2017 (5) TMI 1742

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....pecific formula as detailed under Rule 8D of the IT Rules, and further the deletion goes against the Board's circular No. 5/2014 dated 11.2.2014. 4. The Ld.CIT(A) erred in allowing the exchange fluctuation loss without appreciating the fact that the loss was incurred due to cancellation of forward contracts, and is not derived from the business of the assessee, and the tractions that have ended up in losses have been ultimately settled otherwise than by actual delivery of foreign exchange, and therefore falls under the ambit of speculation loses only. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 2.0 Ground Nos.1 & 5 are general in nature which do not require specific adjudication. 3.0 Ground Nos.2 & 3 are related to the disallowance made u/s.14A r.w.r.8D of the Income Tax Rules.  The AO disallowed a sum of Rs. 17,76,044/- u/s.14A by applying Rule 8D of Income Tax Rules. The assessee went on appeal before the Commissioner of Income Tax(Appeals) (in short 'Ld.CIT(A)') and the Ld.CIT(A) allowed the assessee's appeal holding that the a....

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....x, Co. Range-V, Chennai, [2017] 77 taxmann.com 257 (Madras) as under: 15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC). The language of s.14A (1) should be read in that context and such that it advances the scheme of the Act rather than distort it. 16. In conclusion, we are of the view that the provisions of s. 14A read with Rule 8D of the Rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questions of law are answered in favour of the assessee and against the department and the appeal allowed. No costs.  Respectfully following the decision of Hon'ble jurisdictional High Court, we uphold the order of the Ld.CIT(A) and dismiss the grounds of the appeal raised by the Revenue. 5.0 Ground No.4 i....

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....the issue in favour of the appellant. Respectfully following the same, the plea made by the appellant needs to be upheld. Accordingly, this ground of appeal is allowed. 5.2 During the appeal hearing, Learned Authorized Representative (in short 'Ld.AR') brought to our notice that the Hon'ble ITAT 'B' Bench in ITA Nos.1249 & 1250 dismissed the Revenue appeal on the similar issue. The Ld.DR could not controvert the submissions made by the Ld.AR with other rulings/ orders of higher authority. For the sake of convenience and clarity, we reproduce the relevant paragraphs of the Hon'ble ITAT Order in the assessee's own case: 24. We have heard both sides, perused the materials available on record and have also gone through the orders of authorities below. The assessee is in the business of export of garments and all such realizations are in foreign exchange. It is an admitted fact that the assessee has to import raw materials and also export the garments. In both the aspects, foreign currency is only involved. In the assessment order, the Assessing Officer has observed that the exchange loss is bifurcated into two values being foreign exchange fluctuation loss on account of export proce....

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....porter 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 into forward contract in foreign exchange in order to cover the loss which may arise due to difference in foreign exchange valuation. In one such contract, the assessee had to pay to the Bank difference of Rs. 80,491/- which was claimed by the assessee as revenue expenditure. The Assessing Officer disallowed the claim. The High Court held that the assessee was not a dealer in foreign exchange and the foreign exchanges were only incidental to the assessee's regular course of business and the loss was thus not a speculative....