INCOME TAX OFFICER, NEW DELHI vs. R L STEEL AND ENERGY LIMITED, NEW DELHI

PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.3109/Del/2025 for AY 2010-11, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 12-03-2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 06-03-2013 by the Assessing Officer, Addl CIT, Range-15, New Delhi (hereinafter referred to as ‘ld. AO’). 2. The Ground No. 1 raised by the revenue is challenging the deletion of disallowance of Rs. 2,21,97,360/- on account of forward contract loss. 3. We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of manufacturing and exporting of steels. The learned AO during the course of scrutiny assessment proceedings observed from the profit and loss account of the assessee that assessee had incurred foreign exchange loss of Rs 2,21,97,360 RL Steel and Energy Ltd which has been debited as foreign currency loss for the year. The details of this loss were sought for. The reply was furnished by the assessee on 22-01-2013. From the said reply, the learned AO noted that the said loss is net loss incurred by the assessee on forward transactions in foreign currency carried out during the year and since the said loss is speculative in nature, the same was sought to be disallowed for which a show cause notice was issued by the learned AO. The assessee filed a reply to the show cause notice stating that it is engaged in the business of manufacturing and export of iron and steel and that at the time of receipt of export orders, it enters into forward contract of foreign exchange with IDBI to safeguard its interest against fluctuating rate of foreign exchange, as prevailing on the date of such order. Therefore, the transactions were nothing but to guard against loss and thus, even if the transactions are to be treated as speculative transactions, it is well covered under the provisions of clause (a) of proviso to section 43(5) of the Act which allows speculative transactions to be treated as normal business loss. The learned AO not satisfied with the reply concluded that the said loss is in the nature of forward transaction loss arising on such a transaction and the same is covered by section 43(5) of the Act to be speculative in nature and accordingly proceeded to disallow the said loss of Rs 2,21,97,360 in the assessment. 4. We find that the Learned CIT(A) had given a categorical finding that it is not the case of the assessee that it has embarked into altogether separate transactions in foreign exchange currency forward contracts as a separate business. The contracts are found to be linked to the exports made by the assessee and it is clear that such transaction was taken with a view to avoid any loss on account of any fluctuation likely to arise in foreign exchange rates. Accordingly, the Learned CIT(A) agreed to the contentions of the assessee that the case of the assessee falls under Proviso to Clause (a) of Section 43(5) of the Act, wherein the foreign exchange loss could not be treated as speculative RL Steel and Energy Ltd loss and would have to be treated as normal business loss and deleted the disallowance thereon. None of these factual findings and observations could be controverted by the revenue by bringing in contrary evidences on record. We also find that the issue in dispute is squarely covered by the decision of Hon’ble Supreme Court in the case of Woodward Governor reported in 312 ITR 254 (SC). Accordingly, we do not find any infirmity in the order of the Learned CIT(A) in this regard. The Ground No. 1 raised by the revenue is dismissed. 5. The Ground No. 2 raised by the revenue is challenging the deletion of disallowance of expenses made under Section 14A of the Act in the absence of any exempt income. 6. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee did not earn any exempt income during the year under consideration. Despite this fact, the Learned AO proceeded to disallow expenses under Section 14A of the Act in the sum of Rs 41,44,551 which stood deleted by the Learned CIT(A). The issue in dispute is squarely covered by the decision of Hon’ble Juri ictional Delhi High Court in the case of ERA Infrastructure reported in 448 ITR 674 (Del) , wherein it was held that in the absence of any exempt income, there cannot be any disallowance made under section 14A of the Act. The said decision also had considered the amendment brought by the Finance Act 2021 and that categorically held that the said amendment would be prospective in nature and cannot be applied for the year under consideration. Accordingly, the Ground No. 2 raised by the revenue is dismissed. 7. The Ground No. 3 raised by the revenue is challenging the deletion of disallowance of expenses of Rs. 57,28,321/- for short deduction of TDS. 8. We have heard the rival submissions and perused the materials available on record. The Learned AO observed that assessee is regularly hiring cranes for RL Steel and Energy Ltd its business and payments have been made to the owner of such cranes after deduction of tax at source under section 194C of the Act. The Learned AO, however, was of the view that such hiring of cranes should be treated as hiring of plant and machinery for which the tax had to be deducted in accordance with rates prescribed under section 194I of the Act. Accordingly, the Learned AO proceeded to disallow the expenses for short deduction of tax at source in the assessment. 9. The Learned CIT(A) noted that the rate of tax under Section 194I of the Act was 10% for the period April 2009 to September 2009 and thereafter it was reduced to 2% from October 2009 to March 2010. Hence, it does not make any difference whether the tax is deducted at source under Section 194C or 194I of the Act as the percentage of tax remain the same. The Learned CIT(A) also took cognizance of the order relied upon by the tribunal in assessee’s own case for assessment year 2007-08 to 2009-10 in ITA Nos. 5784 & 5785/ Del / 2012 and 1838/Del/2013 dated 5-2-2018 in support of the contentions of the assessee that for short deduction of tax at source, the provisions of Section 40(a)(ia) of the Act could not be invoked. The Learned CIT(A) also took cognizance of the decision of the Hon’ble Calcutta High Court in the case of S K Tekriwal reported in 361 ITR 432 (Cal) that disallowance under Section 40(a)(ia) of the Act could not be made for short deduction of tax at source. Based on these observations, the Learned CIT(A) deleted the disallowance made under Section 40(a)(ia) of the Act. We find that the decision of Hon’ble Calcutta High Court referred Supra is directly on the impugned issue which has been relied upon by the Learned CIT(A) while granting relief to the assessee, on which we do not find any infirmity. Accordingly, the Ground No. 3 raised by the revenue is dismissed. 10. The Ground No. 4 raised by the assessee is challenging the deletion of disallowance of depreciation on plant and machinery. RL Steel and Energy Ltd 11. We have heard the rival submissions and perused the materials available on record. The assessee claimed depreciation on reheating furnace at the rate of 80 percent of Rs 8,67,848 and the depreciation on pollution control equipment at the rate of 100 percent of Rs. 17,85,575. The Learned AO granted depreciation on these two items only at the rate of 15 percent considering it to be falling under the block of plant and machinery. The assessee submitted before the Learned CIT(A) that this issue has been decided in its favour by the order of this tribunal for assessment years 2007-08 to 2009-10 dated 5-2-2018 referred supra. The Learned CIT(A) relied on the said order of the tribunal and granted relief to the assessee. Hence, we do not find any infirmity in the order of the Learned CIT(A). Accordingly, the Ground No. 4 raised by the revenue is dismissed. 12. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 11/03/2026. - - (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER

Dated: 11/03/2026
A K Keot