2024 (6) TMI 816 - AT - Income Tax

Rectification of mistake - according to assessee there is mistake apparent from record in the order as regards to scheme of forward premium paid for the turnover of foreign exchange contract whether falls u/s. 43A - HELD THAT - We noted that the provisions of section 43A of the Act would not apply in respect of working capital loan or loan for acquiring domestic assets whereas it will apply only to an imported asset. The assessee has given complete details of working capital loan availed from banks and also foreign currency long term loan availed from foreign entities for funding indigenous assets. The amount of forward premium of following accounts is allowable because these are for the indigenous assets and not imported asset. But for the purpose of verification, we are remitting this issue back to the file of the AO who will verify the forward premium on foreign currency working capital availed from banks, forward premium of foreign currency long term loans availed for funding indigenous assets and also forward premium of foreign currency long term loan for funding imported assets. AO will verify these from the invoices and then in case, he finds that this forward premium is for the purchase of indigenous assets, the AO will allow the same as revenue expenditure. In term of the above, we rectify our mistake and the appeal of the assessee is allowed for statistical purposes. Accordingly, the miscellaneous application of the assessee is allowed. Disallowance enhanced by CIT(A) of exempt income as against disallowed by the AO by applying the provisions of section 14A read with Rule 8D - HELD THAT - Tribunal has committed mistake apparent from record in the order of the Tribunal in not adjudicating the above ground of enhancement. Thereafter, the ld.counsel for the assessee drew our attention to the order of CIT(A) and noted that there is no notice for enhancement and even now, the ld.Senior DR could not controvert and the AO has rightly computed the average value of investment for making disallowance under Rule 8D(2)(iii) for Rs. 4,57,368/-. Once the AO himself has computed the disallowance at Rs. 4,57,368/- and the CIT(A) without giving any notice of enhancement, he cannot enhance the disallowance to the extent of exempt income earned by assessee being dividend income at Rs. 18,28,080/-. Hence, we find mistake apparent from record in the order of Tribunal, first in not adjudicating the issue and secondly confirming the enhancement to the extent of exempt income because the AO has rightly computed the disallowance being 0.5% of average value of investment under Rule 8D(2)(iii) at Rs. 4,57,368/-. Thus we rectify our mistake and accordingly, this issue is allowed.

Summary

Issues involved:
1. Rectification of mistake in Tribunal's order regarding scheme of forward premium paid for foreign exchange contract u/s. 43A of the Income Tax Act, 1961.
2. Rectification of mistake in Tribunal's order in confirming disallowance of exempt income u/s. 14A read with Rule 8D of the Income Tax Rules.

Issue 1: Rectification of mistake in Tribunal's order regarding scheme of forward premium paid for foreign exchange contract u/s. 43A of the Income Tax Act, 1961:

The assessee sought rectification of mistake in the Tribunal's order, claiming that there was an error in the treatment of forward premium paid for foreign exchange contracts. The Tribunal had initially held that the additional amount paid as a difference in exchange value for loans from foreign banks was capital in nature. However, the assessee argued that the forward premium was related to funding imported assets and should be treated as revenue expenditure. The Tribunal was convinced by the assessee's submission that the provisions of section 43A of the Act apply only to imported assets, not working capital loans or loans for acquiring domestic assets. The Tribunal remitted the issue back to the Assessing Officer for verification of the forward premium on various types of loans to determine the correct treatment. Consequently, the Tribunal rectified the mistake and allowed the appeal of the assessee for statistical purposes.

Issue 2: Rectification of mistake in Tribunal's order in confirming disallowance of exempt income u/s. 14A read with Rule 8D of the Income Tax Rules:

In this case, the assessee requested rectification of a mistake in the Tribunal's order regarding the disallowance of exempt income under section 14A read with Rule 8D of the Income Tax Rules. The Tribunal had upheld the CIT(A)'s decision to enhance the disallowance of exempt income, following the decision of the Delhi High Court. The assessee contended that the Tribunal failed to adjudicate on the issue of enhancement by the CIT(A), which constituted a mistake apparent from the record. After considering the arguments, the Tribunal agreed that there was a mistake in not addressing the enhancement issue and in confirming the enhancement to the extent of exempt income. The Tribunal rectified the mistake and allowed the issue in favor of the assessee.

Separate Judgment:
No separate judgment was delivered by the judges in this case.