ACIT, CENTRAL CIRCLE-1(1), KOLKATA, KOLKATA vs. M/S RAMKRISHNA FORGINGS LTD., KOLKATA

We have heard rival contentions. O We have heard rival contentions. On careful consideration of the facts and n careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities circumstances of the case, perusal of the papers on record, orders of the authorities circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows: below as well as case law cited, we hold as follows:- 5. Ground No. 1 for both the Assessment Years is on the issue of Ground No. 1 for both the Assessment Years is on the issue of claim claim of additional depreciation. The ld. CIT(A) at page 3 of his order followed the judgment of the Delhi depreciation. The ld. CIT(A) at page 3 of his order followed the judgment of the Delhi depreciation. The ld. CIT(A) at page 3 of his order followed the judgment of the Delhi Bench of the ITAT in the case of Bench of the ITAT in the case of DCIT vs. Cosmo Films Ltd. (2011) 30 CCH 0419 (Delhi DCIT vs. Cosmo Films Ltd. (2011) 30 CCH 0419 (Delhi Tribunal) and held that “if only half of additional depreciation is a “if only half of additional depreciation is a “if only half of additional depreciation is allowed in the first/initial year because of user of less than 180 days the balance half of the additional first/initial year because of user of less than 180 days the balance half of the additional first/initial year because of user of less than 180 days the balance half of the additional depreciation depreciation depreciation has has has to to to be be be allowed allowed allowed in in in the the the following following following year year year as as as unabsorbed unabsorbed unabsorbed depreciation.........amendment made by Finance Act, 2016 [ proviso to Section 32 (1 depreciation.........amendment made by Finance Act, 2016 [ proviso to Section 32 (1 depreciation.........amendment made by Finance Act, 2016 [ proviso to Section 32 (1)(ii) of the I.T. Act, 1961] is retrospective.” the I.T. Act, 1961] is retrospective.” 5.1. The ld. D/R could not bring to our notice any contrary decision/judgment in this The ld. D/R could not bring to our notice any contrary decision/judgment in this The ld. D/R could not bring to our notice any contrary decision/judgment in this regard and whereas, the ld. Counsel for the assessee relied on the following decisions in regard and whereas, the ld. Counsel for the assessee relied on the following decisions in regard and whereas, the ld. Counsel for the assessee relied on the following decisions in support of the order of the ld. support of the order of the ld. CIT(A).

Ground No. 2, is on the issue as to whether compensation received for under Ground No. 2, is on the issue as to whether compensation received for under Ground No. 2, is on the issue as to whether compensation received for under performance of SMS EMU CO machine installed in the financial year 2007 performance of SMS EMU CO machine installed in the financial year 2007 performance of SMS EMU CO machine installed in the financial year 2007-08. 7.1. The compensation for under performance was split into two i.e., technical loss nsation for under performance was split into two i.e., technical loss nsation for under performance was split into two i.e., technical loss amounting to Rs.5,16,27,109/ amounting to Rs.5,16,27,109/- and financial loss of Rs.3,09,76,266/ and financial loss of Rs.3,09,76,266/-. The issues was whether the compensation received on account of technical loss is a capital receipt or a whether the compensation received on account of technical loss is a capital receipt or a whether the compensation received on account of technical loss is a capital receipt or a revenue receipt. The Assessing Officer relied on the decision of ipt. The Assessing Officer relied on the decision of CIT v. Manna Ramji & Co., CIT v. Manna Ramji & Co., [1972] 86 ITR 29 (SC), and was of the view that this receipt is taxable as income. and was of the view that this receipt is taxable as income. and was of the view that this receipt is taxable as income. Before the ld. First Appellate Authority, th Before the ld. First Appellate Authority, the assessee relied on the following case e assessee relied on the following case- law and claimed that the compensation received for technical loss for was on capital laimed that the compensation received for technical loss for was on capital laimed that the compensation received for technical loss for was on capital account:-  CIT vs. Suarashtra Cement [2012] 325 ITR 422 (SC) CIT vs. Suarashtra Cement [2012] 325 ITR 422 (SC) CIT vs. Suarashtra Cement [2012] 325 ITR 422 (SC)  Xpro India Ltd. [ITA No. 214/Kol/2011, order dt. 23/03/2016] pro India Ltd. [ITA No. 214/Kol/2011, order dt. 23/03/2016] pro India Ltd. [ITA No. 214/Kol/2011, order dt. 23/03/2016]  Deputy Commissioner of Income Deputy Commissioner of Income-tax, Circle -4, Kolkata vs. 4, Kolkata vs. Tongani Tea Co. Ltd. Tea Co. Ltd. [63 taxmann.com 149 Kolkata ITAT] 7.2. The ld. CIT(A) at para 2.4. page 7 of his order, held as follows: The ld. CIT(A) at para 2.4. page 7 of his order, held as follows:- “2.4. As pointed out by the AR the relevant facts in the case of Manna Ramji are As pointed out by the AR the relevant facts in the case of Manna Ramji are As pointed out by the AR the relevant facts in the case of Manna Ramji are different in so far as the compensation was for different in so far as the compensation was for rent for the user of godown. The rent for the user of godown. The Assessing Officer has not challenged the appellant’s claim that the said amount of Assessing Officer has not challenged the appellant’s claim that the said amount of Assessing Officer has not challenged the appellant’s claim that the said amount of compensation was for impairment of the assets and was not to compensate for the compensation was for impairment of the assets and was not to compensate for the compensation was for impairment of the assets and was not to compensate for the profit. The AO has observed that the compensation was to co profit. The AO has observed that the compensation was to compensate the revenue mpensate the revenue loss of earning but has not established his case that underperformance of the loss of earning but has not established his case that underperformance of the loss of earning but has not established his case that underperformance of the equipment was liable to be treated as revenue loss. On the contrary the appellant’s equipment was liable to be treated as revenue loss. On the contrary the appellant’s equipment was liable to be treated as revenue loss. On the contrary the appellant’s submission has relied on some judicial decisions as noted above which dem submission has relied on some judicial decisions as noted above which dem submission has relied on some judicial decisions as noted above which demonstrate that underperformance of the assets in the present case is equivalent to capital loss that underperformance of the assets in the present case is equivalent to capital loss that underperformance of the assets in the present case is equivalent to capital loss as the impact is for the entire life of the assets involved. It appears that the machine as the impact is for the entire life of the assets involved. It appears that the machine as the impact is for the entire life of the assets involved. It appears that the machine procured did not meet the specifications promised by the vendor/manufact procured did not meet the specifications promised by the vendor/manufact procured did not meet the specifications promised by the vendor/manufacturer and as a result the supplier agreed to return a part of the sums received from the as a result the supplier agreed to return a part of the sums received from the as a result the supplier agreed to return a part of the sums received from the Assessment Year: 2009-10 & C.O. No. 16/Kol/2017 Assessment Year: 2009-10 IT(SS)A No. 08/Kol/2017 Assessment Year: 2009-10 M/s. Ramkrishna Forgings Ltd. appellant and termed the sum so received as compensation for technical loss. appellant and termed the sum so received as compensation for technical loss. appellant and termed the sum so received as compensation for technical loss. Compensation termed as financial loss [Rs. 3,09,76,266/ Compensation termed as financial loss [Rs. 3,09,76,266/-] was offered by the ] was offered by the appellant as revenue receipt/income and so it is not in dispute. The former evenue receipt/income and so it is not in dispute. The former evenue receipt/income and so it is not in dispute. The former compensation is for the permanent impairment of the asset whose performance compensation is for the permanent impairment of the asset whose performance compensation is for the permanent impairment of the asset whose performance turned out to be below the specifications agreed during the purchase. The issue turned out to be below the specifications agreed during the purchase. The issue turned out to be below the specifications agreed during the purchase. The issue appears to be covered by the judicial appears to be covered by the judicial decisions relied upon in the submission and decisions relied upon in the submission and listed above. Following the said decisions t listed above. Following the said decisions the Ground No. 2 is allowed and the e Ground No. 2 is allowed and the compensation towards the technical loss computed at Rs.5,16,27,109/ compensation towards the technical loss computed at Rs.5,16,27,109/- - is termed as capital receipt.”

The Kolkata ‘A’ Bench of the The Kolkata ‘A’ Bench of the Tribunal in the case of Xpro India Ltd. (supra) Xpro India Ltd. (supra), considering a similar issue at para 8 held as follows: considering a similar issue at para 8 held as follows:- “8. We have heard both the sides and perused the materials available on record. 8. We have heard both the sides and perused the materials available on record. 8. We have heard both the sides and perused the materials available on record. Before us the ld. DR submitted that that the assessee is claiming double deduction Before us the ld. DR submitted that that the assessee is claiming double deduction Before us the ld. DR submitted that that the assessee is claiming double deduction by not reducing the compensation from the value of the machine which is not as per by not reducing the compensation from the value of the machine which is not as per by not reducing the compensation from the value of the machine which is not as per law and relied in the order of AO. On the other hand the learned AR submitted that ied in the order of AO. On the other hand the learned AR submitted that ied in the order of AO. On the other hand the learned AR submitted that compensation was received as the machine supplier failed to meet the compensation was received as the machine supplier failed to meet the compensation was received as the machine supplier failed to meet the predetermined performance parameters therefore it is a capital receipt. From the predetermined performance parameters therefore it is a capital receipt. From the predetermined performance parameters therefore it is a capital receipt. From the facts of the case of the finding t facts of the case of the finding that the assessee has purchased plant and machinery hat the assessee has purchased plant and machinery from a company based in UK which agreed for certain performance parameter but from a company based in UK which agreed for certain performance parameter but from a company based in UK which agreed for certain performance parameter but failed to achieve the desired level of performance. Accordingly the UK Company had failed to achieve the desired level of performance. Accordingly the UK Company had failed to achieve the desired level of performance. Accordingly the UK Company had to pay the compensation to the assessee in t to pay the compensation to the assessee in terms of the agreement. The AO has erms of the agreement. The AO has linked compensation with the cost of machines and held that it needs to be reduced linked compensation with the cost of machines and held that it needs to be reduced linked compensation with the cost of machines and held that it needs to be reduced from the value of the machine. However we find from the settlement deed with the from the value of the machine. However we find from the settlement deed with the from the value of the machine. However we find from the settlement deed with the UK Company that compensation was given as the performance UK Company that compensation was given as the performance parameters were parameters were not achieved. The settlement deed is placed on page number 193 of the paper book. not achieved. The settlement deed is placed on page number 193 of the paper book. not achieved. The settlement deed is placed on page number 193 of the paper book. The relevant extract of the settlement deed is reproduced below : The relevant extract of the settlement deed is reproduced below :- "THIS DEED WITNESSETH 1.1 Without accepting the CONTENTION OF "THIS DEED WITNESSETH 1.1 Without accepting the CONTENTION OF "THIS DEED WITNESSETH 1.1 Without accepting the CONTENTION OF XPRO THAT THEE IS ANY DEFECT XPRO THAT THEE IS ANY DEFECT IN THE Co-extrusion Film extrusion Film Manufacturing Equipment supplied by BATTENFELD to XPRO under the Manufacturing Equipment supplied by BATTENFELD to XPRO under the Manufacturing Equipment supplied by BATTENFELD to XPRO under the Contract, but in light of the fact that the performance parameters could not Contract, but in light of the fact that the performance parameters could not Contract, but in light of the fact that the performance parameters could not be demonstrated, BATTENFELD shall pay a sum of be demonstrated, BATTENFELD shall pay a sum of € 450,000,000 (Euro € 450,000,000 (Euro four hundred and fift four hundred and fifty thousand) to XPRO. From the above, it is clear that the compensation was awarded for not meeting the From the above, it is clear that the compensation was awarded for not meeting the From the above, it is clear that the compensation was awarded for not meeting the performance parameters. The compensation was not computed with the reference performance parameters. The compensation was not computed with the reference performance parameters. The compensation was not computed with the reference to the cost of the said machines. The compensation paid was neither in form to the cost of the said machines. The compensation paid was neither in form to the cost of the said machines. The compensation paid was neither in form of discount nor against the price nor it was in the nature of subsidy nor it was in the discount nor against the price nor it was in the nature of subsidy nor it was in the discount nor against the price nor it was in the nature of subsidy nor it was in the nature of the reimbursement. We further find that it was not even compensation for nature of the reimbursement. We further find that it was not even compensation for nature of the reimbursement. We further find that it was not even compensation for the recouping the damage caused to the plant and machinery. None of the the recouping the damage caused to the plant and machinery. None of the the recouping the damage caused to the plant and machinery. None of the conditions specified in Sec. 143(1) of the Act for deducting the actual cost from pecified in Sec. 143(1) of the Act for deducting the actual cost from pecified in Sec. 143(1) of the Act for deducting the actual cost from value of the machines were applicable to the compensation. Therefore we are value of the machines were applicable to the compensation. Therefore we are value of the machines were applicable to the compensation. Therefore we are Assessment Year: 2009-10 & C.O. No. 16/Kol/2017 Assessment Year: 2009-10 IT(SS)A No. 08/Kol/2017 Assessment Year: 2009-10 M/s. Ramkrishna Forgings Ltd. inclined not to reduce the actual cost of the plant and machinery by the amount of inclined not to reduce the actual cost of the plant and machinery by the amount of inclined not to reduce the actual cost of the plant and machinery by the amount of compensation. Accordingly w compensation. Accordingly we have no hesitation in approving the order of the ld. e have no hesitation in approving the order of the ld. CIT(A). Hence this ground of Revenue's appeal is dismissed. CIT(A). Hence this ground of Revenue's appeal is dismissed.

In Kettlewell Bullen & Co. Ltd.'s case ( In Kettlewell Bullen & Co. Ltd.'s case (supra), dealing with the question whether supra), dealing with the question whether compensation received by an agent for premature determination of the contract of compensation received by an agent for premature determination of the contract of compensation received by an agent for premature determination of the contract of agency is a capital or a revenue receipt, echoing the views expressed in Rai Bahadur agency is a capital or a revenue receipt, echoing the views expressed in Rai Bahadur agency is a capital or a revenue receipt, echoing the views expressed in Rai Bahadur Jairam Valji's case (supra) and analysing numero Jairam Valji's case (supra) and analysing numerous judgments on the point, this Court us judgments on the point, this Court laid down the following broad principle, which may be taken into account in reaching laid down the following broad principle, which may be taken into account in reaching laid down the following broad principle, which may be taken into account in reaching a decision on the issue :

We have considered the matter in the light of the afore We have considered the matter in the light of the afore-noted broad principle. It is noted broad principle. It is clear from clause No. 6 of the agreement dated 1 clear from clause No. 6 of the agreement dated 1-9-1967, extracted above, that the tracted above, that the liquidated damages were to be calculated at 0.5 per cent of the price of the respective liquidated damages were to be calculated at 0.5 per cent of the price of the respective liquidated damages were to be calculated at 0.5 per cent of the price of the respective machinery and equipment to which the items were delivered late, for each month of machinery and equipment to which the items were delivered late, for each month of machinery and equipment to which the items were delivered late, for each month of delay in delivery completion, without proof of the actual dama delay in delivery completion, without proof of the actual damages the assessee would ges the assessee would have suffered on account of the delay. The delay in supply could be of the whole plant have suffered on account of the delay. The delay in supply could be of the whole plant have suffered on account of the delay. The delay in supply could be of the whole plant or a part thereof but the determination of damages was not based upon the or a part thereof but the determination of damages was not based upon the or a part thereof but the determination of damages was not based upon the calculation made in respect of loss of profit on account of supply of a calculation made in respect of loss of profit on account of supply of a particular part of particular part of the plant. It is evident that the damages to the assessee was directly and intimately the plant. It is evident that the damages to the assessee was directly and intimately the plant. It is evident that the damages to the assessee was directly and intimately linked with the procurement of a capital asset, i.e., the cement plant, which would linked with the procurement of a capital asset, i.e., the cement plant, which would linked with the procurement of a capital asset, i.e., the cement plant, which would obviously lead to delay in coming into existence of the profit obviously lead to delay in coming into existence of the profit-making apparatus, rather ng apparatus, rather than a receipt in the course of profit than a receipt in the course of profit-earning process. Compensation paid for the delay earning process. Compensation paid for the delay in procurement of capital asset amounted to sterilization of the capital asset of the in procurement of capital asset amounted to sterilization of the capital asset of the in procurement of capital asset amounted to sterilization of the capital asset of the assessee as supplier had failed to supply the plant within ti assessee as supplier had failed to supply the plant within time as stipulated in the me as stipulated in the agreement and clause No. 6 thereof came into play. The afore agreement and clause No. 6 thereof came into play. The afore-stated amount received stated amount received by the assessee towards compensation for sterilization of the profit by the assessee towards compensation for sterilization of the profit-earning source, not earning source, not in the ordinary course of their business, in our opinion, w in the ordinary course of their business, in our opinion, was a capital receipt in the as a capital receipt in the hands of the assessee. We are, therefore, in agreement with the opinion recorded by hands of the assessee. We are, therefore, in agreement with the opinion recorded by hands of the assessee. We are, therefore, in agreement with the opinion recorded by the High Court on question Nos. (i) and (ii) extracted in Para 1 (supra) and hold that the High Court on question Nos. (i) and (ii) extracted in Para 1 (supra) and hold that the High Court on question Nos. (i) and (ii) extracted in Para 1 (supra) and hold that the amount of Rs. 8,50,000 received by the assessee from the amount of Rs. 8,50,000 received by the assessee from the suppliers of the plant was the suppliers of the plant was in the nature of a capital receipt.” in the nature of a capital receipt.”

As the ld. CIT(A) has applied the proposition of law laid down by the Hon’ble As the ld. CIT(A) has applied the proposition of law laid down by the Hon’ble As the ld. CIT(A) has applied the proposition of law laid down by the Hon’ble Supreme Court, on similar facts, on similar facts, we have to uphold the same and dismiss Ground No. 2 we have to uphold the same and dismiss Ground No. 2 of the revenue in both the appeals. h the appeals.

Ground No. 3 is on the issue of disallowance made for delay in deposit of Ground No. 3 is on the issue of disallowance made for delay in deposit of Ground No. 3 is on the issue of disallowance made for delay in deposit of employees contribution towards ESI. employees contribution towards ESI.

The ld. CIT(A) on facts held that the ESI payments in question were made in The ld. CIT(A) on facts held that the ESI payments in question were made in The ld. CIT(A) on facts held that the ESI payments in question were made in September, 2008 and hence made before the September, 2008 and hence made before the prescribed due date of filing of the return filing of the return u/s 139 of the Act and hence allowable. This factual position could not be disputed by u/s 139 of the Act and hence allowable. This factual position could not be disputed by u/s 139 of the Act and hence allowable. This factual position could not be disputed by the ld. D/R. Hence, we uphold the order of the ld. CIT(A) and dismiss Ground No. 3 of the ld. D/R. Hence, we uphold the order of the ld. CIT(A) and dismiss Ground No. 3 of the ld. D/R. Hence, we uphold the order of the ld. CIT(A) and dismiss Ground No. 3 of the revenue in both these appeals. the revenue in both these appeals.

Ground No. 5, is against the enhancing the depreciation on block assets. The ld. Ground No. 5, is against the enhancing the depreciation on block assets. The ld. Ground No. 5, is against the enhancing the depreciation on block assets. The ld. D/R submits that this was not claimed by the assessee. On a query from the Bench he s was not claimed by the assessee. On a query from the Bench he s was not claimed by the assessee. On a query from the Bench he submits that the depreciation in question has to be allowed as per law, though not submits that the depreciation in question has to be allowed as per law, though not submits that the depreciation in question has to be allowed as per law, though not claimed by the assessee. Thus, we dismiss this ground of the revenue in both the claimed by the assessee. Thus, we dismiss this ground of the revenue in both the claimed by the assessee. Thus, we dismiss this ground of the revenue in both the appeals.

Ground No. 6 is general in nature in both the appeals. general in nature in both the appeals.

In the result, both the appeals of the revenue are dismissed. In the result, both the appeals of the revenue are dismissed. In the result, both the appeals of the revenue are dismissed.

Coming to the cross Coming to the cross-objection filed by the assessee, the grounds of cross objection filed by the assessee, the grounds of cross- objections, read as follows:- “1. For that in the facts and circumstanc For that in the facts and circumstances of the case, the Ld. CIT(A) was not justified es of the case, the Ld. CIT(A) was not justified in treating the loss of Rs.99,07,016/ in treating the loss of Rs.99,07,016/-, being Rs.90,78,000/- towards ‘Forex Derivative’ loss, towards ‘Forex Derivative’ loss, Rs.6,25,200/- towards the loss on ‘forward booking of yen’ and Rs.2,03,816/ towards the loss on ‘forward booking of yen’ and Rs.2,03,816/ towards the loss on ‘forward booking of yen’ and Rs.2,03,816/- towards loss on account of ‘Revaluat on account of ‘Revaluation of Packing Credit loan’, as speculative loss as against the ion of Packing Credit loan’, as speculative loss as against the normal business loss as claimed by the assessee. normal business loss as claimed by the assessee.

Ground No. 2 is dismissed as not pressed. Ground No. 2 is dismissed as not pressed.

After hearing rival contentions, we find that the loss of Rs.90,78,000/ After hearing rival contentions, we find that the loss of Rs.90,78,000/ After hearing rival contentions, we find that the loss of Rs.90,78,000/- is forex derivatives loss and forex loss of forex loss of Rs.2,03,816/- was on account of revaluation of packing was on account of revaluation of packing credit loan. The Kolkata ‘C’ Bench of the Tribunal in the case of credit loan. The Kolkata ‘C’ Bench of the Tribunal in the case of DCIT vs. DCIT vs. M/s. Gujarat NRE Coke Ltd. in order dt. 18/12/2019, NRE Coke Ltd. in ITA No. 167/Kol/2018, order dt. 18/12/2019, held as follows: held as follows:- “4. Lastly comes the third issue of disallowance of foreign exchange loss amounting to “4. Lastly comes the third issue of disallowance of foreign exchange loss amounting to “4. Lastly comes the third issue of disallowance of foreign exchange loss amounting to ₹74,39,71,483/-. The CIT(A)'s detailed discussion qua this last issue reads as under: . The CIT(A)'s detailed discussion qua this last issue reads as under: . The CIT(A)'s detailed discussion qua this last issue reads as under:- "4. I have carefully considered the action of the Ld.AO as well as the various "4. I have carefully considered the action of the Ld.AO as well as the various "4. I have carefully considered the action of the Ld.AO as well as the various submissions and arguments made by the appellant company. I have also carefully submissions and arguments made by the appellant company. I have also carefully submissions and arguments made by the appellant company. I have also carefully examined the Paper Book bearing reference to the various issues placed for attention he Paper Book bearing reference to the various issues placed for attention he Paper Book bearing reference to the various issues placed for attention by the Ld. A.R for the appellant in his submissions. From the factual matrix, it by the Ld. A.R for the appellant in his submissions. From the factual matrix, it by the Ld. A.R for the appellant in his submissions. From the factual matrix, it emerges that the Ld. A.O. observed that the assessee emerges that the Ld. A.O. observed that the assessee-company had booked foreign company had booked foreign exchange loss of Rs. exchange loss of Rs.14,26,54,748/- on repayment of foreign currency loans and on repayment of foreign currency loans and Rs.60,13,16,734/- - under the head exception items, aggregating to Rs.74,39,71,483/ under the head exception items, aggregating to Rs.74,39,71,483/-. When required to explain during the scrutiny proceedings, it was submitted by the When required to explain during the scrutiny proceedings, it was submitted by the When required to explain during the scrutiny proceedings, it was submitted by the appellant that the exceptional i appellant that the exceptional items were pertaining to unusual diminution in the tems were pertaining to unusual diminution in the value of rupee as against the US Dollar during the year, that the closing value of value of rupee as against the US Dollar during the year, that the closing value of value of rupee as against the US Dollar during the year, that the closing value of Packing Credit Facility (PCFC) and External Commercial Borrowings (ECB) had been Packing Credit Facility (PCFC) and External Commercial Borrowings (ECB) had been Packing Credit Facility (PCFC) and External Commercial Borrowings (ECB) had been restated at the rate prevailing as on the restated at the rate prevailing as on the last of the A.Y. as per AS-11 and sec.43A does 11 and sec.43A does not permit the capitalization of this loss and that the net loss of Rs.51,77,406/ not permit the capitalization of this loss and that the net loss of Rs.51,77,406/ not permit the capitalization of this loss and that the net loss of Rs.51,77,406/- was on revenue account. Reliance was placed in the case of on revenue account. Reliance was placed in the case of CIT vs. Woodward CIT vs. Woodward Governor India Pvt. Ltd. [312 ITR 254 (SC)]. The appellant has also submitted that further, on . [312 ITR 254 (SC)]. The appellant has also submitted that further, on . [312 ITR 254 (SC)]. The appellant has also submitted that further, on receipt of the draft order u/s.144C(1)/ 143(3) dated 31.03.2016, the assessee filed a receipt of the draft order u/s.144C(1)/ 143(3) dated 31.03.2016, the assessee filed a receipt of the draft order u/s.144C(1)/ 143(3) dated 31.03.2016, the assessee filed a petition u/s. 154 of the, Act dated. 08.04.2016 pointing out that notional petition u/s. 154 of the, Act dated. 08.04.2016 pointing out that notional petition u/s. 154 of the, Act dated. 08.04.2016 pointing out that notional capital loss of Rs.74,39,71,483/ of Rs.74,39,71,483/- on account of revaluation of outstanding foreign currency loans on account of revaluation of outstanding foreign currency loans has been erroneously disallowed, inasmuch as loss on repayment/revaluation of has been erroneously disallowed, inasmuch as loss on repayment/revaluation of has been erroneously disallowed, inasmuch as loss on repayment/revaluation of foreign currency loans was to the tune of Rs.14,26,54,748, comprising of realiz foreign currency loans was to the tune of Rs.14,26,54,748, comprising of realiz foreign currency loans was to the tune of Rs.14,26,54,748, comprising of realized loss on repayment of foreign currency loans of Rs. 11,34,84,999/ on repayment of foreign currency loans of Rs. 11,34,84,999/- and unrealized loss on and unrealized loss on revaluation of outstanding foreign currency loans as on 31.03.2012 of revaluation of outstanding foreign currency loans as on 31.03.2012 of revaluation of outstanding foreign currency loans as on 31.03.2012 of Rs.2,91,69,750/-, it was contended by the appellant that an erroneous figure by an , it was contended by the appellant that an erroneous figure by an , it was contended by the appellant that an erroneous figure by an excess of Rs.71,48,01,733/ s.71,48,01,733/- [Rs.74,39,71,483 - Rs.2,91,69,750] has been considered in Rs.2,91,69,750] has been considered in the draft order. However, as has been submitted by the appellant, while passing the the draft order. However, as has been submitted by the appellant, while passing the the draft order. However, as has been submitted by the appellant, while passing the final assessment order, the Ld. AO did not consider the said 154 petition, and alleged final assessment order, the Ld. AO did not consider the said 154 petition, and alleged final assessment order, the Ld. AO did not consider the said 154 petition, and alleged that the assessee could not substantiate the business expediency for loss of ssessee could not substantiate the business expediency for loss of ssessee could not substantiate the business expediency for loss of Rs.51,77,406/- on premature cancellation of Forward Exchange Contracts. The on premature cancellation of Forward Exchange Contracts. The on premature cancellation of Forward Exchange Contracts. The Learned. AO also did not accept the assessee's explanation with respect to notional Learned. AO also did not accept the assessee's explanation with respect to notional Learned. AO also did not accept the assessee's explanation with respect to notional loss on closing value of PCFC loss on closing value of PCFC & ECB. The Ld. AO has held that the foreign exchange & ECB. The Ld. AO has held that the foreign exchange fluctuation loss being a notional loss not incurred in the normal course of business fluctuation loss being a notional loss not incurred in the normal course of business fluctuation loss being a notional loss not incurred in the normal course of business was not on revenue account and hence not allowable u/s 37(1) of the Act. was not on revenue account and hence not allowable u/s 37(1) of the Act. was not on revenue account and hence not allowable u/s 37(1) of the Act. The Ld. AO thus disallowed foreign exchange The Ld. AO thus disallowed foreign exchange fluctuation loss amounting to Rs.74,39,71,483/ fluctuation loss amounting to Rs.74,39,71,483/- u/s. 37(1) of the Act and added back the same to the assessee's total income. On examination u/s. 37(1) of the Act and added back the same to the assessee's total income. On examination u/s. 37(1) of the Act and added back the same to the assessee's total income. On examination of the contentions made by the Ld. AR for the appellant, I find myself in agreement with the of the contentions made by the Ld. AR for the appellant, I find myself in agreement with the of the contentions made by the Ld. AR for the appellant, I find myself in agreement with the contentions of the appellant that the Learned. AO has made a mistake in considering the ellant that the Learned. AO has made a mistake in considering the ellant that the Learned. AO has made a mistake in considering the figure of PCFC and ECB revaluation loss to be Rs.74,39,71,483/ figure of PCFC and ECB revaluation loss to be Rs.74,39,71,483/- rather than Rs.29169.750/ rather than Rs.29169.750/- as is obvious from the list of breakup of foreign loss as submitted by the appellant. It is also as is obvious from the list of breakup of foreign loss as submitted by the appellant. It is also as is obvious from the list of breakup of foreign loss as submitted by the appellant. It is also quite obvious that the Ld. AO has not said anything in the matter of foreix losses incurred by ite obvious that the Ld. AO has not said anything in the matter of foreix losses incurred by ite obvious that the Ld. AO has not said anything in the matter of foreix losses incurred by Assessment Year: 2009-10 & C.O. No. 16/Kol/2017 Assessment Year: 2009-10 IT(SS)A No. 08/Kol/2017 Assessment Year: 2009-10 M/s. Ramkrishna Forgings Ltd. the assessee-appellant on account of import of cooking coal and export of metcoke, major appellant on account of import of cooking coal and export of metcoke, major appellant on account of import of cooking coal and export of metcoke, major components contributing to Forex loss / gain. As has been brought to notic components contributing to Forex loss / gain. As has been brought to notice in the succeeding e in the succeeding year AY 2013-14, the Ld AO has allowed foreign exchange loss of Rs.45,11,62,855/ 14, the Ld AO has allowed foreign exchange loss of Rs.45,11,62,855/ 14, the Ld AO has allowed foreign exchange loss of Rs.45,11,62,855/- being the actual foreign exchange loss incurred on account of import of cooking coal and export of actual foreign exchange loss incurred on account of import of cooking coal and export of actual foreign exchange loss incurred on account of import of cooking coal and export of metcoke to be allowable u/s. 37(1) of the Income Tax ac metcoke to be allowable u/s. 37(1) of the Income Tax act, 1961. In the matter of the t, 1961. In the matter of the Revaluation / cancellation of contracts after examination of the details submitted by the Revaluation / cancellation of contracts after examination of the details submitted by the Revaluation / cancellation of contracts after examination of the details submitted by the appellant, I find that the Ld AO has disallowed the loss on specious grounds that there was no appellant, I find that the Ld AO has disallowed the loss on specious grounds that there was no appellant, I find that the Ld AO has disallowed the loss on specious grounds that there was no binding urgency on the assessee to cancel binding urgency on the assessee to cancel the contracts prematurely. The Ld. AO has said that the contracts prematurely. The Ld. AO has said that the business expediency was not emanating from such cancellation. However, I find that the the business expediency was not emanating from such cancellation. However, I find that the the business expediency was not emanating from such cancellation. However, I find that the matter has been explained by the appellant that it has entered into a number of forward matter has been explained by the appellant that it has entered into a number of forward matter has been explained by the appellant that it has entered into a number of forward contracts in foreign currency in the normal course of its business of import and export of rency in the normal course of its business of import and export of rency in the normal course of its business of import and export of goods to hedge against fluctuation in exchange rates, and that however, due to insufficient goods to hedge against fluctuation in exchange rates, and that however, due to insufficient goods to hedge against fluctuation in exchange rates, and that however, due to insufficient funds to pay to the Bank for import of goods as on the date of maturity of the contact, it had funds to pay to the Bank for import of goods as on the date of maturity of the contact, it had funds to pay to the Bank for import of goods as on the date of maturity of the contact, it had to cancel ta few contracts during the year. It was explained that due to cancellation of these cancel ta few contracts during the year. It was explained that due to cancellation of these cancel ta few contracts during the year. It was explained that due to cancellation of these contracts, the Bank debited/credited the account of the assessee with the exchange contracts, the Bank debited/credited the account of the assessee with the exchange contracts, the Bank debited/credited the account of the assessee with the exchange (loss)/gains. Therefore, I find myself in agreement with the appellant that the (loss)/gains. Therefore, I find myself in agreement with the appellant that the (loss)/gains. Therefore, I find myself in agreement with the appellant that the exchange loss on cancellation of foreign exchange contracts was actual loss suffered by the assessee. The on cancellation of foreign exchange contracts was actual loss suffered by the assessee. The on cancellation of foreign exchange contracts was actual loss suffered by the assessee. The matter has also been elucidated and substantiated by the as in the sample copy of the Bank matter has also been elucidated and substantiated by the as in the sample copy of the Bank matter has also been elucidated and substantiated by the as in the sample copy of the Bank Advice for cancellation of the contract and other supportin Advice for cancellation of the contract and other supporting documents at page 1 g documents at page 1-3 of the paper book. I am inclined to accept the contention that these were real losses on account of paper book. I am inclined to accept the contention that these were real losses on account of paper book. I am inclined to accept the contention that these were real losses on account of cancellation of the contracts was debited to the account of the assessee, as such the same was cancellation of the contracts was debited to the account of the assessee, as such the same was cancellation of the contracts was debited to the account of the assessee, as such the same was a actual loss suffer by the assessee. a actual loss suffer by the assessee. The assessee is able to establish a proximate nexus of the The assessee is able to establish a proximate nexus of the losses with the business and the matte, in my considered view is covered by the view of the losses with the business and the matte, in my considered view is covered by the view of the losses with the business and the matte, in my considered view is covered by the view of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT (2007) 288 ITR 1 (SC). The Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT (2007) 288 ITR 1 (SC). The Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT (2007) 288 ITR 1 (SC). The losses are, in my considered view to be examined from the point of view of the assessee, as it is n my considered view to be examined from the point of view of the assessee, as it is n my considered view to be examined from the point of view of the assessee, as it is seen that these are regular losses / gains coming to the assessee year on year as it ins in the seen that these are regular losses / gains coming to the assessee year on year as it ins in the seen that these are regular losses / gains coming to the assessee year on year as it ins in the business of import and export of items, and it is a regular importer of coo business of import and export of items, and it is a regular importer of coo business of import and export of items, and it is a regular importer of cooking coal and exporter of metcoke. Further courts have held that such losses are business losses when there exporter of metcoke. Further courts have held that such losses are business losses when there exporter of metcoke. Further courts have held that such losses are business losses when there is failure of an assessee to execute certain export contracts for which it has to incur losses, as is failure of an assessee to execute certain export contracts for which it has to incur losses, as is failure of an assessee to execute certain export contracts for which it has to incur losses, as it is quite a normal practice to hedge against lo it is quite a normal practice to hedge against losses by booking foreign exchange in the sses by booking foreign exchange in the forward market with banks. I also find that the claim of the assessee that the loss of forward market with banks. I also find that the claim of the assessee that the loss of forward market with banks. I also find that the claim of the assessee that the loss of Rs.1,37,89,339/- on account of revaluation of forward contracts as at the end of the reporting on account of revaluation of forward contracts as at the end of the reporting on account of revaluation of forward contracts as at the end of the reporting period would be covered by the cas period would be covered by the case of the Hon'ble Apex Court in CIT vs. Woodward Governor CIT vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 0254 (SC) wherein it was held that loss due to foreign exchange . (2009) 312 ITR 0254 (SC) wherein it was held that loss due to foreign exchange . (2009) 312 ITR 0254 (SC) wherein it was held that loss due to foreign exchange fluctuation in foreign currency transactions has to be fluctuation in foreign currency transactions has to be considered on the last date of considered on the last date of accounting year and it is deductible u/s 37(1) of the Act. The Hon'ble Court has clarified that accounting year and it is deductible u/s 37(1) of the Act. The Hon'ble Court has clarified that accounting year and it is deductible u/s 37(1) of the Act. The Hon'ble Court has clarified that the important point to be noted is that AS the important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis 11 stipulates effect of changes in exchange rate vis- a-vis monetary items denominated vis monetary items denominated in a foreign currency to be taken into account for giving in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the accounting treatment on the balance sheet date. Therefore, an enterprise has to report the accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. "Any outstanding liability relating to import of raw materials using closing rate of exchange. "Any outstanding liability relating to import of raw materials using closing rate of exchange. "Any difference. loss or gain, arising on conversion of the said liability at the closing rate, should be loss or gain, arising on conversion of the said liability at the closing rate, should be loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the P&L account for the reporting period". recognized in the P&L account for the reporting period".

It is also observed that as has been brought top notice and relied upon by the appellant 5. It is also observed that as has been brought top notice and relied upon by the appellant 5. It is also observed that as has been brought top notice and relied upon by the appellant - company, the said matter is also covered in favor of the assessee by the order of the Hon'ble id matter is also covered in favor of the assessee by the order of the Hon'ble id matter is also covered in favor of the assessee by the order of the Hon'ble Jurisdictional ITAT-"C" - Bench in in the case of Neptune exports Ltd. Bench in ITA No. 2133/Kol/2010 in the case of Neptune exports Ltd. Bench in ITA No. 2133/Kol/2010 in the case of Neptune exports Ltd. In their order dated 29.03.2011, the Hon'ble ITAT, relying on the decision of the Ho In their order dated 29.03.2011, the Hon'ble ITAT, relying on the decision of the Ho In their order dated 29.03.2011, the Hon'ble ITAT, relying on the decision of the Hon'ble Apex court in CIT Vs Woodward Governor India Ltd. have observed as follows: court in CIT Vs Woodward Governor India Ltd. have observed as follows: "As regarding disallowance on account of foreign exchange fluctuation loss as well as "As regarding disallowance on account of foreign exchange fluctuation loss as well as "As regarding disallowance on account of foreign exchange fluctuation loss as well as profit on conversion of foreign currency keeping in view of the fact that the Hon'ble profit on conversion of foreign currency keeping in view of the fact that the Hon'ble profit on conversion of foreign currency keeping in view of the fact that the Hon'ble Apex Court cited supra has held that "loss suffered by the assessee in respect of the pex Court cited supra has held that "loss suffered by the assessee in respect of the pex Court cited supra has held that "loss suffered by the assessee in respect of the Assessment Year: 2009-10 & C.O. No. 16/Kol/2017 Assessment Year: 2009-10 IT(SS)A No. 08/Kol/2017 Assessment Year: 2009-10 M/s. Ramkrishna Forgings Ltd. revenue liability on account of exchange difference as on the date of the balance revenue liability on account of exchange difference as on the date of the balance revenue liability on account of exchange difference as on the date of the balance sheet is an item of expenditure allowable u/s 37(1) in the year of accrual." sheet is an item of expenditure allowable u/s 37(1) in the year of accrual." sheet is an item of expenditure allowable u/s 37(1) in the year of accrual." Since the view taken by the Id. CIT(A) is in conformity with the decision of the Hon'ble Apex iew taken by the Id. CIT(A) is in conformity with the decision of the Hon'ble Apex iew taken by the Id. CIT(A) is in conformity with the decision of the Hon'ble Apex Court we find no infirmity in the orders of the Id. CIT(A) and we confirm the same and dismiss Court we find no infirmity in the orders of the Id. CIT(A) and we confirm the same and dismiss Court we find no infirmity in the orders of the Id. CIT(A) and we confirm the same and dismiss the appeal of the Revenue." the appeal of the Revenue." In view of these rulings, I hold that the Ld AO w In view of these rulings, I hold that the Ld AO was not justified in making the addition of as not justified in making the addition of Rs.51,77,406/- on account of cancellation and / or revaluation of contracts, and I find that on account of cancellation and / or revaluation of contracts, and I find that on account of cancellation and / or revaluation of contracts, and I find that the amount would be deductible u/s 37(1) of the the amount would be deductible u/s 37(1) of the Income Tax Act.”

Respectfully following the same, we allow the Respectfully following the same, we allow the claim of the assessee by holding claim of the assessee by holding that forex loss of Rs.90,78,000/ that forex loss of Rs.90,78,000/- and forex loss of Rs.2,03,816/- is in the revenue field is in the revenue field and has to be allowed as expenditure u/s 37 of the Act. and has to be allowed as expenditure u/s 37 of the Act.

On the issue of forex loss On the issue of forex loss of Rs.6,25,200/-, we find that it is on capital account , we find that it is on capital account as it was incurred on forward booking of yen, in respect of it was incurred on forward booking of yen, in respect of a capital asset. Thus, the capital asset. Thus, the disallowance to this extent is upheld. extent is upheld.

In the result, both the appeals of the revenue are dismissed and the In the result, both the appeals of the revenue are dismissed and the In the result, both the appeals of the revenue are dismissed and the cross- objection of the assessee is allowed in part. objection of the assessee is allowed in part. Kolkata, the Kolkata, the 13th day of March, 2020. Sd/- Sd/- [Aby T. Varkey] [J. Sudhakar Reddy J. Sudhakar Reddy] Judicial Member Accountant Member Accountant Member Dated : 13.03.2020 {SC SPS}