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2017 (6) TMI 8 - AT - Income TaxExpenditure disallowed on account of foreign exchange contract by treating them as speculation u/s. 43(5) - Held that:- The undisputed fact is that the assessee is in the business of manufacturing, import and export of diamonds. It is in this line of activities, the assessee was heavily exposed to foreign exchange currency fluctuation during its regular business activities. It is not the case of the Assessing Officer that assessee is a dealer in foreign currency. Although, the A.O. has treated the assessee as a dealer in foreign currency only on the strength of the volume of transactions entered into by the assessee to hedge its probable losses in foreign exchange rate fluctuation. On identical set of facts, in the case of Soorajmull Nagarmull [1980 (9) TMI 69 - CALCUTTA High Court] as held hat the assessee was not a dealer in foreign exchange. Foreign exchange contracts were only incidental to the assessee’s regular course of business . The loss was not a speculative loss but was incidental to the assessee’ business and allowable as such. - Decided in favour of assessee. Unexplained capital introduced by the partners - Held that:- It is true that the assessee has filed the tax details of all the partners. It is also true that the Assessing Officer has not disputed that the credits in the accounts of the partners were not deposits from the partners. In our understanding of the law, the addition cannot be made in the hands of the firm and if anything remains unexplained the addition can only be made in the hands of the partners. We find that the reliance placed by the ld. CIT(A) on the decision of the Hon’ble Jurisdictional High Court of Gujarat in the case of Pankaj Dyestuff Industries (2005 (7) TMI 601 - GUJARAT HIGH COURT) is well founded and, therefore, no interference is called for. - Decided in favour of assessee. Addition made on account of foreign travel expenses - Held that:- It is true that Mr. Sapin Shah and Ms. Priyanka Shah are not partners of the assessee firm. It is also true that they are employees of the firm who travelled abroad for the purposes of the business of the assessee. We find that the assessee has filed the details of sales made at Hong Kong and Dubai in support of its foreign travel expenditure. Merely, because the two persons who went abroad were not partners of the assessee firm would not justify the disallowance made by the A.O. We also find that the lump sum disallowance of ₹ 5 lakhs is without any basis as the assessee has successfully proved the sales made at Dubai and Hong Kong.- Decided in favour of assessee. Addition made u/s. 40(a)(ia) - Held that:- the assessee has successfully reconciled the TDS amount with the quantum involved and there remains no reason why the addition should be sustained. The First Appellate Authority has rightly deleted the disallowance after reconciling the TDS amount with the quantum on which the tax has been deducted at source. Therefore, no interference is called for.- Decided in favour of assessee. Addition on account of labour charges - Held that:- The assessee has debited labour charges of ₹ 23.22 crores during the year under consideration as compared to 22.75 crores incurred in the immediately preceding year. The rise in the labour expenses is only to the tune of ₹ 47 lakhs which is higher by 2% from the expenses incurred in the immediately preceding assessment year. In our considered opinion, this cannot be a reason for making the impugned disallowances as the A.O. has failed to justify the addition made by him. The First Appellate Authority has rightly deleted the same - Decided in favour of assessee.
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