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2020 (11) TMI 333 - AT - Income TaxTP Adjustment - addition on account of notional interest on export receivables - scope of amendment in Sec. 92B - assessee submits that outstanding receivables are not international transaction for A.Y 2009-10 - outstanding receivable is merely incidental transaction of sale of goods and not per-se separate international transaction - Whether amendment in Sec. 92(B) by way of insertion of Explanation was brought in the statue book by Finance Act, 2012, which has no retrospective application? - HELD THAT:- We have noted that explanation to Sec. 92B of the Act has been inserted vide Finance Act, 2012 and held as prospective . Further, we have noted that there is average delay in receivable from AE of 39 days and in case of none AEs 44 days. There is no dispute that the assessee is not charging interest from none AE on such export receivable. Coordinate Bench of Tribunal in Gitanjali Exports Corporation Ltd.[2016 (3) TMI 1337 - ITAT MUMBAI] also held that where no interest is charged from Non-AEs, i.e. independent transactions, as well, there cannot be any occasion to make an ALP adjustment, for notional interest, on delay in realisation of trade debts from AEs. When the assessee is adopting the uniform policy for none charging interest on export receivable from AE and none AE and moreover the transaction with regard to sale of cut and polished diamonds has been accepted by the TPO at ALP, no notional interest was warranted. In the result Grounds No. 1 to 5 of the appeals are allowed. Disallowance of mark to market loss - assessee is following mercantile system accounting and AS-11 - HELD THAT:- The Hon’ble Supreme Court in case of Woodward Governor India (P) Ltd., [2009 (4) TMI 4 - SUPREME COURT] held that losses on revaluation of unmature foreign exchange forward contract and such are not notional losses and are allowable as expenditure u/s 37 of the Act. In M/S. D. CHETAN & CO. [2016 (10) TMI 629 - BOMBAY HIGH COURT] held that forward contracts for purpose of hedging in course of normal business activities of import and export done to cover up losses on account of differences in foreign exchange valuations would not be speculative activity, but business activity.Therefore, we direct the AO to delete the disallowance. In the result, Ground No. 6 & 7of the appeal is allowed. Disallowance u/s 14A read with Rule 8D(ii) & 8D(iii) - HELD THAT:- As decided in RELIANCE UTILITIES & POWER LTD. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC BANK LTD. [2014 (8) TMI 119 - BOMBAY HIGH COURT] no disallowance under Rule 8(D)(ji) is warranted in case the reserve and surplus of the assessee are in far excess to the investment made by the assessee. Assessee has surplus reserve available with it at the end of financial year, when the investments were made foreign exempt income and therefore no disallowance under Rule 8(D)(ii) is warranted. Delhi High Court in the case of Joint Investments (P.) Ltd. [2015 (3) TMI 155 - DELHI HIGH COURT] held that the window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. Considering the fact that disallowance u/s 14A of the Act cannot exceed the exempt income in view of the decision of Bombay High Court in PCIT Vs. HSBC Invest Direct (India) Ltd [2019 (2) TMI 731 - BOMBAY HIGH COURT] we direct the AO to restrict the disallowance u/s 14A of the Act at ₹ 1.62 lakhs only. In the result this ground of appeal is also partly allowed.
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