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TMI Blog2018 (2) TMI 1998X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. - Decided in favour of assessee. Deduction of gains arising out of foreign exchange fluctuations u/s. 10B - AO excluded foreign exchange fluctuations from the business profits holding that the gains on transfer of funds between two accounts ie EEFC PCFC in India is not on account of export receivables and hence it is to be treated as income from other sources - HELD THAT:- Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for the purpose of considering the business loss and only the transactions which are completed to be considered for the purpose of determining the business loss from this foreign exchange forward contract and remitted the matter to Assessing Officer for fresh consideration. We are in agree with the proposition that the MTM loss on forward contracts is not contingent loss and it is a business loss to set off against the business income of assessee. However, the AO has to consider the transaction equivalent to the export turnover to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue are dismissed. - SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For the Assessee : Shri R. Sivaraman, Advocate For the Revenue : Shri D. Prabhu Mukunth Arun Kumar, Jr. Standing Counsel, Shri S. Nataraja, JCIT ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The assessee as well as the Revenue filed these appeals against the orders of the Commissioner of Income Tax (Appeals)-5, Chennai in ITA No. 77 78/CIT(A)-5/2008-09 dated 06.02.2017 for assessment years 200506 and ITA New No. 82 85/CIT(A)-1/2011-12 dated 09.02.2017 for assessment year 2007-08 2008-09. 2. M/s. Comstar Automotive Technologies (P) Ltd., the assessee , is engaged in the manufacture of starter motors, alternators and computer software and a 100% EOU. Let us first take the assessee s appeal first for convenience sake. The issues are dealt as under, issue wise: 2.1 Unabsorbed Depreciation u/s. 10B: ITA No: 827, 828, 829 830/2017 Ays 2005-06, 2007-08, 2008-09: The assessee claimed deduction u/s 10B before setting off of brought forward unabsorbed depreciation allowances of ay 2001-02 2001-03. In the assessments made for ays 2005-06, 2007-08 2008-09 , the AO relying on the Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntellinet Technologies India (P.) Ltd. v. ITO [IT Appeal No. 1021 (Bang.) of 2009, dated 12-3-2010]. (b) CITv. Himatasingike Seide Ltd. [2006]286 ITR 255/156 Taxman 151 (Kar.). (c) Sword Global (I) (P.) Ltd. v. ITO [2010]122 ITD 103 (Chennai - Trib.). 37.1 Before us, the Id. AR submitted that the legislature contemplates that profits and gains of the undertakings from the export of articles or things or computer software are to be deducted while computing the profits and gains of business or profession. The deduction under section 10A(1) is computed with reference to the sub-section 10A(4) which refers to the 'profits of business of the undertaking' and harmonious interpretation of section 10A(1) along with section 10A(4) indicates that deduction under section 10A of the Act shall be computed on the income of the undertaking only. Further, Id. AR submitted that even though it is a deduction to be given, it is to be deducted while arriving at the profits of business and not from the Gross Total Income as envisaged under Chapter VI-A of the Act. A deduction under Chapter III of the Act is to be granted first while computing the profits and gains of business itself and not fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression total income of the assessee in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in Section 10A as 'total income of the undertaking'. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under chapter VI. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10 dt 20.01.2016 3. Majestic Exports v. JCIT (2015) 62 taxmann.com 307. 4. Comstar Automotive Technologies P.Ltd v. DCIT ITA Nos 771 815/Mds/2015 ay 2009-10 dt 17.6.2016. Per contra, the DR relied on the order of the CIT(A). 3.2 We heard the rival submissions. The relevant portion of the tribunal order in the assessee s case , supra, is extracted as under : 5.3 Further, the Co-ordinate Bench of this Tribunal in the case of M/s. Cotton Blossom (I) Pvt. Ltd.,in ITA NO.583/Mds./2014 1531/Mds./2015 vide order dated 31.1.22015 after considering the various judgements of the Co-ordinate Bench, in the case of M/s. Aishwarya Co P. Ltd in ITA No.860/Mds/2014, dated 29.05.2015, wherein they followed the judgment of the Calcutta High Court in the case of M/s. Baljit Securities Pvt. Ltd. (88 CCH 313) held that the Assessing Officer has to consider the foreign exchange derivative in proportion to export turnover as regular business transaction of the assessee. If the derivative transaction undertaken by the assessee is in excess of export turnover then that loss suffered in respect of that portion of excess transaction has to be considered as speculative loss only and that excess derivative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and contended that the figures adopted by the AO are not correct. According to the assessee the disallowance made is imperfect since it had not incurred any expenditure towards operating and maintaining the investment. The assessee contended that the interest payment is for loan obtained for specific purposes and not for investment and it has enormous Reserves Surplus and the investments were out of own funds and hence second limb of Rule BD is also untenable etc. The CIT(A) held that invoking of Rule 8D by the AO is in order and directed the AO to examine whether the interest payment is for the loan obtained for specific purpose and not for investments. Aggrieved, the assessee as well as the Revenue filed appeals 5.1 We heard the rival submissions. The relevant portion of the order of the CIT(A) is extracted as under: 23. I have carefully perused the facts in issue, submissions of the appellant and material on record. It would serve useful purpose to refer to the decision in the case of CIT vs. Daga Capital Management P Ltd, 117 ITO 169 (2008) the provisions of s.14A are applicable retrospectively since they are procedural in nature. Based on this decision, the Board has rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be AY. 08-09. Therefore, what was applicable in Maxopp Investments for AY.02-03 cannot be applicable in TVt Investments case which is for AY.08-09. Further, in the case of' Godrej Boyck Mfg. Co. Ltd (supra), it was categorically held that the provisions. of Rule 80 have come into effect from 24.3.2008 and applicable from AY.08-09 onwards. This decision has not been reversed so far. since the provisions of Rule 8D are applicable from AY. 08-09 , the AO is bound to invoke them. In view of the above, I am of the opinion that invoking of Rule 80 by the AO in the appellant's case for AY. 01309 is in order. 27. Further, it is found that before the AO the appellant has argued that interest payment is for loan obtained for specific purpose and not for investments. However on the facts of this case no such clear segregation has been furnished. The AO is directed to call for the details of the same and exclude the interest portion if found correct. This ground of appeal is allowed for statistical purposes. 28. In the result, the appeal is partly allowed. 5.2 From the above, it is clear that the CIT(A) has applied the ratio in the case of Godrej Boyce Manufacturing Co. Ltd., supra. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld by this tribunal vide ITA nos 771 815/ Mds/2015 dt 17.6.2016 remitted this issue to the AO holding that MTM loss on forward contracts is not contingent loss and it is a business loss to set off against the business income of assessee. However, the AO has to consider the transaction equivalent to the export turnover to determine the MTM loss and also if there is any premature cancellation of forward contract of foreign exchange, it shall be excluded to consider the business loss and these transactions are speculative transactions. In view of that and since the facts are similar for the year under consideration, the CIT(A) allowed the assessee s appeal. Aggrieved, the Revenue filed this appeal. 6.2.2 We heard the rival contentions. Since, the CIT(A) has applied the ratio laid by this tribunal in the assessee s own case, we do not find any infirmity in the order of the CIT(A) and hence the corresponding grounds of the Revenue are dismissed. 7. Thus, the asssessee s appeals in ITA nos 827, 828, 829 830/Chny/2017 for ays 2005-06, 2007-08 2008-09 are partly allowed while the Revenue s appeals in ITA nos 1071, 1072/Chny/2017 for ays 2007-08 2008-09 are dismissed Order pronounced on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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