TaxTMI 
TaxTMI 
2015 (3) TMI 360
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....sessee‟s appeals there are common issues relating to the speculative nature / business nature of the profits earned on the forward contracts entered into by the assessee. Therefore, considering the connectivity of these appeals and for the sake of convenience, these appeals are heard combinedly and disposed of in this consolidated order. Appeal wise and ground wise adjudication is given in the following paragraphs of this order. ITA No.5124/M/2008 (AY 2003-2004) (By assessee) 2. This appeal filed by the assessee on 12.8.2008 is against the order of the CIT (A)-VIII, Mumbai dated 18.6.2008 for the AY 2003-04. In this appeal, assessee raised 4 grounds in toto and the main issues involved in these grounds read as under: "1. The Ld CIT (A) erred in upholding the disallowance of Rs. 5,89,200/- out of general expenses on ad-hoc basis. 2. The CIT (A) erred in upholding that gains of Rs. 40,28,243/- arising on cancellation of forward contracts in foreign currency are taxable as income from other sources and accordingly excluding the same from business profits for the purpose of computing deduction under section 80HHC of the Act. 3. The Ld CIT (A) erred in upholding ....
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....e find is an admitted fact that the evidences were not furnished to the Assessing Officer by the assessee as the Assessing Officer did not call for such details. Otherwise, it is a fact that the assessee only submitted the breakup of the expenses and not evidences. The very nature of the expenses does not appear very is an essential expenditure; but it is likely some of the expenditure may not be wholly and exclusively for the purpose of business. In principle, we are of the opinion that some disallowance has to be done in the assessment if not 1/5th of the claim of the assessee as done by the Assessing Officer. As such, there is no basis for adopting 1/5th as a factor for computing the disallowance. Therefore, in our opinion, some ad-hoc disallowance should meet the ends of the justice. Thus, we are of the opinion, considering the facts of the present case for the year under consideration disallowance of a sum of Rs. 3 lakhs should meet the requirement of law. We order accordingly and the ground no.1 raised by the assessee is partly allowed. 7. Ground no.2 relates to the treatment of gains arising on cancellation of forward contracts in foreign exchange. Relevant facts are that....
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....IT (A) dated 18.6.2008 is deficient to that extent. It is the finding of the Tribunal for the AY 1997-1998 (supra) that the gains from the forward contracts constitute a business income and not a speculative income. This order of the Tribunal was not available to the CIT (A) as the impugned order is dated 18.6.2008. Ld Counsel submitted that the CIT (A) is wrongly held the impugned receipts as speculative in nature when the Tribunal his categorically mentioned that the same constitutes a business income. Since the income in question has to be treated as the business income, the issue is whether the same constitutes independent income is to be treated in accordance with the provisions of Explanation (baa) to section 80HHC of the Act or core business income of the assessee to be treated as allowable deduction us 80HHC of the Act. 10. Mentioning that the said income is not independent income as postulated vide the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Ravindranathan Nair (295 ITR 228), Ld Counsel for the assessee submitted that the jurisdictional High Court judgment held in the case of CIT vs. Pfizer Ltd (330 ITR 62) that the insurance receipts relating....
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....lso mentioned that the cancellations should have a reason and the same must not be in the form of the speculative activity. In the absence of such detailed working, the CIT (A) is justified in treating the same as a speculative transaction. 12. We have heard both the parties and perused the order of the Revenue Authorities along with the decisions cited above by the Ld Representatives of both the parties. The limited issue for adjudication before us relates to if the impugned profits earned on cancellation of the forward contracts constitute business income of the assessee or independent income or income from other sources or the speculative income. The similar profit was held by the Tribunal as business income of the assessee and not the speculative income in the AY 1997-98 in the assessee‟s own case. However, the said income was to be dealt with as per the provisions of clause (baa) of the Explanation to section 80HHC of the Act. This order of the Tribunal was finalized prior to the judgment of the jurisdictional High Court in the case of Pfizer Ltd (supra) and the Hon‟ble Karnataka High Court judgment in the case of Motor Industries Co. Ltd (supra). These judgment....
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....tion as the same does not amount to derived from industrial undertaking. CIT (A) upheld the view of the Assessing Officer and mentioned that these receipts have no direct nexus with the imports or exports. 14. Before us, Ld Counsel argued that the assessee took foreign currency loans and earned gains on revaluation of the balances at the end of the FY i.e., 31.3.2002. He further argued that the said gains do not constitute "receipts" by way of brokerage commission etc. Since, it is not a "receipt" of any amount but only resulted in reduction of liability, the said amount cannot be excluded as specified in clause (baa) of Explanation to section 80HHC of the Act. Thus, the impugned gains does not constitute „independent income‟ as discussed by the Hon‟ble Supreme Court in the case of Ravindranathan Nair (supra). On perusal of the order, we find the Revenue Authorities have not examined the above stated contention of the assessee. Therefore, we remand this issue to the file of the Assessing Officer for fresh adjudication. In the remanding proceedings, Assessing Officer is directed to apply the principles relating to „independent income‟ as mandated by ....
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....tly, not considering the same as forming part of „profits of the business‟, relevant for quantifying admissible deduction under section 80HHC of the Act. (b) Confirming the assessment by the Assessing Officer of assessing the following income as „income from other sources‟ and accordingly, not being eligible to be included in „profits of the business‟ relevant for quantifying admissible deduction under section 80HHC of the Act. (c) Confirming the stand of the Assessing Officer in quantifying „export turnover‟, relevant for the purpose of quantifying admissible deduction under section 80HHC as upto 30th September, 2004 notwithstanding the fact that as per AP (DIR series) Circular No.91 of the Reserve Bank of India, Exchange Control Department, Central Office dated 1st April, 2002 there is no time limit prescribed for realization of exports made by units in SEZs, a copy whereof was submitted to the lower authorities." 18. Ground no.1 (a) relates to the treatment of gains arising on cancellation of forward contracts in foreign exchange. This issue is identical to that of the ground no.2 raised by the assessee in its appeal for t....
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....of the said order of the Tribunal (supra), we extract the same as follows: "14. Ground No. 2 is against the decision of the revenue authorities to exclude Rs. 2,23,46,705/- being the export proceeds, received within the stipulated time. 15. The facts are that there was a delay in the receipt of export proceeds, the AO rejected the assessee's plea, that the proceeds can be received at any time, even after the regular time period has elapsed. The CIT(A) sustained the observation made by the AO in the assessment order, wherein the AO excluded the impugned amount of Rs. 2,23,46,705/- from the total export proceeds for the computation of exemption. 16. Aggrieved by the decision of the CIT(A), the assessee is in appeal before the ITAT. 17. Before us, the AR of the assessee company submitted that there is no dispute by the revenue authorities that the export proceeds were realized by the assessee company, the only issue in dispute is that the receipts of the proceeds had got delayed by more than six months. In this context, the AR submitted that so far as the receipt for foreign exchange is concerned, the controlling authority is Reserve Bank of India. The AR submitted tha....
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....export proceeds. 19. We have heard the submissions and perused the material and evidence placed on record, we find that the revenue authorities have never disputed the receipt of the export proceeds, as is evident from the observations of the CIT(A) in his order, wherein he mentions, "......till date, the confirmations/clarifications from the respective banks is not on record". Going by this observation, we have to accept that the submissions made by the AR that only the delay in receipt of export proceeds would not bar the eligibility for the claim of exemption under section 10A. If the grievance of the revenue authorities is based only on the clarification/confirmation, then the case of jurisdictional High Court of Bombay, in the case of CIT V/s Stanley Morgan (supra) shall squarely apply on the issue, that the extension has been granted in substance and therefore, the benefit of section lOA has to be allowed to the assessee on the ground that the extension is deemed to have been granted. 20. We are of the view that the revenue authorities were incorrect in excluding Rs. 2,23,46,705 from the export turnover for the computation of exemption under section 10A. We, therefore, ....