Tribunal directs AO to delete forex losses disallowance, remands 14A expenditure issue for fresh adjudication.

The Tribunal directed the Assessing Officer to delete the disallowance of marked to market losses on account of exchange rate fluctuation, following the decision in CIT Vs Woodward Governor India Pvt. Ltd. Additionally, the Tribunal remanded the issue of disallowance of expenditure under section 14A of the Act back to the AO for fresh adjudication, as the evidence regarding the source of funds for investments was not properly assessed. The appeal was allowed for statistical purposes, and the order was pronounced in Open Court on 21st August, 2014.

---

---

Issues: Disallowance of marked to market losses on account of exchange rate fluctuation and disallowance of expenditure under section 14A of the Act read with Rule 8D

Issue 1: Disallowance of marked to market losses on account of exchange rate fluctuation
The assessee, a manufacturer of engineering goods, filed a return of income for the assessment year 2009-10, showing a loss of &8377; 9,47,29,783/- due to foreign exchange currency rate fluctuation. The Assessing Officer disallowed &8377; 2,28,01,707/- as marked to market loss, considering it as a notional loss and not an allowable expenditure under section 37(1) of the Act. The assessee contended that the loss should be treated as an item of expenditure based on the decision of the Hon'ble Supreme Court in CIT Vs Woodward Governor India Pvt. Ltd. The Tribunal, following the Supreme Court decision, directed the AO to delete the disallowance of &8377; 2,28,01,707/-, thereby allowing Ground No. 1 of the appeal.

Issue 2: Disallowance of expenditure under section 14A of the Act read with Rule 8D
The Assessing Officer also disallowed expenditure of &8377; 38,04,004/- under section 14A r.w. Rule 8D, related to dividend income earned by the assessee. The assessee argued that the Revenue authorities failed to consider the evidence presented during assessment and appellate proceedings. The Tribunal observed that the AO did not assess whether borrowed funds were used for investments or if the investments were made from the assessee's own funds. The issue was remanded back to the AO for fresh adjudication, directing the assessee to provide necessary details. The Tribunal allowed this ground for statistical purposes. Consequently, the appeal filed by the assessee was allowed for statistical purposes, and the order was pronounced in the Open Court on 21st August, 2014.

---