M/S. PATANJALI FOODS LTD (FORMERLY KNOWN AS RUCHI SOYA INDUSTRIES LTD),MUMBAI vs. DY COMM OF INCOME TAX- CENTRAL CIRCLE-7(2), MUMBAI

3 Patanjali Foods Ltd, Mumbai.

1.1 That on the facts and in the circumstances of the case, the Ld. CIT(A) is unjustified in confirming the disallowance of Rs. 3,72,92,526/- being expenditure towards employee Stock Options (ESOPs) provided to the employees.

1.2 That on the facts and in the circumstances of the case, the Ld. CIT(A) is unjustified in confirming the disallowance of bad debt amounting to Rs.4,48,07,443/- written off as irrecoverable by the appellant.

4.1. In this regard Ld. AR submitted that this ground is squarely covered by the decision of the Coordinate Bench of ITAT in assessee’s own case for the A.Y 2012-13, wherein similar issue has been dealt with by the Coordinate Bench and decided in favour of assessee. On the other hand Ld. DR relied upon by the orders passed by the revenue authorities.

4.2. We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that this ground 4 Patanjali Foods Ltd, Mumbai. is squarely covered by the decision of the Coordinate Bench of ITAT in assessee’s own case for the A.Y 2012- 13, wherein the operative portion of the said order reproduced herein below:

15.3 Heard both the parties. It is noted the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in CIT vs. Biocon Ltd. (121 taxmann.com 351), wherein it has been held that the ESOP expenditure is allowable to the assessee under section 37(1) of the Act. It is noted that, similar view has been expressed by the Hon'ble Madras High Court in the case of CIT vs. PVP Ventures Ltd. (211 Taxman 554). Respectfully following the same, we hold that the Ld. CIT(A) had erred in confirming the disallowance of Rs.2,57,78,489/- made on account of ESOP expenses and the AO is directed to delete the same. Accordingly, this ground of the assessee stands allowed. 4.3. Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2012-13 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed.

5.1 After having heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records, we noticed that assessee had made sales to M/s Benzoin Trades and Agencies Pvt Ltd in A.Y 2009-10 of Rs. 11,38,82,250/-, the sale were 5 Patanjali Foods Ltd, Mumbai. included in the total turnover of the assessee and were offered to tax.

5.2 Even during the year under consideration the outstanding balance receivable from M/s Benzoin Traders and Agencies Pvt Ltd was Rs. 11,20,57,443/-. As per assessee, since the said party was facing financial difficulty and was running into losses, therefore the management of the assessee decided to settle the aforesaid dues and accepted Rs. 7,93,60,000/- as full and final settlement and balance of Rs. 4,48,07,443/- was written bad debts. We have analyzed the provisions of Sec. 36(1)(ii), and according to the said provision, the deduction of the amount of any bad debts or part thereof which was written off as irrecoverable in the accounts of the assessee for the previous years is to be allowed. In this regard we placed reliance is being placed upon by the Ld. AR by the decision of Hon’ble Supreme Court in the case of IRF Ltd. Vs CIT, 190 taxmann 391, and in the case of CIT Vs. Omprakas B. Selecha, [2010] 325 ITR 24 (Bombay).

5.3 Therefore considering the facts of the present case and the legal proposition laid down in the afore mentioned judgments (supra) we allow the claim of bad debts raised by the assessee.

5.4 Assessee had also raised additional grounds bearing No. 1 to 5, thereby raising the grounds as under:

13 Additional Ground That on the facts and in the circumstances of the case, the CIT(A) ought to have considered

6 Patanjali Foods Ltd, Mumbai.

Rs. 52,58,29,638/- export incentive granted under foreign trade policy as focus product scheme(FPS)/ Vishesh Krishi and Gram Udyog Yojana(VKGUV) as capital receipt in the computation of total income under the normal provisions of the Act as well as in computing the book profit u/s 115JB of the Act 1.4 Additional Ground That on the facts and in the circumstances of the case, the CIT(A) ought to have considered that the disallowance of Rs. 62,41,009/- u/s 14A r.w.r. 8D can not be made in computing the book profit u/s 115JB of the Act 1.5 Additional Ground and That on the facts and in the circumstances of the case, the CIT(A) ought to have considered deduction of Rs.4,98,09,595/- advertisement expenses Rs.38,03,68,716/- bad debts adjusted in the Business Development Reserve under the head Reserve and surplus in computing the book profit u/s 115JB of the Act 1.6 Additional Ground That on the facts and in the circumstances of the case, the CIT(A) ought to have considered the nature of Rs. 17,34,66,365/-VAT/Excise refund/Remission as capital receipt in nature instead of revenue under the normal provisions of the Act as well as in computing the book profit u/s 115JB of the Act 1.7 Additional Ground That on the facts and in the circumstances of the case, the CIT(A) not justified and rather grossly erred in imposing interest u/s 234B and 234C when the appellant has been assessed under MAT provision for the assessment year under consideration. 1.8 That on the facts and in the circumstances of the case, the Ld. CIT(A) is unjustified in confirming the excessive interest under section 234A, 234B & 234C of the Act charged by the Ld. Ld.AO. 1.9 That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the grounds stated here-in- above, either before or at the time of hearing of this appeal. 5.5 We have heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-

7 Patanjali Foods Ltd, Mumbai.

13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

6.1 Before us, the Ld. CIT, DR for the Revenue objected to the admission of these claims, as according to him, the assessee could not lodge such new claims in the proceedings being conducted u/s 153A of the Act. Per contra, the Ld. AR contended that, the assessee is entitled to make fresh claim u/s 153A of the Act in relation to abated assessments. He submitted that, Section 153A of the Act mandates that, the assessments or re-assessments pending on the date of initiation of search would stand abated and return of income filed by the person qua such abated assessment year would be construed to be a return of income under Section 139 of the Act. Therefore, in view of the second proviso to Section 153A of the said Act, once the assessment got abated, it meant that it was open for both the parties, i.e. the assessee as well as the Revenue to make new claims for allowance or to make disallowance, as the case may be. Hence, according to him, the provisions of law which are applicable to regular income-tax assessments u/s 143(3) of the Act would apply. The Ld. AR thus contended that, the assessee was legally permitted to raise new/fresh claims in the abated assessment for AY 2010-11. For this, he relied on the decision of the jurisdictional Hon’ble Bombay High Court in the case of CIT v. B G Shirke Construction Technology (P) Ltd (246 Taxman 300).

6.2 We have heard the rival submissions and perused the relevant provisions of law. It is noted that, the second proviso to Section 153A of the Act mandates that the assessments or re-assessments pending on the date of initiation of search would stand abated. It further provides that, the return of income filed by the searched person, in terms of Section 153A(1)(a) of the Act, would be construed to be a return of income under Section 139 of the Act. Therefore, once the assessment gets abated, the original return which had been filed loses its originality and the subsequent return filed under Section 153A of the said Act (which is in consequence to the search action conducted under Section 132 of the Act) takes the place of the original return. In such a case, the return of income filed under Section 153A(1) of the said Act, would be construed to be one filed under Section 139(1) of the Act and the provisions of the said Act shall apply to the same accordingly. A return filed under Section 153A takes the place of the original return under Section 139 of the Act, for the purposes of all other provisions of the Act. It is noted that, the provisions of Section 153A of the Act explicitly provides that, all the provisions of the Income-tax Act will apply to the return filed by an assessee under Section 153A of the Act, as if such return filed by the assessee was a return filed under section 139(1) of the Act. In other words, in view of the second proviso to Section 153A(1) of the said Act, once an assessment gets

8 Patanjali Foods Ltd, Mumbai. abated, the provisions of the Act which would be otherwise applicable in case of return filed under Section 139(1) of the Act, would also continue to apply in case of return filed under Section 153A of the Act. Having regard to the foregoing provisions, we are of the view that the assessee is entitled to lodge a new claim in a proceeding under Section 153A of the Act, which was not claimed in the regular return of income, because the assessment was never made/finalized in the case of the assessee in such a situation. We find that this particular issue has been decided in favour of the assessee by the Hon'ble Bombay High Court held in the case of B.G. Shirke Construction Technology P Ltd (supra), wherein it was held as under :- “8. The grievance of the Revenue before us is that the impugned order is unsustainable as it is a passed in the face of the Apex Court Order in Goetze (India) Ltd. (supra). It is submitted that the impugned order could not have held that the claim for deduction could be entertained by the Assessing Officer in the absence of the same finding a place either in return of income or in the revised return of income. It is further submitted that in view of the decision of the Apex Court in CIT v. Sun Engineering Works (P.) Ltd.[1992] 198 ITR 297/64 Taxman 442 a re-assessment consequent to re-opening of the assessment cannot lead to reduction of income which had been originally assessed to tax. In the above view, it is submitted that the impugned order of the Tribunal is not justified and admission of the appeal is warranted. …… 10. The reliance on the decision of the Apex Court in Sun Engineering Works (P.) Ltd. (supra) by the Revenue is misplaced. The above case dealt with re-opening of an assessment under Section 147 of the Act. It was in that context that the Apex Court observed that the Order passed under Section 147/148 and the Assessing Officer is primarily restricted to such income which has escaped assessment and does not permit reconsideration of issue which are concluded in the earlier assessment years in favour of the Revenue.

9 Patanjali Foods Ltd, Mumbai. claim in proceedings u/s. 153A of the Act in case of abated assessments as the return filed u/s 153A of the Act was required to be treated as return of income filed u/s 139(1) of the Act. The relevant findings of the Hon’ble High Court are noted to be as under:

“8.1 In other words, section 153-A(1) provides that where a person is subjected to a search under section 132 or his books of accounts, etc. are requisitioned under section 132-A after 31-5-2003, the assessing officer is mandated to issue notice to such person to furnish return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Such returns of income shall be treated to be returns of income furnished under section 139. Once returns are furnished, income is to be assessed or re-assessed for the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, once section 153-A(1) is invoked, assessment for 6 assessment years immediately preceding the assessment year in which search is conducted or requisition is made becomes open to assessment or re-assessment. Two aspects are crucial here. One is use of the expression "notwithstanding" in sub-section (1); and secondly that returns of income filed pursuant to notice under section 153-A (1)(a) would be construed to be returns under section 139. The use of non obstante clause in sub-section (1) of section 153-A i.e., use of the expression "notwithstanding" is indicative of the legislative intent that provisions of section 153-A(1) would have overriding effect over the provisions contained in sections 139, 147, 148, 149, 151 and 153. 8.2 Having noticed the above, we may also refer to the second and the third proviso to section 153-A(1). For the sake of convenience, the second and third proviso to section 153A(1) of the said Act which is relevant is reproduced below and reads thus : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate: Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. 8.3 The second proviso says that any assessment or re-assessment proceedings falling within the said period of six assessment years pending on the date of initiation of search under section 132 or making of requisition under section 132-A shall abate. The third proviso mentions that the Central Government may frame rules to specify such class or classes of cases in which the assessing officer shall not be required to issue notice for assessing or re-assessing the total income for the said six assessment years. 8.4 Reverting back to the second proviso what is to be noticed is that as per this proviso, any assessment or re-assessment in respect of any assessment year falling within the said period of six assessment years is pending on the date of initiation of search or making of requisition, those assessment or re-assessment proceedings shall abate. In other words, pending assessment or re-assessment proceedings on the date of initiation of search or making of requisition shall abate. 8.5 That brings us to the crucial expression, which is 'abate'. The ordinary dictionary meaning of the word 'abate', as per Concise Oxford English Dictionary, Indian Edition, is to 10 Patanjali Foods Ltd, Mumbai. reduce or remove (a nuisance). Derivative of abate is abatement. In Black's Law Dictionary, Eighth Edition, 'abatement' has been defined to mean an act of eliminating or nullifying; the suspension or defeat of a pending action for a reason unrelated to the merits of the claim. In Supreme Court on Words and Phrases (1950-2008), "abating" has been defined to mean "an extinguishment of the very right of action itself"; to "abate", as applied to an action, is to cease, terminate, or come to an end prematurely.

"14. From the above discussion and precedence, the scheme of assessment u/s. 153A of the Act in case of search, the AO shall issue notice to searched person requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A and clause (b) postulates assessment or reassessment of the total income of six years immediately preceding the assessment year relevant to the previous year in which such search is conducted. The first proviso mandates that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso postulates that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to 11 Patanjali Foods Ltd, Mumbai. in sub-section (1) is pending on the date of initiation of the search u/s. 132 of the Act shall abate. In the present case before us, however, though the second proviso to sub-section (1) of section 153A would not apply in the first three years of this case, yet, as far as the second three year period is concerned (which are pending before us), the assessments were pending The proceedings in relation thereto abate. Now the entire assessment in relation to the second phase of three years can be made. The pending assessment in that case may be undertaken u/s. 153A of the Act. The abatement of pending assessment is for the purpose of avoiding two assessments for the same year i.e. one being regular assessment and the other being search assessment u/s. 153A of the Act. In other words, these two assessments merge into one assessment. It means that completed assessments stand on different footing from the pending assessments. Hence, in so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s. 153A of the Act merge into one and in that case only one assessment for the remaining set of years, where assessment is pending, is to be made separately on the basis of search materials and the regular material existing or brought on record before the AO/Revenue. It means that the assessee can make any new claim in the return of income filed u/s. 153A of the Act or even during the course of assessment proceedings undertaken u/s. 153A of the Act. In our view, and in view of the second proviso to section 153A (1) of the Act, once assessment get abated it is opened both way i.e. for the Revenue to make any additions apart from seized material even regular items declared in the return can be subject matter if there is doubt about the genuineness of those items and similarly the assessee also can lodge new claim, deduction or exemption or relief which remained to be claimed in regular return of income, because assessment was never made in the case of the assessee in such situation. Hence, we allow this issue of assessee's appeal."

12 Patanjali Foods Ltd, Mumbai. additional claim/s in the abated assessment for AY 2010-11 in the proceedings u/s 153A of the Act. Accordingly, the Additional Ground No. 7 raised in support of the cross objections is found to be maintainable and the preliminary objection of the Revenue is rejected. 5.6 Thus considering the above mentioned decision and also keeping in view the fact that for the year under consideration, the last date to file revised return of income was 31.03.2013 and to serve notice u/s 143(2), the last dated was 30.09.2013. However before the last date to revise the return, on 29.01.2013, a search and seizure was carried out on the assessee. Later on a notice u/s 153A of the Act was issued upon the assessee, thereby directing to file a return of income u/s 153A of the Act. Consequently the same was filed on 15.03.2014. In the said return fresh claim of expenditure towards employee stock option plan (ESOP’s) and bad debts written off was made. Consequently, we admit the additional grounds to be heard on merits.

5.7 Additional Ground No.1, this ground relates to grant of export incentive under foreign trade policy as focus produc scheme (FPS) /Vishes Krishi and Gram Udyog Yojana (VKGUY) as capital receipt in the computation of total income under the normal provisions of Act as well as in computing the book profit u/s 115JB of the Act.

5.8 After having heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records during the year under 13 Patanjali Foods Ltd, Mumbai. consideration, the assessee has credited to its profit and loss account, export incentive in the form of Focus Market Scheme (FMS) / Vishesh Kishi and Gram Udyog Yojana (VKGUV) under the Foreign Trade Policy amounting to Rs. 52,58,29,638/-. The same is included under the head export incentives in the statement of profit and loss account. The incentive has been granted as the assessee made export to various potential new markets as not for all markets. The incentive has been granted for exploring the new market from a long –term perspective. Therefore, the aforesaid incentive is capital in nature under the normal provisions of the Act as well as in calculation of Book profit u/s 115JB of the Act.

5.9 After having heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

8.12 However, at the same time, we agree with the Ld. CIT DR that these details and figures now being provided by the assessee, have not been examined by the AO, and therefore the same warrants verification. The AO is accordingly directed to verify the same and accordingly quantify and exclude the subsidies which were received under the FPS and VKGUY of the Foreign Trade Policy, which has been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. This additional ground no. 1 of the cross objections therefore stands partly allowed for statistical purpose. 5.10 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case

14 Patanjali Foods Ltd, Mumbai. for the A.Y 2012-3 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed for statistical purposes.

5.11 Additional ground No. 2, this ground relates to challenging the disallowance of Rs. 62,41,009/- u/s 14A r.w.r 8D of the Act in computing book profit u/s 115JB of the Act. In this regard Ld. AR submitted that this ground is squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed.

5.12 After having heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records during the year under consideration, the assessee has earned exempt income of Rs. 62,40,997/- during the concerned assessment year. While filing of return of income the assessee has disallowed Rs. 1,10,00,000/- as per the provisions of Sec. 14A r.w.s 8D. Ld. CIT(A) further reduced to Rs. 62,41,009/- in comparison to the amount added by the assessee in its return of income.

5.13 After having heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of 15. Patanjali Foods Ltd, Mumbai. Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

9.3 Now we come to the addition made on account of Section 14A r.w. Rule 8D, while computing book profit u/s 115JB of the Act. Following the decision of the Special Bench of this Tribunal in the case of ACIT vs Vireet Investments Ltd. (165 ITD 27), we hold that the disallowance made u/s 14A read with Rule 8D cannot be added to the book profit computed u/s 115JB of the Act. Hence, the disallowance u/s 14A added to the book profit u/s 115JB is directed to be deleted. Overall therefore, Additional Ground Nos. 2 & 3 are allowed. 5.14 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2012-3 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed 5.16 Additional Ground .3, This ground relates to grant of deduction of Rs. 43,01,78,311/- as the advertisement expense and bad debts for calculation of tax under normal provisions of the Act adjusted in Business Development reserve under the head Reserve & Surplus in computing the book profit u/s 115JB of the Act. In this regard Ld. AR submitted that this ground is squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for the A.Y 2010-11 & 2012-13.

5.17 After having heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of 16. Patanjali Foods Ltd, Mumbai. Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

10.3 It was shown to us that, the assessee had claimed separate deduction for the bad debts and advances written off in the course of business, while computing total income under normal provisions and the AO had accepted and allowed the same. According to the Ld. AR, the assessee had inadvertently omitted to claim the deduction for such bad debts and advances written off, while computing book profit u/s 115JB of the Act. The Ld. AR has thus pleaded that the impugned claim be allowed to the assessee. Per contra, the Ld. CIT, DR opposed the claim for such deduction since the impugned sum was not debited to the Profit & Loss Account and in absence of any specific adjustment provided in Explanation to Section 115JB of the Act, the same should not be allowed. 5.18 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2012-3 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed 5.19 Additional Ground No. 4, this ground relates to considering the nature of Rs. 17,34,66,365/- VAT remission, excise refund received under different state scheme as capital receipt in nature instead of revenue under the normal provisions of the Act as well as u/s 115JB of the Act.

5.20 After having heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for A.Y

17 Patanjali Foods Ltd, Mumbai. 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

11.11 However, since the relevant facts and figures have not been examined by the lower authorities, we deem it fit to set aside this issue back to the AO for the limited purpose of verifying the details & figures placed before us. The AO shall accordingly quantify and exclude the subsidies received by way of refund of excise duty and remission of VAT/sales tax under the Industrial Schemes, which have been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. Needless to say, the AO shall provide an opportunity of hearing to the assessee in this regard. This additional ground no. 5 of the cross objections therefore stands partly allowed for statistical purpose. 5.21 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2010-11 & 2012-13 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed for statistical purposes.

5.22 Additional Ground No. 5, this ground relates to challenging the imposition of interest u/s 234B & 234C of the Act.

5.23 After having heard the counsels of both the parties and found that the additional grounds raised by the assessee are squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for A.Y 2010-11 and 2012-13, wherein also identical grounds were raised and the same were allowed, the operative portion is reproduced herein below:

18 Patanjali Foods Ltd, Mumbai. 12.6 From the above it is evident that, the Hon’ble jurisdictional High Court and also the coordinate bench of this Tribunal have held that, the assessee was not liable to pay advance tax in case of MAT computed u/s 115JB of the Act, in the years prior to the judgment of the Hon’ble Supreme Court in the case of Rolta India Ltd. (supra). Admittedly, the assessment year in dispute in case of the assessee is prior to rendering of the said decision of the Hon’ble Supreme Court. Hence, respectfully following the above judicial precedents (supra), the AO is directed not to levy interest u/s 234B & 234C of the Act, in case the assessee is found to be assessable to MAT u/s 115JB of the Act, while giving effect to this appellate order. This ground is therefore allowed for statistical purposes. 5.24 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2012-3 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed 5.25 In the result the appeal filed by the assessee stands allowed for statistical purposes.

ITA No. 1174/Mum/2023, A.Y 2011-12

19 Patanjali Foods Ltd, Mumbai. 6.1. On the other Ld. AR relied upon the order of Ld. CIT(A) and submitted that this ground is squarely coved by the decision of Coordinate Bench in assessee’s own case for the A.Ys: 2010-11 & 2012-13, wherein the similar issue has been dealt with by the Coordinate Bench and decided in favour of the assessee.

6.2. We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that this ground is squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for the A.Ys 2010-11 & 2012- 13, wherein the operative portion of the said order reproduced herein below:

5.7 In light of the above, we hold that the finding of the AO that, there was inflation of import prices, was based on incorrect understanding of facts. Overall, it is noted that there was profit derived by the assessee and that the value of purchases recorded in the books was in fact lower and not inflated. Accordingly, the action of the Ld. CIT(A) deleting the impugned addition for these reasons is upheld. Hence, this ground of the Revenue stands dismissed. 6.3 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2012-3 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the revenue is dismissed.

6.4 Ground No. 2(a) & 2(b) both the grounds are interconnected and interrelates and relates to challenging

20 Patanjali Foods Ltd, Mumbai. the order of Ld. CIT(A) in holding that the addition of Rs. 7,23,20,000/- in respect of notional interest could not be made by AO as the same was not based on incriminating material found during the course of search by relying upon the decision in the case of CIT Vs. Continental where housing Corporation (Nhava Seva) Ltd., [2015].

6.5 At the very outset, it was submitted by the Ld. AR that that this ground is squarely coved by the decision of Coordinate Bench in assessee’s own case for the A.Ys: 2010-11 & 2012-13, wherein the similar issue has been dealt with by the Coordinate Bench and decided in favour of the assessee.

6.6 We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that this ground is squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for the A.Ys 2010-11 & 2012- 13, wherein the operative portion of the said order reproduced herein below:

4.4 We have heard both the parties and perused the material placed before us. It is noted that the assessee had given interest free advances to the brokers of NBOT Exchange aggregating to Rs.13,59,93,759/- in FY 2005-06. These advances were said to have been given in connection with the future transactions for edible oil. It is noted that, these advances had been assigned to M/s Nova Trading Pvt. Ltd. in FY 2007-08. The relevant ledgers evidencing the transfer of amount as on 31.03.2008 has been placed before us at Pages 51 to 53 of the Paper book. From the audited financial statements found at Pages 1 to 40 of the Paper book, it is noted that these advances did not exist and stood at NIL as on 01.04.2009 and continued to remain NIL as on 31.03.2010. We therefore note that the assessee has shown that these advances in 21 Patanjali Foods Ltd, Mumbai. question neither existed nor were outstanding during the year under consideration. We further note that the audited book results had not been rejected by the AO nor had he invoked Section 145(3) of the Act and held the financial statements to be unreliable. On these given facts, we find merit in the Ld. CIT(A)’s finding that, when there was no outstanding balance in the name of these three brokers during the year, the disallowance of notional interest in relation thereto, was erroneous. The relevant findings of the Ld. CIT(A), countenanced by us are as follows: “6.1 From the details filed and submissions made, I find that an amount of Rs.13,58,93,759/- was transferred from the appellant company to M/s. Nova Trading Pvt Ltd by way of journal voucher entries on 31.3.2008. No further advances were given to the said brokers thereafter. Thus, during the assessment year under consideration there was no balance outstanding in the name of the above-said brokers. Since, there was no outstanding balance in the name of the above-said brokers, disallowance of proportionate interest of Rs. 149,48,313/- on the basis of disallowance of notional interest of similar amount made in A.Y.2006-07 and A.Y.2007-08 is found to be erroneous and without merit. Accordingly, the addition of Rs. 149,48,313/- is deleted and ground No.6 is allowed. Further, as the amount of advance, in respect of which interest has been disallowed, is no longer outstanding in the books of the appellant, the other grounds (i.e. ground No. 2 to 5) on the merits of the disallowance become academic in nature and are dismissed as infructuous.” 4.5. The reliance placed by the Revenue on the appellate orders passed in assessee’s own case in AYs 2006-07 & 2007-08 are found to be factually distinguishable. In those years, the advances given to the three brokers were very much alive and outstanding in the books of the assessee and therefore the authorities were justified in enquiring into the nature and purpose of these advances and to ascertain whether any interest paid on the borrowings were attributable to such outstanding advances. In the present case before us however, the fundamental fact itself is not present viz., there is no amount outstanding as receivable from these three brokers in the books of accounts for the AY 2010-11. For the aforesaid reasons, we find that the Ld. CIT(A) had rightly held that the impugned disallowance made by the AO following the orders for AYs 2006-07 & 2007-08 was factually erroneous.

4.6 In view of our above findings therefore, we see no reason to interfere with the order of the Ld. CIT(A) and accordingly dismiss Ground Nos. 4 & 5 of this appeal. 6.7 Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case for the A.Y 2010-11 and 2012-13 and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case.

22 Patanjali Foods Ltd, Mumbai. Resultantly, this ground raised by the revenue is dismissed.

6.8 Ground No. 3, raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the disallowance of foreign exchange loss on account of marked to market (MTM) losses forex derivatives contracts of Rs. 4,48,07,443/-.

6.9 At the very outset, it was submitted by the Ld. AR that that this ground is squarely coved by the decision of Coordinate Bench in assessee’s own case for the A.Ys: 2010-11 & 2012-13, wherein the similar issue has been dealt with by the Coordinate Bench and decided in favour of the assessee.

6.10. We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that this ground is squarely covered by the decision of Coordinate Bench of ITAT in assessee’s own case for the A.Ys 2010-11 & 2012- 13, wherein the operative portion of the said order reproduced herein below:

13.4. I find that the A.O. has disallowed the loss in foreign exchange derivatives amounting to Rs.488,98,026/- on the ground that it is a notional loss as no settlement of the contract has taken place. The A.O. has relied on the CBDT Instruction No.03/2010 dated 23.3.2010 which is a guideline to the assessing officers in respect of foreign exchange derivative transactions, in light of Section 43(5) of the Act. In this regard, I find that the appellant company has entered into foreign exchange option, which is a derivative financial instrument that 23 Patanjali Foods Ltd, Mumbai. gives the right, but not the obligation to exchange money denominated in one currency into another currency at a pre- agreed exchange rate on a specified date. Such deals have been entered into with banks which are authorised by the RBI and these contracts are based on underlying import transactions which are exposed to foreign exchange risk. The losses have arisen in respect of such contracts/ forex derivatives which were not settled as on 31.3.2011, as the expiry date and the settlement date fell in next financial year i.e. in F.Y.2011-12. The liability on such derivatives has arisen on entering into such deals during the F.Y.2010-11 relevant to A.Y.2011-12 and as per the accounting principles followed by the appellant. Such losses, which have accrued on the balance sheet date, have been reliably estimated on the basis of prevailing rate of foreign exchange, interest rates, discount rates etc. by the banks concerned. Further, such losses are held to be business loss, allowable u/s.37(1), since the derivative transactions were undertaken for the purpose of hedging loss in connection with its import business. Therefore, it is held that the A.O. was not correct in holding that the forex derivative loss, computed in respect of open contracts as on the balance sheet date, were notional in nature. In this regard, reliance is placed on the following decisions : (i) Hon'ble Supreme Court in the case of CIT vs Woodward Governor India Pvt Ltd 312 ITR 254 wherein, while dealing with the question as to whether the additional liability arising on account of fluctuation in the rate of exchange can be allowed to be adjusted pending actual payment of the liability, it was observed that expenditure as used in Section 37 in Income-tax Act may in the circumstances of a particular case cover an amount which is a loss even though, said amount has not been given from the pocket a the assessee. (ii) In the case of Rotork Control India P Ltd. vs CIT (2009) 314 ITR 62 (SC) wherein following principle has been enunciated : A provision is recognized when (a) an enterprise has a present obligation as a result of a past event, (b) it is probable that an outflow of resources will be required to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation. (iii) In the case of DCIT vs Bank of Bahrain & 1883/Mum/2004 dated 13.08.2010 the Special Bench had to 24 Patanjali Foods Ltd, Mumbai. consider whether the loss on forward contracts of foreign exchange, having maturity beyond the accounting period, computed on the balance sheet date was "notional" or "contingent" loss or whether it was an "accrued" loss. HELD deciding in favour of the assessee: (a) The Act allows a deduction in respect of crystallized liabilities. While as per commercial principles of policy of prudence, all anticipated liabilities have to be accounted for, as per the Act only "accrued liabilities are allowable. While anticipated liabilities which are contingent in nature are not allowable, an anticipated liability coupled with a present obligation can be said to be a crystallized liability. A contingent liability depends purely on the happening or not happening of an event whereas if an event has already taken place, such as the entering into the contract and undertaking of an obligation to meet the liability, and only consequential effect of the same is to be determined, then, the liability is not a contingent liability (Woodward Governor 312 ITR 254 (SC) &Bharat Earth Movers 245 ITR 428 (SC) followed, Principles of law on accrual of income & loss summarized); (iv) Perfect Circle India Ltd vs DCIT (2015) 60 Taxmann.com 424 (Mum.- Trib.) wherein, while deciding the issue of disallowance of foreign exchange loss on account of marked to market of forex derivative contracts, held by the A.O. as notional loss and by the CIT(A) as speculation loss, have observed as under: We may further observe from the guidelines issued by the Reserve Bank of India relating to general principles to be observed for forward foreign exchange contracts that the banks have been permitted to enter into such contracts after thorough verification of documentary evidences etc. about the genuineness of the underlying foreign currency exposure and the need of hedging of the loss. Further the maturity of the hedge should not exceed the maturity of the underlying transaction. In view of the above discussions, it can be safely held that in case of import/export business, where the transactions are demonetarized in the foreign currencies and for the purpose of hedging of the anticipated loss resulting from such import- export business and not otherwise, if the assessee enters into a forward contract in foreign exchange, then such forward contracts are to be treated as integral part or incidental to the 25 Patanjali Foods Ltd, Mumbai. business of export/import and cannot be said to be the speculative contracts attracting the provisions of section 43(5) of the Act. The loss from such hedging transactions would be treated as business loss eligible to be set off against the profits and gains of business and profession. It is held accordingly that the foreign exchange loss incurred by the assessee on account of entering into forward contracts with the banks for the purpose of hedging the loss in connection with his import/export business cannot be held to be a speculative loss rather a business loss which can be set off against profit and gains of business subject to the condition that the assessee will have to satisfactorily prove that the maturity of the hedge did not exceed the maturity of the underlying transaction." 13.5. I am inclined to agree with the appellant that the loss on foreign exchange derivatives contracts cannot be held as speculative in view of the decision of the Hon'ble Bombay High Court in the case of CIT vs Badridas Gauridu Pvt Ltd (2004) 134 Taxmann 376 and CIT vs D Chetan & Co (2016) 75 Taxmann.com 300 (Bom). 13.6. In view of above discussion and following the decision in the case of Perfect Circle India Ltd (supra), the A.O. is directed to allow the marked to market foreign exchange loss on derivatives, after verifying that the maturity of the hedge did not exceed the maturity of the underlying transactions. This ground is allowed on above terms. 6.11 Therefore, respectfully following the decision of the Ld. CIT(A) and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the revenue is dismissed.

6.12 In the result the appeal filed by the revenue stands dismissed.

ITA No. 1173/Mum/2023, A.Y 2011-12

Order pronounced in the open court on 15/09/2025