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2019 (8) TMI 1449 - AT - Income TaxAssessment u/s 153A - HELD THAT - AO can not disturb the completed and finalized assessment on the date of search which has attained finality. The AO has jurisdiction to disturb the assessment if the Department has seized some incriminating material qua the additions which are proposed to be made in the assessment framed u/s.143(3) r.w.s.153A of Act. However in the present case we find that there is no reference by the AO to any incriminating material found during search and therefore we hold that the additions/adjustments/recomputations made by the AO in the assessment order are without jurisdiction and have to be deleted. The case of assessee is squarely covered by the decision of the Bombay High court in the case of CIT Vs. Continental Warehousing Corporation Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT as held that in the case of unabated assessment the additions can only be made if based upon the incriminating materials found during search and not otherwise. We therefore respectfully following the decision of the jurisdictional High Court set aside the order of CIT(A) and direct the AO to delete the adjustment or addition to that income. Loss on foreign currency forward contracts as speculation loss instead of business loss treated by the assessee - HELD THAT - In order to hedge the foreign currency fluctuation assessee enters into foreign exchange forward contracts through banks as per RBI norms and thus these transactions are entered into in the ordinary course of business of the assessee and are integral and inseparable part of its business. In view of these facts and circumstances we are not in agreement with the conclusion of the Ld.CIT(A) that the loss suffered due to cancellation of these forward contracts in foreign exchange was a speculative loss. Moreover the case of assessee is squarely covered by various decisions referred above wherein it was held that loss incurred due to cancellation of forward foreign currency contract in the ordinary course of business is a business loss and not a speculative loss. Hon ble Bombay High Court in the case of CIT Vs. D.Chetan and Co. 2016 (10) TMI 629 - BOMBAY HIGH COURT has held that Transaction entered into in the regular course of business of hedging of transaction to cover various foreign exchange fluctuations is a business loss and not a speculative loss. Thus we hold that the loss incurred by assessee is a business loss and the AO is directed accordingly. This Ground of appeal raised by assessee is allowed. Computing deduction u/s.10A - other income which was inextricably linked with the business of assessee was not taken into account - HELD THAT - We find that the in the other income there was an item of 70, 46, 376/- on account of Sundry Expenses written-off back during the year which were claimed in the earlier year and thus it was claimed as part of the profit and consequently the claimed u/s.10A of the Act however the AO rejected the deduction u/s 10A in respect of the same. Now the only issue before us whether the expenses written back in the current year which were credited to the profit and loss account would be eligible for the deduction u/s 10A of the Act. Undisputable during the year when these expenses were written back by crediting the same to the income of the account of the assessee and the profits were increased correspondingly. We find merits in the arguments of the ld AR that in earlier years these expenses were claimed in the profit and loss account and the deduction u/s 10A was allowed accordingly and now when these are reversed the same should be treated as part of the profits for the purpose of deduction u/s 10A. After taking into accounts the totality of the scenario we are of the view that the same forms part of profit for the purpose of Section 10A of the Act. Accordingly we set aside the order of CIT(A) and direct the AO to allow the deduction u/s.10A of the Act. Hence this ground raised by assessee is allowed.
Issues Involved:
1. Jurisdictional issue regarding adjustments to the returned income without incriminating material found during the search. 2. Treatment of brought forward losses and unabsorbed depreciation while computing deduction under Section 10A. 3. Setting off loss of non-eligible Unit 1 against profit of eligible Unit 2 for deduction under Section 10A. 4. Treatment of loss on foreign currency forward contracts as speculation loss instead of business loss. 5. Inclusion of 'Other income' while computing deduction under Section 10A. Detailed Analysis: Issue 1: Jurisdictional Issue The assessee challenged the jurisdiction of the Assessing Officer (AO) to make adjustments to the returned income without any incriminating material found during the search. The search was conducted on 08-08-2011, and the assessment was completed u/s.143(3) on 30-12-2008. The AO issued a notice u/s.153A and framed the assessment by setting off brought forward losses and depreciation against total income while computing deduction u/s.10A. The CIT(A) upheld the AO's order, stating that the assessment u/s.153A is mandatory. However, the tribunal observed that since the original assessment had attained finality, the AO could not disturb it without incriminating material found during the search. Citing the Bombay High Court's decision in CIT Vs. Continental Warehousing Corporation Ltd., the tribunal held that the additions made by the AO were without jurisdiction and directed the AO to delete the adjustments. Issue 2: Brought Forward Losses and Unabsorbed Depreciation The assessee contended that the AO erroneously set off brought forward losses and unabsorbed depreciation against the total income while computing deduction under Section 10A. The tribunal did not provide a separate analysis for this issue, as it was intertwined with the jurisdictional issue. Since the tribunal set aside the AO's adjustments on jurisdictional grounds, this issue was resolved in favor of the assessee. Issue 3: Setting off Loss of Non-Eligible Unit 1 The assessee argued that the AO erred in setting off the loss of non-eligible Unit 1 against the profit of eligible Unit 2 while computing deduction under Section 10A. Similar to Issue 2, this issue was also resolved in favor of the assessee due to the tribunal's decision on the jurisdictional issue. Issue 4: Loss on Foreign Currency Forward Contracts The assessee contested the AO's treatment of loss on foreign currency forward contracts as speculation loss instead of business loss. The AO disallowed the loss based on Section 43(5) and Section 73, treating it as speculative. The CIT(A) upheld this view, stating that the assessee failed to establish specific linkage between the forward contracts and hedging transactions. However, the tribunal observed that the assessee's foreign exchange transactions were integral to its business and not independent speculative transactions. Citing various decisions, including the assessee's own case and the Bombay High Court's decision in CIT Vs. D.Chetan and Co., the tribunal held that the loss was a business loss and not speculative. The tribunal directed the AO to treat the loss as a business loss and allow it accordingly. Issue 5: Inclusion of 'Other Income' for Section 10A Deduction The assessee argued that 'Other income' of ?70,72,017, which was inextricably linked with the business, should be included while computing deduction under Section 10A. The AO excluded this income, and the CIT(A) upheld the exclusion, stating that the income comprised items like interest on sale of scrap, security deposits, and sundry expenses written back, which were not eligible for Section 10A deduction. The tribunal, however, found merit in the assessee's argument that the sundry expenses written back should be treated as part of the profits for Section 10A purposes, as they were initially claimed as expenses in earlier years. The tribunal directed the AO to include the sundry expenses written back in the profits for Section 10A deduction, thereby allowing this ground in favor of the assessee. Conclusion: Both appeals of the assessee were allowed, with the tribunal setting aside the AO's adjustments on jurisdictional grounds, treating the foreign currency forward contract loss as a business loss, and including the sundry expenses written back in the profits for Section 10A deduction.
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