Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (12) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (12) TMI 623 - ITAT MUMBAIDisallowance of loss incurred in hedging against foreign exchange fluctuation - CIT(A) delted the disallowance - Held that:- The loss so arisen were on account of abuse of fiduciary powers by the employee therefore allowable as business loss u/s. 28(1). We also found that loss arisen out of cancellation of foreign exchange transactions does not partake the character of speculative transactions nor it qualified as a separate and distinct business to constitute the speculative business. We also found that at the advice of Foreign Exchange Consultants, the assessee company has cancelled the contracts which were unauthorized and booked the loss. The said employee was later terminated from services and criminal complaint was also filed against him. All this shows that the loss was genuine and the said loss was a regular business loss as the transactions were entered by the accused employee with the banks in the name of the assessee company. Accordingly, it was the assessee’s duty to bear the loss arising out of cancellation of such unauthorised contracts. Coming to the objection of the AO that loss has been classified as exceptional hence, not permissible as per para 12 of AS-5. When items of income and expense with profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items is required to be disclosed separately . Thus, merely by qualifying it as exceptional loss does not lose the character of business loss and hence has to be allowed. For each and every aspect, the CIT(A) has dealt with the issue threadbare and after controverting the objections of AO and after applying judicial pronouncements to each aspect reached to the conclusion that loss so incurred was allowable as business loss. Disallowance u/s.14A - assessee had made a suo-mote disallowance - assessee had earned dividend income of mainly from Mutual Funds, which has been claimed as exempt u/s. 10(35)- Held that:- Though the learned AO acknowledged the fact that borrowed funds have not been utilized for earning exempt income, but he has made further disallowance u/s. 14A r.w.rule 8D at ₹ 84,30,296/- (ie disallowance as per Rule 8D - ₹ 87,86,399/- less expenditure already disallowed in return of income of ₹ 3,56,103/-). While filing the return the assessee had suomoto disallowed proportionate salary of two employees who were engaged in MF activities, and hence the said disallowance of ₹ 3,56,103/- was made. The additional disallowance u/s. 14A requires finding of incurrence of expenditure for earning exempt income. The mere receipt of dividend income would not be sufficient for invoking the provisions of section 14A by applying Rule 8D unless AO record reasons for not accepting the computation of disallowance offered by assessee as attributable to earning of exempt income having regard to the accounts of assessee. AO cannot apply Rule 8D without showing how assessee's method is incorrect. We set aside the matter back to the file of the AO for deciding afresh
|