M/S ESS ESS STEEL CASTING & ROLLING MILLS,LUDHIANA vs. ACIT, CIRCLE- V, LUDHIANA

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals), [hereinafter referred to as CIT(A)]-2, Ludhiana dated 13.6.2017.

ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 2

assessment proceedings the Assessing officer noted that assessee had

claimed an expenditure of Rs. 5,63,850/- as Foreign Exchange loss.

He observed that there was no sale / purchase of any article from

foreign firms / companies and, hence, there was no question of loss

on account of Foreign Exchange fluctuation. On being asked to

explain, the assessee explained that the aforesaid expenditure was in

fact on account of interest and hedging charges paid to State Bank of

India, Ludhiana for forward booking of loan amount of US$ 4,20,000.

The Assessing officer, however, was not satisfied with the above

explanation of the assessee and held that the foreign currency

transactions did not relate to the business of the assessee. That the

assessee had not been able to prove that the hedging was against

certain bills of purchase and sales. He accordingly treated the

aforesaid transactions of hedging as speculative transactions and

disallowed the amount of Rs. 5,63,850/- claimed by the assessee as

business loss / expenditure.

assessee preferred appeal before the CIT(A). However, the Ld.

ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 3

CIT(A) confirmed the addition made by the Assessing officer on the

same footing.

has come up in appeal before us. The Ld. Counsel for the assessee

has explained before us that the above said expenditure / loss was not

in relation to any sale / purchase or import / export transactions. He

has submitted that the lower authorities have misdirected themselves

in this respect. He has further explained that, in fact, the assessee

had taken loan in foreign currency. The aforesaid loan was taken

taking into consideration the business interest of the assessee. The

interest on loan in foreign currency was payable at low rate as

compared to the loan in Indian currency. The assessee had wisely

calculated the future liability on the loan and deemed it fit to take

the loan termed as FCNR(B)DL Loan; which was a deemed loan

sanction for meeting the working capital requirement of the existing

borrowers of the bank. The major advantage to that loan was that

corporates got this loan at a cheaper rate. While taking the aforesaid

loan, the assessee had also taken into consideration, the likely loss

which should have to be borne by the assessee on account of Foreign

Exchange Fluctuation. The assessee, therefore, hedged the impending

loss on account of Foreign Exchange Fluctuation with the bank. The

liability against the loan was duly presented in the balance sheet. The

Ld. Counsel for the assessee has further invited our attention to the

certificate issued by the bank wherein the bank has confirmed that

ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 4

the assessee had availed foreign currency of US$ 4,20,000 loan for

working capital limits. Further, to prevent adverse Exchange rate

fluctuation, the same had been fully hedged and the difference in

buying and selling rate of US$ amounting to Rs. 5,63,850/- was

charged. Further, an interest @ 6.74 per annum was also charged.

payment of hedging charges as well as interest, the assessee has

saved sufficient amount on account of interest expenditure. If the

assessee would have availed the loan into Indian currency, the

assessee would have been ending up paying a much higher amount

than that has been paid on account of interest and hedging charges on

the foreign currency loan. The Ld. DR could not rebut the above

submissions of the assessee from the record.

the aforesaid loan transactions cannot be said to be a speculative

transactions. The assessee had actually received the amount and even

the loan amount was also returned by actual delivery of the payment.

The interest rate and the hedging charges were pre-determined and

the assessee had taken a wise business decision of saving the interest

expenditure on the working capital loan. In view of this, the

additions made by the lower authorities on this issue are not

sustainable in the eyes of law. We, therefore, set aside the impugned

order of the CIT(A). The additions made on this issue are directed to

ITA 1217/Chd/2017- M/s Ess Ess Steel Casting & Rolling Mills Pvt Ltd., Ludhiana 5

be deleted.

The appeal of the assessee is hereby allowed.

Order pronounced in the Open Court on 19.03.2018.

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 19.03.2018 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR