Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2017 (12) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (12) TMI 593 - AT - Income TaxDisallowance of exchange fluctuation loss on forward contracts - nature of speculative transactions - whether the assessee is able to have one to one co-relation between forward contracts and its bills receivables / payables? - AO opined it to be in the nature of speculative transactions as defined u/s 43(5) - Held that:- In this case, it is an undisputed fact that the assessee has not carried out its forward contracts through recognized stock exchange. The assessee has entered into forward contracts with its bankers. Therefore, to ascertain forward contracts entered into by the assessee are hedging transactions or speculative transactions, forward contracts have to clear the basic test provided for examining the nature of transactions of hedging and speculative transactions. Case of the assessee is covered by the decision of Supreme Court in the case of Woodword Governor (I) Pvt Ltd (2009 (4) TMI 4 - SUPREME COURT) because the assessee has profit / loss on fluctuation in respect of its forward contracts on the basis o marked to market at the end of the financial year based on the prevailing exchange rate. However, the assessee has failed to prove the basic test provided for categorizing that its forward contracts are in the nature of hedging transactions. Even the lower authorities have failed to appreciate the facts in the right perspective in the light of the arguments of the assessee that its forward contracts cannot be linked to its export bills receivables / payables, but total value of its forward contracts is not more than its exposure to foreign currency in the form of receivables / payables. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of above discussions. Hence, we set aside the issue to the file of the AO and direct him to consider the issue afresh Disallowance of expenditure incurred in relation to exempt income u/s 14A r.w.r. 8D(2)(i) and 8D2)(iii) - Held that:- The assessee failed to bring on record any evidence to controvert the finding of the lower authorities. Though the Ld.AR contended that the AO has not established link between expenditure incurred by the assessee to earn exempt income, failed to prove that the assessee has not incurred any expenditure in the backdrop of the clear findings of the AO as well as the CIT(A) that the assessee has paid huge interest on borrowings and also incurred common expenditure like general administration and other expenses. Therefore, we are of the view that the CIT(A) was right in restricting disallowance to 5% of the value of investments. We do not find any error in the order of CIT(A). Hence, we are inclined to uphold the order of CIT(A) and dismiss the ground raised by the assessee. Disallowance of interest u/s 36(1)(iii) for diversion of interest bearing funds - Held that:- The assessee fails to bring on record any evidences to rebut the findings of facts recorded by the CIT(A). Though the assessee has relied upon the decision of Hon’ble Supreme Court in the case of Vardhman Polytex Ltd (2008 (1) TMI 26 - HIGH COURT, PUNJAB AND HARYANA), in the backdrop of the clear findings of the AO and CIT(A) that the assessee has failed to explain the availability of interest free funds to explain acquisition of capital asset, interest paid on loans borrowed has to be disallowed u/s 36(1)(iii) for diversion of funds for acquisition of capital asset. Therefore, we are inclined to uphold the order of the CIT(A) and reject the ground raised by the assessee.
|