ITAT Kolkata decision: Partial appeal success on foreign exchange loss, prior period expenses, and travelling expenses

The ITAT Kolkata partially allowed the appeal, overturning the disallowances related to the loss on forward booking of foreign exchange and prior period expenses. Regarding the ad hoc disallowance of travelling and conveyance expenses, the ITAT partially allowed the appeal by directing the Assessing Officer to delete a portion of the disallowance.

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Issues:
1. Disallowance of loss on forward booking of foreign exchange
2. Disallowance of prior period expenses
3. Ad hoc disallowance of travelling and conveyance expenses

Issue 1: Disallowance of loss on forward booking of foreign exchange

The appeal pertains to the disallowance of a loss on forward booking of foreign exchange by the Assessing Officer, treating it as speculative in nature. The assessee, being an importer, entered into forward contracts with banks to hedge foreign currency exposure. The Assessing Officer considered the transaction speculative, leading to the disallowance. The CIT(A) upheld the disallowance stating the expenses did not pertain to the relevant year. However, the ITAT Kolkata noted that as per Section 43(5)(a) of the Income Tax Act, forward contracts for hedging foreign currency exposure are not speculative transactions. Relying on precedent, the ITAT allowed the appeal, deleting the disallowance of the loss on forward booking of foreign exchange.

Issue 2: Disallowance of prior period expenses

The second issue involves the disallowance of prior period expenses related to ESI payment by the Assessing Officer. The expenses were debited by the assessee company, claiming it was for ESI payment of the previous year. The Assessing Officer disallowed the expense, stating it was not related to the current assessment year. The CIT(A) upheld this decision. However, the ITAT noted that the assessee made the ESI payment for the previous year during the relevant assessment year. Applying Section 43B of the Act, the ITAT allowed the expenditure, deleting the disallowance of the prior period expenses.

Issue 3: Ad hoc disallowance of travelling and conveyance expenses

The third issue concerns the ad hoc disallowance of travelling and conveyance expenses by the Assessing Officer. The assessee failed to submit some bills and vouchers, leading to the ad hoc disallowance. The ITAT acknowledged the failure to submit documentation but noted that the Assessing Officer's order was passed under section 143(3) of the Act. The ITAT partially allowed the appeal, disallowing only a portion of the expenses to fill the gap of anomalies. The ITAT directed the Assessing Officer to delete the balance amount of the disallowance, partly allowing the assessee's appeal.

In conclusion, the ITAT Kolkata partially allowed the appeal of the assessee, overturning the disallowances related to the loss on forward booking of foreign exchange and prior period expenses, while partially allowing the appeal concerning ad hoc disallowance of travelling and conveyance expenses.

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