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2015 (11) TMI 1070 - AT - Income TaxDisallowance u/s 14A - CIT(A) deleted the addition - Held that - Share application money is only in the nature of an offer to buy shares made by the assessee. It is only after the offer is accepted by the company resulting in a concluded contract, the Assessee becomes the shareholder in a company. Till this time the Assessee becomes a shareholder, the assessee cannot have any rights to claim any dividend that may be declared by the company. In such circumstances we are of the view that while working out the average value of the investments u/r 8D(2)(iii) of the Rules the share application money should not be included. - Decided against revenue. Disallowance of commission expenses - CIT(A) deleted the addition made by the AO - Held that - In our view the submission made by the revenue cannot be accepted. This is because the payment in question has been made by cheques and TDS has also been made by the assessee. The annexures to the letter of Shri Laxmikant Josh (HUF) dated 15.12.2011 which is at pages 91 to 93 of the assessee s paper book clearly demonstrates the claim of the assessee. We, therefore dismiss ground no.(ii) of the revenue.- Decided against revenue. Disallowance on account of forex forward contracts which was treated as speculative loss by the AO as against normal business expenditure/loss claimed by assessee - Held that - We shall as a test case consider one of the contract for export of contract and the forward contract entered into by the Assessee in connection with such export contract. Page 134 of the Assessee s paper book contains the list of contract in which forward contract in Euro currency were booked. KS-0000026 is a forward contract dated 17.7.2008 entered into by the Assessee with State Bank of India Trade Finance CPC, Kolkata. The Assessee had an export order for Indian Raw Cotton of 4409200 LBS of the value of 31,74,624 US equivalent to 10,00,000 Euros, to supply to one M/S.Nassa Spinning Ltd., Bangladesh. The contract was cancelled by HB Cotton who was agent of M/S.Nassa Spinning Ltd., Bangaldesh on 21.10.2008. The period of the contract for supply of cotton to Bangaldesh was upto 22.1.2009. Since the contract was cancelled by communication dated 24.10.2008, the Bank intimated the Assessee that in view of the adverse fluctuation of Euro currency, the Assessee had to bear the loss of ₹ 1,56,80,527 because the booking rate as on 17.7.2008 was 1.5711 the cancellation date was 22.1.2009 on which date the rate was 1.2613. Thus the Assessee suffered a loss on the forward contract in question. From the sample case set out above it is clear that the forward contract in question was purely hedging transactions entered into by the Assessee to safeguard against loss arising out of fluctuation in foreign currency. Such transactions have been held in the following cases to be not speculative transactions falling within the ambit of Sec.43(5) of the Act. Capital gains on sale of land - Assessing Officer by adopting the sale consideration relying on the provisions of sec.50C - Held that - Though section 50C of the Act does not speak of any such variation in terms of percentage between value adopted for the purpose of stamp duty and the registration and the actual consideration received on transfer, keeping in view of the decision of the Hon ble ITAT, Hyderabad Bench referred to above and keeping in view of the fact that the difference between the valuation for the stamp duty and the actual consideration received by the assessee is less than 2% we are of the view that addition sustained by CIT(A) should be deleted. Disallowance of loss incurred by the assessee company on sale of Long Term investment in shares - Held that - Capital gains arising between April 1, 1948, and April 1, 1957 was not chargeable to tax. The second condition, namely, the manner of computation laid down in the Act which forms an integral part of the definition of total income was not satisfied. Thus, in the relevant previous year and the assessment year, or even in the subsequent year, capital gains or capital losses did not form part of the total income of the assessee which could be brought to charge, and were, therefore, not required to be computed under the Act. The Hon ble Supreme Court in Commissioner of Income-tax v. Harprasad and Co. P. Ltd. 1975 (2) TMI 2 - SUPREME Court answered the question referred to it in favour of the revenue.
Issues Involved:
1. Deletion of addition under Section 14A. 2. Deletion of disallowance of commission expenses. 3. Deletion of addition under Section 41. 4. Deletion of disallowance under Section 43B. 5. Deletion of disallowance of prior period expenses. 6. Treatment of loss as normal business loss instead of speculation loss. 7. Admission of additional evidence under Rule 46A. 8. Assessment of capital gains on sale of land under Section 50C. 9. Disallowance of loss on sale of long-term investment in shares. Detailed Analysis: 1. Deletion of Addition under Section 14A: The revenue challenged the deletion of Rs. 1,95,360/- under Section 14A made by the AO. The AO included share application money in the average value of investments, which was contested by the assessee. The CIT(A) agreed with the assessee that share application money should not be considered as it cannot generate exempt income. The Tribunal upheld CIT(A)'s decision, stating that share application money is merely an offer to buy shares and does not entitle the applicant to dividends until shares are allotted. 2. Deletion of Disallowance of Commission Expenses: The AO disallowed Rs. 15,50,779/- as commission expenses due to discrepancies in the ledger. The assessee provided additional evidence, including a letter from the recipient confirming receipt of the commission. CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the payment was made by cheque and TDS was deducted. 3. Deletion of Addition under Section 41: The AO added Rs. 3,93,618/- based on the Tax Audit Report, assuming cessation of liability. The assessee clarified that this amount was already included as miscellaneous receipt in their profit and loss account. CIT(A) deleted the addition, and the Tribunal upheld this decision, rejecting the revenue's request for further verification. 4. Deletion of Disallowance under Section 43B: The AO added Rs. 32,11,437/- for unpaid import duty and service tax. The assessee provided evidence of payment before the due date. CIT(A) deleted the addition, and the Tribunal upheld this decision, dismissing the revenue's request for further examination. 5. Deletion of Disallowance of Prior Period Expenses: The AO disallowed Rs. 5,618/- as prior period expenses. The assessee explained that the liability accrued only upon receipt of the bill. CIT(A) deleted the addition, and the Tribunal upheld this decision. 6. Treatment of Loss as Normal Business Loss Instead of Speculation Loss: The AO treated Rs. 21,01,52,576/- as speculation loss under Section 43(5). CIT(A) found that the loss was due to cancellation of export orders and treated it as a normal business loss. The Tribunal upheld this decision, noting that the transactions were hedging in nature and supported by documentary evidence. 7. Admission of Additional Evidence under Rule 46A: The revenue argued that CIT(A) violated Rule 46A by admitting additional evidence. The Tribunal found that the AO was given an opportunity to examine the evidence and upheld CIT(A)'s decision to admit the evidence. 8. Assessment of Capital Gains on Sale of Land under Section 50C: The assessee contested the adoption of Rs. 61,22,330/- as the sale consideration instead of Rs. 60,00,000/- actually received. The Tribunal, referencing ITAT Hyderabad's decision, allowed the assessee's claim, noting the difference was less than 2%. 9. Disallowance of Loss on Sale of Long-Term Investment in Shares: The AO disallowed Rs. 5,00,160/- as loss on sale of listed shares, citing Section 10(38). The Tribunal upheld the AO's decision, referencing the Supreme Court's ruling that losses on exempt income do not enter the computation of total income. Conclusion: The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, providing detailed reasoning for each issue based on legal principles and evidence presented.
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