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2013 (1) TMI 36 - AT - Income TaxAddition on account of foreign exchange fluctuation loss – Loss on restating the exchange rate of all foreign transaction outstanding as on balance sheet date – AS 11 - AO argued that loss claimed was notional in nature and not actual loss - Following the decision in case of Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT) loss suffered by the assessee on account of fluctuation in the rate of foreign exchange, as on the date of the balance sheet, is an item of expenditure u/s 37(1). In favour of assessee Disallowance u/s 40A(2)(b) - Payment of management consultancy fees to related party – CIT(A) confirmed the findings of AO that the payment was hit by section 2(22)(e) - Held that:- AO had required the assessee to substantiate its claim that the payments were made for business purposes and were not collusive in nature because payments were made to parties falling within the categories of section 40A(2)(b). However, after considering the assessee’s reply he, inter-alia, concluded that the payment was hit by section 2(22)(e). The AO had not given any notice in this regard to assessee. Hence issue remand back to AO Disallowance u/s 14A – Rule 8D – Whether AO can apply Rule 8D without verifying the correctness of the claim of the assessee in respect of such expenditure in relation to income which did not form part of the total income of assessee - 5% of average value of investment towards deemed expenses relating to tax free income – Held that:- The mandate of section 14A(2) clearly requires the AO to first consider the assessee’s claim and after rejecting the same should resort to Rule 8D. We, therefore, consider it in the interest of justice that the matter should be restored back to the file of AO
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