2024 (10) TMI 859 - AT - Income Tax

Delayed employees contribution towards PFI/ESI - HELD THAT - Issue involved under consideration is against the assessee on the basis of decision of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT - Accordingly, we dismiss the above ground of appeal raised by the assessee. Disallowance of Mark to Market (M to M) losses on foreign exchange open (unsettled) contracts - AO was of the opinion that assessee is not eligible to claim the losses either under normal provisions of the Act or under 115JB - HELD THAT - We observed that assessee is having exposure of foreign exchange and in order to mitigate the same, assessee has booked forward contracts against the foreign currency fluctuations. Similar issue was considered in the case of PCIT vs. Simon India Ltd. 2022 (12) TMI 358 - DELHI HIGH COURT wherein Assessing Officer has considered the loss on forward contract as speculative loss and similar issue was considered by the Hon ble Court and held that Forward Contracts were entered into by the assessee to hedge against foreign exchange fluctuations resulting from inflows/outflows in respect of the underlying contracts for provisions of consultancy and project management. Concededly, the assessee is not dealing in foreign exchange. Clearly, the said transactions were to hedge against the risk of foreign exchange fluctuations and thus, fall within the exceptions of proviso (a) to section 43(5) of the Act. The Forward Contracts were to guard against any loss on account of future exchange fluctuations in respect of inflows and outflows relating to contracts for execution of the works entered into by the assessee - Decided in favour of assessee. Addition u/s 68 - cash deposits during the demonetization period - HELD THAT - Assessee has submitted the source of cash deposits from the sale of scrap sales and also filed the details of the parties along with confirmations. Assessing Officer rejected the same without making further enquiries. As the assessee has precisely explained the source of cash and also filed the confirmations as submitted the party-wise details of such scrap sales and also submitted confirmations from these parties. Assessing Officer merely observed the information submitted by the assessee and proceeded to make the addition without cross-verifying from the other parties - See Genesis 2006 (8) TMI 591 - DELHI HIGH COURT Deduction u/s 35(2AB) - claim denied due to the late receipt of DSIR approval - HELD THAT - We observed that the assessee has claimed the deduction u/s 35(2AB) of the Act first time before the Assessing Officer since the assessee has received the DSIR approval after filing the return of income. This being a deduction which is lawfully available to the assessee, we are inclined to remit this issue back to the file of Assessing Officer to verify the same and allow as per law. Accordingly, this ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of employees' contribution towards PF/ESI.
2. Disallowance of Mark to Market (M to M) losses.
3. Denial of fair opportunity and violation of principles of natural justice.
4. Addition under Section 68 related to cash deposits during the demonetization period.
5. Deduction under Section 35(2AB) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution towards PF/ESI:
The assessee challenged the disallowance of Rs. 4,715/- concerning employees' contribution towards PF/ESI. The tribunal upheld the disallowance based on the Supreme Court's decision in Checkmate Services Pvt. Ltd., which supported the Revenue's stance. Consequently, this ground of appeal was dismissed.

2. Disallowance of Mark to Market (M to M) Losses:
The assessee contested the disallowance of Rs. 32,38,000/- on account of M to M losses, which the Assessing Officer treated as contingent liabilities. The tribunal examined precedents, including the Delhi High Court's decision in PCIT vs. Simon India Ltd., which recognized such losses as allowable under Section 37(1) of the Act, considering them hedging transactions under Section 43(5)(a). The tribunal noted that the assessee's transactions were to hedge against foreign exchange fluctuations, thus qualifying for the exception under Section 43(5). Consequently, the tribunal allowed the appeal on this issue, reversing the lower authorities' decision.

3. Denial of Fair Opportunity and Violation of Principles of Natural Justice:
The assessee argued that the CIT (A) erred by not providing a fair hearing and relying on inapplicable case laws, thereby violating natural justice principles. The tribunal's decision on this was implicit in its detailed analysis and favorable ruling on substantive issues, particularly concerning M to M losses, thereby addressing the grievance of procedural fairness indirectly.

4. Addition under Section 68 Related to Cash Deposits During Demonetization:
The assessee disputed the addition of Rs. 21,00,000/- under Section 68, attributed to cash deposits during the demonetization period. The tribunal found that the assessee had provided adequate documentation, including confirmations from parties involved in scrap sales, which the Assessing Officer failed to verify further. Citing precedents such as CIT vs. Genesis Commet (P) Ltd., the tribunal emphasized the necessity for the Assessing Officer to conduct further inquiries before dismissing the assessee's claims. Therefore, the tribunal ruled in favor of the assessee, allowing this ground of appeal.

5. Deduction under Section 35(2AB) of the Income-tax Act:
For AY 2020-21, the assessee claimed a deduction under Section 35(2AB), which was initially disallowed due to the late receipt of DSIR approval. The tribunal, acknowledging the procedural aspect and the Supreme Court's decision in Goetze India Ltd. vs. CIT, remitted the issue back to the Assessing Officer for verification and lawful allowance of the claim, granting relief to the assessee for statistical purposes.

Conclusion:
The tribunal's judgment resulted in partial relief to the assessee across different assessment years. The appeals for AYs 2015-16 and 2016-17 were partly allowed, with significant relief granted concerning M to M losses. The appeal for AY 2017-18 was fully allowed, addressing issues of cash deposits during demonetization. For AY 2020-21, the tribunal remitted the deduction claim under Section 35(2AB) for further examination, providing partial relief for statistical purposes.