Tribunal Upholds Assessee's Appeal on Disallowances

The Tribunal upheld the assessee's appeal and dismissed the Revenue's appeal regarding disallowance under sections 14A, foreign exchange loss on forward contracts, and interest under section 36(1)(iii) for the assessment year 2009-10. The disallowance under section 14A was deleted as no exempt income was earned, following precedents from the Delhi and Bombay High Courts. The disallowance of foreign exchange loss was overturned, emphasizing that it was not speculative but part of regular business activities. The disallowance of interest was rejected due to consistent deletions by the CIT(A) in previous years and lack of merit in the AO's disallowance.

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Issues:
Cross appeals filed by assessee and revenue against the order of CIT(A)-12, Mumbai for A.Y.2009-10 regarding disallowance u/s.14A, disallowance of foreign exchange loss on forward contracts, and disallowance of interest u/s.36(1)(iii).

Disallowance u/s.14A:
The Tribunal analyzed the issue based on the assessee not earning any exempt income during the year under consideration. Referring to the Tribunal's decision for A.Y.2008-09, where disallowance u/s.14A was deleted, the Tribunal found no merit for disallowance in the current case as well. Citing precedents from the Hon'ble Delhi High Court and the Hon'ble Bombay High Court, the disallowance made by the AO and sustained by the CIT(A) was deleted.

Disallowance of Foreign Exchange Loss on Forward Contracts:
The Tribunal examined the issue in light of the definition of speculative transactions under Section 43(5) of the Income-tax Act. Relying on legal interpretations and precedents, including decisions from the ITAT Kolkata Special Bench and the Jurisdictional Bombay High Court, the Tribunal concluded that foreign currency cannot be considered a commodity under Section 43(5). The Tribunal referred to various cases where similar issues were decided in favor of the assessee, emphasizing that the transactions were not speculative but part of regular business activities. Following the decisions of the Hon'ble Bombay High Court, the Tribunal deleted the disallowance of foreign exchange loss treated as speculation loss.

Disallowance of Interest u/s.36(1)(iii):
The Tribunal noted that similar disallowances made by the AO were consistently deleted by the CIT(A) since A.Y.2003-04 to 2008-09 on identical issues, which were accepted by the Department without appeal. Considering the nature of expenses incurred by the assessee on behalf of subsidiaries and the absence of any system for charging interest on such debits, the Tribunal found no merit in the disallowance made by the AO under section 36(1)(iii). Consequently, the appeal of the assessee was allowed, and the appeal of the Revenue was dismissed.

In conclusion, the Tribunal pronounced the order on 08/01/2018, upholding the appeals of the assessee and dismissing the appeal of the Revenue, based on the detailed analysis and legal interpretations provided for each issue raised in the cross appeals.

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