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2021 (4) TMI 63 - AT - Income TaxDisallowance u/s 14A - contention of the assessee before the Assessing Officer that it has not received any exempt income for the year under consideration and hence, question of disallowance of expenditure incurred towards said exempt income does not arise - HELD THAT - by following the decision of Hon'ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT we are of the considered view that when there is no exempt income earned for the year, no disallowance can be made towards expenses relatable to said exempt income u/s.14A read with Rule 8D. Hence, we are inclined to uphold the findings of the learned CIT(A) and reject ground taken by the Revenue. Disallowance of contribution to PF and ESI u/s.36(1)(va) r.w.s 2(24)(x) - employees contribution to PF ESI not remitted within due date specified under respective Acts - CIT(A) has deleted additions made by the Assessing Officer towards employees contribution to PF ESI, which was paid belatedly to the credit of employees account, but remitted on or before due date for furnishing return of income u/s.139(1) - HELD THAT - Hon ble Supreme Court in the case of CIT V. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT where it was held that if employees contribution to PF ESI is remitted on or before due date for furnishing return of income filed u/s.139(1) of the Act, then such payments need to be allowed as deduction, irrespective of the fact that such payment has been remitted beyond due date specified under the respective Acts. The Hon'ble Supreme Court has also considered Board s Circular No.22/2015 dated 17.12.2015 to arrive at such conclusion. Therefore, we are of the considered view that we uphold the findings of the learned CIT(A) and reject the ground taken by the Revenue. Disallowance of loss on forward contracts - AO has disallowed loss claimed on forward contracts on the ground that assessee s case does not fall under any of the exceptions provided under the proviso to section 43(5) of the Act, because the assessee has entered into forward contracts not for goods or merchandise, but for currency - HELD THAT - CIT(A) has recorded a categorical finding in light of decision of CIT Vs. Friends Friends Shipping Pvt Ltd 2013 (5) TMI 458 - GUJARAT HIGH COURT that when forward contracts entered into with banks for the purpose of hedging loss due to fluctuation in foreign currency while implementing export of goods, then the same cannot be considered as speculative loss u/s.43(5) of the Act. The learned CIT(A) has further recorded that the assessee has furnished necessary evidences to prove that it has exported goods and hedge possible loss in fluctuation in foreign currency had entered into forward contract with its bankers and incurred loss. Therefore, we are of the considered view that once forward contracts are entered into with bankers for the purpose of hedging possible loss in fluctuation of foreign currency, then the same is in the nature of revenue expenditure, but not speculative loss u/s.43(5) of the Act. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards disallowance of loss on forward contracts. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the Revenue. Disallowance of stitching charges - addition only for the reason that party has not appeared before the Assessing Officer in response to notice u/s.133(6) - HELD THAT - Except this, no other adverse comment has been made in respect of payment made to M/s.R Design Apparels for stitching charges. In fact, the Assessing Officer has not doubted genuineness of payment. The learned CIT(A), after considering relevant facts has rightly pointed out that payments have been made through banking channels after deducting applicable TDS as per law. Further, the assessee has filed necessary evidences, including bills issued by party for rendering services. Therefore, he opined that mere non-production of the party cannot be a basis to make disallowance, when all other supporting evidences have been filed to substantiate claim of expenditure. The said findings of the learned CIT(A) goes uncontroverted from the Revenue. The revenue has failed to file any evidence to counter the finding of facts recorded by the CIT(A) . Hence, we are inclined to uphold the findings of learned CIT(A) and reject ground taken by the revenue.
Issues Involved:
1. Disallowance of expenditure under Section 14A read with Rule 8D. 2. Disallowance of employees' contribution to PF and ESI under Section 36(1)(va) read with Section 2(24)(x). 3. Disallowance of loss on forward contracts. 4. Disallowance of stitching charges. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure under Section 14A read with Rule 8D: The Assessing Officer (AO) disallowed ?10,61,800 towards interest expenses and other expenses under Rule 8D(2)(ii) and Rule 8D(2)(iii) respectively, arguing that expenses related to exempt income need to be disallowed regardless of whether exempt income was earned. The assessee contended that no exempt income was earned during the year, thus disallowance was not applicable. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, referencing the Hon'ble Jurisdictional High Court of Madras in the case of CIT Vs. Chettinad Logistics Pvt. Ltd., which held that no disallowance under Section 14A can be made if no exempt income is earned. The Hon'ble Supreme Court also upheld this view, dismissing the Revenue's SLP. Thus, the Tribunal concluded that no disallowance can be made under Section 14A read with Rule 8D when no exempt income is earned. 2. Disallowance of Employees' Contribution to PF and ESI under Section 36(1)(va) read with Section 2(24)(x): The AO disallowed ?33,80,366 due to belated payments towards employees' contributions to PF and ESI, arguing that such contributions not remitted within the due date specified under respective Acts are not allowable under Section 36(1)(va). The assessee claimed that contributions were made before the due date for furnishing the return of income under Section 139(1). The Tribunal upheld the CIT(A)'s decision to delete the disallowance, citing the Hon'ble Jurisdictional High Court of Madras in CIT Vs. M/s. Industrial Security & Intelligence India Pvt. Ltd., and the Hon'ble Supreme Court in CIT V. Alom Extrusions Ltd., which held that contributions remitted before the due date for filing the return of income should be allowed as deductions. The Tribunal found the CIT(A)'s findings consistent with these precedents and upheld the deletion of the disallowance. 3. Disallowance of Loss on Forward Contracts: The AO disallowed the loss on forward contracts, arguing that the assessee's transactions did not fall under exceptions to Section 43(5) as they were for currency, not goods or merchandise. The assessee claimed the forward contracts were for hedging against foreign currency fluctuations related to export transactions. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, referencing the Hon'ble Gujarat High Court in CIT Vs. Friends & Friends Shipping Pvt Ltd., which held that forward contracts entered into for hedging against foreign currency fluctuations in export transactions are not speculative losses under Section 43(5). The Tribunal agreed that such losses should be treated as revenue expenditure and upheld the CIT(A)'s deletion of the disallowance. 4. Disallowance of Stitching Charges: The AO disallowed ?1,30,36,426 in stitching charges paid to M/s. R Design Apparel, citing the party's non-appearance in response to a notice under Section 133(6). The assessee argued that payments were substantiated with necessary evidence, including TDS deductions. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, noting that the AO did not doubt the genuineness of the payments and that the assessee provided sufficient evidence, including bills and banking transaction details. The Tribunal agreed with the CIT(A) that non-production of the party alone cannot justify disallowance when other supporting evidence is provided. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal found the CIT(A)'s findings consistent with legal precedents and supported by adequate evidence, thus rejecting the grounds raised by the Revenue.
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