2016 (7) TMI 1225 - AT - Income Tax

Claim of relief u/s 90 - restricting the claim to the extent of tax payable in India on net income i.e difference between interest earned from M/s AHPL and interest paid on borrowings made for advancing the loans to M/s AHPL - Held that - The interpretation of the order of the Tribunal by the ld. AR is misconceived. The Tribunal was of the opinion that if the income from foreign country is offered to tax by the assessee by whatever means the assessee has to get tax credit to the extent the tax was paid in foreign country. In other words once the income is included either in the Profit & Loss Account or in the return of income the corresponding tax credit on the same income has to be given. Accordingly we are of the opinion that there is no need of apprehension for the assessee that the Assessing Officer will misinterpret the order of the Tribunal. Therefore we do not find any merit in the argument of the ld. AR. Accordingly the miscellaneous petition is dismissed. Addition towards loss on foreign exchange derivatives transaction - Held that - Tribunal while holding that the loss arising out of hedging contracts entered into by the assessee in the course of business has to be allowed as business loss and not to be considered as speculation loss. While holding so the Tribunal has placed reliance on various decisions of Co-ordinate Bench including the decision in the case of M/s Majestic Exports vs JCIT 2015 (7) TMI 936 - ITAT CHENNAI . Before us also the Ld. AR placed his reliance on the decision in the case of Majestic Exports (supra) and requested for direction as given in the above case. In our opinion the Tribunal has remitted the issue observing that the issue is covered by various judgments including Majestic Exports (supra). Being so at this stage the assessee cannot have any grievance. Disallowance of preference share expenses u/s 35D - Held that - There is a mistake in the order of the Tribunal for assessment year 2008-09 on the basis of ITAT order for assessment year 2007-08. As such the assessee is entitled for deduction u/s 35D for assessment year 2008-09

Summary

Issues:
1. Rectification of the order regarding relief under section 90 of the Income Tax Act.
2. Treatment of loss on foreign exchange derivatives transactions as business loss.
3. Disallowance of preference share expenses under section 35D of the Act.

Issue 1: Relief under Section 90 of the Income Tax Act
The assessee challenged the CIT(A)'s decision to restrict the claim of relief under section 90 of the Act, which was based on income from branches in foreign countries. The Tribunal referred to a previous case involving Bank of Baroda, stating that income from foreign branches should be included in the Indian return, with credit for taxes paid in the source country. The AR argued that this direction was not applicable as the assessee had no income from foreign branches. The Tribunal clarified that once foreign income is included in the return, corresponding tax credit must be given. The Tribunal dismissed the petition, stating that there was no need for concern regarding misinterpretation by the Assessing Officer.

Issue 2: Treatment of Loss on Foreign Exchange Derivatives Transactions
The Revenue appealed the deletion of addition towards loss on foreign exchange derivatives transactions. The Tribunal remitted the issue back for fresh assessment, considering the judgment in a similar case. The AR argued that the loss should be considered a business loss based on various precedents. The Tribunal agreed that the loss from hedging contracts should be treated as a business loss, not speculation loss, citing relevant case law. The Tribunal upheld its decision, stating that the issue was adequately covered by previous judgments, and the Assessing Officer would consider all relevant cases during reassessment.

Issue 3: Disallowance of Preference Share Expenses under Section 35D
The Revenue challenged the allowance of deduction under section 35D for total expenditure towards share issue. The Tribunal referred to an earlier order for a different assessment year, which the AR argued was not applicable. The AR emphasized a specific observation in the previous order, stating that the extension of the industrial undertaking was complete, making the assessee eligible for the deduction. The Tribunal found a mistake in the order and rectified it, allowing the deduction under section 35D for the relevant assessment year based on the previous year's order. The Tribunal dismissed the Revenue's appeal, confirming the allowance of the deduction.

In conclusion, the Tribunal addressed the issues of relief under section 90, treatment of loss on foreign exchange derivatives transactions, and disallowance of preference share expenses under section 35D. The Tribunal clarified the application of relevant legal principles and precedents in each case, ultimately dismissing one petition and partly allowing another while rectifying an error in the order to grant the deduction under section 35D.