TaxTMI 
TaxTMI 
2013 (8) TMI 940
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....s investments in "tax-free income deriving territory" is Rs. 31,15,43,209/-. The founds of the company have been utilized for making these investments and since a portion of the source of funds is out of interest bearing loans, the proportionate cost of interest pertaining to this tax free territory becomes a necessity and accordingly, the Assessing Officer has calculated the disallowance under section 14A r.w. Rule 8D of Rs. 1,29,51,870/-, which pertains to tax free territory was disallowed and added back to the income of the assessee. 4. On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(Appeals). 5. Before the ld. CIT(Appeals), the assessee has submitted all the details in respect of break-up of interest amounting to Rs. 11,55,12,069/-. By considering the break up given by the assessee, the ld. CIT(Appeals) has calculated the disallowance under section 14A r.w. Rule 8D of Rs. 28,56,677/- as against Rs. 1,29,51,870/- calculated by the Assessing Officer. The relevant portion of the ld. CIT(Appeals) is extracted as under: "Coming to the facts of the appellant's case, it is found that the appellant has given the break-up of interest amount ....
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....e the Assessing Officer. He has filed only before the ld. CIT(Appeals) and based on the break-up, the ld. CIT(Appeals) has calculated the disallowance under section 14A r.w. Rule 8D. The specific submissions made by the ld. DR is that no such break-up were filed before the Assessing Officer and the Assessing Officer had no occasion to see the break-up of the interest and the issue requires to be remitted back to the Assessing Officer. Under these circumstances, we set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the file of the Assessing Officer and direct the Assessing Officer to calculate the disallowance under section 14A r.w. Rule 8D after examining the break-up of the investments in accordance with law after allowing sufficient opportunity of hearing to the assessee. I.T.A. No. 1250/Mds/2013 [A.Y. 2009-10] 9. The first ground of appeal relates to disallowance under section 40(a)(i) on account of commission paid to overseas agencies. 10. During the course of assessment proceedings, the Assessing Officer has observed that the assessee has failed to deduct TDS on overseas selling commission of Rs. 30.56 lakhs and claim of Rs. 68.52 lakhs. The ass....
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....er sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the provisions of Income Tax Act. 9. In this case, since the commission was paid to a non-resident agents for the services rendered outside India, such payments are not chargeable to tax in India and therefore, the provisions of section 195 are not applicable in view of the decision of the Hon'ble Supreme Court (supra). Therefore, we direct the Assessing Officer to delete the disallowance of commission of Rs. 1,45,83,443/- paid to non-resident agents. Accordingly, we set aside the orders of lower authorities and allow the grounds of appeal of the assessee." 14. The ld. CIT(Appeals), by following the above decision of the Tribunal directed the Assessing Officer to delete the disallowance made under section 40(a)(i) of the Act. In view of the above, we find no reason to interfere with the order passed by the ld. CIT(Appeals) on this issue. 15. With regard to disallowance of Rs. 68.52 lakhs is concerned, it was submitted before the ld. CIT(Appeals) that through the commission is debited as an expenditure, this amount is not actually paid or payable, rather, it is in the nature of written....
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....act obligation has not been settled by way of actual remittance. The loss so arrived by cancellation of forward contracts is not derived from the business of the assessee and is also not attributable to the business affairs of the assessee. Since the transactions which have ended up in such losses, have been ultimately settled otherwise than by the actual delivery of foreign exchange, section 43(5)(a) comes into play and the corresponding losses are to be treated as losses from speculation business. Accordingly, he has treated an amount of Rs. 18,01,04,908/- as speculation loss and disallowed the same. 20. On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(Appeals). Before the ld. CIT(Appeals), the assessee has submitted as under: "3.1 The Assessing Officer has disallowed a sum of Rs. 18,01,04,908/- being Foreign Exchange fluctuation loss on the grounds that the same is not allowable since it is not 'attributable to the business affairs' of the Assessee. The Assessee is in the business of export of Garments and all such realization are in Foreign Exchange only. Similarly these are huge imports of raw materials for manufacturing. Consequent Lo....
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....e Hon'ble Supreme Court in the case of Woodward Governor India (supra) held that the loss in foreign exchange, if any, as at the end of the year would be deductible u/s 37 by valuing the outstanding liability at the rate marked to market as on date of closing of accounts, and the method of accounting that has been regularly followed would have to be continued for the sake of consistency. In coming to these conclusions, the Hon'ble Supreme Court followed the rationale of its earlier decision in Sutlej Cotton Mills Ltd v. CIT, 116 ITR 1 where it was held that profit or loss in fluctuation of foreign currency would ordinarily be a trading profit or loss, if held on the revenue account as a trading asset or as part of circulating capital earmarked in business. The Id. AR has clarified that the forward contract was on revenue account and not for capital assets. The decision so rendered in Woodward Governor India (supra) was applied and the law was reiterated in ONGC v. CIT, 322 ITR 180 (SC) reversing the decision of the Hon'ble Uttarakhand High Court in the same case reported in 301 ITR 415 (Uttarakhand), which had treated the exchange loss both relating to current and capit....
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.... ITAT is squarely applicable to the case of the appellant. In the assessment order, the losses on account of restatement of forward foreign exchange contracts has wrongly been treated as speculative in nature. The tests laid down in the case of Bank of f3ahrain & Kuwait (supra) are duly satisfied and therefore, the loss claimed by the appellant on evaluation of un-matured forward foreign exchange contract taken to cover the current assets on the last date of the accounting period i.e. before the date of maturity of the forward contract, is allowable, as deduction. This ground is allowed." 22. Aggrieved, the Revenue is in appeal before the Tribunal and the ld. DR has strongly supported the order passed by the Assessing Officer. 23. On the other hand, the ld. Counsel for the assessee has submitted that the assessee is in the business of export of garments and all such realizations are in foreign exchange only. Therefore, the loss incurred is relating to the business of the assessee and therefore, it has to be allowed. He relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Panchmahal Steel Ltd. 215 Taxman 140. 24. We have heard both sides, perused the mat....
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....ental to the assessee's regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under section 43(5) of the Income-tax Act, "speculative transaction" has been defined to mean a transaction in which a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as state above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect of Rs. 13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court, with which we agree, in the case of CIT v.Soorajmull Nagurmull (1981) 129 ITR 169." Before the Calcutta High Court, the assessee was a firm engaged in the business of import and export of jute. In course of business, the assessee would enter i....