2010 (10) TMI 1098 - AT - Income Tax

Summary

Issues involved: Appeal against order of Commissioner of Income Tax (Appeals) regarding deletion of excess labour payments and treatment of forward contract cancellation loss.

Issue 1: Excess Labour Payments
The Revenue appealed against the deletion of Rs. 3,50,000 addition made by the Assessing Officer on account of excess labour payments by the assessee to its contractors. The Assessing Officer observed discrepancies in labour charges claimed by the assessee compared to similar concerns and made a disallowance of Rs. 4,00,000. On appeal, the Commissioner of Income Tax (Appeals) considered the submissions and confirmed a lump sum disallowance of Rs. 50,000, deleting the balance addition of Rs. 3,50,000. The Commissioner emphasized the need for concrete proof to disallow labour charges solely based on rates paid by other parties. The Tribunal upheld the Commissioner's decision, noting that no specific error was pointed out in the order and that there was no evidence to show the claimed labour charges were unsupported.

Issue 2: Forward Contract Cancellation Loss
The second ground of appeal pertained to the treatment of a loss of Rs. 5,29,446 on cancellation of forward contracts. The Assessing Officer treated this loss as speculation loss under section 43(5) of the Act, alleging that the contracts were cancelled to avoid losses due to price fluctuations. On appeal, the Commissioner of Income Tax (Appeals) considered the nature of the contracts and ruled that they were hedging transactions against specific import/export orders, not speculative in intent. The Commissioner allowed the loss as a business loss. The Tribunal upheld this decision, noting that the contracts were entered into to protect against exchange rate fluctuations and were not speculative transactions as alleged by the Assessing Officer.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decisions of the Commissioner of Income Tax (Appeals) regarding both the excess labour payments and the treatment of forward contract cancellation loss.