Detail Judgment is attached .
Araska Diamond Pvt. Ltd vs. ACIT (ITAT Mumbai)
S. 43(5)(a): Loss on foreign currency forward contracts by a manufacturer/ exporter is a "speculation loss" and not a "hedging loss"
In order that forward transactions in commodities may fall within proviso (a) to section 43(5) of the Act, it is necessary that the raw materials or merchandise in respect of which the forward transactions have been made by the assessee must have a direct connection with the goods manufactured or the merchandise sold by him. In other words raw material in respect of which the assessee has entered into forward transactions must be the same raw material which is used by him in his manufacturing business. We find that in the case under consideration assessee was not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. As the assessee is dealing in diamonds and FC entered into only for diamonds would have been covered by the proviso (a) to the section 43(5) of the Act. (Contra view in Intergold (I) Ltd, Bombay Diamond Co. Ltd, Friends and Friends Shipping & Badridas Gauridudistinguished)
The NDA Government, whose officials had not long ago demanded that the erstwhile UPA Government reveal the names of persons who had stashed money in foreign banks, on Friday made a U-turn. It informed the Supreme Court that under Double Taxation Avoidance Agreements, confidentiality had to be maintained and names of persons revealed to India by the German authorities could not be made public and should be used only for tax purposes.
Attorney-General Mukul Rohatgi, making this application, informed a three-judge Bench of Chief Justice HL Dattu and Justices Madan B Lokur and AK Sikri that the Government wanted modification of the orders passed in May 2014. Those orders directed the Centre to disclose to the petitioner, senior advocate Ram Jethmalani, the names of persons who had stashed money in German banks, as revealed by the German authorities.
Next hearing on October 28
Even as Jethmalani voiced his strong protest at the application being heard, the Bench posted it for hearing on October 28.
In its May 1 order, the apex court said: "Since the investigation is completed in the cases filed against those who had stashed money abroad, we direct the Union of India to furnish the documents and information … to Jethmalani. The information pertained not only to the 18 individuals against whom prosecution was launched but also … eight individuals against whom no tax evasion was found."
Seeking modification of this order, the AG said that under DTAA conventions and Tax Information Agreements, confidentiality should be maintained in line with internationally accepted principles of exchange of information.
The court must now consider whether international standards had been violated in directing the disclosure of names, otherwise India's rating would be lowered, he said.
Keeping it quiet
The Centre, in its application, also pointed out that as per the DTAA, information received should be kept confidential and generally not used for non-tax purposes even after the consent of the state sharing the information. The German authorities had stated in their letter dated March 18, 2009 that the information provided was subject to the provisions of the DTAA.
It said that if the names were disclosed, the Government of India would not be able to sign a proposed Inter Governmental Agreement (IGA) with the US for exchange of information.
Under the proposed IGA information provided by financial institutions in India will be transmitted to the US on an automatic basis and the US will also provide information about Indian taxpayers available with it.
It would not be possible to modify the proposed IGA since the US had similar agreements with over 100 countries, the Centre said.
It noted that 47 countries had already agreed on early adoption of G20 standards on disclosure of information. Further for signing this multilateral competent authority agreement, the Government of India had to give a commitment internationally that the information received would be used as per international standards.
(This article was published in the Business Line print edition dated October 18, 2014)
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