2012 (1) TMI 210 - AT - Income Tax

Summary

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Deletion of disallowance of business loss due to foreign exchange fluctuation.
3. Deletion of disallowance of establishment and other expenses.

Summary:

Condonation of Delay:
The appeal filed by the revenue was time-barred by 43 days. An affidavit was filed by the Deputy Commissioner of Income Tax explaining the delay, citing reasons such as the non-communication of the application for filing the second appeal and the processing of papers. The Tribunal, after considering the affidavit and hearing both parties, condoned the delay, stating that the revenue was prevented by reasonable cause from filing the appeal within the stipulated period. This decision was made in view of the Hon'ble Supreme Court's decision in the case of CIT Vs. West Bengal Infrastructural & Financial Corporation Ltd reported in (2011) 196 Taxman 321(SC).

Deletion of Disallowance of Business Loss:
The Assessing Officer disallowed the loss claimed on account of foreign exchange fluctuation of Rs. 5,77,593/- on the grounds that no business activity was carried out during the year. The learned Commissioner of Income-tax (Appeals) deleted the disallowance, relying on a previous decision in the case of M/s. V.N Enterprises Ltd, where a similar issue was decided in favor of the assessee. The Tribunal upheld this deletion, noting that the foreign exchange balance in the EEFC account represented the balance of export proceeds, which were trading receipts. The Tribunal referenced the Supreme Court's decision in Sutlej Cotton Mills Ltd. Vs. CIT (1979) 116 ITR 1 (SC), which held that profit or loss from foreign currency held on revenue account is a trading profit or loss.

Deletion of Disallowance of Establishment and Other Expenses:
The Assessing Officer disallowed Rs. 5,39,089/- on account of establishment and other expenses, arguing that no business activity was conducted during the year. The learned Commissioner of Income-tax (Appeals) deleted this disallowance, stating that the assessee continued to carry on business and incurred necessary expenses to maintain its establishment. The Tribunal upheld this decision, referencing its previous order in the case of the assessee's sister concern, where it was held that expenses incurred for maintaining the establishment were allowable deductions u/s 37(1) of the Act.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the decisions of the learned Commissioner of Income-tax (Appeals) on both grounds of disallowance. The order was pronounced in the open court on 23-01-2012.