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2013 (8) TMI 940 - AT - Income TaxDisallowance under section 14A - Held that - The assessee has not filed the break-up before 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. Disallowance under section 40(a)(i) on account of commission paid to overseas agencies - Held that - It is an admitted fact that the assessee had paid selling commission to the nonresident /overseas agent for procurement of orders from overseas buyers. This expenses incurred by the assessee for a service rendered by a non-resident outside India. 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. Foreign exchange fluctuation loss - Held that - We find that the assessee has incurred loss relating to its business only and in view of the decision of CIT v. Panchmahal Steel Ltd. 2013 (5) TMI 686 - GUJARAT HIGH COURT this ground of appeal raised by the Revenue is dismissed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 40(a)(i) on account of commission paid to overseas agencies. 3. Foreign exchange fluctuation loss. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The primary issue in this appeal concerns the disallowance under Section 14A of the Income Tax Act. The assessee, engaged in the manufacturing and export of garments, had investments in tax-free income deriving territory amounting to Rs. 31,15,43,209. The Assessing Officer (AO) calculated a disallowance of Rs. 1,29,51,870 under Section 14A read with Rule 8D, attributing it to the tax-free investments. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who recalculated the disallowance to Rs. 28,56,677 based on the break-up of interest provided by the assessee. The Revenue contended that the break-up was not submitted to the AO initially and requested the matter be remitted back to the AO for re-examination. The Tribunal agreed with the Revenue, setting aside the CIT(A)'s order and remitting the matter back to the AO for recalculating the disallowance after examining the break-up of investments. 2. Disallowance under Section 40(a)(i) on account of commission paid to overseas agencies: The second issue pertains to the disallowance under Section 40(a)(i) for commission payments to overseas agencies. The AO observed that the assessee failed to deduct TDS on overseas selling commission totaling Rs. 30.56 lakhs and a claim of Rs. 68.52 lakhs. The CIT(A) directed the AO to delete the disallowance for the Rs. 30.56 lakhs commission, referencing the ITAT decision in M/s. Prakash Impex v. ACIT, which held that such payments to non-residents for services rendered outside India are not chargeable to tax in India, and hence, TDS under Section 195 is not applicable. The Tribunal upheld the CIT(A)'s decision for the Rs. 30.56 lakhs commission but remitted the Rs. 68.52 lakhs claim back to the AO for detailed examination, as the nature of this claim was unclear and required further scrutiny. 3. Foreign exchange fluctuation loss: The third issue involves the foreign exchange fluctuation loss of Rs. 31,77,52,290, bifurcated into a loss on export proceeds realization of Rs. 13,80,61,721 and a swap loss of Rs. 18,01,04,908 due to cancellation of forward contracts. The AO treated the swap loss as a speculation loss under Section 43(5)(a) and disallowed it. The CIT(A), however, allowed the claim, referencing the Supreme Court's rulings in CIT v. Woodward Governor India (P) Ltd. and other relevant cases, which held that foreign exchange losses related to business are deductible as revenue losses. The Tribunal upheld the CIT(A)'s decision, citing the Gujarat High Court's ruling in CIT v. Panchmahal Steel Ltd., which supported the view that such losses are incidental to the business and thus allowable as business expenditure. Conclusion: The Tribunal allowed the Revenue's appeal for the assessment year 2008-09 for statistical purposes, partly allowed the appeal for the assessment year 2009-10 for statistical purposes, and dismissed the assessee's cross objections as infructuous. The order was pronounced on August 27, 2013, in Chennai.
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