ACIT, CIRCLE - 3 3 1, MUMBAI vs. JAMNAGAR UTILITIES AND POWER PVT LTD, MUMBAI

PER BENCH

These two appeals by the Revenue are directed against, two separate orders, dated 06.08.2024 and 02.08.2024, passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless
Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year
2019-2020 and 2020-21 respectively.

eals are having common iss me set of facts, therefore, sa ed off by way of this consolidate and avoid repetition of facts.
the Ld. Departmental Repr e was a delay of 4 days in filing
19–20 and a delay of 8 days in f
2020–21. The Ld. DR explained rkload arising from judicial ma miscellaneous official responsi that the delay was neither urred for bona fide reasons, oned. As there was no serious nd upon considering the reason satisfied that sufficient cause h appeals within the prescrib is found to be reasonable a ay in filing the appeals is condon up the appeal of the Revenue grounds raised by the Revenue the contribution or donation made by ut to discharge legal obligation arising fr ny's Act r.w. schedule VII of Company's A tilities and Power Pvt. Ltd.
2
. 5312 & 5310/MUM/2024
sue in dispute me were heard ed order for the resentative (DR) g the appeal for filing the appeal d that the delay atters, reporting ibilities. It was deliberate nor and therefore s objection from ns furnished by has been shown bed time. The and acceptable.
ned.
for assessment e are reproduced y assessee not rom section 135
Act, is donation or voluntary c
11 & 12 of the 2. "Whether t do not fall in to the section fluctuation?"
3. "Whether o law, the Ld.C on currency s of assessing o
4. "Whether th
Sarvamangal within the m
2013?"
5. "Whether o law, the Ld.C adjustment o book profit, w the RPS pric revaluation/fa there is no m
6. "Whether o law, the Ld.C adjustment o book profit, w is nothing but 5. Briefly stated, company, incorpora business of setting u various manufactur
Limited. The assess section 139(1) of the under consideration
15,84,40,22,530/-
Jamnagar Ut
ITA No.

contribution within the meaning of Sectio e IT Act, 1961?"
the MTM losses arising out of Currency the purview of Section 43AA of the Act w n 43A of the Act relating to taxation of fo on the facts and in the circumstances of t
CIT(A) has rightly confirmed the treatment swap as done by the assessee disregardi officer made during the assessment proce he amount paid by the Assessee to Shrim
Trust and Reliance Foundation is eli meaning of section 135 r.w. rule 7 of on the facts and in the circumstances of t
CIT(A) has justified in deleting the additio on asset being redeemable preference without appreciating the facts that asses ce to NIL arbitrarily and MTM loss fair value adjustment is not a market?"
on the facts and in the circumstances of t
CIT(A) has justified in deleting the additio on asset being redeemable preference without appreciating the fact that revalua t a provision for diminution?"
the facts of the case are tha ated in 1991, is primarily e p, operating, and maintaining c ring locations of M/s Relia see filed its original return of e Income-tax Act, 1961 (“the Ac on 29.11.2019, declaring tota under the normal provisi tilities and Power Pvt. Ltd.
3
. 5312 & 5310/MUM/2024
on 80G r.w.s. 's
Swap Contract which is subject oreign exchange the case and in t of MTM losses ing the findings eedings?"
mad Rajchandra igible spending
Company's Act the case and in on of fair value shares(RPS) in see has valued arising out of applicable as the case and in on of fair value shares(RPS) in ation of the RPS at the assessee- engaged in the captive plants at ance Industries f income under ct”) for the year al income of Rs.
ions and Rs.

12,46,26,46,242/- u return was selected issued and complied section 143(3) read wherein the As additions/adjustmen a.
Disallowa
11,15,00,000
b. Mark To M
1,95,03,97,95
Assessing off c. Addition of 115JB in rela accordance w
6. On further ap additions/adjustmen us by way of raising t
Grounds Nos. 1 and of CSR Expenditure
7. The Ground Nos disallowance made claimed by the ass
11,15,00,000/-, whic
7.1 The brief facts debited a sum of Rs
Jamnagar Ut
ITA No.

under section 115JB of the A for scrutiny, and statutory no d with. The assessment was co with section 144B of the Act ssessing
Officer made nts:
ance of deduction u/s 80G amou
0/-
Market loss on currency swap contracts am
53/- was added back by the assessee ficer as deduction.
f Rs. 18,83,82,94,946/- to book profits ation to loss recognised on Fair Value of with Ind AS.
ppeal, the Ld. CIT(A) deleted nts. Aggrieved, the Revenue is i the grounds as reproduced abov
4 – Deduction under Section s. 1 and 4 of the appeal of Reven by the Assessing Officer of sessee under section 80G am ch the Ld. CIT(A) has deleted.
relevant to this issue are tha
. 22,30,00,000/- in its profit an tilities and Power Pvt. Ltd.
4
. 5312 & 5310/MUM/2024
Act (MAT). The otices were duly ompleted under on 30.03.2022, the following unting to Rs.
mounting to Rs.
but allowed by s under section f investments in d all the three in appeal before ve.
80G in respect nue concern the the deduction mounting to Rs.
at the assessee nd loss account towards Corporate accordance with the section 37(1) of the amount while compu payments were made
80G, the assessee cla i.e., Rs. 11,15,00,000
donees, copies of don
80G registration certi
7.2 The Assessing
CSR expenditure und therefore lacks volu prerequisite for a don
The AO further held subsidize CSR expen
7.3 Before the Ld. C the Coordinate Benc
DCIT (ITA Nos. 2587
Pr. CIT (ITA No. 490/
been consistently he allowed as business section 80G prohib institutions merely b
Jamnagar Ut
ITA No.

Social Responsibility (CSR) e e specific bar contained in Ex e Act, the assessee suo-motu uting its business income. How e to institutions duly registered aimed deduction of 50% of the e
0/- under section 80G. Party-wi nation receipts, and copies of th ificates were furnished.
Officer rejected the claim on t der the Companies Act, 2013 is ntariness, which in his view nation eligible for deduction und that allowing such deduction w diture, contrary to legislative int
CIT(A), the assessee relied upon h of the Tribunal in Reliance In & 2588/Mum/2022), Naik Seaf
Mum/2021) and other decision eld that, although CSR expend s expenditure under section bits deduction of amounts p because they also fall within C tilities and Power Pvt. Ltd.
5
. 5312 & 5310/MUM/2024
expenditure. In xplanation 2 to disallowed this wever, as these d under section eligible amount, ise details of the heir valid section the ground that mandatory and is an essential der section 80G.
would indirectly tent..
n the decision of ndustries Ltd. v.
foods Pvt. Ltd. v.
s wherein it has iture cannot be 37, nothing in paid to eligible
CSR obligations.

The Ld. CIT(A), follo disallowance.
8. Before us, the L not been accepted b pending before the H operation of those ord
9. The Ld. Coun
Tribunal’s decisions as binding precedent
10. We have consid material on record.
though disallowed un deduction under sec are fulfilled. Sectio prohibits allowance o does not create any b other provisions of t supported by the Ex
Act, 2014, which ex nature described in s under those provisio is restricted. For r section 37(1) of the A Jamnagar Ut
ITA No.

owing these binding preceden
Ld. DR submitted that the above by the Department and that fu on’ble Bombay High Court. How ders has been brought to our no nsel for the assessee conten continue to hold the field and m ts.
dered the rival submissions an The core issue is whether CS nder section 37(1), can neverth ction 80G, provided other statu n 37(1), read with Explanat of CSR expenditure as business bar on the allowance of such exp the Act, including section 80G.
planatory Memorandum to the xpressly clarifies that CSR exp sections 30 to 36 will continue ns, and only its allowance und eady reference, the relevant
Act is reproduced as under:
tilities and Power Pvt. Ltd.
6
. 5312 & 5310/MUM/2024
nts, deleted the e decisions have urther appeal is wever, no stay of otice.
nded that the must be treated d examined the SR expenditure, heless qualify for utory conditions tion 2, merely s expenditure. It penditure under This is further
Finance (No. 2) penditure of the to be allowable der section 37(1)
Explanation of 37. 37 (1) 38Any e in sections 30 to or personal exp exclusively 41 fo allowed in comp gains of busines
42 [ 43[Explanation
45 [Explanation for the purpos assessee on th referred to in s shall not be de the purposes of 47 [Explanation 3
(2) …………….
10.1 It is also of s section 37(1), did not On the contrary, onl viz., payments to th
Fund”, have been 80G(2)(iiihk) and (iiih alterius therefore ap deduction, it has don can be read into the on the issue in dispu
7.3 The appe that the belief provisions of Act debars de
CSR activities section 80G o section 80G
37(1) of the nature of C professional e
Jamnagar Ut
ITA No.

expenditure 39 (not being expenditure of o 3640[***] and not being in the nature of c penses of the assessee), laid out or ex or the purposes of the business 41 or puting the income chargeable under th s or profession”.
n 1.]- ……………………
2.-For the removal of doubts, it is he ses of sub-section (1), any expenditu he activities relating to corporate so section 135 of the Companies Act, 20
eemed to be an expenditure incurred b f the business or profession.]
3.- …………………
significance that Parliament, w t amend section 80G to exclude ly two specific categories of CS he “Swachh Bharat Kosh” and expressly denied deduction hl). The principle of expressio un plies: where the Legislature in ne so explicitly; no further imp statute. The relevant finding o ute is under:
ellant during the appellate proceedings f of the AO was purely based on its inter the Act. Nothing in the provisions of sec eduction in respect of donations made i s. If the legislators intended to deny d of the Act for such donations, they could similar to the amendment in Explanatio
Act, wherein it has specified that expe
CSR activity shall not be deemed as expenditure. Since no such amendment h tilities and Power Pvt. Ltd.
7
. 5312 & 5310/MUM/2024
the nature described capital expenditure 41
xpended wholly and profession shall be he head “Profits and ereby declared that ure incurred by an ocial responsibility
013 (18 of 2013) 46
by the assessee for while amending
CSR payments.
SR contributions d “Clean Ganga under section nius est exclusio ntended to deny plied prohibition of the Ld. CIT(A) has submitted rpretation of the ction 80G of the in the nature of deduction under have amended on 2 to section enditure in the s business or has been made in section 80
11,15,00,000
in the nature decision of H
Quotient Priv
95/DEL/2024
respect of am
Department's
CSR. It has b nature as t beneficiary be Further, the decisions incl it has been h of corporate s allowable as (i) (Mumbai IT 2587 & 2588/
(ii) FNF India
(Bangalore ITA
(iii) Sling Med
(iv) Infinera
(Bangalore ITA
(v) DCIT Vs. M
Ltd (ITA No. 1
M/s. Naik Sea
(vi) (Mumbai I
7.4 It is obser that the exp introducing E allowability memorandum sections 30 t
Legislators ne outright; it i amendment in Act, the sam appellant sha the Income Ta
Jamnagar Ut
ITA No.

0G, the appellant is eligible to claim a d
0/- being 50% of donations of Rs 22,30, e of CSR activities. The Appellant furthe
Hon'ble Delhi Tribunal, in case of Interglo ate Limited Vs. ACIT, Circle-10(1), New
4), wherein while allowing deduction mount spent under CSR, the Hon'ble ITA argument on voluntariness in amount been held that the CSR expenditures a they are without any reciprocal com eing philanthropic in nature.
appellant placed reliance on the fol luding the decisions of juri ictional ITAT held that payments towards donations m social responsibility, disallowed under se deductions under section 80G of the Act:
TAT) DCIT v. Reliance Industries Ltd. [2
/Mum/2022
a (P.) Ltd. Vs. ACIT [2021] (133 taxm
TAT) ia (P.) Ltd. Vs. DCIT [2022] (194 ITD 1) (B
India (P.) Ltd. Vs. JCIT JCIT [2022]
TAT)
M/s. The Peerless General Finance & Inv
469 & 1470/Kol/2019) (Kolkata ITAT) afoods Pvt. Ltd. Vs. Pr. CIT - 2 (ITA No 49
ITAT) rved from the contents of above decision planatory memorandum to Finance Act
Explanation 2 to Section 37 (1) which of CSR expenditure as business exp m clearly states that CSR expenditure to 36 of the Income-tax Act, 1961 sha ever intended to deny deductions for C is only not allowable under section n section 37(1) does not apply to sections me would not apply to section 80G of all be allowed to claim a deduction under ax Act, 1961 to the extent of eligibility.
tilities and Power Pvt. Ltd.
8
. 5312 & 5310/MUM/2024
deduction of Rs
00,000/- made er relied on the obe Technology w Delhi (ITA No n u/s. 80G in AT negated the ts spent under are voluntary in mmitment from llowing judicial
T Mumbai where made on account ection 37(1), are 2023] I.T.A. No.
mann.com 251) anglore ITAT)
(194 ITD 463) vestment & Co.
90/MUM/2021) of Hon'ble ITAT t No. 2, 2014, prohibited the penditure. The e described in all be allowed.
SR expenditure
37(1). As the s 30 to 36 of the the Act. Thus, r section 80G of 7.4.1 It is fur the case of M/
2588/MUM/2
ITAT in the NO.490/MUM co-ordinate be bench of Trib
1565/Bang/2
decision rend
ACIT (ITA No eligible for d payments inc
7.4.2 The rele
Naik Sea fo reproduced he
15..................
we observe fr we observed decided the is is part of Co
India Pvt. L
05.01.2021).
reproduced be "9. After hear for considerat the case of A its order date
"10. Section CSR obligatio
Finance (No.2
(1) of section of section 37
activities rela section 135 of expenditure business or p
This amendm accordingly, years. 11. Jamnagar Ut
ITA No.

rther viewed that juri ictional Hon'ble M
/s.Reliance Industries Ltd. V.DCIT[2023](
2022) has followed the decision render e case of Naik Sea foods P Ltd
M/2021). In the case of Naik Sea foods P ench has followed the decision rendered bunal in the case of M/s FNF India P
2019 dated 05- 012021), which in tur dered in the case of Allegis Services (Ind o. 1693/Bang/2019) and held that th deduction u/s 80G of the Act in resp cluded in CSR Expenses.
evant discussions made by the Tribunal oods P Ltd V.Pr.CIT-2 (ITA NO.490/M ereunder:-
.. After considering the submissions of b rom the record that with regard to section that the Coordinate Bench of ITAT Ba ssue of deduction u/s. 80G relating to d orporate Social Responsibility in the ca
Ltd., v. ACIT (ITA. No. 1565/Bang
The relevant findings of the Bangalo elow: - ring both the parties, we find that similar tion before this Tribunal in ITA No.1693/
llegis Services (India) Pvt. Ltd. v. ACIT. T d 29.4.2020 held as under:-
135 of Companies Act, 2013 requires c ns, with effect from 01/04/2014. 2) Act, 2014 inserted new Explanation 2
37, so as to clarify that for purposes of 7, any expenditure incurred by an as ating to corporate social responsibility f the Companies Act, 2013 shall not be d incurred by the assessee for the pu rofession.
ment will take effect from 1/04/20
apply to assessment year 2015-16 a tilities and Power Pvt. Ltd.
9
. 5312 & 5310/MUM/2024
Mumbai ITAT in (ITA ΝΟ.2587 &
red by Mumbai
V.Pr.CIT-2(ITA
Ltd (supra), the d by Bangalore
P Ltd (ITA No.
rn followed the dia) Pvt. Ltd. v.
he assessee is pect of certain l in the case of MUM/2021) are both the parties n 80G deduction angalore Bench donations which ase of M/s.FNF g/2019 dated ore Bench are r issue came up
/Bang/2019 in The Tribunal by companies with to sub- section sub- section (1) ssessee on the referred to in deemed to be an urposes of the 015 and will, nd subsequent

R expenditure is to be disallowed by new
7(1), while computing Income under the s and Profession'. Further, clarification re n 2 to section 37(1) of the Income Tax Act m to The Finance (No.2) Bill, 2014 is as un g provisions of section 37(1) of the Ac any expenditure, which is not mentioned section 36 of the Act, shall be allowed olly and exclusively for the purposes profession. As the CSR expenditure (being not incurred for the purposes of carryin iture cannot be allowed under the existin of the Income-tax Act. Therefore, in or this issue, it is proposed to clarify that fo
7(1) any expenditure incurred by an as ating to corporate social responsibility f the Companies Act, 2013 shall not be d d for the purpose of business and, henc deduction under section 37. Howe which is of the nature described in sectio shall be allowed deduction under those s of conditions, if any, specified therein."
e above it is clear that under Income t xplicitly state that deductions for expend le computing income under the head, d Profession" to those, who pursue c projects under following sections.
provides deduction on repairs, muni emiums.
provides deduction on repairs and insu nd furniture Section 32 provides for d ts like building, machinery, plant, furnitu ssets like knowhow, patents, tradem allows development rebate on machine ates conditions for depreciation and devel rants deduction on expenditure for scie dge extension in natural and applied s animal husbandry and fisheries. Payme research institutions or company also -house R&D is eligible for deduction, unde tilities and Power Pvt. Ltd.
10
. 5312 & 5310/MUM/2024
w Explanation 2
e Head 'Income egarding impact t in Explanatory nder:
ct provide that d specifically in d if the same is of carrying on g an application ng on business, ng provisions of rder to provide or the purposes ssessee on the referred to in deemed to have ce, shall not be ever, the CSR on 30 to section sections subject tax Act, certain diture would be , 'Income from corporate social icipal tax and urance of plant, depreciation on ure and also on marks, licenses.
ry, plants and lopment rebate.
entific research sciences under ent to approved o qualifies for er this section.

Section 35CC which constitu
Section 36 pro health of emp borrowed cap and payment
Income Tax A provides for d
Section 80G(2
donations aga a) Certain do limit like Prim
Fund, Nationa
80G(1) (i) b) Donations
80G for all tho
Under Section certain paym deduction u/s 14. In our vi claimed whil
Business and ate claimed w assessee. The 15. Further, i since expendi
Explanation excluded in expenditure b long as it sati
Act, for comp and Professio
16. For cla considered at any payme payments(kee u/s.80G), the Income under effect of suc
Jamnagar Ut
ITA No.

CD provides deduction for skill develop ute the flagship mission of the present Go ovides deduction regarding insurance pre ployees, loans or commission for employe pital, employer contribution to provident of security transaction tax,
Act, under section 80G, forming part of deductions for computing taxable income a (2) provides for sums expended by an ainst which deduction is available.
onations, give 100% deduction, without me Minister's National Relief Fund, Na al Illness Assistance Fund etc., specified with 50% deduction are also available ose sums that do not fall under section 80
n 80G(2) (iiihk) and (iiihl) there are speci ents, that are part ofCSR responsibility, s80G.
iew, expenditure incurred under section le computing income under the head, d Profession", where as monies spent und while computing "Total Taxable income" i e point of claim under these provisions ar intention of legislature is very clear and iture incurred under section 30 to 36 are 2 to section 37(1) of the Act, they a clarification issued. There is no res being claimed under above sections to isfies necessary conditions under section puting income under the head, "Income on".
aiming benefit under section 80G, d t the stage of computing "Total taxable in ents under section 80G forms p eping in mind ineligible deduction expr e same would already stand excluded w r the head, "Income from Business and P ch disallowance would lead to increas tilities and Power Pvt. Ltd.
11
. 5312 & 5310/MUM/2024
pment projects, overnment.
emium on stock, ees, interest on t fund, gratuity of Chapter VIA, as under:
n assessee as any qualifying ational Defence d under section e under Section 0G(1)(i).
ific exclusion of not eligible for n 30 to 36 are , 'Income form der section 80G in the hands of re different.
d unambiguous, e excluded from are specifically striction on an be exempt, as n 30 to 36 of the from Business deductions are ncome". Even if part of CSR ressly provided while computing,
Profession". The se in Business income. There for computing subject to fulf
17. We theref
DR.
18. In presen forming part o computing In Profession It h
CSR were cl computing "T authorities be of claim unde
Taxable Incom such paymen which is not t
19. On the ba have erred in 77e also not payments qu quantum of el
20. Under su
Ld.AO for ve section 80G of in order to su to grant dedu raised by ass
7.5 The Hon
Technology Q
28.05.2024 h
I. Section 80G
Deductions -
(CSR)
Asses deduction und disallowed e
Responsibility section 37(1) assessee by h requirement accordingly n
80G - Whethe
Jamnagar Ut
ITA No.

eafter benefit accruing to assessee und g "Total Taxable Income" cannot be denie fillment of necessary conditions therein.
fore do not agree with arguments advan nt facts of case, Ld.AR submitted tha of CSR does not form part of profit and l ncome under the head, "Income from has been submitted that some payments laimed as deduction under section 80
Total taxable income", which has been elow. In our view, assessee cannot be den er Chapter VI A, which is considered for c me". If assessee is denied this benefit, m nt forms part of CSR, would lead to double the intention of Legislature.
asis of above discussion, in our view, au denying claim of assessee under section te that authorities below have not ver ualifying exemption under section 80G o ligibility as per section 80G(1) of the Act.
uch circumstances, we are remitting the rifying conditions necessary to claim d of the Act. Assessee is directed to file all r bstantiate its claim before Ld.AO. Ld.AO uction to the ex tent of eligibility. Accor sessee stands allowed for statistical purp n'ble ITAT Delhi, 'C' Bench in the case has held as under: -
G, read with section 37(1), of the Income-
Donations to certain funds, Charitable i ssment year
2020-21
Assessee-com der section 80G in respect of donations It expenditure incurred as part of Co y (CSR) activities in accordance with ) Assessing Officer disallowed deducti holding that donations had been made to of provisions of Companies Act 20
not 'voluntary donation to be allowable er section 80G falls in Chapter VIA, wh tilities and Power Pvt. Ltd.
12
. 5312 & 5310/MUM/2024
er Chapter VIA ed to assessee, nced by Ld. Sr.
t all payments loss account for Business and forming part of 0G of Act, for disallowed by nied the benefit computing 'Total merely because e disallowance, uthorities below n 80G of the Act.
rified nature of of the Act and e issue back to deduction under requisite details is then directed rdingly grounds oses."
e of Interglobe of 2024 dated
-tax Act, 1961 - institutions, etc.
mpany claimed t had suo- motu orporate Social h provisions of on claimed by o meet statutory
013 and were e under section hich comes into play only aft computation
Explanation 2
between suo deduction un deduction of was not gain similarly, ma disallowance
80G were fu assessee]
7.6 In view of the case of M
& 2588/MUM
ITA No.490/M of the appella assessing off exemption u/
section 80G( conditions nec deduction to stands allowe
10.2 The reasoning o lacks voluntariness h of the Tribunal, wh merely because CSR eligible institutions re quid pro quo. In t complete evidence o section 80G. The AO the eligibility of the d only objection raise payments are per se
Jamnagar Ut
ITA No.

ter gross total income has been compute provisions under various heads of inc
2 to section 37(1) and, thus, there was o-moto disallowance in section 37(1) nder section 80G Held, yes Whethe donations as per section 80G, even tho ning any benefit out of any reciprocity fr andatory nature of CSR expenditure d of same under section 80G, if other cond ulfilled - Held, yes [Paras 7.4 and 7.5
of the decision of juri ictional Hon'ble M
M/s.Reliance Industries Ltd. V.DCIT[2023
M/2022) and Naik Seafoods Pvt. Ltd. V
MUM/2021, it is held that AO has erred in ant under section 80G of the Act. It is also fficer has not verified nature of payme
/s.80G of the Act and quantum of eli
(1) of the Act. Therefore, AO is dire cessary to claim deduction u/s.80G of th the extent of eligibility. Accordingly, thi ed for statistical purposes.”
of the Assessing Officer that C has been expressly rejected by s hich held that voluntariness i
R spending is statutory; dona emain philanthropic, and there the present case, the assessee of payments to institutions re has not doubted the genuinene donees, or compliance with sect ed is on the legal interpreta ineligible for deduction. This o tilities and Power Pvt. Ltd.
13
. 5312 & 5310/MUM/2024
ed by applying come, including s no correlation and claim of er Act permits ough, assessee rom donee and, does not justify itions of section 5] [In favour of Mumbai ITAT in 3] (ITA NO.2587
V.Pr.CIT-2[2021]) n denying claim o observed that ents qualifying igibility as per ected to verify he Act and grant is ground no. 2
CSR expenditure several Benches is not defeated ations made to is no element of e has furnished egistered under ess of donations, tion 80G(5). The ation that CSR objection cannot be sustained in view contrary.
10.3 We also note precedents of the j
Reliance Industries L
The mere fact that dilute the binding for We therefore find no CIT(A). The deletion and judicial preceden
CIT(A) on this issue.
Revenue are therefore
Ground Nos. 2 & 3:
Cross-Currency Swa
11. The Ground No mark-to-market (MT assessee’s outstandin treated as a revenue or whether it is merel
11.1 The facts in bri had outstanding rup debentures. Keeping
Jamnagar Ut
ITA No.

w of consistent judicial authority that the Ld. CIT(A) has fo juri ictional Mumbai Tribun
Ltd. (supra) and Naik Seafoods P the Revenue has filed further rce of those decisions in the ab infirmity in the well-reasoned of the disallowance is in accor nt. We accordingly uphold the The Ground Nos. 1 & 4 of appe e dismissed.
Disallowance of Mark-to-Mark ap Contracts os. 2 and 3 of the appeal conce
TM) loss of ₹195,03,97,953/–
ng cross-currency swap (CCS) co expenditure while computing bu ly a notional loss liable to be ad ief qua the issue in dispute ar pees borrowing of Rs.5875 cr g part of said borrowers as u tilities and Power Pvt. Ltd.
14
. 5312 & 5310/MUM/2024
y holding to the ollowed binding nal, particularly
Pvt. Ltd. (supra).
r appeal cannot bsence of a stay.
order of the Ld.
rdance with law order of the Ld.
eal raised by the ket Losses on ern whether the arising on the ontracts is to be usiness income, dded back.
re that assessee ores by way of underlying, the assessee entered into with interest swap wh
(a) the assessee len counterparties ( i.e B
(b) the assessee not (approximately U 8
11.2 The assessee ex contractual exchange exchange of money settled periodically similarly net-settled sheet date, the CCS was derived based o rates curves and fore maturity.
11.3 It was submitte income computation
Accounting Policies, recognized unless s submitted on behalf market loss of Rs.1
account.
This lo interest/settlement
Jamnagar Ut
ITA No.

o cross currency swap (CCS) co hich has following effect:
nt notional amount of Rs.531
anks) and tionally borrowed equivalent a 822.29 million) at lower rates lin xplained that CCS transactions e of rights and obligations, with or currencies. The interest c on a net basis; the notional only on scheduled maturity. A positions were restated at MT on market projections/expectat eign currency curves for the ba d that in view of provisions of th and disclosure standards (ICD marked to market loss or gain specifically provided by any of the assessee that said unrea
195.04 crores was debited to oss was adjusted with gain on contracts of Rs.
tilities and Power Pvt. Ltd.
15
. 5312 & 5310/MUM/2024
ontracts coupled
10.76 crores to amount in U nked to LIBOR.
s involve only a hout any actual cash flows were l principal was At each balance-
M values which tions of interest alance period of he Act read with DS)-1, relating to n was not to be ICDS. It was alized marked to profit and loss the realized
197.50 crores.

Accordingly, in the p crores was reflected.
assessee offered the tax but unrealized l terms of the ICDS-I r
11.4 However, the A above treatment by as per which marke provided in ICDS n deduction. The Asses the Act which provid change in foreign exc in accordance with t the impugned assess in a form of deriva arbitrage or hedging notional principal am contracts, the Assess assessee that those forward exchange c concluded that mark to the assessee.
11.5 The Assessing O clause (xviii) in sec
Jamnagar Ut
ITA No.

profit and loss account a net
But while computing the taxa realized gain of settlement of th loss of Rs.195.04 crores was relating to accounting policies.
Assessing Officer was not conv the assessee. He relied on sec d to market loss as computed otified u/s 145(2) of the Act ssing Officer further relied on des that any gain or loss arisin change rates shall be treated as the ICDS. The Assessing Office sment order observed that the ative contract which are gen g. Most swaps involved cash mount. Having narrated the fe sing Officer then rejected the su were not transactions in forei contract. The Assessing Offic ked to market losses was therefo
Officer further noticed that prio ction 36, the MTM losses w tilities and Power Pvt. Ltd.
16
. 5312 & 5310/MUM/2024
gain of Rs.2.46
able income, the he contracts for added back in vinced with the ction 36(1)(xviii) in the manner is allowable as section 43AA of g on account of s income or loss r in para 7.3 of currency swaps erally used for flow based on eatures of swap ubmission of the ign currency or cer accordingly ore to be allowed or to insertion of were allowed as business loss by Hon post amendment to MTM loss is allowed
ICDS-VI which provi forward exchange c currency swaps(CCS forward exchange co treated under ICDS account as revenue e allowed the said loss the income includin claiming deduction u swap contract as rev
Chapter VI A deduc accordingly.
11.6 Before the Ld. C
Sections 36(1)(xviii) loss or expected loss which governs accou although MTM losse exists only where ICD computing taxable in on ICDS-VI and hel swap contracts (CCS
Jamnagar Ut
ITA No.

n’ble Supreme Court and other section 36(1) and insertion o d as deduction. The ld AO fu ides for treatment of income or contracts. According to the ) entered into by the assessee a ontract and hence loss arising
-VI and to be recognised in expenditure. Accordingly, the A s of Rs.195,03,97,953/- to the ng computation of profit for S u/s 80IAB. Thus, allowing of lo venue expenditure reduced tota ction and then reduced deduc
CIT(A), the assessee contended t and 43AA of the Act, mark-to s is allowable only in accordan unting policies. The assessee es are generally not allowable
DS-I specifically permits such re ncome. The Assessing Officer, ld that the unrealized MTM lo
) was allowable as a revenue ite tilities and Power Pvt. Ltd.
17
. 5312 & 5310/MUM/2024
authorities. But f section 43AA, rther, relied on r loss in case of AO, the cross are in nature of g thereon to be profit and loss
Assessing Officer computation of SEZ Unit while oss on currency al income before ction u/s 80-IA that, in terms of o-market (MTM) nce with ICDS-I, submitted that e, an exception ecognition while however, relied oss on currency em. In response, the assessee argued contracts” and does n the assessee referre contract,” “forward r and submitted that c definitions. According no application to the ICDS-I would govern currency swaps are the Act.
11.7 After considerin material on record, t and allowed the claim ordinate Bench in E
Maharashtra (supra) reproduced as under 8.7 As per Ind to be marked financial peri losses are go make adjustm
MTM losses f
Account.
8.8 The provi and as per In 1. As per ICD
Jamnagar Ut
ITA No.

that ICDS-VI applies only to “fo not extend to CCS. To support ed to the definitions of “for ate,” and “exchange difference”
currency swaps do not fall with gly, the assessee maintained th e CCS transactions undertaken such contracts. Under ICDS-I, not allowable while computing ng the rival submissions and the Ld. CIT(A) accepted the ass m, placing reliance on the decis
East West Pipelines (supra) an ). The relevant finding of the :
d AS, all forwards contracts in foreign cu to market at exchange rate as on the da iod. However taxability of MTM (Marke verned by ICDS & Income Tax Act. Appe ments in Computation of Income to disallo for the financial period considered in Pr isions related to taxation of MTM losses come Tax Act are as under:
S I Para 4 (ii) :
tilities and Power Pvt. Ltd.
18
. 5312 & 5310/MUM/2024
orward exchange this contention, rward exchange
” under ICDS-VI hin any of these hat ICDS-VI has n by it, and only
MTM losses on g income under examining the sessee’s position sions of the Co- nd Adani Power
Ld. CIT(A) are urrency needs ay of closing of ed to Market) ellant needs to ow unrealized rofit and Loss s as per ICDS

MTM loss or recognition of other ICDS.
(ii) As per ICD
Premium, dis intended for into to hedge highly probab of settlement deduction as p
(iii) As per Inc
Marked to m accordance w notified unde deduction. As be allowed as (iv) The prov reproduced he
37 [Taxation o
43AA. (1) Sub arising on acc treated as inc shall be comp disclosure st
145,38
(2) For the p account of the respect of all to-
(1) monetary i
(ii) translation
(iii) forward ex
(iv) foreign cu
8.9 Any gain exchange rate
Jamnagar Ut
ITA No.

an expected loss shall not be recogniz f such loss is in accordance with the pro
DS VI Para 8 (5):
scount or exchange difference on contr trading or speculation purposes, or tha e the foreign currency risk of a firm com ble forecast transaction shall be recogniz t. It means only realized losses will b per ICDS.
come Tax Act Section 36 (1) (xviii) : HE TA market loss or other expected loss as with the income computation and disclosu er sub-section (2) of section 145 will b s per ICDS loss on settlement of forward s deduction.
visions of section 43AA of the Income ereunder:
of foreign exchange fluctuation.
bject to the provisions of section 43A, an count of any change in foreign exchange come or loss, as the case may be, and suc puted in accordance with the income com tandards notified under sub-section ( purposes of sub-section (1), gain or lo e effects of change in foreign exchange ra foreign currency transactions, including items and non-monetary items; n of financial statements of foreign operati xchange contracts; rrency translation reserves.]
n or loss arising on account of any chan es shall be treated as income or loss, as tilities and Power Pvt. Ltd.
19
. 5312 & 5310/MUM/2024
ed unless the visions of any racts that are at are entered mmitment or a zed at the time be allowed as AX DEPAR computed in ure standards be allowed as contracts will
Tax Act are ny gain or loss rates shall be ch gain or loss mputation and (2) of section ss arising on ates shall be in those relating ions; nge in foreign the case may be, and such income compu section (2) of as deduction
ICDS only re deduction.
8.9.1 The AO
Commissione
Ltd 312 ITR 2
has held as u
Assessment y the Income-ta
Whether expr circumstances a 'loss', even assessee - He of foreign exc item of exp accounting m given period
Assessing Off said system
Whether an e import of raw any difference closing rate s reporting peri
II. Section 43
amendatory unamended precedent for asset acquire prior to amen actual cost o account of flu date, pending
Act, 1961 Fo
Whether ame yes
8.9.2 The fact that Jamnagar Ut
ITA No.

gain or loss shall be computed in accord utation and disclosure standards notifie section 145. It means any forex loss sha only if it is computed in accordance with alized forex loss on forward contracts
O has relied upon the decision rendered r of Income-tax, Delhi v. Woodward Gove
254 (SC)/[2009]. The Hon'ble Supreme C under:- year 1998-99 1. Section 37(1), read with s ax Act, 1961 Business expenditure A ression 'expenditure' as used in section s of a particular case, cover an amount w though said amount has not gone out f eld, yes Whether loss suffered by assess change difference as on date of balanc enditure under section 37(1) Held, method followed by an assessee contin of time needs to be presumed to b fficer comes to conclusion for reasons to does not reflect true and correct profits enterprise has to report outstanding liabi w material using closing rate of foreign e e, loss or gain, arising on conversion of s should be recognized in profit and los iod - Held, yes
3A of the exchange, change in to se and not clarificatory - Held, yes - W section 43A, 'actual payment' was no making necessary adjustment in carryin ed in foreign currency Held, yes Whet ndment to section 43A, assessee was ent of imported assets acquired in foreign uctuation in rate of exchange at each g actual payment of varied liability - He oreign currency, rate of Assessment ye ndment Finance Act, 2002 with effect fro ts of the case in Woodward Governor Ind tilities and Power Pvt. Ltd.
20
. 5312 & 5310/MUM/2024
dance with the ed under sub- all be allowed h ICDS. As per is allowed as in the case of ernor India (P.)
Court of India section 145, of Allowablilty of n 37 may, in which is really from pocket of see on account ce sheet is an yes Whether nuously for a be correct till be given that - Held, yes - ility relating to exchange and said liability at ss account for ction 43A by Whether under ot a condition ng cost of fixed ther therefore, titled to adjust n currency on balance-sheet ld, Income-tax ear 1998-99 - om 1-4-2003 is dia P. Ltd. was "the assessee
41,06,746.00
unrealized los of the accoun date of the p liability, it wa to be added b he added bac foreign excha account was d
8.9.3 Howeve entered into (authorized d these contrac while comput these amoun computation a 8.10 During appellant wa rendered dec to the assess
2020-21, the and relied up appellant has rendered by c
(i)
DCIT v
No.1999/Mum
(ii) DCIT v. Ad
8.11 In this case laws are made in the s
& 2.11 of sub "2.8 In this re
[2023] ITA No was rendered
(marked to m
AO had disal u/s 43(5) and that said los nature and al in law. The H
Jamnagar Ut
ITA No.

e had debited to its Profit & Loss Accoun
0 out of which a sum of Rs. 29,49,088
ss due to foreign exchange fluctuation on nting year. The AO held that the liability previous year under consideration was as not an ascertained liability and conse back to the total income of the assessee ck Rs. 29,49,088.00 being the unrealize ange fluctuation. In other words, the deb disallowed."
er, in this case the issue is that the a currency swap (CCS) contracts with v ealers). The marked to market loss of Rs cts was debited to profit & loss accou ting its taxable income the appellant had nt of Rs.195.04 Cr in terms of prov and disclosure standards [ICDS(I)].
the appellate proceedings (Video Conf as confronted with the fact that variou isions wherein cross currency swap loss see. The issue being identical for A.Y.
appellant discussed the issue in detail in upon the same for A.Y. 2019-20. On t s filed written submission and discussed courts in respect of below cases:
v.
East
West
Pipeline
Pvt.
Ltd.
m/2023 (Mum)(ITAT) dani Power Maharashtra Ltd. [2023] 199 I regards, the appellant has submitted th e not applicable to the facts of its case. T submission pertaining to A.Y. 2020-21 in p bmission dated 29.07.2024 is reproduced egard, decision of DCIT v. East West Pip o.1999/Mum/2023 (Mum) (ITAT) can be r d in context of allowability of realized a market) foreign exchange loss on accoun llowed the same by treating it as specula d capital in nature u/s. 37(1). The learne ses are not speculative in nature and lso held that the reopening of the assessm
Hon'ble ITAT has dismissed department's tilities and Power Pvt. Ltd.
21
. 5312 & 5310/MUM/2024
t a sum of Rs.
8.00 was the n the last date as on the last s a contingent quently it had e. Accordingly, ed loss due to bit to the P&L appellant had various banks s.195.04 Cr on unt. However, d added back vision income ferencing) the us courts had s was allowed
2019-20 and n A.Y. 2020-21
this issue the d the decision
[2023]
ITA
ITD 226
hat the above
The discussion para 2.8, 2.10
hereunder:
peline Pvt. Ltd.
referred which and unrealized nt of CCS. The ative in nature ed CIT(A) held not capital in ment was bad appeal on the juri ictional
44 years by disclosure. Re merits as aca be noted tha decision is att
2.10 Another v. Adani Pow referred whic market foreig contract. The per principles
1, being disc allowed the c
AS-11 and w noted that th
[Copy of decis
2.11 Both the case of the Ap pertains to A section 36(1) w.e.f. 1.4.201
8.12 The app bad in law
Supreme Cou
284 ITR 323 (
Assessing Off than by filing unrealized lo income in the deduction ev contradictory
8.13 During t issue that the Contracts" as there is a gre and a "curre pertinent to n
It was stated contract" mea forward rate, another finan rate" is the sp
Jamnagar Ut
ITA No.

issue and quashed the assessment re- op holding that the assessee had made esultantly, the Hon'ble ITAT rendered th ademic and dismissed the same as infruc at the decision pertained to AY 2014- tached as Annexure 'A']
decision of Hon'ble Ahmedabad ITAT in wer Maharashtra Ltd. [2023] 199 ITD h was rendered in context of allowability gn exchange loss on account of intere said loss was recognized and claimed as s of prudence and following accounting s losure of accounting policies issued y IC claim of the assessee as same was in ac was not contingent or hypothetical liabili he decision pertained to AY 2015-16 a sion is attached as Annexure 'B]."
e above decision are not applicable to th ppellant before your honour, since the ap
AY 2020-21 to which provisions of cla applies, which was introduced by Finan
17 (AY 2017-18).
pellant has also argued that the action o in as much as the law laid down by urt in the case of Goetze (India) Limited v
(SC) is squarely applicable to the facts of fficer cannot entertained a claim of deduc g return or revised return. In the appella oss on CCS was disallowed in the co e return of income itself. However, the AO ven though he did not make a clai to the law laid down by the Hon'ble Supr the Video Conferencing the appellant st e case is not covered under the term "Fore s referred in Section 43AA(2)(iii). It was eat difference between a "forward excha ency swap contract". It was further s note how both these contracts are not sim d that as per provisions of ICDS-VI: "Forw ans an agreement to exchange different c
, and includes a foreign currency optio ncial instrument of a similar nature;" Fur pecified exchange rate for exchange of t tilities and Power Pvt. Ltd.
22
. 5312 & 5310/MUM/2024
pened beyond full and true he grounds on ctuous. It is to 15. [Copy of n case of DCIT
226, can be y of marked to est rate swap s deduction as tandard (AS) -
CAI. The ITAT cordance with ity. It is to be and 2016-17. he facts of the ppellant's case ause (xviii) to nce Act, 2018, of the AO was y the Hon'ble vs. CIT [2006]
f the case. The ction otherwise ant's case the omputation of O allowed the im, which is reme Court.
tressed on the eign Exchange s argued that ange contract"
stressed it is milar in nature.
ward exchange currencies at a on contract or rther "Forward two currencies at specified fu elements of fo i. exchange of ii. at a forwar
The appellant rate, it is clea will be excha rate would no 8.14 The app outstanding r
Keeping part into cross cu swaps, whic
Rs.5310.76 cr in U (appx
LIBOR. Thus rights and ob money or for currency or fo periodically s on net basis outstanding C
(MTM) which and interest r
8.15 The AO forward contr
43AA of the I facts of the c term "Forwa exchange con
3. Definitions
"2. (1) The fol
Disclosure Sta
(h) "Forward different curr currency optio nature;
Perusal of th contract does
Jamnagar Ut
ITA No.

uture date;" The appellant submitted that orward exchange contract, being:
f different currencies; rd rate t therefore argued that as per the definiti ar that it is a pre-agreed rate at which anged at a future date, meaning thereby ot vary at any given point of time.
pellant has clarified that as on 31.03
rupee borrowing Rs.5875 crore by way o of these rupee borrowings as underlyi urrency swap (CCS) contracts coupled h effectively meant that it lent notion rore to counterparties and borrowed equiv x U 822.29 mn) at lower interest ra the transaction involves contractual a bligations by the parties without actua reign currency. These are not transactio forward exchange contracts. The interes ettled on net basis. The notional loan am on scheduled maturity. At end of reporti
CCS are required to be adjusted for mark is derived based on expected foreign cu rates curves for the balance period of mat has held that the currency swap is in racts. He has further relied upon provisi
IT Act. Perusal of the submission of the case reveal that the transactions do not f rd Exchange Contract". The definition ntract as per ICDS is reproduced hereunde lowing terms are used in this Income Com andard with the meanings specified:
exchange contract" means an agreemen rencies at a forward rate, and includ on contract or another financial instrume he above definition reveals that the cu s not fall under the term "forward excha tilities and Power Pvt. Ltd.
23
. 5312 & 5310/MUM/2024
t there are two ion of forward the currencies y, the forward
3.2019 it had of debentures.
ing, it entered with interest nal amount of valent amount ates linked to assumption of l exchange of ons in foreign t difference is ount is settled ing period, the ked to market urrency curves turity.
the nature of ions of section appellant and fall under the n of forward er:- mputation and nt to exchange des a foreign nt of a similar urrency swap ange contract".

However, eve exchange con exchange diff speculation p currency risk transaction sh only realized
Therefore, the would then re expected loss loss is in acco
8.16 To sum agreement be one currency specific date foreign exch transactions.
Key elements
1. Fixed exch exchanged is 2. Specific d exchange will
3. Amount:
predetermined
4. Parties: Ty financial insti
8.17 The app appellant's ca clause (xviii)
Finance Act, 2
made any for fixed on the d of Act and ICD in Computati needs to mak of Income, wh income. In vi giving treatm above discuss
Jamnagar Ut
ITA No.

en if the said transaction is considere ntract, as per ICDS VI Para 8 (5) Premium fference on contracts that are intended f purposes, or that are entered into to hed k of a firm commitment or a highly prob hall be recognized at the time of settlem d losses will be allowed as deduction e same does not get covered by ICDS VI evert to ICDS I. As per ICDS I Para 4 (ii) M s shall not be recognized unless the recog ordance with the provisions of any other I m up a forward exchange contract is etween two parties to exchange a speci for another currency at a fixed exchan in the future. This type of contract is us ange risk and lock in a fixed rat of a forward exchange contract are as un hange rate: The rate at which the curre agreed upon and fixed at the time of the date: The contract specifies the date o l take place.
The amount of currency to be e d.
ypically involves a business or investor a itution.
ellant has distinguished the case laws st ase pertains to AY 2019-20 to which to section 36(1) applies, which was i
2018, w.e.f. 1.4.2017 (AY 2017-18). Furt rward contracts and no foreign currency date of settlement. Therefore, considering
DS, unrealized MTM Loss is not allowable on of Income as per Income Tax Act a ke required adjustments while preparing hich, appellant has rightly done in its c iew of the above discussion the appella ment of MMT loss on currency swap. In sion and on the lines of decision rendere tilities and Power Pvt. Ltd.
24
. 5312 & 5310/MUM/2024
d as forward m, discount or for trading or dge the foreign bable forecast ment. It means as per ICDS.
I. Therefore, it MTM loss or an gnition of such ICDS.
s a financial ific amount of nge rate on a sed to manage te for future nder:- encies will be contract.
on which the exchanged is and a bank or tating that the provisions of introduced by ther, it has not rate has been the provisions e as deduction and appellant g Computation computation of ant is right in n view of the ed in the case of the appella
3 and 4 of app
12. We have care perused the materi financial statements terms of the cross- framework comprisin read with ICDS-I and notional “mark-to-m on outstanding cros sheet date is an allow for the year under co
12.1 At the outset, scheme. Under sectio
Income Computation followed for the pur under the head "Profi
12.2 The ICDS-I, pr expected loss shall n loss is in accordance gain or expected prof
12.3 The ICDS-VI d foreign currencies; (b operations; and (c) tr nature of forward e
Jamnagar Ut
ITA No.

ant for A.Y. 2020-21 on identical issue, th peal are allowed.”
efully considered the rival su al placed on record, includin
, the assessee’s risk-managem
-currency swap contracts, and ng sections 145, 43AA and 36(1) d ICDS-VI. The short controversy arket” (MTM) loss recognised b s-currency swap contracts as wable deduction in computing b nsideration.
we feel it necessary to refe on 145(2), the Central Governm n and Disclosure Standards rposes of computation of inco fits and gains of business or pro rovides that marked to mark ot be recognized unless the reco e with the provisions of any ot fit shall also not be recognized in deals with: (a) treatment of b) translating the financial statem reatment of foreign currency tran exchange contracts. The ICDS tilities and Power Pvt. Ltd.
25
. 5312 & 5310/MUM/2024
he Ground no.
ubmissions and ng the audited ment policy, the d the statutory
)(xviii) of the Act y is whether the by the assessee at the balance- business income r the statutory ment has notified
(ICDS) to be ome chargeable fession".
ket loss or an ognition of such her ICDS. MTM n the same way.
transactions in ments of foreign nsactions in the S-VI specifically deals with foreign c contracts. Clause (h exchange contract"
currencies at a forwa a foreign currency op similar nature. The d
ICDS is reproduced a 2 (1).
(a) to (b) ………
(c) "Exchange the same nu currency of a (d)………………
(e) "Foreign cu of a person;"
(f) –(g)…………
(h) "Forward different curr currency opti similar natu
(i) "Forward r currencies at 12.4 Further, the Cl that "Any premium forward exchange co income over the life such a contract shall Jamnagar Ut
ITA No.

currency transactions and for h) of paragraph 2 of ICDS-VI d to mean an agreement to exc ard rate and expressly provides tion contract or another financia definitions provided in paragrap as under:
………………..
e difference" is the difference resulting f umber of units of a foreign currency in person at different exchange rates;"
…….
urrency" is a currency other than the repo
……………….
exchange contract" means an agreemen rencies at a forward rate, and includ ion contract or another financial inst ure;"
rate" is the specified exchange rate for ex specified future date;"
lause 8 (1) of the ICDS- VI als or discount arising at the ince ontract shall be amortised as e of the contract. Exchange diff l be recognised as income or as tilities and Power Pvt. Ltd.
26
. 5312 & 5310/MUM/2024
rward exchange defines "forward change different that it includes l instrument of a ph 2 under said from reporting the reporting orting currency nt to exchange des a foreign trument of a xchange of two so provides eption of a expense or ferences on expense in the previous year in profit or loss arisin recognised as income
12.5 Further, section respect of specified fo in accordance with t and section 36(1)(xvii computed. Thus, the currency risk mana
ICDS-VI for tax purpo
12.6 From the submi is evident that the as (CCS) to hedge its u those contracts, the borrows another of e on one currency leg of the contract, and over time. On each principal cash flows the functional curren and only the net a between the partie recognised in financ exchange contracts c
Jamnagar Ut
ITA No.

n which the exchange rates ch ng on cancellation or renewa e or as expense for the previous y n 43AA mandates that exchang oreign currency transactions sh the notified ICDS and recognis ii) allows deduction of loss only e legislative design is that all m agement instruments are to b oses.
ission before lower authorities a ssessee had entered into cross- underlying foreign currency ex assessee notionally lends one quivalent notional principal; it r and pays interest on the other principal on both legs is amor h reset or settlement date, th in the foreign currency leg are ncy by reference to the prevailing amount in the functional curr s. Economically, such a str ce as being equivalent to a se coupled with interest-rate swaps tilities and Power Pvt. Ltd.
27
. 5312 & 5310/MUM/2024
hange. Any l shall be year."
ge differences in all be computed sed accordingly, to the extent so material foreign be governed by and before us, it -currency swaps xposures. Under e currency and receives interest over the tenure rtised or settled he interest and e translated into g exchange rate, rency is settled ructure is well eries of forward s.

e assessee submitted that a h 8(1) of ICDS-VI and the def e,” “forward exchange contr ned in paragraph 2(1) of ICDS- sions:
ng currency of the Appellant is Indian Rup difference in relation to forward excha
CDS-VI is a difference arising on account ncy (U in the case of appellant) in equiv ven exchange rate at relevant point of tim case where future exchange rate is d arket rates.
ard Exchange Contract (FEC) covered by lving determination / fixation of Forwa ency (U in this case) upfront at which th d in future.
act where conversion of rate of Foreign C xed upfront is not covered by ICDS-VI.
ap Contract is not covered by ICDS-VI as volve upfront fixation of conversion ra
INR.
further explained as why curre e treated as forward contract he assessee had outstandi
5 crores through debentures, an the underlying, it entered in S) contracts coupled with inter rangements was:
e lent notional amount of Rs 5310
s and tilities and Power Pvt. Ltd.
28
. 5312 & 5310/MUM/2024
combined finitions of ract,” and VI leads to upees (INR) ange contracts of reporting of valent amount me. It does not determined by y ICDS-VI is a ard Rate for a he transaction
Currency in to In short, the s this contract ate of foreign ency swap ts. It was ing rupee nd, using a nto cross- est swaps.
0.76 crore to (b) Assessee
U 822.29 m ii. In terms of contract and tenure of the c iii. The princip will be amor contract. Simu the loan will a iv. The settlem basis on res
Contract.
v. Thus, on interest on th the rate prev rate of conver in the case of Thus the curr in the na meaning of t
12.9 On this basis, fundamentally differe do not involve the fix contract. Therefore, t exchange contract”
transactions, in its v mark-to-market loss permitted by another separate ICDS deals and, therefore, the M while computing taxa
Jamnagar Ut
ITA No.

notionally borrowed equivalent amount mn) at lower interest rates linked to LIBOR f the above, Appellant receives interest on it pays interest on U leg of the con contract.
pal amount of the contract (Rs. 5310.76 c rtised in installments as per agreed sc ultaneously U leg (U 822.29 mn in also be amortised in same manner.
ment of the interest and principal will h spective dates as per the schedule a the agreed date, principal amount of his U notional amount will be converte ailing on that date of settlement. In oth rsion of U into INR is not determined u f forward rate contracts.
rency swap contacts entered into by App ature of forward rate contracts the ICDS-VI.”
the assessee argued that curr ent from forward rate contract xation of a forward rate at the they do not fall within the mean
”
under ICDS-VI.
Conseq view, must be governed by ICDS ses cannot be recognised unl r ICDS. The assessee contende with currency swaps, the ICDS
MTM loss on currency swaps ca able income.
tilities and Power Pvt. Ltd.
29
. 5312 & 5310/MUM/2024
in U (appx
R.
n INR leg of the ntract over the cr in this case) chedule in the n this case) of happen on net agreed in the U leg and ed into INR at her words! the upfront, unlike pellant are not within the rency swaps are ts because they inception of the ning of “forward quently, such S-I, under which less specifically ed that since no -I alone applies, annot be allowed

see asserted that cross-currenc ns of “forward exchange cont difference” in clause (h) of parag considered the submissions an we find no merit in this contenti t place, the definition in clause ( tates that "forward exchange c hange different currencies at a fo currency option contract or an ilar nature. The use of the wo enlarge the scope of the ma ificant that a foreign currency brought within the ambit of "fo h such an option may, dependi sical exchange of currencies an ture has thus clearly indicated cies on a single future da nt once the inclusive limb is attr the expression "another financia ects attention to the economic s of the instrument. The relevant is that the instrument is a fina function of movements in the ncies and which is employed tilities and Power Pvt. Ltd.
30
. 5312 & 5310/MUM/2024
cy swaps do not tract,” “forward graph 2 of ICDS- nd examined the on.
(h) is couched in contract" means forward rate and nother financial ord "includes" is ain part of the option contract orward exchange ing on its terms, nd may be cash- d that physical ate is not an racted.
al instrument of ubstance rather
"nature" for the ancial derivative e exchange rate to transfer or manage foreign exch design, satisfy thes denominated in two cash flows in each c with reference to the they are of the sam foreign currency optio
12.13
Thirdly, ev the view that a stan the ingredients of an a forward rate". The dates, one party wi interest in one cu payments referable t and that these recipr the specified exchang fact that, in practice, the functional curre character that each equivalent of anoth forward contracts an are still regarded as legal and regulatory p
Jamnagar Ut
ITA No.

ange risk. Cross-currency swap se criteria: they are financi different currencies; they gene currency; and the net settlemen e bilateral exchange rate. On me genus as forward exchange ons.
ven on the main limb of the defin ndard cross-currency swap subs
"agreement to exchange differe ere is an agreement that, on ll make payments referable to urrency, while the counterpa to principal and interest in an rocal obligations will be settled ge rate mechanism on those fu
, the parties may settle only the ency does not detract from h leg represents an obligatio her currency. In modern deriv nd options are frequently cash-s forward exchange contracts and purposes.
tilities and Power Pvt. Ltd.
31
. 5312 & 5310/MUM/2024
ps, by their very ial instruments erate streams of nt is determined this parameter, e contracts and nition, we are of stantially meets nt currencies at specified future o principal and arty will make nother currency, by reference to uture dates. The e net amount in the underlying on to pay the vative markets, settled, yet they d options for all 12.14
As regards it as the specified exc specified future date that the rate must inception; the requi determining such ra future date. A claus date, the foreign curr currency at the then reference rate or an "specified" rate with formula or rule for d to meet the definition
12.15
Thus, both purposive reading, inclusive definition o paragraph 2 of ICD similar nature". The ICDS-VI merely beca currencies or becaus the prevailing rate is,
12.16
This conc legislative purpose provisions were intro
Jamnagar Ut
ITA No.

s the expression "forward rate", change rate for exchange of two e. There is nothing in the langu be a fixed numerical figure a irement is that the rate, or ate, must be contractually sp se which stipulates that, on e rency leg shall be converted int
-prevailing reference rate (for ex agreed market benchmark) is, hin the meaning of ICDS-VI. T determining the rate on the futu n.
h on a strict textual construc cross-currency swaps are c of "forward exchange contract"
DS-VI as "another financial in argument that they stand outs ause there is no gross physic se the rate is determined by a fo
, therefore, not acceptable.
lusion is fortified if one has behind section 43AA and I oduced to provide a uniform and tilities and Power Pvt. Ltd.
32
. 5312 & 5310/MUM/2024
ICDS-VI defines o currencies at a uage to suggest agreed upon at the method of pecified for the each settlement o the functional xample, the RBI
, in our view, a The contractual ure date suffices ction and on a covered by the in clause (h) of nstrument of a ide the scope of cal exchange of ormula linked to regard to the ICDS-VI. These d codified regime for recognition of exc transactions and rel with the economic re inconsistent with thi brought within ICDS equivalent, instrume be dealt with under interpretation would to choose the form of timing of recognition
12.17
It is also a as reflected in acco market practice, that are all forms of fo accounting framewo compartments for the currency risk. The l landscape, therefore
"another financial in create a casus omis swaps which were al our opinion, had instruments, a specif
Jamnagar Ut
ITA No.

hange differences in respect of f ated derivatives and to align t ealities of such instruments. It w is purpose if simple forwards an S-VI while more sophisticated, b nts such as cross-currency sw r the general provisions of IC open the door to arbitrage, allo f derivative purely to achieve a m of gains or losses.
a matter of common commercial ounting standards under Ind t foreign currency forwards, opt oreign exchange derivative co orks do not segregate them e purposes of identifying and me legislature is aware of the evo
, has consciously used the br nstrument of a similar nature ssus in respect of instrument ready well known at the time of there been an intention to fic exclusion could easily have b tilities and Power Pvt. Ltd.
33
. 5312 & 5310/MUM/2024
foreign currency tax computation would be wholly nd options were but functionally waps were left to CDS-I. Such an owing taxpayers more favourable understanding, d AS/IFRS and tions and swaps ontracts. Hedge into watertight easuring foreign olving derivative road expression e" so as not to s like currency f notification. In exclude such been articulated.

eld that cross-currency swap within the extended meaning
S-VI, we now turn to the conse osses at the balance-sheet date damental principles of account ssly mandates that MTM loss ecognised unless recognition is , in turn, draws a clear distinc ontracts entered into for trading e firm commitments or highly p
) those entered into for other p ich, on the facts of the present s-currency swaps, the standard l be recognised only at the time to the provisions of section 43A
3AA reinforces this position by s in respect of specified fo be computed in accordance w ecognised in accordance with s hen allows deduction of such l ed. Once the governing
IC or loss on such contracts un uction claimed in respect of inte tilities and Power Pvt. Ltd.
34
. 5312 & 5310/MUM/2024
ps are forward of clause (h) of equence for the e. ICDS-I, which ting for income ses or expected required by any ction between (i) g or speculation robable forecast purposes. In the t case, includes d provides that of settlement of AA.
y enacting that oreign currency ith the notified such standards.
loss only to the CDS postpones ntil the time of erim revaluation or MTM losses on op run counter to the st
12.20
The asse commercial accounti permitted deduction monetary items is, were rendered in a r not codified by inc section 145(2). After and the notification o specific statutory di general accounting standard, the latter m
12.21
In the ligh cross-currency swap the expression "anoth clause (h) of paragr treated as forward standard. Consequen on such outstandin purely notional, has and is not an allowa having regard to the 43AA and section 36
Jamnagar Ut
ITA No.

pen contracts at the balance-sh atutory scheme.
essee’s reliance on general ing and on pre-ICDS judicial au of foreign exchange losses on in this context, misplaced. Th regime where the treatment of come-computation standards the insertion of sections 43AA of ICDS-I and ICDS-VI, the field irections. Where there is a c conventions and a bindin must prevail for purposes of the ht of the above discussion, we s entered into by the assessee her financial instrument of a sim raph 2 of ICDS-VI and are, t exchange contracts for the pu ntly, the MTM loss recognised ng contracts as at the balanc s not crystallised into an enfor able deduction in the year unde combined operation of ICDS-I, I
(1)(xviii) of the Act.
tilities and Power Pvt. Ltd.
35
. 5312 & 5310/MUM/2024
heet date would principles of uthorities which n restatement of hose authorities such items was notified under A and 36(1)(xviii) d is occupied by conflict between ng computation
Act.
e hold that the are covered by milar nature" in therefore, to be urposes of that by the assessee ce-sheet date is rceable liability, er consideration,
ICDS-VI, section 12.23
In view of finding of ld CIT(A) w loss on cross-curre measurement. The d adding back the MT income is accordingl the Revenue on this i
14. The ground N computation of boo specifically whether preference shares in (Ind AS) 109 can be profit.
14.1 The facts in b assessee prepared it AS, as mandated
Standards) Rules, 20
amount of ₹18,83,82
fair-value loss arisin
Ltd. (EWPL), in acco added back this los provisions of the A computing book profi
Jamnagar Ut
ITA No.

f the foregoing, we are unable which proceeds on the footing ncy swaps is allowable in t disallowance made by the Asse
TM loss on cross-currency swa ly upheld. The ground Nos. 2
issue are allowed.
Nos. 5 and 6 of the appea ok profit under section 115J the loss recognised on fai accordance with Indian Accou reduced while determining the brief qua the issue in disput s financial statements in comp under the Companies (Indi
015. During the year, the asse
2,94,946 to its profit and loss a ng on preference shares of Eas ordance with Ind AS-109. Whi s in computing its income un
Act, no such adjustment wa fit under section 115JB.
tilities and Power Pvt. Ltd.
36
. 5312 & 5310/MUM/2024
to sustain the that such MTM he year of re- ssing Officer by aps to the total
&3 of appeal of al concern the JB of the Act, ir valuation of unting Standard assessee’s book te are that the pliance with Ind ian Accounting ssee debited an account towards st West Pipeline ile the assessee nder the normal as made while

wholly owned subsidiary of EWP essee holds 45% equity in EHPL
EWPL. The assessee submitte siness had incurred substantia ificantly eroded, its promoters k to support its financial ob stors of EWPL including obligat ce shares.
submitted that during FY 2
of its pipeline business unde oned by the NCLT u/s 23
3. Reliance Industries Ltd. (RI nce shares (RPS), at premium um year on year in its books o ion of Hon’ble NCLT for trans hree fourth value of the credit ers or class of member must ngement. A preference share hold e, pursuant to the said provis nsent from RIL to transfer its pi
Since the assessee being a prom therein through its subsidiar
RPS held by the RIL at Rs.
nt invested+ accrued premium) tilities and Power Pvt. Ltd.
37
. 5312 & 5310/MUM/2024
PL Holdings Pvt.
L and is thus an ed that because al losses and its s, including the ligations to all tions relating to 2018-19, EWPL er a scheme of 30-232 of the IL), was holding m. The RIL was of accounts. For sfer of pipelines tors or class of agree for any der is a member sion, EWPL was ipeline business moter of EWPL, ry, it agreed to .1883.83 crores enabling RIL to grant consent to the by EWPL. According acquired 25,00,00,0
consideration of Rs.1
14.4 The EWPL had of the pipeline busin activities. Subsequen and cash flows rem possibility of redeem assessee. Hence, in v the assessee to Rs.1
EWPL for assessmen ability to redeem thes
14.5 But, the Asse recorded in books of a provision for dimin clause (i) of Explanat was no market for th substance a provisio not alter the true nat
14.6 Before the CIT( statements were pre mandated under the Jamnagar Ut
ITA No.

said scheme transfer of the pi gly, for financial year 2018-19
000 preference share of EWPL
883.83 crores.
huge carried forward losses an ness it ceased to have any sign nt to transfer of pipeline no op mained with EWPL and it ha ming these preference shares view of Ind AS 109, the RPS wer
1 in its financial statement. B nt year 2018-19 is indicating se redeemable preference shares essing Officer, however, rega account on account of fair valu nution in the value of an asse tion 1 to section 115JB(2), obse he RPS, that the fair-value adj n, and that the change in nom ture of the transaction.
(A), the assessee contended th epared strictly in accordance w e relevant provisions of the C tilities and Power Pvt. Ltd.
38
. 5312 & 5310/MUM/2024
ipeline business
9, the assessee
L from RIL, at nd post transfer ificant business perating income ad very remote s held by the re fair valued by Balance sheet of that it had no s.
arded the loss uation of RPS as et falling within erving that there ustment was in menclature could hat the financial with Ind AS, as Companies Act,

2013 and accordingl in mutual fund, b subsidiary at a fair prescribed in Ind AS at the yearend RPS resultant loss was de head ‘other expense
24/2017, which clar
Ind AS are routed th are not to be added b
115JB and the prov asset would not ap precedents, includin wherein it was held t profit and loss accou
Act, except to ma
Explanation 1 to sect
CBDT instruction a dispute allowed the c
“9.3 The stan appellant ha submitted tha with Indian a Companies (I year under co account by Rs the preferenc
Pipeline Limit added back th
Jamnagar Ut
ITA No.

ly, the assessee had recognized bonds, commercial paper ass r value through profit and los
S-19 for Financial instrument. A Ss were re-valued at fair ma ebited to the profit and loss acc s. The assessee relied on CBD rifies that where fair-value adju hrough the profit and loss accou back while computing book prof vision related the diminution or pply. Reliance was also plac g Apollo Tyres Ltd. v. CIT (255
that the Assessing Officer canno unt prepared in accordance with ake the specific adjustments tion 115JB. The Ld. CIT(A) after nd other judicial precedent o claim of the assessee observing a nd taken by the AO and the submission as been carefully considered. The a at its books of accounts were drawn up accounting standards ("Ind AS") as notif
Indian Accounting Standards) Rules, 201
onsideration, the appellant debited its p s. 18,83,82,94,946/- towards loss on fa ce shares held by the Appellant of M/
ted (EWPL) as per Ind AS 109. The A he said loss of Rs. 18,83,82,94,946/-, wh tilities and Power Pvt. Ltd.
39
. 5312 & 5310/MUM/2024
d its investment sociates, fellow ss (FVTPL) as Accordingly, the rket value and count under the DT Circular No.
ustments under unt, such losses fit under section r impairment of ced on judicial
5 ITR 273, SC), ot go behind the h the Companies prescribed in considering the on the issue in as under:
ns filed by the appellant has in compliance fied under the 15. During the profit and loss air valuation of /s. East West
Appellant had hile computing income under made toward
115JB of the owned by EW holds 45% eq the equity in is also a prom pipeline busi promoter of t extend full fi external lende
9.4 The main was acquired to market loss market availa loss was in th
Was required of the Act.
9.5 On the ot rebut the find appellant is re
(i) In FY 2018
an external e the Companie
Hon'ble Natio and Mumbai.
(ii) For obtaini business as p three fourth of class of memb preference sh pursuant to consent from (iii) Since the A therein throug held by RIL a accrued prem for transfer of (iv) It is a set adjustments t
Jamnagar Ut
ITA No.

r the normal provisions of the Act. No ad ds the said loss while computing book e Act. East West Pipeline Limited (EW
WPL Holdings Private Limited (EHPL). T quity stake in EHPL and hence owns ind
EWPL. Appellant, being one of the promo moter of EWPL. Since EWPL was making ness, the net worth held substantially the EWPL, including the appellant had inancial support to owner financial obli ers/ investors of EWPL.
n contention of the AO was that the pref d at the inflated rate. Further, it was held s was not applicable to the appellant as able for such transactions. The AO also he nature of "provision" and therefore Rs d to be added back while computing prof ther hands the appellant filed detailed dings of the appellant. The gist of the sub eproduced hereunder: -
8-19, the Pipeline Business of EWPL was ntity under a scheme of arrangement u/
es Act, 2013, which scheme was sanc onal Company Law Tribunal ("NCLT") a ing the sanction of Hon'ble NCLT for trans per section 230 of the Companies Act, 2
of value of creditors, or class of creditors o bers must agree for any compromise or a hare holder is a member in a comp the said provision, EWPL was requir
RIL to transfer its pipeline business unde
Appellant was a promoter of EWPL, holdi gh its subsidiary, it agreed to acquire pa at Rs. 1883.83 crore (equivalent to amou mium), enabling RIL to grant consent to the f the pipeline business by EWPL.
ttled legal position that the assessing off to book profits u/s. 115JB only if the ad tilities and Power Pvt. Ltd.
40
. 5312 & 5310/MUM/2024
djustment was k profits u/s.
WPL) is wholly
The Appellant directly 45% of oters of EHPL, g losses in its y eroded. The committed to igations to all eference share d that marked there was no held that the s. 1883.83 Cr.
fit u/s. 115JB submission to bmission of the transferred to /s. 230-232 of ctioned by the at Ahmedabad sfer of pipeline
2013, at least or members or rrangement. A pany. Hence, red to obtain er the scheme.
ing 45% equity art of the RPS unt invested +
e said scheme ficer can make djustment falls within any of 115JB(1) of th
(v) The Circul
Central Boar issue regardin
(vi) In Sri Ha
(Karnataka H scrutinized, c qualification) meeting, and rely on the au book profit. T with regard t has to rely u being scrutini
(vii) The Appe
Ind AS 109. provision for the carrying a (viii) The RPS traded. Ind A to be fair valu the market, as 9.6 The appel
Hon'ble Supr
Commissione under: -
"Section 115J of Schedule
Assessee-com for arrears o according to r
Schedule VI t while conside recomputed s made for arr were certified with provision
Officer had n were certified accordance w
Jamnagar Ut
ITA No.

f the adjustments prescribed in Explanatio he Act. [Apollo Tyres v. CIT [2002] 255 ITR lar no. 24 of 2017 dated 25/07/2017, rd of Direct Taxes ("CBDT"), which has ng to FVTPL adjustments under Ind-AS.
ariram Hotels (P.) Ltd. V. CIT [2016] 237
HC), it has been held that once the certified by the statutory auditors (even and approved by the company in gen then filed with