DY.COMMISSIONER OF INCOME TAX, CIRCLE-17(2), HYDERABAD vs. VIJAY TEXTILES LIMITED, SECUNDERABAD

Brief facts of the case are that the assessee-company, engaged in the business of textiles manufacturing, trading 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 transactions as ‘speculative loss’ and brought it to tax u/s.43(5) of the Income Tax Act [Act].

During the remand proceedings, the AO observed that while computing the loss on foreign exchange, booking rate in respect of SBI was taken @43.015 US$, but SBI’s invoice rate was @42.785 US$, 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 Act. He also observed that during the re-assessment proceedings, the assessee had submitted explanatory notes on foreign exchange 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 notional loss of Rs.44,22,500/- and on the due date of 04-06-2008, the bank had debited the assessee’s account with US$ 61 Lakhs @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 and he disallowed the loss of Rs.1,77,81,500/- and brought the profit of Rs.14,03,000/- i.e., the total of Rs.1,91,84,500/- to tax.

Aggrieved, the assessee filed an appeal before the CIT(A), who granted relief to the assessee and against such relief, now the Revenue is in appeal before us, raising the following Grounds:

The case is taken up for hearing on 06-10-2020 through video conferencing and both the parties were heard.

Ld.DR, relied upon the assessment order while the Ld.Counsel for the assessee supported the orders of the CIT(A).

For the sake of ready reference, the relevant para of the CIT(A)’s order is reproduced herein below:

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 resulted in a loss of Rs.16,99,460/-. The CIT(A) has therefore correctly appreciated the facts of the case and has accordingly deleted 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 contrary. In view of the same, we see no reason to interfere with the order of the CIT(A) and the appeal of the Revenue is accordingly dismissed.