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2019 (10) TMI 761 - AT - Income TaxAddition on account of MTM losses on account of foreign exchange fluctuation - HELD THAT - We are of the considered opinion that the decision in the case of Woodward Governor P Ltd 2009 (4) TMI 4 - SUPREME COURT and ONGC vs CIT 2010 (3) TMI 81 - SUPREME COURT are applicable and the line of judicial view is that the Revenue cannot be permitted to contend that there is a CBDT instruction No. 03/2010 dated 23/3/2010 to the contrary. No CBDT circular or instruction can be contrary to the decision of the Hon ble Apex Court even subsequent to the decision of the Hon ble Apex Court. We therefore accept the contention of the assessee and hold that the addition is unsustainable. We accordingly direct the Assessing Officer to delete the same. Disallowance of foreign travel expenses incurred in respect of the family members of the directors - HELD THAT - Unless and until it is shown that it is customary for the directors or the employees to attend such business meetings or so with wives and minor children merely because the assessee says so it cannot be assumed that the accompaniment of wife and minor children of the directors management trainees and overseas employees was due to commercial expediency. It is not the case of the assessee that the directors or other employees of the company have declared in their returns of income the foreign travel is a perquisite. We are of the considered opinion that the foreign travel expenses in respect of the wives minor children and others fail the test of commercial expediency and there are no valid reasons to interfere with the findings of the authorities below on the disallowance of the foreign travel expense relatable to the wives and minor children of the directors management trainees and overseas employees of the assessee company. We therefore dismiss ground No. 2 of assessee s appeal.
Issues Involved:
1. Disallowance of MTM losses on forward contracts. 2. Disallowance of foreign travel expenses for family members of directors and non-employees. 3. Addition on account of cessation of liability. Issue-Wise Detailed Analysis: 1. Disallowance of MTM Losses on Forward Contracts: The appellant, engaged in international trading, filed its return for AY 2012-13 declaring a net taxable income of ?15,90,64,090/-. The appellant hedged foreign currency losses through forward contracts, suffering a total loss of ?29,89,56,796/- due to foreign exchange fluctuation, including a loss of ?8,95,40,121/- on account of MTM losses as per AS-11. The AO disallowed the MTM loss, considering it notional and contingent, relying on CBDT instruction No.03/2010 dated 23.03.2010, which was issued after the Apex Court's decision in CIT vs Woodward Governor India Ltd 312 ITR 254 (SC). The CIT(A) upheld the AO's decision, stating that the Apex Court's decision did not cover forward contracts/derivatives and relied on the CBDT instruction. The Tribunal, however, found that the appellant consistently offered gains from forward contracts to tax in previous years and that the losses were booked in compliance with mandatory AS-11. It referenced the Apex Court's ruling in Woodward Governor and ONGC vs CIT 322 ITR 180 (SC), which held that exchange differences on foreign currency transactions must be recognized for tax purposes. The Tribunal concluded that no CBDT instruction could override the Apex Court's decision and directed the AO to delete the addition, allowing the appellant's contention. 2. Disallowance of Foreign Travel Expenses for Family Members of Directors and Non-Employees: The AO allowed foreign travel expenses for directors but disallowed ?17,09,423/- for family members and non-employees, finding no business purpose justification. The CIT(A) upheld this disallowance. The appellant contended that these expenses were incurred for business purposes and should either be allowed or taxed as perquisites in the hands of the directors. The Tribunal noted that the appellant failed to explain the commercial expediency of the travel expenses for family members, minors, and non-employees. Citing CIT v. Alfa Laval (I) Ltd 282 ITR 445 (Bom), it emphasized that expenses must stand the test of commercial expediency and be wholly and exclusively for business purposes. The Tribunal found no evidence that such travel was customary or necessary for business, and since the expenses were not declared as perquisites by the directors, it upheld the disallowance. 3. Addition on Account of Cessation of Liability: The AO made an addition of ?83,967/- on account of cessation of liability, which the CIT(A) deleted. This issue was not contested further in the Tribunal's decision. Conclusion: The Tribunal allowed the appeal in part, directing the deletion of the addition related to MTM losses on forward contracts but upheld the disallowance of foreign travel expenses for family members and non-employees. The order was pronounced on 14th October 2019.
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