TMI Blog2013 (8) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... the nonresident /overseas agent for procurement of orders from overseas buyers. This expenses incurred by the assessee for a service rendered by a non-resident outside India. In this case, since the commission was paid to a non-resident agents for the services rendered outside India, such payments are not chargeable to tax in India and therefore, the provisions of section 195 are not applicable. Foreign exchange fluctuation loss - Held that:- We find that the assessee has incurred loss relating to its business only and in view of the decision of CIT v. Panchmahal Steel Ltd. [2013 (5) TMI 686 - GUJARAT HIGH COURT]this ground of appeal raised by the Revenue is dismissed. - ITA Nos.1249 and 1250/Mds/2013, C.O. Nos.101 & 102/Mds/2013 - - - Dated:- 27-8-2013 - Shri Abraham P. George, Accountant Member Shri V. Durga Rao, Judicial Member Appellant by : Shri M. Srinivasa Rao, CIT Respondent by : Shri Anil Nair, C.A. ORDER PER V. DURGA RAO, JUDICIAL MEMBER: These appeals of the Revenue and the Cross Objections by the assessee are directed against separate orders of the Commissioner of Income Tax (Appeals) III, Chennai dated 27.02.2013 relevant to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,571,498.41 Total 115,512,069.30 The appellant has contended that only the interest on cash credit of ₹ 98,47,406/- being general in nature should be considered for Rule 8D(2)(ii) computation. Considering the ratio laid down by the Hon ble Kolkata ITAT regarding the correct working of Rule 80(2)(ii), I find force in the appellant's arguments on this point. It is seen that interest expenditure of ₹ 10,56,64,661/- is directly attributable to particular incomes or receipts the source of which is export in the case of the appellant and is therefore to be excluded from the computation as per Rule 8D(2)(ii). Keeping in view the factual and legal position as discussed above, the disallowance u/s 14A r.w. Rule 8D(2) is worked out as below: (1) 8D(2)(i) = Nil (2) 8D(2)(ii) A x B/C = 98,47,408 x 38,31,71,344/401,05,89,136 = 9,40,820 (3) 8D(2)(iii) 0.5% of 38,31,71,344 = 19,15,857 Disallowance as per Rule 8D = 28,56,677 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comply with the statutory requirement, the entire expenditure is disallowed under section 40(a)(i) [ i.e. ₹ 30.56 + ₹ 68.52]. The assessee has submitted before the ld. CIT(Appeals) that the overseas selling commission paid of ₹ 30.56 lakhs is relating to commission paid to overseas agent for procurement of orders from overseas buyers. The same is exempted from the rigours of Tax Deduction at Source under section 195 and further submitted that the entire expenditure being incurred for payment to non-resident for a service rendered outside India. The ld. CIT(Appeals), by considering the submissions of the assessee and also following the decision of the ITAT A Bench in the case of M/s. Prakash Impex v. ACIT in I.T.A. No. 08/Mds/2012 for the assessment year 2008-09 vide order dated 30.03.2012 directed the Assessing Officer to delete the addition made on account of selling commission paid to the non-resident. 11. On appeal by the Revenue before the Tribunal, the ld. DR has supported the order passed by the Assessing Officer. 12. On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(Appeals). 13. We have h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the submission of the assessee, the ld. CIT(Appeals) has allowed the claim of the assessee. 16. Before us, the ld. DR has submitted that the assessee has not given break-up of ₹ 68.52 lakhs and no submissions were made before the Assessing Officer. It was submitted only before the ld. CIT(Appeals) that the said amount was not actually paid or payable and this needs to be examined in detail by the Assessing Officer. 17. On the other hand, the ld. Counsel for the assessee has supported the order passed by the ld. CIT(Appeals). 18. We have heard both sides and have also gone through the orders of authorities below. The case of the assessee is that the assessee made a claim of ₹ 68.52 lakhs and the Assessing Officer disallowed the same. In fact, the assessee has submitted before the ld. CIT(Appeals) that though it had debited it as an expenditure, but actually, it was not paid or payable . It is not clear from the order of the ld. CIT(Appeals) that what is the actual claim of ₹ 68.52 lakhs, when the amount was not actually paid or how the assessee has debited the said amount as an expenditure, which is not payable. These facts are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Loss/Gain due 10 non fulfillment of realization commitments on due dates, in Foreign Exchange are intrinsically linked to the business of the assessee and allowable as expenditure. Also in some cases the loss has been incurred due to conversion of Foreign Currency Balances. 3.2 Foreign Exchange Loss relating to the business are clearly allowable as Revenue Loss to the Assessee. This view is also supported by SC in CIT Vs. Woodward Governor India P. Ltd. (312 ITR 254) M/s Oil Natural Gas Corporation Ltd. Vs. CIT 322 ITR 180(Supreme Court). 3.3 Specifically on the point of Foreign Exchange loss due to currency conversions see ~. DY CIT Vs Maruti Udyog Ltd (200C) 99 ITD 666 (Delhi) following the Apex Court in Sutlej Cotton Mills Ltd. Vs CIT 116 ITR 1. 3.4 The AO was clearly in error in distinguishing between transactional loss on account of Realization and loss on account of swap. Both are arising out of the core activity of the assessee of import of raw materials and export of garments and hence transactions in foreign currency only. 3.5 Foreign Currency losses are on revenue account only and these losses incurred are incidental to the core business of the assessee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to current and capital account as a contingent liability. Hon'ble Supreme Court in CIT v. Maruti Udyog, 320 ITR 729 (SC) decided that depreciation on cost enhanced by capitalization of foreign exchange loss was deductible following the decision in Woodward Governor India (supra). 5.2.1 Further, the specific issue of loss on evaluation of unmatured forward foreign exchange contract was considered by the Hon'ble Special Bench of ITAT, Mumbai in the case of DCIT v. Bank of Bahrain Kuwait, 41 SOT 290 wherein it was held as below: 58. In view of the above discussion, we allow the assessee's appeal for the following reasons :- (i) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. (ii) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. (iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward foreign exchange contract as per the rate prevailing on March 31. (iv) A liability is said to have crystali5ed when a pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 140. 24. We have heard both sides, perused the materials available on record and have also gone through the orders of authorities below. The assessee is in the business of export of garments and all such realizations are in foreign exchange. It is an admitted fact that the assessee has to import raw materials and also export the garments. In both the aspects, foreign currency is only involved. In the assessment order, the Assessing Officer has observed that the exchange loss is bifurcated into two values being foreign exchange fluctuation loss on account of export proceeds realization of ₹ 13,80,61,721/- and swap loss of ₹ 18,01,04,908/- on account of cancellation of postponement of forward contracts. The Assessing Officer has not given any reason for disallowance of ₹ 18,01,04,908/-. This swap loss of ₹ 18,01,04,908/- on account of cancellation of postponement of forward contract in connection with the business of the assessee only. The Assessing Officer has not given justifiable reason except stating that it is speculation loss. The ld.CIT(Appeals), by following Special Bench of ITAT, Mumbai in the case of DCIT v. Bank of Bahrain Kuwait (supra) allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of import and export of jute. In course of business, the assessee would enter into forward contract in foreign exchange in order to cover the loss which may arise due to difference in foreign exchange valuation. In one such contract, the assessee had to pay to the Bank difference of ₹ 80,491/- which was claimed by the assessee as revenue expenditure. The Assessing Officer disallowed the claim. The High Court held that the assessee was not a dealer in foreign exchange and the foreign exchanges were only incidental to the assessee's regular course of business and the loss was thus not a speculative loss but incidental to the assessee's business and allowable as such. Facts in the present case are very similar. Admittedly, the assessee is not a dealer in foreign exchange. For the purpose of hedging the loss due to fluctuation in foreign exchange while implementing the export contracts, the assessee had entered into forward contract with the banks. In some cases, the export could not be executed and the assessee had to pay certain charges to the Bank and thereby incurred certain expenses. These expenses the assessee claimed by way of expenditure towards business. We do no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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