Tribunal rules in favor of assessee, allowing deduction for redemption premium and dismissing Revenue's appeal.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the deletion of the disallowance of freight charges and notional gain on foreign exchange, and allowing the deduction for the proportionate premium on redemption of FCCB. The order was pronounced on 20th June, 2018.

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Issues Involved:
1. Disallowance of freight charges.
2. Addition of notional gain on foreign exchange.
3. Disallowance of provision on redemption of Foreign Currency Convertible Bonds (FCCB).

Issue-wise Detailed Analysis:

1. Disallowance of Freight Charges:
The Assessing Officer (AO) disallowed 2% of the freight charges claimed by the assessee, amounting to Rs. 5,65,73,472/-, on the basis that some confirmation letters sent to payees were returned unserved. The Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee provided sufficient details, including bank certificates and PAN numbers of the payees, confirming the genuineness of the transactions. The CIT(A) concluded that the 2% disallowance was not based on any logical ground and directed the deletion of the disallowed amount. The Tribunal upheld the CIT(A)'s decision, agreeing that the disallowance was made on an estimated basis without any factual basis, and dismissed the Revenue's appeal on this issue.

2. Addition of Notional Gain on Foreign Exchange:
The AO added a notional gain of Rs. 7,02,20,608/- on foreign exchange to the assessee's income, which the assessee had excluded in its computation. The assessee argued that the gain was notional and related to funds used for acquiring capital assets, thus not taxable. The CIT(A) agreed, citing the Supreme Court's decision in ONGC Ltd. vs. CIT, which allowed exchange fluctuations on loans borrowed for purchasing capital assets to be adjusted to the actual cost of the assets. The CIT(A) observed that the assessee correctly excluded the notional gain from its taxable income and reversed the amount in the subsequent year. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the order, and dismissed the Revenue's appeal on this issue.

3. Disallowance of Provision on Redemption of FCCB:
The AO disallowed the assessee's claim of Rs. 4,06,81,136/- for the proportionate premium on redemption of FCCB, arguing that the liability was contingent and not routed through the Profit & Loss Account. The CIT(A) upheld the AO's disallowance, agreeing that the liability was contingent. The assessee contended that the premium was a business deduction, as the liability was incurred in praesenti and spread over the bond's maturity period. The Tribunal referred to the Supreme Court's decision in Madras Industrial Investment Corporation Ltd. vs. CIT, which allowed the spreading of liability over the period of debentures. The Tribunal concluded that the assessee's claim was justified and directed the AO to allow the deduction. The assessee's appeal was allowed.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the deletion of the disallowance of freight charges and notional gain on foreign exchange, and allowing the deduction for the proportionate premium on redemption of FCCB. The order was pronounced on 20th June, 2018.

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