2016 (4) TMI 428 - AT - Income Tax

Business loss - treated as speculation loss in stead of loss in foreign currency transactions - Held that - In the present case, it is admitted that the transaction carried out by the assessee does not fall in any exceptions provided above and it is not at all carried out through any recognized stock exchange. The claim of the assessee is rightly denied by the AO as well as by CIT (Appeals) as business loss, as there is no relationship with term loan availed by the assessee or interest payable on the said term loan with loss incurred by the assessee and in view of the judgment of the Bombay High Court in the case of CIT v. Shri Bharat R. Ruia(HUF) 2011 (4) TMI 37 - BOMBAY HIGH COURT , wherein it was held that when the speculative transactions were covered under sec.43(5) of the Act and the loss incurred in those transactions was liable to treated as speculative loss and not business loss. In our opinion, various decisions relied on by the assessee in earlier para were delivered on different set of facts and those transactions fall under the exceptions provided in sec.43(5) of the Act - Decided against assessee Additions made towards gratuity payment - Held that - CIT(Appeals) observed that the assessee has applied to the Commissioner of Income-tax, Circle-I, seeking approval for group gratuity scheme on 19.3.2007 and the similar claim was allowed in the asst. year 2007-08, 2008-09 and 2009-10. On this basis, the CIT(Appeals) allowed the claim of the assessee in the asst. years under consideration. However, there is mandatory requirement of approval of gratuity scheme by the CIT, but no such approval was produced by the assessee, before us. In view of this, we remit this issue to the file of AO with a direction to decide the issue after examining whether there is mandatory requirement of approval of gratuity scheme by the competent authority. Allowability of deduction u/s.80IA - Held that - Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT (2010 (3) TMI 860 - Madras High Court ), wherein it was held that losses and depreciation of the years earlier to the initial assessment year which have already been absorbed against the profits of other business cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction u/s.80IA of the Act and there is no mandate in sec.80IA(5), claim of deduction u/s. 80IA of the Act is to be allowed to the assessee. In our opinion, the findings of the Commissioner of Income-tax(Appeals) on this issue is based on the judgment of Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT(supra), the same is confirmed Allowability of expenditure incurred towards sales commission - no deduction of TDS by the assessee on the payment - Held that - Similar issue was considered by the Tribunal in the case of ACIT v. Euro Leder Fashions Ltd 2016 (1) TMI 75 - ITAT CHENNAI the assessee had not established that the non-resident had rendered services abroad and there was no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, one is not in a position to decide the nature of services rendered by the non-resident agent.Therefore, it is appropriate to remit the entire issue back to the file of the Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad.

Summary

Issues:
1. Treatment of business loss as speculation loss.
2. Allowability of deduction u/s.80IA of the Act.
3. Allowability of expenditure incurred towards sales commission without TDS deduction.

Issue 1: Treatment of business loss as speculation loss

The case involved cross-appeals against the Commissioner of Income-tax(Appeals) orders for assessment years 2010-11 and 2011-12. The primary issue was confirming the addition made by the Assessing Officer by treating the business loss as speculation loss instead of loss in foreign currency transactions. The assessee claimed a loss out of business income remunerated from direct transactions with State Bank of India involving SWAP options contracts with Swiss Franc. The Assessing Officer rejected the loss claim, stating it did not satisfy sec.43(5)(d) of the Act. The CIT(Appeals) upheld this decision citing a judgment of the Mumbai High Court. The Tribunal reviewed various decisions cited by both parties and concluded that the claim did not fall under the exceptions provided in sec.43(5) of the Act. The Tribunal rejected the ground of appeal by the assessee.

Issue 2: Allowability of deduction u/s.80IA of the Act

The Revenue's appeal focused on the deletion of additions made towards gratuity payment without mandatory approval from the Commissioner of Income-tax. The CIT(Appeals) allowed the claim based on past approvals, but the Tribunal remitted the issue to the Assessing Officer for further examination of mandatory approval requirements. The next ground concerned the allowability of deduction u/s.80IA of the Act, following the judgment of the Madras High Court. The Tribunal upheld the CIT(Appeals) decision based on the jurisdictional High Court's ruling, dismissing the Revenue's appeal on this issue.

Issue 3: Allowability of expenditure towards sales commission without TDS deduction

The Revenue's appeal also addressed the allowability of expenditure incurred towards sales commission without TDS deduction. The AO disallowed the payment due to the lack of TDS, but the CIT(Appeals) allowed the claim. The Tribunal referred to a similar case and emphasized the requirement for the payment to be chargeable under the Act before considering tax deduction. It remitted the issue back to the AO for further examination based on the nature of services rendered by non-resident agents. The Tribunal allowed the Revenue's appeal for statistical purposes on this ground.

In conclusion, the Tribunal dismissed the appeals of the assessee and allowed the appeals of the Revenue for statistical purposes, addressing the various issues related to the treatment of losses, deduction claims, and expenditure allowances under the Income-tax Act.