AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 1022
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd. [reported in 328 ITR 81] wherein it was held that Section 14A is constitutionally valid and that Rule 8D was applicable from the assessment year 2008-09 onwards ? And iii. Whether the Tribunal is right in holding that the loss incurred on account of cancellation of forward contracts is not speculative losses falling within the provisions of Section 43(5) of the Income Tax Act ?" 3. The assessee company filed their return on 29.9.2011 admitting -NIL- income and it was processed under Section 143(1) of the Act on 07.1.2012 resulting in determining a refund of Rs. 54,04,290/-. Subsequently, the assessee's case was selected for scrutiny and a notice under Section 142(1) of the Act was issued on 10.9.2012 along with a questionnaire. The assessee furnished details and the assessment was completed under Section 143(3) of the Act by order dated 25.3.2014. 4. Two issues fall for consideration in this appeal. The first one is the disallowance made by the Assessing Officer under Section 14A of the Act and the second one is the disallowance of foreign exchange fluctuation loss. 5. In respect of the first issue, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year 2009-10, in the assessee's own case, the Tribunal held in favour of the assessee following the decision of the Calcutta High Court in the case of CIT Vs. Soorajmull Nagarmull [reported in (1981) 129 ITR 169]. 11. The Assessing Officer did not agree with the said submissions, rather she distinguished the decision of the Hon'ble Apex Court in the case of Woodward Governor India Pvt. Ltd., and stated that the said decision was in respect of trade loss on account of import and export and not on account of loss on forward contract cancellation. Placing reliance on the decision of the Bangalore Tribunal in the case of ACIT Vs. K.Mohan & Co. (Exports) Pvt. Ltd., the Assessing Officer held that cancellation of forward contract was speculation business and not business profits for the purpose of computation of deduction under Section 10B of the Act. With regard to the decision in the assessee's own case for the assessment year 2009-10, it was pointed out that the Department preferred an appeal against that decision. 12. Being aggrieved by the said order passed by the Assessing Officer dated 25.3.2014, the assessee preferred an appeal before the Commissioner of Income Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income. 18. Therefore, to apply the provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how Sub-Section (1) of Section 14A of the Act would stand attracted. In the absence of any such finding, the disallowance made was not justifiable. In fact, the Assessing Officer straightaway proceeded to the second limb of Section 14(2) of the Act, which is impermissible. The Tribunal rightly took note of the decision in the case of Redington India Ltd., wherein it was held that the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 cannot be made applicable in vacuum i.e in the absence of exempt income. Therefore, we find that the Tribunal was right in deciding the issue against the Revenue and in favour of the assessee. 19. In respect of the second issue regarding disallowance of exchange fluctuation loss, the Tribunal, in the assessee's own case, examined the facts and that order was repro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red on investment fetching exempt income. The said case was decided in favour of the assessee and against the Revenue and in doing so, we have followed the decision of the Hon'ble Division Bench of this Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. [reported in (2017) 80 Taxmann.com 221]. This decision would come to the aid and assistance of the assessee. 25. It is contended on behalf of the Revenue that an appeal had been preferred against the order passed by the Tribunal in the assessee's own case for the earlier assessment year, which was referred to and relied upon by the Tribunal in the impugned order. 26. However, in our considered view, there is nothing on record to indicate that the appeal had been filed and the matter had been pending. Be that as it may, we have considered the reasons assigned by the Tribunal in the assessee's own case for the earlier assessment year wherein the Tribunal rightly took note of the earliest decision of the Calcutta High Court on the said point in the case of Soorajmull Nagarmull and pointed out that under Section 43(5) of the Act, 'speculative transaction' has been defined to mean a transaction, in which, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td., the Revenue preferred appeals before the Hon'ble Supreme Court and the special leave petitions were dismissed on the ground of delay as well as merits in the decision reported in (2018) 95 Taxmann.com 250. 29. It will be beneficial to refer to the decision of the Bombay High Court in the case of CIT Vs. Badridas Gauridu Pvt. Ltd. [reported in (2003) 261 ITR 256]. In that case, the assessee was not a dealer in foreign exchange, but was an exporter of cotton as in the case before us. The assessee therein booked foreign exchange contracts, which were held to be only incidental to the assessee's regular course of business. While testing the correctness of the order of the Tribunal, which held that the transaction was not a speculative transaction, it was observed as follows : "3. The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental 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 t....