c u r r e n c y, t h e assessee w o u l d h a v e b e e n e n d i n g u p p a yi n g a m u c h h i g h e r a m o u n t than that has been paid on account of interest and hedging charges on the foreign currency loan. The Ld. DR could not rebut the above submissions of the assessee from the record.
7. We are in agreement with the Ld. Counsel for the assessee that the aforesaid loan transactions cannot be said to be a speculative transactions. The assessee had actually received the amount and even the loan amount was also returned by actual delivery of the payment. The interest rate and the hedging charges were pre-determined and the assessee had taken a wise business decision of saving the interest expenditure on the working capital loan. In view of this, the additions made by the lower authorities on this issue are not s u s t a i n a b l e i n t h e e ye s o f l a w . W e , t h e r e f o r e , s e t a s i d e t h e i m p u g n e d order of the CIT(A). The additions made on this issue are directed to ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 5 be deleted.
The appeal of the assessee is hereby allowed.
Order pronounced in the Open Court on 19.03.2018.
Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 19.03.2018 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR