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Issues involved: Appeal against order of CIT(A) regarding deletion of addition of loss due to valuation of foreign currency balance in EEFC account and deletion of disallowance of operating expenses.
Issue 1 - Valuation of foreign currency balance: The revenue appealed against CIT(A)'s decision to delete the addition of loss arising from valuation of foreign currency balance in the EEFC account. The Assessing Officer disallowed the business loss, but CIT(A) allowed the claim stating that the loss was a business loss attributable to the export business. The assessee company was engaged in tea export to Iraq and maintained its export proceeds in foreign currency in the EEFC account. The CIT(A) relied on a previous decision regarding a similar case and held that the loss should be treated as a business loss. The Tribunal upheld CIT(A)'s decision based on the nature of the business and the treatment of foreign currency gains/losses in previous assessments. Issue 2 - Disallowance of operating expenses: The revenue also challenged CIT(A)'s decision to delete the disallowance of operating expenses claimed by the assessee. The revenue argued that since there was no activity during the year, the expenses should not be allowed. However, CIT(A) found that the assessee continued its business in the immediate succeeding year and the year in question was a period of dormancy due to the Iraq-America war. CIT(A) allowed the operating expenses as they were incurred for maintaining the establishment and were necessary for the business. The Tribunal upheld CIT(A)'s decision, stating that the expenses were allowable deductions under section 37(1) as they were incurred for the purpose of business. In conclusion, the Tribunal dismissed the revenue's appeal against both issues, upholding CIT(A)'s decisions.
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