2019 (1) TMI 936 - AT - Income Tax

Disallowing assessee s Employees Contribution to Provident Fund paid beyond due date prescribed in the respective statute - contribution deposited before the due date of filing of return u/s 139(1) - Held that - DR fails to rebut the clinching findings in the CIT(A) s order that assessee had paid the contribution in issue well before the due date of filing return u/s 139(1) of the Act. Hon ble jurisdictional high court s decision in ACIT vs. M/s Vijjay Shree Ltd 2011 (9) TMI 30 - CALCUTTA HIGH COURT held that the impugned disallowance in case of employee s contribution deposited before the due date of filing of return u/s 139(1) of the Act is not sustainable. The CIT(A) has already followed the same in his finding under challenge. We thus decline Revenue s instant first substantive ground. Disallowance of foreign exchange loss treating the same as business loss allowable u/s 37 - Held that - The assessee had converted it rupee term loan into FCNR loan in order to save the interest cost being linked to LIBOR. The impugned loan was part of circulating capital. The loss in issue therefore arises from foreign currency hedging only forming part of revenue head in profit and loss account which is not disputed at Revenue s behest. Decision in Sutlej Cotton Mills Ltd vs. CIT (1978 (9) TMI 1 - SUPREME COURT) made it clear long back that such gain / loss falls under trading head of foreign currency in question held in revenue account or a trading asset or part of circulating capital. Their lordship latter decision in CIT vs. Woodward Governor India Pvt Ltd (2009 (4) TMI 4 - SUPREME COURT) also discarded Revenue s inconsistent stands in adopting a different approach qua the very issue in preceding and succeeding assessment years. We take into account all these facts as well as settled legal position to conclude that the CIT(A) has rightly treated assessee s foreign currency accordingly loss to be revenue expenditure is allowable sec. 37 of the Act. Seeking to revive sec. 14A r.w.s 8D disallowance pertaining to assessee s exempt income from dividends - Held that - AO had invoked Rule 8D(2)(ii) & (iii) for computing proportionate interest and administrative expenditure disallowance @ 0.5% of average value of investments involving sums of ₹24,16,66/- and ₹7,65,358/- as against taxpayer s suo motu disallowance of ₹1,08,285/- resulting in net disallowance of ₹21,79,166/-. The CIT(A) has directed the Assessing Officer to recompute the impugned disallowance after including exempt income yielding investments only as per order in REI Agro Ltd. 2014 (4) TMI 713 - CALCUTTA HIGH COURT . We therefore find no reason to disturb the CIT(A) s direction to the Assessing Officer for re-computation of sec. 14A r.w.s 8D disallowance in issue. - Revenue s appeal is dismissed accordingly.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of Employees' Contribution to Provident Fund.
3. Disallowance of foreign exchange loss.
4. Disallowance under Section 14A read with Rule 8D.

Detailed Analysis:

1. Delay in Filing the Appeal:
The Revenue's appeal suffered from a 10-day delay in filing. The delay was attributed to the compilation of necessary papers. The assessee did not dispute this, and the delay was condoned.

2. Disallowance of Employees' Contribution to Provident Fund:
The Revenue challenged the CIT(A)'s order that reversed the assessment findings disallowing the assessee's Employees' Contribution to Provident Fund paid beyond the due date prescribed in the respective statute. The CIT(A) found that the contribution was paid before the due date of filing the return under Section 139(1) of the Income Tax Act. The Hon'ble jurisdictional high court's decision in ACIT vs. M/s Vijjay Shree Ltd supported this view, holding that disallowance is not sustainable if the contribution is deposited before the due date of filing the return. The Tribunal declined the Revenue's ground on this issue.

3. Disallowance of Foreign Exchange Loss:
The Revenue contended that the CIT(A) erred in deleting the disallowance of foreign exchange loss of ?57,03,854, treating it as business loss allowable under Section 37 of the Act. The assessee argued that the loss was on account of hedging in the foreign currency non-resident loan (FCNR) and was related to meeting working capital requirements, not for purchasing any capital asset. The CIT(A) accepted the assessee's arguments, noting that the term loan was converted into FCNR to save on interest costs. The CIT(A) relied on the Apex Court's judgment in Sutlej Cotton Mills Ltd vs. CIT, which held that foreign exchange gain/loss on circulating capital is revenue in nature. The Tribunal upheld the CIT(A)'s decision, noting the consistency in treating foreign exchange gain/loss in the preceding year and the lack of any change in facts.

4. Disallowance Under Section 14A Read with Rule 8D:
The Revenue sought to revive the Section 14A disallowance of ?31,82,084 related to exempt income from dividends. The Assessing Officer had computed disallowance under Rule 8D(2)(ii) & (iii), resulting in a net disallowance of ?21,79,166. The CIT(A) directed the Assessing Officer to recompute the disallowance by including only exempt income-yielding investments, following the Tribunal's order in REI Agro Ltd. vs. DCIT and the jurisdictional high court's decision. The Tribunal found no reason to disturb the CIT(A)'s direction for recomputation.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The order was pronounced in open court on 30/11/2018.