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TMI Blog2015 (10) TMI 2816X X X X Extracts X X X X X X X X Extracts X X X X ..... in own case [ 2015 (5) TMI 727 - ITAT DELHI ] for the assessment year 2008-09 e fertilizer bonds received by the assessee in lieu of cash subsidy also deserves to be given the same treatment as foreign exchange because foreign exchange is also received in lieu of cash/Indian National Rupee (INR) and the same is also shown as current trading assets in the books of accounts as per well accepted accounting principles. - Decided against revenue. - ITA No. 274/Del/2013, ITA No. 1301 /Del/2013 - - - Dated:- 14-10-2015 - Sh. N. K. Saini, AM And Sh. A. T. Varkey, JM For the Petitioner : Sh. Pradeep Dinodia, CA V. P. Gupta, Adv For the Respondent : Smt. Parwinder Kaur, Sr. DR ORDER Per N. K. Saini, AM: These cross appeals by the assessee and department are directed against the order dated 11.12.2012 of ld. CIT(A)-XIII, New Delhi. 2. First we will deal with the appeal of the assessee in ITA No. 274/Del/2013. Following grounds have been raised in this appeal: 1. That the CIT(A) erred in not allowing actual loss of ₹ 6.98 crores suffered by the appellant on actual sale of fertilizers subsidy bonds during the year and also not excluding amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of Investment (Average Value of Investment) % of above as per Rule 8D 54.615 0.5% 0.273075 Total disallowance [Aggregate of (i), (ii) (iii)] 2.423733 4.6 Therefore, an amount of ₹ 2.423733 crores is held to be expenses incurred in relation to earning the tax free income during the year and hence disallowed u/s 14A read with Rule 8D of I.T. Rules, 1962 and added to the total income of the assessee. Out of the said disallowance of ₹ 2.423633 crores, the assessee has already disallowed ₹ 0.22 crore and therefore, net disallowance shall be of ₹ 2.203733 crores. Since, the assessee company has furnished inaccurate particulars of its income and therefore penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 are attracted and is initiated separately. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) who partly allowed the relief to the assessee and restricted the disallowance to ₹ 1,58,32,130/- by observing in para 6.2 of the impugned order as under: I have considered the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D(2)(ii) and 8D(2)(iii). I am of the considered view that appellant has failed to apply rule 8D(2)(ii) which is clearly applicable in the case of appellant for the year under consideration. Further for applicability of the provisions of section 14A read with Rule 8D it is not necessary that exempt income has to be earned. It is so held by the Special Bench ITAT, Delhi in the case of Cheminvest Ltd. Vs ITO 317 ITR (AT) 86 (Del.). In view of the facts stated above it is established that investment in shares and securities made by the appellant were out of funds available in common account and there is no evidence that these investments were made from the non interest bearing funds. The appellant has argued that Assessing Officer has not established nexus between the interest bearing funds and investment made by the appellant. But at the same time the appellant has also not established nexus that investment in shares and securities was made out of non interest bearing funds. Hence, submission of the appellant that no interest expenditure has been incurred on earning exempt income is rejected. However, in regard to quantum of the disallowance, I am inclined to agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration and the AO made said disallowance u/s 14A of the Act read with Rule 8D of the I.T. Rules, 1962. The aggrieved assessee preferred an appeal before the CIT(A) but remained empty handed as the CIT(A) upheld the said addition. However, the CIT(A) considered the claim of the assessee that it had already disallowed ₹ 14,94,750/- in this regard in the return of income for which set off has not been allowed by the AO in the assessment order and the CIT(A) directed the AO to verify the record and allow the set off of the said amount which was suomoto disallowed by the assessee in the return of income. Now the aggrieved assessee is before this Tribunal with the sole ground as reproduced hereinabove. 16. The ld. AR contended that when the assessee itself has made suomoto disallowance then the conclusion of the authorities below should be demolished and dismissed. The ld. AR further contended that for making disallowance u/s 14A of the Act read with Rule 8D of the I.T. Rules, the Revenue authorities has to demonstrate and establish that the suomoto disallowance made by the assessee is not correct. The ld. AR further drawn our attention towards paragraph no. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts letter dated 11.02.2012, a copy of which is in paper book on pages 14 to 17 and the statement is on page 17 of the Paper Book. The Assessing Officer inspite of details submitted by the company has adopted average investments at ₹ 57.24 crores, which is the amount of average investments including the amount of investments, income from which is taxable. No disallowance had been made in the earlier years upto A.Y. 2007-08 on account of interest relating to the investments under reference. In some of the years, disallowance on account of administrative expenses had been made equal to 10% of the dividend income. Year-wise position in this regard has been given in the statement on page 16 of the Paper Book, which had been submitted before the Assessing Officer under the cover of letter dated 11.02.2013. Accordingly, it is stated by the appellant that no disallowance on account of interest had been made in any of the assessment year s upto A.Y. 2007-08. The AO had made ad-hoc disallowance on proportionate basis as per Clause (ii) of Rule 8D(2) of the Income Tax Rules. The CIT(A), in appeals of the company for those years had upheld the disallowance made by the AO on proportionate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Rule 8D(iii) of the I.T. Rules, 1962 by making total disallowance of .5% of aggregate of opening and closing value of investments and the CIT(A) was also right in directing the AO to deduct the amount of suomoto disallowance already made by the assessee. Hence, the sole ground of the assessee is allowed with a direction to the AO that the disallowance u/s 14A read with Rule 8D(iii) of the I.T. Rules should also be made for the year under consideration in this appeal i.e. for A.Y. 2008-09 and the AO is also directed to give set off of amount of suomoto disallowance already made by the assessee in the computation of returned income. With these directions sole grounds of the assessee are allowed in the manner as indicated above. 10. We, therefore, by respectfully following the aforesaid referred to order restored this issue back to the file of the AO to be decided in accordance with the directions given vide order dated 20.05.2015 in assessee s own case in ITA No. 1447/Del/2012 for the assessment year 2008-09. 11. Now we will deal with the appeal of the department in ITA No. 1301/Del/2013. Following grounds have been raised in this appeal: 1. Whether the ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al loss and any loss is allowable only in the year in which actual loss is incurred (if any). In view of the facts stated and observations on the same mentioned as per para 3, 3.1 3.2 hereinabove it is held that claim of the loss of ₹ 7.21 crores on account of diminution in value of Bodns neither suffered by the assessee company during the year nor provision of any ascertained liability accrued during the year under consideration. The claim of deduction of said loss of ₹ 7.21 crores probably be made with the intention to suppress the taxable income for the year under consideration. In view of above mentioned facts the deduction claimed of the loss of ₹ 7.21 crores on account of diminution in value of Bonds is disallowed. Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 are being initiated separately for furnishing inaccurate particulars of income. (Disallowance of ₹ 7,21,00,000/-) 14. Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the disallowance by observing in para 5.2 of the impugned order as under: 5.2 I have considered the claim of the appellant company and I fully agree with the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowable as business losses. The dispute remains on the loss booked by the assessee on diminution of fertilizers bonds which were remained unsold at the end of the year. On careful consideration of the ratio laid down by Hon ble Supreme Court in the case of Patnaik Co. (supra) and by Hon ble Delhi High Court in the case of D.S. Bist (supra) we are inclined to hold that the fertilizer bonds received by the assessee in lieu of cash subsidy also deserves to be given the same treatment as foreign exchange because foreign exchange is also received in lieu of cash/Indian National Rupee (INR) and the same is also shown as current trading assets in the books of accounts as per well accepted accounting principles. 13. As observed by ITAT Mumbai in the case of Reliance Industries Limited (supra) the loss due to foreign exchange fluctuation in foreign currency transaction is derivatives has to be considered on the last date of accounting year and the same is deductible u/s 37 of the Act in the same manner the CIT(A) was right in holding that the difference in the amounts of loss/profit on actual sale of points has been duly accounted for in the books of accounts of the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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