TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 40
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.... case and in law, the learned CIT(A) erred in confirming the action of AO of disallowing Professional Fees u/s 40A(2)(b) paid to Anand Automotive Systems Limited of Rs. 34,78,043 as excessive and unreasonable. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO of disallowing share of common marketing expenses of Rs. 1,44,70,000 u/s 40(a)(ia)." Additional grounds: "1. Without prejudice to Ground no 1 of the original ground of appeal the CIT (A) erred in observing that it is the finding given by learned AO that booking and cancellation of forward contracts of exchange were not in respect of specified export or import orders whereas actually the forward coverage was taken by the appellant against the export receivable. (Page 18 Para 5.2.21 of the CIT(A) order) 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in dismissing ground no 2 raised before CIT(A) on the ground that the appellant has not pressed this ground. 3. Without prejudice to Ground No 4 of the original grounds of appeal the learned CIT(A) erred in stating that the learned AR has admitted that it had deducte....
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....d contracts and no adjustment was made in the past as well as in future assessment years. It has been further contended that Forward contracts were taken during the normal course of the business of the assessee and therefore, the mark to market loss on forward contracts should be allowed as deduction under Section 37. Further that the assessee was not a dealer in foreign exchange and that the forward contract in respect of foreign exchange fluctuation risk in respect of export proceeds is excluded from the scope of speculative transactions. On the other hand the Ld. DR has relied upon the findings of the lower authorities. 5. We have considered the rival submissions. We find that the issue relating to mark to market loss in forward contracts in foreign exchange has come up for consideration before the coordinate bench of this Tribunal and has been decided vide order dated 12.2.2014 in the case of "ACIT Vs. M/s S. Rajiv & CO." ITA NO. 7095/Mum 2012, wherein the Tribunal has made the following observations: "4. Before us, it has been submitted that this issue had come up for consideration in series of decisions of the co -ordinate bench of the Tribunal. Strong reliance was placed ....
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....P. Ltd., the Appellant's claim is allowable. vi) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit." 6. Thus, in view of the above, we uphold the findings of the learned Commissioner (Appeals) for allowing loss incurred by the assessee on re-statement of pending forward contract agreement at the year end as allowable business loss. Thus, the ground raised by the Revenue is treated as dismissed." 6. It may be further observed that the Hon'ble Supreme Court in the case of 'CIT v. Woodward Governor India (P.) Ltd.' (2009) 179 Taxman 326, while dealing with the question as to whether the additional liability arising on account of fluctuation in the rate of exchange can be allowed to be adjusted pending actual payment of the varied, has observed that "expenditure" as used in section 37 in Income Tax Act may in the circumstances of a particular case cover an amount which is a "loss" even though said amount has not been given from the pocket of the assessee. 7. While dealing with the issue of the nature of forward contracts in commodity derivatives, the co-ordinate bench of the Tribunal in the case of 'DCIT vs. Kotak Mahi....
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....ive contract in accordance with provisions contained in Schedule I, to hedge an exposure to risk in respect of a transaction permissible under the Act, or rules or regulations or directions or orders made or issued thereunder." ... "Schedule I (See regulation 4) Foreign exchange derivative contract permissible for a person resident in India A. Forward Contract 1. A person resident in India may enter into a forward contract with an authorised dealer in India to hedge an exposure to exchange risk in respect of a transaction for which sale and/or purchase of foreign exchange is permitted under the Act, or rules or regulations or directions or orders made or issued there under, subject to following terms and conditions) the authorised dealer through verification of documentary evidence is satisfied about the genuineness of the underlying exposure, b) the maturity of the hedge does not exceed the maturity of the underlying transaction, c) the currency of hedge and tenor are left to the choice of the customer, d) where the exact amount of the underlying transaction is not ascertainable, the contract is booked on the basis of a reasonable estimate, e) foreign currency loans/bonds....
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....ness cannot be held to be a speculative loss rather a business loss which can be set off against profit and gains of business subject to the condition that the assessee will have to satisfactorily prove that the maturity of the hedge did not exceed the maturity of the underlying transaction. The findings of the CIT(A) given vide impugned order are therefore set aside and the issue is restored back to the file of the AO to decide the same accordingly after giving proper opportunity to the assessee to represent its case. Ground No. 2 & Additional Ground No.2: Disallowance of foreign exchange loss on cancellation of forward contracts of Rs. 194000/- : 12. The Ld. AR of the assessee has stated at Bar that as per instructions of his clien, he does not press this Ground. He has also signed on the memo of Grounds of appeal in this respect. We also find from the record that this ground has not been pressed by the asessee before the Ld. CIT(A) also. Ground No. 2 is therefore dismissed being not pressed. 13. Ground No.3:Disallowance of Professional fees paid to Anand Automotive Systems Ltd. INR 34,78,043 being 20% of INR 1,72,90,218 as not being incurred wholly and exclusively for the pu....
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....hat the ad-hoc addition (20% of cost) made in the hands of AASL for AY 2009-10 has been set aside to the AO by the ITAT vide order dated31.01.2013 in ITA No. 7165/M/2012 and in the set aside proceedings, the AO also deleted the said addition vide order dated 19.02.2014. The Ld. DR, on the other hand has relied upon the findings of the lower authorities. 15. We have considered the rival contentions. The AO in the case in hand has disallowed the expenditure incurred/paid to AASL being excessive or not relating to the business activitiy of the assessee, the department on the other hand had made the additions in the hand of AASL on the ground that the income/ consideration for services provided by AASL to the assessee in this case was less and therefore adhoc addition had been made in the case of AASL. Thus the department has taken a contradictory stand. Under such circumstances it is difficult to believe that the payment made by the assessee to AASL for the services obtained was excessive or that it was not relating to the business of the assessee. This ground is accordingly allowed in favour of the assessee. 16. Ground No.4; Additional Ground No. 3, 4 & 5: Disallowance of sharing ....
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....ed that since Victor Gaskets India Limited has filed its return of income, such reimbursement of marketing expenses in its return of income for the AY 2009-10 and paid the taxes on such returned income, no disallowance can be made as per 2nd proviso to Section 40(a)(ia) of the Income tax Act. It has been further contended that the said expenses had been incurred wholly and exclusively for the purpose of business and therefore, the same should be allowed entirely. Even the CIT(A) had deleted the disallowance of identical expenses in the earlier assessment year- AY 2008-09, which has been further confirmed by the ITAT by rejecting the Department's appeal ITA No. 2350/M/2012. 18. We have considered the rival contentions of both the parties. We find that the copy of the service agreement of the assessee with Victor Gaskets India Ltd. has been placed on paper book file at page No.104. We have perused the said agreement. We find that the assessee has entered into a specific agreement of service with VGIL and it has been agreed that the VGIL will provide to the assessee the marketing services all over India besides that it will handle mechanic service/sale promotion/Van campaign etc. act....
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.... sections 30 to 64, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a)................... (ia) any interest, commission or brokerage, 67[rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, 68[has not been paid on or before the due date specified in sub-section (1) of section 139 :] 69[Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] 70[Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is....
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....fically provided in the Act that the said proviso comes into operation w.e.f. 01.04.13 and that where the language of the section as well as the date of operation of such provisions has been mentioned specifically the courts cannot supply words to the provisions or amend the provisions to give it a different meaning and further that the newly inserted proviso under such circumstances is prospective in nature i.e. w.e.f. 01.04.13 and cannot be applied retrospectively. 21. The Ld. A.R. of the assessee has brought to our notice that the issue relating to operation of the newly inserted proviso whether prospective or retrospective in nature has already been considered and decided by the coordinate Bangalore bench of the Tribunal in the case of "Shri S.M. Anand Vs. ACIT" in ITA No.183/Bang./13 for A.Y. 2005-06 vide order dated 21.02.14. The relevant part of the findings of the Tribunal given in the said case, are reproduced as under: "3.4.1 We have heard the rival submissions and perused and carefully considered the material on record. Admittedly, the assessee has not deducted tax at source on the payments made to Sri G.Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,7....