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TMI Blog2015 (11) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ded partly in favour of assessee. Disallowance of Foreign Exchange Fluctuation Loss on balance maintained in foreign currency in EEFC A/c. - Held that:- The assessee is consistently following the accounting policy of offering to tax both income/loss on mark to market basis as on the date of balance-sheet in the return of income filed with the revenue with respect to the EEFC account. The LD AR has made statement before us that the EEFC account is being maintained by the assessee and the credits in the earlier years were on account of professional fee received by the assessee in foreign exchange in the earlier years. We, therefore, hold that on the basis of principles of consistency in the accounting policy followed by the assessee from several years which accounting policy is also in consonance with the prescribed Indian accounting standards, the loss incurred by the assessee on account of foreign exchange fluctuation loss in the EEFC account as at the year end is to be allowed and the addition made by the assessing officer and as confirmed by the CIT(A) needs to be deleted. - Decided in favour of assessee. Disallowance of Dentistry expenses u/s 40(a)(ia) - non deduction of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for disallowance U/S 14A. 2. In respect of disallowance of Foreign Exchange Fluctuation Loss of EEFC A/c: On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of ₹ 3,77,580/-, being foreign exchange fluctuation loss suffered by the appellant relating to her deposit lying in the EEFC A/c with State Bank of India. i) The learned CIT(A) failed to appreciate that irrespective of cash method account followed by the appellant, she has been consistently following Accounting Standard-11 as provided in the AS-11 issued by the ICAI and accordingly profit/(Ioss) on such valuation of foreign currency has been considered as income/(loss) of the respective year in the past. ii) The appellant relies on the decision of the Supreme Court in the case of Woodward Governor India (P) Ltd. 312 ITR 254 (SC) and prays that the loss in respect of foreign exchange fluctuation be allowed. 3. In respect of disallowance of Dentistry expenses u/s 40A(ia): On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of ₹ 1,74,850/- U/S 40A(ia) being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses were incurred nor the assessee incurred any administrative expenses with respect to making / maintaining of the investments in which exempt income is earned. The assessee also contended that the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 are not applicable in this case and to disallow these expenses there has to be a nexus between the expenditure incurred and tax free income earned by the assessee and the disallowance cannot be made merely on a presumption. The assessee relied upon the decisions of Hon ble Punjab and Haryana High Court in the case of Hero Cycle Private Limited 323 ITR 51, Jindal Photo Limited (Del-Trib.) in ITA no. 14(Del) 2011 and Hon ble Delhi High Court in the case of Wimco Seeding Limited 107 ITD 267, Auchtel Products Limited (2012) 22 taxman 99(Mum-Trib.). The assessing officer after considering the replies of the assesee held that the plea of assessee that no expenditure was incurred for earning the income is not acceptable because no tax free income can be earned without making expenditure. The assessing officer held that expenditure may be direct or indirect, investment may be made / maintained by applying re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work undertaken by the assessee. She also showed that there is a salary paid to peon and driver of the assessee. She also drew our attention to payments of ₹ 1,26,536/- made to auditors towards audit assignment and tax matters. So in nutshell, the assesee submitted that assessee has not incurred any expense for earning the exempt income. She relied upon the orders of Mumbai Bench of Tribunal in ITA no. 7239/Mum/2012 in the case of Shri Hrithik Rakesh Nagrath to contend that in a similar case the Tribunal has deleted the disallowance. The assessee also relied upon the decision of Mumbai Bench of Tribunal in the case of Ramu S Deora in ITA no. 4860/Mum/2012 to contend that the Tribunal while dealing with the similar case has restricted the disallowance to ₹ 10,000/-. The assessee further contended if the disallowances are to be made then for the purpose of computation of disallowance under Rule 8D(2)(iii) of Income Tax Rules,1962, the investment in jewellery by the assessee of ₹ 41,63,417/- should be excluded from the value determined of average investments to compute disallowance @0.5% of the average investment as in the view of assessee, the assessing officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt income received is ₹ 1,07,53,499/- . There is no doubt that the assessee definitely has to incur higher expenses for rendering professional services and thereby earning professional receipts. The contention of the assessee that the value of jewellary of ₹ 41,63,417/- included by the assessing officer in the determination of average investment need to be excluded is to be accepted as any gain on sale of jewellary is taxable under the Act. Keeping in view the peculiar facts and circumstances of the case , the end of justice will be met if the disallowance of the expenses is restricted to 10% of common expenses of ₹ 12,83,814/- whereby the disallowance will come to ₹ 1,28,381/- u/s 14A of the Act. The amount of disallowance is restricted to ₹ 1,28,381/- keeping in view the peculiar facts and circumstances of the case and shall neither be construed as our making any aspersion on the applicability of Section 14A of the Act read with rule 8D of Income Tax Rules,1962 for the impugned assessment nor setting any precedent whatsoever. 8. The next ground of appeal relates to disallowance of Foreign Exchange Fluctuation Loss of ₹ 3,77,580/- on balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing cash basis of accounting as mentioned in her return of income and this cannot be allowed on accrual basis. Thus, the CIT(A) rejected the contentions of the assessee and dismissed the appeal of the assessee on this ground. 11. Aggrieved by the orders of the CIT(A), the assessee is in appeal before us and stated that assessee is consistently following the policy for many years of bringing to tax loss/profit on mark to market basis on account of foreign exchange fluctuation in the EEFC account balance as at year end. The assessee made the statement before us that in the EEFC account, the proceeds are credited on account of professional fees received by the assessee in the earlier years although there are no professional receipts earned in foreign currency during the relevant assessment year. Hence, the assessee submitted that it is following the hybrid system of accounting whereby these mark to market losses/profits on foreign exchange fluctuation in EEFC account at the end of the year are brought to tax in the return of income filed with the Revenue. She drew our attention to the audited account for the financial year ending 31.03.2009 ie immediately preceding assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer disallowed the said dental treatment expense being paid to Doctor for treatment of assessee teeth considering the same to be personal in nature to maintain her teeth and further the assessing officer held that no TDS has been deducted on the said payments under chapter XVIIB of the Act and hence the expenses of ₹ 1,74,850/- incurred by the assessee and as claimed as Revenue Expenses of profession of cine artist carried on by the assessee was disallowed u/s 40(a)(ia) of the Act. 16. Aggrieved, the assessee carried the matter in appeal to the CIT(A) and contended that she is an actress and she has to maintain her personality and beautification which is the need of profession and the expenses of ₹ 1,74,850/- incurred by the assessee is revenue expenditure incurred for her profession of cine artist. The CIT(A) accepted that since the assessee is actress and the said expenses are linked to her profession but the CIT(A) upheld the disallowance of the said expenses of ₹ 1,74,850/- on the ground that no TDS u/s 194J of the Act was deducted as these are payments to dentist which are professional in nature and Section 40(a)(ia) of the Act is infringed. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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