Revenue's appeal dismissed, CIT(A)'s decisions affirmed on all issues.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all three issues. The Tribunal found no merit in the Revenue's contentions and upheld the CIT(A)'s detailed and reasoned conclusions, ensuring consistency with judicial precedents and the Income Tax Act provisions.

---

---

Issues Involved:
1. Deletion of arm's length price (ALP) adjustment for corporate guarantee.
2. Disallowance under section 14A read with rule 8D and its impact on section 115JB computation.
3. Disallowance of foreign exchange loss.

Detailed Analysis:

1. Deletion of Arm's Length Price (ALP) Adjustment for Corporate Guarantee:

The Revenue's primary contention was that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in law and on facts by deleting the ALP adjustment of Rs. 49,99,58,855/- related to the assessee's corporate guarantee provided to its overseas associate enterprise (AE). The CIT(A) had followed its previous decisions from assessment years 2007-08, 2009-10, and 2010-11, where it was held that a corporate guarantee does not constitute an international transaction, referencing judicial precedents such as Bharti Airtel Ltd. Vs. Addl. CIT and M/s Videocon Industries Ltd. vs. ACIT. The Tribunal affirmed the CIT(A)’s findings, rejecting the Revenue's grievance, emphasizing that the CIT(A) correctly followed the judicial precedents and the corresponding amendment in section 92B by the Finance Act, 2012.

2. Disallowance Under Section 14A Read with Rule 8D and its Impact on Section 115JB Computation:

The second issue concerned the disallowance of Rs. 2,08,89,076/- under section 14A read with rule 8D and its consequential impact on the computation under section 115JB. The Tribunal noted the jurisdictional High Court's decision in CIT vs. Ashika Global Securities Ltd, which held that section 14A disallowance does not apply in the absence of exempt income. This decision also addressed the MAT computation under section 115JB, indicating that section 115JB does not apply to section 14A disallowance. Consequently, the Tribunal dismissed the Revenue’s second grievance, aligning with the legal precedent that exempt income is a prerequisite for section 14A disallowance.

3. Disallowance of Foreign Exchange Loss:

The third issue involved the disallowance of foreign exchange loss amounting to Rs. 74,39,71,483/-. The CIT(A) provided a detailed discussion, noting that the assessee had booked the foreign exchange loss due to significant rupee depreciation against the US Dollar. The CIT(A) found that the Assessing Officer (AO) had erroneously considered the loss figure and did not account for the business expediency of the loss on premature cancellation of forward exchange contracts. The Tribunal agreed with the CIT(A), emphasizing that the AO had incorrectly disallowed the foreign exchange fluctuation loss by categorizing it as a notional loss not incurred in the normal course of business.

The Tribunal referenced the Supreme Court's decision in CIT vs. Woodward Governor India (P) Ltd., which held that foreign exchange fluctuation losses are deductible under section 37(1) if they are related to revenue transactions. The Tribunal also noted that the AO had allowed similar losses in other assessment years, indicating inconsistency in the AO's approach. The Tribunal upheld the CIT(A)'s findings, confirming that the foreign exchange loss on account of revaluation of business loans in foreign currency should be treated as revenue items allowable under section 37(1).

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all three issues. The Tribunal found no merit in the Revenue's contentions and upheld the CIT(A)'s detailed and reasoned conclusions, ensuring consistency with judicial precedents and the Income Tax Act provisions. The order was pronounced in the open court on 18/12/2019.

---