AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 13
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....80,05,500/-. The appellant, a private limited company engaged in the business of trading of agricultural products, building construction and generation of power/energy, has filed its return of income declaring income of Rs. 23,96,84,200/- on 08.09.2012. During the course of assessment proceeding it was found that the appellant has paid an amount of Rs. 2,80,05,500/- as contract cancellation charges to various foreign parties and the same was in the nature of payment being made for non-fulfillment of the contractual terms and conditions resulting in settlement of contracts at a price which is lower than pre-determined price as a result of which the appellant had to make payment in terms of the contract. The assessee submitted the complete details on these contact including the relating details for the year under appeal as well for earlier two years, as also the arbitration award of International Cotton Association Ltd. However, the Ld. AO held that cancellation of transactions caused on account of non-delivery within the specified time the surplus/deficit so generated leading to payment or receipt of money acquired the colour of speculation profit/loss. The transactions are arrang....
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....ppellate Authority whereby and whereunder disallowance of cancellation charges for non-deduction of TDS in respect of the immediate preceding order was deleted which according to us is just and proper so as to warrant interference. We, thus, find no merit in the ground of appeal preferred by the Revenue and thus the same is hereby deleted. 5. Ground No.2 relates to disallowance of Rs. 9,73,33,826/- being export commission paid to non-resident agents, u/s. 40(a)(ia) on the ground of non-deduction of TDS. The case of the Revenue is this that the person making payment to the non-resident would be liable to be deducted tax under Section 194H of the Act if the payment so dischargeable to tax under the Act in view of the crucial expression is 'any other sum chargeable under the provision of this Act' under section 195(1) of the I.T. Act. The case of the assessee is this that disallowance under section 40(a)(ia) r.w.s. 194H would come into play when the payer has not deducted the tax at source on the sum paid/credit in the account of a resident. Ultimately the Ld. AO came to a conclusion that as per amended provision of Sec. 195(1) of the Act the appellant is liable to deduct tax at sou....
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....on making the following observation such disallowance was deleted. The following observation is as follows:- "2. To adjudicate on this appeal, only a few material and undisputed facts need to be taken note of. During the assessment proceedings, the Assessing Officer noted that the assessee has deducted tax under section 194C from the payment aggregating to Rs. 67,84,807/- to the Customs House Agents whereas according to the Assessing Officer, tax was deductible under section 194J. The Assessing Officer was thus of the view that there was a short deduction of tax at source from these payments. It was in this backdrop he came to the conclusion that there was failure to deduct tax at source from payments to the Customs House Agents and accordingly the same is to be disallowed under section 40(a)(ia) of the Act. Aggrieved by the disallowance so made, the assessee carried the matter in appeal before the ld. CIT(A). It was, inter alia, contended by the assessee that the disallowance under section 40(a)(ia) cannot be resorted to in the case of short deduction of tax at source, even if any and, therefore, the impugned disallowance is unsustainable in law. Reliance was placed on Hon'b....
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....s that the disallowance u/s. 40(a)(ia) is not warranted when the tax deduction at sources was incorrectly me under a different section which resulted in the shortfall. * Hon'ble ITAT Delhi 'E' Bench in the case of Glaxo Smithkline Consumer Healthcare Ltd. vs. ITO 12 SOT 221 (Delhi) * Hon'ble Bombay High Court in the case of CIT vs. Jivanlal Lalloobhai& Co. 206 ITR 548 (Bom) * Hon'ble ITAT, Mumbai "B" Bench in the case of ACIT vs. Merchant Shipping Services (P) Ltd. 129 ITD 109 (Mumbai) * Hon'ble ITAT Mumabi in the case of DCIT vs. Chandabhoy & Jassobhoy 49 SOT 448 (Mumbai) 9. Respectfully following the above judgement, I am also of the view that in a case like this, where the appellant has deducted tax at source in respect of the payments made to CHAs @ 2% under section 194C, when it is required to be made @10% u/s. 194J of the IT Act, 1961, the provisions of section 40(a)(ia) of the IT Act, 1961 cannot be made applicable. As held by the Hon'ble High Court of Calcutta in the above referred case that if there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, the assessee can be declared t....
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....eld and observed that C/TAXAP/309/2018 ORDER the most important expression in Section 195 [1] of the Act consists of the words, "chargeable under the provisions of the Act". It was observed that, "..A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act." Counsel for the Revenue, however, drew our attention to the Explanation 2 to sub-section [1] of Section 195 of the Act which was inserted by the Finance Act of 2012 with retrospective effect from 1st April 1962. Such explanation reads as under :- Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has - [i] a residence or place of business or business connection in India; or [ii] any other presence in any manner whatsoever in India. It is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with subsection....
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....the same is dismissed. 11. The next ground relates to deletion of disallowance of foreign exchange fluctuation of Rs. 46,28,828/-. During the course of assessment proceeding from the final accounts it was gathered that under the head administration / general expenses, the assessee has claimed other general administrative expenses at Rs. 1,21,09,315/-, the details whereof were also furnished before the authorities below. From the details it was further found that the general administrative expenses included the fluctuation in foreign currency at Rs. 46,28,828/- The assessee explained his claim before the AO which was accepted by the Ld. AO to the extent that the dollar bookings made in advance and set off against dollar remittances as hedging transaction. However, dollar bookings not set off against dollar remittances arising from exports has not been accepted to be framed as hedging by the Ld. AO as there is booking in excess of the actual remittance accepted to be receipt, which according to the Ld. AO falls under the scope and purview of speculation. He, therefore, added Rs. 46,28,828/- in respect of the claim of fluctuation in foreign exchange considering the same as speculat....
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....e there is booking in excess of the actual remittance accepted to be received. However, as we find from the records while allowing the claim of the assessee the Ld. CIT(A) observed as follows:- "7.2 I have perused the assessment order and the written submission filed by the ld. AR. The AO vide para 7 of the assessment order had held that the fluctuation in foreign currency arose on account of the dollar bookings by way of advance contracts entered into by assessee with the banks against which the realization of dollar at the time of export is adjusted and the extent of the unutilized dollar booked in advance by the assessee with the bank which remained outstanding at the end of the month, was closed by the bank by crediting/debiting the assessee's account to the extent of the unused dollar left behind out of the dollar booking for want of export realization, is speculative I nature. According to the AO,this settlement is done on a month to month basis by the ban and there is no squaring up of transactions by way of actual realization of dollar. On the other hand, the ld. AR submitted that, in the appellant's export business, there is always a risk of fluctuating foreign currenc....
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....o the assessee's regular course of business and hence the loss is not a speculative one under Section 43(5) of the Act; the same is incidental to the assessee's business and hence allowable. We, therefore, taking into consideration the entire aspect of the matter find no infirmity in the order passed by the Ld. CIT(A) in deleting the addition made by the Ld. AO on the premise that hedging of currency is incidental to appellant's business and thus the same is allowable business expenditure, in the present facts and circumstances of the case so as to warrant interference. We, thus, find no merit in the case made out by the Revenue. Hence, the order is passed in the affirmative i.e. in favour of the assessee and against the Revenue. 15. This ground of appeal relates to deletion of disallowance of Rs. 6,02,976/- under Section 14 A of the Act. 16. The brief facts regarding the issue is this that during the course of assessment proceeding upon perusal of the final accounts and the balance sheet it was found that the assessee made investments which are likely to generate exempt income which will not form part of the gross total income . No expenses, however, were activated by the asses....
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....held that where the assessee had more funds than investment in shares and borrowed funds were not proved to be used for sale, disallowance of 10% of exempt dividend income was unsustainable. Apart from that the order passed by the Co-ordinate Bench in the case of Torrent Power Ltd. vs. DCIT 2013, 33 taxmann.com 287 was also taken care of by the Ld. CIT-A. The operative for portion of the same is as follows:- "If no expenditure is incurred in relation to exempt income, no disallowance can be made under section 14A." The order passed by the Mumbai Bench in Raj Shipping Agencies Ltd. vs. Additional CIT, reported in 2013, 30 taxmann.com 347 was also considered by the Ld. CIT-A. The relevant portion whereof is reproduced hereinbelow:- "Expenditure incurred in relation to income not includible in total income [Conditions precedent] - Assessment year 2008-09 - Whether Assessing Officer has to examine accounts of assessee first and then if he is not satisfied with correctness of claim, only he can invoke rule 8D -Held, yes - Whether further, disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditur....
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....provision of Sec. 36(1)(vii) and 36(2)(i) of the Act. Hence the same was ultimately disallowed which was, in turn, confirmed by the First Appellate Authority. Hence, the instant appeal before us. 25. We have heard the submissions made by the respective parties. We have also perused the relevant materials available on record. It is the case of the assessee that the advance paid to the said Manjeet Cotton Pvt. Ltd. was forfeited by it due to failure of taking delivery of cotton within a stipulated time as agreed upon orally. In default, forfeiture of some advances would prevail as also the condition of such agreement. Further that, during the previous year total 23.88 crores were advances to the said private limited company before taking deliveries of cotton. Notwithstanding regular advances towards purchases of cotton, the assessee was not able to advance towards purchases as agreed with the said company and therefore material worth of Rs. 60 lakhs were not ultimately supplied by the said company to the appellant. In spite of due diligence of the assessee, the same was not supplied thereby the advance of Rs. 60 lakhs have been forfeited by the said Manjeet Cotton Pvt. Ltd. Accor....
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....The argument of Mr. Joshi is that this deposit was made by the assessee not for the purpose of earning profits built for the purpose of obtaining a business which would make it possible to earn profits. In other words, his contention is that the payment of this deposit is antecedent to and de hors the business which the assessee carried on and which yielded profits to him. Apart from authorities to which we shall presently turn, the contention does not seem to be tenable. This is not a case where the assessee makes this deposit in order to acquire a business, nor is this a case where an amount is deposited as a sort of a temporary investment yielding interest, the deposit being necessary in order that the assessee should be permitted to carry on a particular business. The assessee already has his business. His businesses to sell various commodities and in the course of this business, not de hors it, he submits a tender to the railway company. It is one of the terms of the tender that he must make the deposit. Therefore the making of the deposit is incidental to the business which he is carrying on. This is not a case where it is suggested that the assessee committed a breach of the....
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....he assessee. This was a transaction in that business. It is in order to put through that transaction that the deposit was necessary. 7. The second case referred to by Mr. Joshi is Commissioner of Income-tax v. Motiram Nandram. In that case the assessees were carrying on business of cloth, yarn and money-lending and they wanted to start a new business and for that purpose they deposited with an oil company Rs. 50,000. In consideration of that the assessees were appointed organizing agents of the oil company for five years for a particular area. They were to recommend the selling agents and the sales were to be conducted by these selling agents, but the assesses were to receive certain commission on all goods sold by the selling agents within the area and also on all sales effected in the area by the company. The deposit was to yield interest at 7 per cent. Part of the deposit was repaid and then the company went into liquidation, and the assessees claimed the part of the deposit which was lost to them and that claim was rejected by the Privy Council. Now, in the first place, the Privy Council took the view that the deposit was made by the assessees for the purpose of being permi....
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....he Commissioner to pay the costs. 9. Question answered in the affirmative." Thus, it appears that such loss was incurred in the character of trader and during the ordinary course of business. If there is direct and proximate nexus between the business operation and the loss, or it is incidental to it, then the loss is deductible since without the business operation and doing all that is incidental to it, no profit can be earned, which is also the view of the Hon'ble Court as we find from the judgment cited above. Hence, taking into consideration the entire aspect of the matter in our considered view the same is business loss and not bad debts as provided in Sec. 36(1)(vii) and hence the loss is not hit by sub-section 2 of section 36 of the Act. Such forfeiture of advance is a business loss having a direct nexus with the operation of the business and is incidental to the business carried too and hence allowable. We, therefore, delete the addition made by the authorities below. This ground of appeal is, thus, allowed. 28. In the combined results, (i) ITA No. 27/Rjt/2016- Department's Appeal is dismissed. (ii) ITA No. 360/Rjt/2015- Department's Appeal is dismissed. (iii) ITA....
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....wherein Their Lordships had, inter alia, directed that "We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the Benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile(emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment". In the ruled so framed, as a result of these directions, the expression "ordinarily" has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any "extraordinary" circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th Ma....
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....an be neither anticipated nor controlled' When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an "ordinary" period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when ....