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2018 (2) TMI 1806 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - Held that - Own funds available in the form of capital and reserves and surplus were Rs. 15769.49 lacs and whereas the investments in mutual funds were only Rs. 43.81 lacs as on 31.03.2010. The net profit earned during the year and available for appropriation was Rs. 1736.90 lacs. These facts clearly prove that the investments were made only out of own funds. Accordingly we hold that the CIT(A) rightly deleted the disallowance made under second limb of Rule 8D(2) of the Rules. With regard to the disallowance made under third limb of rule 8D(2) we hold that only dividend bearing investments in shares and mutual fund debt schemes should be considered by the ld. AO for working out the disallowance at 0.5% of average value of investment. This finding is in consonance with the decision rendered by this Tribunal in REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA . Disallowance of provision for leave encashment - neither statutory liability nor contingent liability - disallowance u/s 43B(f) - Held that - We find that though the Hon ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT had struck down the provisions of section 43B(f) of the Act as unconstitutional. The revenue had carried the matter further to the Hon ble Supreme Court in 2008 (9) TMI 921 - SUPREME COURT it could be inferred that the Hon ble Supreme Court had not stayed the judgement of the Hon ble Calcutta High Court during Leave proceedings. But the Hon ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate in the interest of justice and fair play to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon ble Supreme Court as stated supra. Accordingly the Ground No. 2 of assessee appeal for Asst Year 2010-11 is allowed for statistical purposes. Addition towards provision for mark to market loss - Held that - CIT(A) has applied this decision of the Tribunal in the assessee s own case and granted relief. We find no infirmity in the same and dismiss this ground of the revenue. Accordingly we find that the assessee would be given double deduction if relief is granted in assessment year 2010-11 for the very same provision of Rs. 2, 12, 48, 372/- Hence we hold that the Ld. CIT(A) had rightly dismissed the plea of the assessee. Disallowance of other income while computing the deduction u/s 10B - Held that - The details of other income to the tune of Rs. 18, 20, 101/- as detailed hereinabove pertains to 100% EOU as could be evident from the segmental profit and loss account of 100% EOU furnished by the assessee before the lower authorities. Hence the entire other income becomes the profits of the business of the undertaking (i.e 100% EOU) . Then automatically the assessee is entitled for deduction as per the computation mechanism provided in section 10B(4) of the Act. Disallowance of additional depreciation - use for a period of less than 180 days - Held that - The assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery but where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put to use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 180 days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of 20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act - As relying on CIT & Anr Vs. Rittal India Pvt. Ltd. 2016 (1) TMI 81 - KARNATAKA HIGH COURT assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery accordingly ground no-1 raised by the assessee is allowed. Disallowance of provision for mark to market loss - Held that - Loss incurred on restatement of foreign currency liabilities in conformity with exchange rate prevailing on the balance sheet date is not a contingent liability but defined and ascertained liability and therefore the loss incurred on restatement is liable to be allowed in the case of an assessee who follows mercantile system of accounting. Further such loss is allowable if the underlying asset or underlying liability is incurred on trading account. In the appellant s case it had entered into foreign exchange forward contracts for hedging exchange fluctuation risks in respect of export orders. As such the underlying transaction in relation to forward contract entered into by the assessee was trading transaction and therefore any loss connected with such trading transaction and was in the revenue field and therefore to be allowed in view of the ratio laid down by the Hon ble Supreme Court in the case of CIT vs. Woodward Governor India (P) Ltd. (2006 (1) TMI 68 - GUJARAT HIGH COURT ) and O.N.G.C. vs. CIT (2010 (3) TMI 81 - SUPREME COURT ).
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance of provision for leave encashment. 3. Addition towards provision for mark to market loss. 4. Disallowance of other income while computing the deduction under Section 10B. 5. Disallowance of additional depreciation. 6. Disallowance of provision for mark to market loss on forward exchange contracts. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee, engaged in manufacturing/trading guar gum and wind power generation, received dividend income of Rs. 76,14,772/- and claimed it as exempt. The AO invoked Section 14A read with Rule 8D, making a disallowance of Rs. 4,41,712/- under the second and third limbs of Rule 8D(2). The CIT(A) deleted the disallowance under the second limb, acknowledging sufficient own funds for investments but upheld the disallowance under the third limb. The Tribunal upheld the CIT(A)’s decision, directing the AO to consider only dividend-bearing investments for disallowance calculation, partly allowing the assessee's appeal and dismissing the revenue's appeal. 2. Disallowance of provision for leave encashment: The assessee's provision for leave encashment of Rs. 47,75,059/- was disallowed by the AO under Section 43B(f), a decision upheld by the CIT(A). The Tribunal noted the pending Supreme Court decision on the constitutionality of Section 43B(f) and remanded the issue to the AO to pass orders based on the Supreme Court’s final decision, allowing the assessee's appeal for statistical purposes. 3. Addition towards provision for mark to market loss: The assessee wrote back a provision for mark to market loss of Rs. 2,12,48,372/- from the previous year, disallowed by the AO to avoid double taxation. The CIT(A) denied relief, noting the provision was already allowed in the previous year. The Tribunal upheld the CIT(A)’s decision, agreeing that allowing the deduction would result in double deduction, dismissing the assessee's appeal. 4. Disallowance of other income while computing the deduction under Section 10B: The AO excluded Rs. 86,85,103/- of other income from the 100% EOU's profit, denying Section 10B deduction. The CIT(A) granted relief, relying on Tribunal decisions in the assessee's favor for earlier years. The Tribunal upheld the CIT(A)’s decision, referencing the assessee's own case and the jurisdictional High Court's ruling, dismissing the revenue's appeal. 5. Disallowance of additional depreciation: The assessee claimed the remaining 50% of additional depreciation (Rs. 21,71,119/-) for machinery used for less than 180 days in the previous year. The AO disallowed this, granting only regular depreciation. The CIT(A) allowed the claim, and the Tribunal upheld this decision, citing the Karnataka High Court's ruling in Rittal India Pvt. Ltd., dismissing the revenue's appeal. 6. Disallowance of provision for mark to market loss on forward exchange contracts: The assessee's provision for mark to market loss of Rs. 38,29,347/- was initially disallowed but later claimed as deductible. The CIT(A) allowed the claim, referencing Supreme Court decisions in Woodward Governor India Pvt. Ltd. and ONGC, which treated such losses as ascertained liabilities. The Tribunal upheld the CIT(A)’s decision, dismissing the revenue's appeal. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal, adhering to precedents and judicial interpretations of relevant sections and rules.
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