2015 (10) TMI 2008 - AT - Income Tax

Disallowance of the Foreign Exchange loss under section 43A - Held that - It is seen from the ECB loan agreement, which was filed based on a speci fic query from the Bench by the A.R. that the loan was utilized for general corporate purposes and not for acquisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the fact s of the case. Based on this, it could logically be concluded that any exchange fluctuat ion arising out of the restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence, automatically comes under the ambit of taxation if it is a gain and allowable as an expenditure if it is a loss. This issue is squarely covered by the decision of the Hon ble Supreme Court in the case of CIT vs.- Woodward Governor India P. Ltd. reported in (2009 (4) TMI 4 - SUPREME COURT ) - Thus we hold that the sum being the exchange loss would be allowed as deduction under section 37(1) of the Act for the assessment year 2005-06. - Decided in favour of assessee. Addition made towards employees contribution to Provident Fund (E.P.F.) - amount remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) - CIT(A) deleted the addition - Held that - This issue is directly covered in favour of the assessee by the decision of the Apex Court in Vinay Cement Limited reported in (2007 (3) TMI 346 - Supreme Court of India) wherein it has been held that statutory item like EPF is paid before the due date of filing the return of income be allowed irrespective of the fact where the contribution related to the employee and employer . From the verification of the dates as stated in the assessment order, it is observed that the assessee had duly remitted the entire EPF dues before the due date of filing the return of income. We are not inclined to interfere with the decision of the ld. CIT(Appeal s). Accordingly, Ground raised by the Revenue is dismissed. - Decided in favour of assessee. Addition made on account of cess on green leaves - CIT(A) deleted the addition - Held that - Rule 8 of the Income-tax Rules, 1962, requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income-tax Act, 1961 - The entire amount paid as cess on green leaf seems to be eligible for deduction with regard to which we do not find any confusion. See CIT vs.- AFT Industries Limited 2004 (7) TMI 81 - CALCUTTA High Court - Decided in favour of assessee. Income from other sources - CIT(A) deleted the addition - Held that - It is seen from the assessment order that the aforesaid three receipt s had been duly accepted by the Assessing Officer as business income in the assessment proceedings itself, which was also the claim of the assessee in i ts revised return. However, while adopting the figure of income from other sources, the Assessing Officer did not adopt the figures as stated in the revised return but adopted a totally different figure. Hence, in the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Assessing Officer to adopt the correct figure of income from other sources after verification of proper workings in this regard from the assessee. - Decided in favour of revenue for statistical purposes. Miscellaneous receipts arose from tea business - CIT(A) treating the same as business income as against the treatment by the Assessing Officer as income from other sources - Held that - Items A to J were only arising out of tea business totalling to ₹ 14,02,968/- and accordingly to be treated as income from business. Since no details could be filed regarding the sundry receipt s before us, the same is considered as the income from other sources. Interest on income-tax refund could definitely be construed only as income from other sources. We direct the Assessing Officer to re-compute accordingly. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Disallowance of Foreign Exchange Loss under Section 43A.
2. Deletion of addition towards employees' contribution to Provident Fund.
3. Deletion of addition on account of cess on green leaves.
4. Deletion of income from other sources.
5. Treatment of miscellaneous receipts as business income.

Issue-wise Detailed Analysis:

1. Disallowance of Foreign Exchange Loss under Section 43A:
The primary issue in the assessee's appeal was whether the CIT(A) was correct in disallowing the Foreign Exchange loss of Rs. 10,00,000/- under Section 43A of the Income Tax Act. The assessee, engaged in the business of cultivation of green leaves and manufacture and sale of Black Tea, had borrowed External Commercial Borrowings (ECB) of USD 50,00,000 for general business purposes, leading to a notional exchange loss due to restatement at the year-end exchange rate. The Assessing Officer disallowed this loss, invoking Section 43A, which allows capitalization or deduction of exchange loss only on payment basis post-amendment from 1st April 2003. The assessee contended that Section 43A was inapplicable as the loan was for revenue purposes, not for acquiring assets. The Tribunal, referencing the Supreme Court decision in Woodward Governor India P. Ltd. (312 ITR 254), held that since the loan was for revenue purposes, any exchange fluctuation loss was allowable under Section 37(1). Thus, the sum of Rs. 10,00,000/- was allowed as a deduction.

2. Deletion of Addition towards Employees' Contribution to Provident Fund:
The Revenue's appeal contested the CIT(A)'s deletion of the addition of Rs. 1,84,308/- towards employees' contribution to Provident Fund, which was remitted beyond the due date under the PF Act but before the due date for filing the return under Section 139(1). The Tribunal, following the Supreme Court decision in Vinay Cement Limited (313 ITR 1), held that statutory items like EPF paid before the due date of filing the return should be allowed, irrespective of the contribution's nature. Consequently, the ground raised by the Revenue was dismissed.

3. Deletion of Addition on Account of Cess on Green Leaves:
The Revenue's appeal also challenged the deletion of the addition of Rs. 1,67,03,000/- towards cess on green leaves. The Assessing Officer had disallowed this despite a favorable jurisdictional High Court decision in CIT vs. AFT Industries Limited (270 ITR 167), as the Department had filed a Special Leave Petition against it. The Tribunal upheld the CIT(A)'s decision, reiterating that the cess on green leaves was deductible, following the High Court's ruling.

4. Deletion of Income from Other Sources:
The Revenue contested the deletion of income from other sources amounting to Rs. 36,25,990/- as determined by the Assessing Officer. The assessee had initially declared these receipts under other sources but revised them under business income. The Tribunal observed that while the Assessing Officer accepted these receipts as business income, he did not adjust the figure for income from other sources accordingly. The Tribunal set aside this issue to the Assessing Officer for correct computation, directing verification of proper workings from the assessee.

5. Treatment of Miscellaneous Receipts as Business Income:
The Revenue appealed against the CIT(A)'s decision to treat miscellaneous receipts aggregating to Rs. 46,26,553/- as business income instead of income from other sources. The Tribunal examined the nature of these receipts, concluding that items such as discounts, machinery breakdown claims, and Tea Board subsidies (totaling Rs. 14,02,968/-) arose from tea business and should be treated as business income. However, sundry receipts and interest on income-tax refunds were to be treated as income from other sources. The Tribunal directed the Assessing Officer to recompute accordingly.

Conclusion:
The appeal of the assessee was allowed, and the appeal of the Revenue was partly allowed. The Tribunal's orders were pronounced in the open Court on 11th September 2015.