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TMI Blog2016 (9) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... 8) TMI 16 - SUPREME COURT OF INDIA ] and M/s Sri mangayarkarasi Mills (P) Ltd [2009 (7) TMI 17 - SUPREME COURT ]. Also on the similar set of facts, the Hon`ble ITAT has upheld the action of the assessing officer in treating the expenditure incurred by the assessee as a capital in the assessment year 2005-06 in the assessee`s own case, and the CIT (A) has also upheld the action of the Assessing Officer in treating the expenditure incurred by the assessee as a capital expenditure in the assessment year 2006-07 in the assessee`s own case. - Decided in favour of assessee. Disallowance under section 14A read with Rule 8D - Held that:- Working of Ld CIT(A) as per section 14A , read with Rule 8D seems to be correct. He has rightly excluded the investment made by assessee on 26/03/2008 at ₹ 1,44,804,322 to compute the average amount because the investment was done by the assessee at the end of the accounting year. The Ld.CIT (A) worked out the disallowance as per Rule 8D (2) (ii) by taking opening balance of investment at ₹ 25,57,753/- therefore the total disallowance worked out by him was [ 25,57,753 x6,38,29029/1815274370] at ₹ 89,936/- whereas as per AO the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with assessee`s appeal and adjudicated together. The assessee is assailing the decision of the Ld.CIT(A) in confirming the following additions which were made by the Assessing Officer: ( 1). That in the facts and circumstances of the case the Learned Commissioner of Income Tax (Appeals)-VI/Kol was not justified in upholding that A.O's action in treating the mark to market loss on account of Forex Derivatives amounting to ₹ 1,58,94,821/-as notional loss and treating the same as unascertained liability. While upholding the action of the Assessing Officer the Learned CIT(A)-VI ignored the case laws relied upon by the Appellant. (2). That in the facts and circumstances of the case the Learned Commissioner of Income Tax (Appeals)-VI/Kol was not justified in upholding that A.O's action in treating the replacement cost of combers and ring frames of ₹ 4,52,50,588/- as capital expenditure which was claimed by the Appellant Company as revenue expenditure under section 37(1). (3). That in the facts and circumstances of the case the Learned Commissioner of Income Tax (Appeals)-VI/Kol was not justified in calculating the amount of disallowance under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expired forex forward contracts i.e a loss incurred on account of revaluation on contract on last day of accounting period before date of maturity of forward contract. The Ld. CIT-A observed that the assessee has been following a consistent accounting policy for determining loss under AS-11 and AS-30 as required under Companies Act and it is to be noted that the accounting standards were issued by the ICAI which has received judicial recognition. Accordingly, the assessee, the gain or loss on revaluation of the outstanding contracts was booked in the P. L, a/c as per the mandatory requirements of RBI guidelines. The Hon`ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has observed at P.265 para 17 that the Central Government has made AS-11 mandatory. During the course of first appellate procedings that the CIT-A noticed that the AO allowed the loss of ₹ 85,70,425/- for 2010-11 which supports to show that the assessee has been following consistently accounting standards and the liability has been accrued for a pending obligation for every year i.e. the difference was arising for more than one accounting period. 26. We, accordingly, hold that dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts and moreover there is no any underlying assets and liability to hedge the risk. He further submitted that loss arising from mark to market position of financial instruments is different and cannot be considered allowable as deduction as such loss has not arisen so far in the normal course of business operation of the assessee. The exchange rates are still liable to fluctuate of the market in future, therefore, it is kind of a speculative transaction which settles otherwise than by the actual delivery within the meaning of sub-section 5 of Section 43 of the Income Tax Act, 1961. The Ld. DR also relied on the following judgments. 1). ACIT-vs- K. Mohan Company Private Ltd., Bangalore ITAT 126 ITD 59 2) D. Kishore Commercial Company, Mumbai ITAT, 2 SOT 769 3) S. Vinod Kumar vs- ACIT, Mumbai ITAT in ITA No.506/Mum/13 All the Judgments cited above speak about the speculative transactions which do not have any underlying assets and liabilities to hedge and these transactions settle in future without actual delivery of goods. 7. Having heard the rival submissions, we are of the view that there is merit in the submissions of the Ld. AR for the assessee, since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT (A) has also upheld the action of the Assessing Officer in treating the expenditure incurred by the assessee as a capital in the assessment year 2006-07 in the assessee`s own case. Aggrieved form the order of the Assessing Officer, the assessee filed an appeal before Ld. CIT (A)-VI, Kolkata, who has confirmed the action of the Assessing Officer. Not being satisfied from the order of the CIT(A), the assessee is in further appeal before us. 10. Before us, the Ld. AR for the assessee has submitted that the entire operation in the textile and spinning mills right from the blow room to the cone winding section of the mill is to be considered a single plant and the output from the various intermediate stages of production could not be sold or marketed and used for other purposes. Therefore, the Ring Frames cannot be worked independently but only as a part of the spinning unit. There is no new assets created in the process of replacement of worn out machines. 11. On the other hand, the Ld. DR for the revenue has submitted that each machine including the ring frame was an independent and separate machine capable of independent and specific function and therefore, the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 57500/- only.The assessee has opening balance of investment of ₹ 25,57,753/- and purchased share worth of ₹ 144,804,322/- on 26/03/2008. Aggrieved form the order of the Assessing Officer, the assessee filed an appeal before Ld. CIT (A)-VI, Kolkata, who has confirmed the action of the Assessing Officer. Not being satisfied from the order of the CIT(A), the assessee is in further appeal before us. 15. Before us, the Ld. AR for the assessee has submitted that Assessing officer has disallowed ₹ 30,00,514/- arbitrarily without applying Rule 8D and without recording any satisfaction in the assessment order. The Ld. CIT (A) has deleted the addition of ₹ 30,00,514/- made by Assessing Officer but then worked out disallowance at ₹ 102,724/- by applying Rule 8D(2) (ii) and Rule 8D (2) (iii). The Revenue is in cross appeal against the deletion of ₹ 30,00,514/- and working out additional disallowance at ₹ 102,724/- In order to understand, how the Ld. CIT(A) has worked out the said additional disallowance, the relevant para Nos. 38, 39 and 40 of his order are reproduced below: 38. The appellant has submitted that by following the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of ₹ 1,80,880/- as STT and ₹ 1,02,724/- totaling to ₹ 2,83,604/- as per Rule 6D read with section 14A is upheld. The ground of appeal is partly allowed. The above cited working of Ld CIT(A) as per section 14A , read with Rule 8D seems to be correct. He has rightly excluded the investment made by assessee on 26/03/2008 at ₹ 1,44,804,322 to compute the average amount because the investment was done by the assessee at the end of the accounting year. The Ld.CIT (A) worked out the disallowance as per Rule 8D (2) (ii) by taking opening balance of investment at ₹ 25,57,753/- therefore the total disallowance worked out by him was [ 25,57,753 x6,38,29029/1815274370] at ₹ 89,936/- whereas as per AO the disallowance was at ₹ 26,26,964/- And as per Rule 8D (2) (iii) the disallowance worked out by him was [ ₹ 25,57,753 x 0.5] at ₹ 12788/- whereas as per AO the disallowance was at ₹ 3,73,550/-. Thus, out of ₹ 30,00,514/- the CIT(A) has deleted ₹ 28,97,790 (3000514-102724) and retained the addition of ₹ 102724/-. The said working has been done by the Ld.CIT(A) as per the procedure laid down in section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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