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2015 (3) TMI 360 - AT - Income TaxDisallowance of general expenses on ad-hoc basis - Held that - Evidences were not furnished to the Assessing Officer by the assessee as the Assessing Officer did not call for such details. Otherwise, it is a fact that the assessee only submitted the breakup of the expenses and not evidences. The very nature of the expenses does not appear very is an essential expenditure; but it is likely some of the expenditure may not be wholly and exclusively for the purpose of business. In principle, we are of the opinion that some disallowance has to be done in the assessment if not 1/5th of the claim of the assessee as done by the Assessing Officer. As such, there is no basis for adopting 1/5th as a factor for computing the disallowance. Therefore, in our opinion, some ad-hoc disallowance should meet the ends of the justice. Thus, we are of the opinion, considering the facts of the present case for the year under consideration disallowance of a sum of ₹ 3 lakhs should meet the requirement of law. - Decided partly in favour of assessee. Treatment of gains arising on cancellation of forward contracts in foreign exchange - AO denied the claim of deduction u/s 80HHC on the said income - Held that - The issues relating to the independent income are required to be adjudicated by the lower authorities after granting a reasonable opportunity of being heard to the assessee. Further, regarding the cancellation of forward contracts, the Tribunal has explained the relevant provisions in its order in the case of London Star Diamond Company (I) Pvt Ltd (2013 (11) TMI 424 - ITAT MUMBAI), where one of us (AM) is a party and the same should also be considered by the Assessing Officer in the remanding proceedings. There is a need for giving definite finding of fact if the impugned profits are independent income‟ or part of the normal business profits of the assessee. In any case, speculative nature of profit is ruled out by the Tribunal in the assessee's own case in earlier years. Assessing Officer shall make use of the explanation given by the jurisdictional High Court in the case of Pfizer Ltd (2010 (6) TMI 433 - Bombay High Court ) after analyzing the dates of the contracts, connection to the invoices and also the reasons for conclusion. We also find that the judgment of the Bombay High Court in the case of Shah Originals (supra) delivered in the context of different facts i.e, gain on account of exchange rate fluctuations and EEFC account and the same was relied upon by the Tribunal in the case of K. Mohan & Co. (Exports) (2011 (4) TMI 1278 - ITAT MUMBAI). Of course, the other orders of the Tribunal relied upon by the Ld DR must also be considered. - Decided in favour of assessee for statistical purpose. Gain arising on revaluation of foreign currency borrowings - Held that - It is not a receipt of any amount but only resulted in reduction of liability, the said amount cannot be excluded as specified in clause (baa) of Explanation to section 80HHC of the Act. Thus, the impugned gains does not constitute independent income as discussed by the Hon'ble Supreme Court in the case of Ravindranathan Nair (2007 (11) TMI 10 - Supreme Court of India). On perusal of the order, we find the Revenue Authorities have not examined the above stated contention of the assessee. Therefore, we remand this issue to the file of the Assessing Officer for fresh adjudication. In the remanding proceedings, Assessing Officer is directed to apply the principles relating to independent income as mandated by the above cited relevant judgment of the Hon'ble High Court and also speak on how this kind of gains on revaluation of the balance in foreign currency at the end of the FY constitutes receipts as expressed in clause (baa) of Explanation to section 80HHC of the Act. Assessing Officer is directed to give a reasonable opportunity of being heard to the assessee in the remanding proceedings. - Decided in favour of assessee for statistical purpose. Denial of deduction u/s 80HHC of the Act in respect of interest on fixed deposits - Held that - The said income has to be now treated as per the provisions of the said clause (baa) of Explanation to section 80HHC of the Act. It is the prayer of the assessee before us that while applying the said provisions of clause (baa) of Explanation to section 80HHC of the Act, the net interest income may be considered as. For this, Ld Counsel for the assessee relied on the judgment of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt Ltd vs. CIT 2012 (2) TMI 101 - SUPREME COURT OF INDIA . We find merit in the same. Therefore, alternative submissions made by the assessee are found not required to be entertained. Assessing Officer is directed to give an opportunity of being heard to the assessee and decide the issue applying the said judgment of the Apex Court. - Decided in favour of assessee for statistical purpose.
Issues Involved:
1. Disallowance of general expenses. 2. Taxability of gains from cancellation of forward contracts in foreign currency. 3. Taxability of gains from revaluation of foreign currency borrowings. 4. Treatment of interest income for deduction under section 80HHC. 5. Deduction under section 80HHC for unrealized export proceeds. 6. Penalty under section 271(1)(c) of the Act. Detailed Analysis: 1. Disallowance of General Expenses: The assessee claimed Rs. 29,46,079 towards general expenses, which included unverifiable items such as employee awards, swipe/ID cards, Diwali expenses, and customer visit expenses. The Assessing Officer (AO) disallowed 1/5th of the claim (Rs. 5,89,200) due to lack of evidence. The CIT (A) upheld this disallowance. The Tribunal noted that the assessee only provided a breakup of expenses without evidence and concluded that some disallowance was warranted. However, the Tribunal found the 1/5th disallowance excessive and reduced it to Rs. 3 lakhs, partly allowing the assessee's appeal. 2. Taxability of Gains from Cancellation of Forward Contracts in Foreign Currency: The assessee, engaged in manufacturing and exporting jewelry, entered into forward contracts to mitigate foreign exchange risks and earned gains on their cancellation. The AO treated these gains (Rs. 40,28,243) as income from other sources, denying the deduction under section 80HHC. The CIT (A) upheld this, treating the gains as speculative. The Tribunal, referring to earlier decisions, held that such gains should be treated as business income, not speculative income. The issue was remanded to the AO to determine if the gains constituted independent income under Explanation (baa) to section 80HHC. 3. Taxability of Gains from Revaluation of Foreign Currency Borrowings: The assessee claimed gains from revaluation of foreign currency borrowings (Rs. 2,53,95,129) as business income eligible for deduction under section 80HHC. The AO treated this as income from other sources, which the CIT (A) upheld. The Tribunal remanded the issue to the AO to examine whether these gains constituted receipts under clause (baa) of Explanation to section 80HHC, considering relevant judgments. 4. Treatment of Interest Income for Deduction Under Section 80HHC: The AO treated interest on fixed deposits (Rs. 8,49,573) as income from other sources, denying the deduction under section 80HHC. The Tribunal directed the AO to apply the Supreme Court's judgment in ACG Associated Capsules Pvt Ltd vs. CIT, which mandates considering net interest income for deduction purposes, and remanded the issue for fresh adjudication. 5. Deduction Under Section 80HHC for Unrealized Export Proceeds: The assessee claimed deduction for unrealized export proceeds up to 30.9.2004, citing an RBI circular that removed the time limit for SEZ units. The Tribunal referred to the coordinate Bench decision in ITO vs. M/s. International Gold Co. Ltd., which allowed such deductions, and held in favor of the assessee, allowing the deduction. 6. Penalty Under Section 271(1)(c) of the Act: The Revenue's appeal related to the penalty for additions made in the quantum appeal ITA No.291/M/2008. Since the Tribunal remanded or allowed the issues in the quantum appeal, the penalty did not survive. The Tribunal upheld the CIT (A)'s order granting relief to the assessee and dismissed the Revenue's appeal. Conclusion: The Tribunal provided a detailed analysis of each issue, partly allowing the assessee's appeals for statistical purposes and remanding specific issues to the AO for fresh adjudication, while dismissing the Revenue's appeal related to the penalty.
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