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Issues involved: Disallowance of interest and disallowance of loss on account of revaluation of foreign exchange contracts.
Dispute on disallowance of interest: The dispute revolved around the disallowance of interest paid by the assessee to the head office/overseas branches due to non-deduction of tax at source. The AO disallowed the claim of interest expenditure, which was confirmed by CIT(A) citing a special bench decision. However, the Tribunal, referring to a different special bench decision, held that the interest payment was not taxable in the hands of the bank and allowed the claim of expenditure on interest. Dispute on disallowance of interest and other expenses: The revenue raised disputes on disallowance of interest and other expenses related to exempt income from tax-free bonds and other sources. The AO disallowed a portion of interest and other expenses, but the CIT(A) deleted the additions after considering the source of funds for investments. The Tribunal upheld the decision regarding disallowance related to NHB bonds but remanded the matter concerning interest income from another source back to CIT(A) for further examination. Dispute on disallowance of loss on revaluation of foreign exchange contracts: The AO disallowed the loss on revaluation of foreign exchange contracts as contingent and notional. However, CIT(A) allowed the claim, citing relevant Tribunal decisions. The Tribunal upheld CIT(A)'s decision, referring to a Supreme Court judgment allowing such losses as expenditure u/s 37(1). In conclusion, the appeal of the assessee was allowed, and that of the revenue was partly allowed, with the Tribunal providing detailed reasoning for each issue involved in the judgment pronounced on 7-10-2013.
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