Appeal Dismissed for Expense Disallowance & Deduction Denial under sec.80JJAA

The Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, confirming the disallowance of expenses on the exchange contract booked value and the denial of deduction under sec.80JJAA due to insufficient regular workmen employment. The judgment was pronounced on March 17, 2014, in Chennai.

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Issues:
1. Disallowance of expenses on exchange contract booked value.
2. Treatment of foreign exchange derivatives contract loss as speculation loss.
3. Eligibility for deduction under sec.80JJAA based on the number of regular workmen employed.

Issue 1: Disallowance of expenses on exchange contract booked value
The assessee appealed the disallowance of &8377; 2,07,13,415 incurred on exchange contract booked value, arguing it should be allowed as a revenue deduction due to optimizing liability on foreign currency loan. The Assessing Officer treated it as a derivative loss, considering it a speculative transaction under sec.43(5) due to non-deliverable cross currency contract without underlying exposure to State Bank of India Treasury. The Commissioner of Income-tax(Appeals) upheld this position, leading to the disallowance.

Issue 2: Treatment of foreign exchange derivatives contract loss as speculation loss
The learned counsel cited judgments where losses from cancellation of forward contracts were allowed deductions, emphasizing minimizing Forex rate fluctuation losses. However, the Assessing Officer established the assessee's speculation business in derivatives, deeming the losses as speculation losses. The Tribunal confirmed this view, rejecting the grounds raised by the assessee.

Issue 3: Eligibility for deduction under sec.80JJAA based on the number of regular workmen employed
The Revenue contended that the assessee was not entitled to deduction under sec.80JJAA as they employed only 89 regular workmen instead of the required minimum of 100. The Tribunal reviewed the facts and upheld the disallowance, reversing the Commissioner of Income-tax(Appeals) decision. Consequently, the Revenue succeeded in its appeal, and the order disallowing the deduction was upheld.

In conclusion, the Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, confirming the disallowance of expenses on the exchange contract booked value and the denial of deduction under sec.80JJAA due to insufficient regular workmen employment. The judgment was pronounced on March 17, 2014, in Chennai.

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