2020 (2) TMI 595 - HC - Income Tax

Depreciation claimed on infrastructure facility - HELD THAT - Appellant submitted that such question has already been admitted in the case of the same assessee for the previous year. Accordingly, this tax appeal is admitted so far as the Question No.2(A) is concerned. Disallowance made on account of forex loss - HELD THAT - Foreign exchange loss on account of the forward contracts incurred by the assessee from year to year was correctly allowed by the CIT (A) as the assessee Company had entered into foreign currency forward contract with the Bank in terms of the prevalent guidelines which mandates entering of foreign currency contract only with the Banks. Disallowance of the realized foreign exchange loss made by the assessing officer by treating the same as speculation loss u/s. 43(5)(d) of the Act is concerned, the Tribunal has given a finding that as the assessee was not the dealer in the foreign exchange but providing the operating container handling terminal services and there was no purchase or sale of commodity otherwise than the actual delivery, such loss cannot be termed as speculation transaction. Disallowance u/s 14A read with Rule 8D - HELD THAT - Tribunal, applying the principles as laid down by this Court in the case of CIT vs. Corrtech Energy Pvt. Ltd., 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it has been held that where the assessee has not claimed any exempt income, no disallowance under Section 14A of the Act can be made, dismissed the appeal of the Revenue on the ground that the assessee did not claim any exempt income.

Summary

Issues involved:
1. Disallowance of depreciation on infrastructure facility
2. Disallowance of forex loss
3. Treatment of speculation loss as business loss
4. Disallowance made under Section 14A of the Income Tax Act

Issue 1: Disallowance of depreciation on infrastructure facility
The Revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance of depreciation claimed on an infrastructure facility. The Tribunal admitted the appeal concerning this issue based on the previous year's case. The matter was to be heard alongside another tax appeal.

Issue 2: Disallowance of forex loss
The disallowance of Foreign Exchange Loss was contested by the Revenue. The loss included realized and unrealized components. The CIT (A) allowed the appeal, considering the loss as a crystallized liability. The Tribunal upheld the decision, stating that the loss was correctly allowed as the company followed accounting practices permitted by law for foreign currency transactions.

Issue 3: Treatment of speculation loss as business loss
The dispute involved a disallowed speculation loss claimed as a business loss under Section 43(5)(d) of the Act. The CIT (A) allowed the appeal, emphasizing the binding obligation accrued by the assessee in foreign exchange forward contracts. The Tribunal concurred, dismissing the Revenue's appeal and ruling that the loss was not speculative but related to revenue items.

Issue 4: Disallowance under Section 14A of the Income Tax Act
The Tribunal dismissed the appeal by the Revenue concerning the disallowance made under Section 14A of the Act. Citing a precedent, the Tribunal held that no disallowance could be made if the assessee did not claim any exempt income. The Tribunal found no fault in the order and upheld the dismissal of the appeal.

In conclusion, the High Court admitted the tax appeal only for the issue of depreciation on infrastructure facility. The Tribunal's decisions regarding the disallowance of forex loss, treatment of speculation loss, and disallowance under Section 14A were upheld, leading to the dismissal of the Revenue's appeals on these matters.