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TMI Blog2017 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that the assessee has debited an amount of Rs. 30,27,85,170/- in the Profit and Loss account as loss in forward contract cancellation. The assessee was asked to explain the nature of forward contracts and the reasons for the loss in forward contracts. 5. The assessee filed a detailed reply in justification of its claim of loss. It was explained that the contracts were made to hedge the future fluctuation in the foreign currency rate against the export/import orders of diamonds. The assessee furnished the bank-wise details of net foreign exchange forward contract loss which is as under: (i) ABN Amro Bank (-) Rs. 30,29,26,409/- (ii) HDFC Bank Rs. 2,95,55,932/- (iii) ICICI Bank (-) Rs. 2,94,14,693/- Net Loss Rs. 30,27,85,170/- 6. The A.O. sought details from the bank and the banks filed the necessary details as called by the A.O. After examining the details filed by the banks, the A.O. was of the opinion that the assessee has to prove with documentary evidences that the foreign exchange contracts were really meant for the purpose of minimizing its foreign exchange losses during its regular business of import of rough diamonds and export of polish diamonds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto forward contracts in foreign exchange in order to cover the loss arising due to difference in foreign exchange valuation. The assessee had entered into foreign exchange contracts in 1952 with the Hindustan Mercantile Bank. The difference payable by the assessee on the forward contract was determined in December, 1952, but the assessee disputed its liability. The dispute was settled in 1955, and its account in the bank was debited in June,1955. The assessee claimed this loss amounting to Rs. 80,491/- as a revenue expenditure in the assessment year1956-57. The ITO disallowed the claim on the ground that the loss was a speculation loss and, in any event, as the assessee was following the mercantile system, it could not claim the loss in 1956- 57. The AAC found that the transaction in which the loss arose was not speculative and this finding was upheld by the Tribunal. The AAC held that the loss did not relate to the relevant accounting year but the Tribunal held that it was allowable in 1956-57 on a reference: Held, (i) that the assessee was not a dealer in foreign exchange. Foreign exchange contracts were only incidental to the assessee's regular course of business. The AAC had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith supporting documentary evidences. The A.O. was of the firm belief that the assessee has failed to explain the credit entries in the partners capital account and made the addition of Rs. 2.69 crores u/s. 68 of the Act. 18. Before the First Appellate Authority, it was strongly contended that since the assessee has filed the necessary evidences pertaining to the Income Tax returns of the partners who are assessed to tax and the capital introduction made by partners stands reflected in their respective records, the same cannot be treated as unexplained in the hands of the assessee. 19. After considering the facts and the submissions and drawing support from the decision of the Hon'ble High Court of Gujarat in the case of Pankaj Dyestuff Industries in Tax Appeal No. 241 of 1993, the ld. CIT(A) deleted the addition. 20. Before us, the ld. D.R. supported the findings of the A.O. and the ld. counsel relied upon the order of the First Appellate Authority. 21. 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the sales made at Dubai and Hong Kong. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). 28. The next grievance of the revenue relates to the deletion of the addition of Rs. 2,51,91,060/- made u/s. 40(a)(ia) of the Act. 29. The A.O. noticed that as per the TDS returns, the assessee has deducted Rs. 5,19,047/- on total receipts of Rs. 4,74,71,878/-. The A.O. further noticed that the assessee has made payment of tax at Rs. 2,45,089/-. The A.O. assumed that the assessee has deducted tax @ 1.1% only on the payments of labour contract charges and, therefore, made a disallowance of Rs. 2,51,91,060/-. 30. Assessee strongly agitated the matter before the ld. CIT(A) and vehemently contended that the A.O. has misunderstood the facts relating to the quantum on which the tax has been deducted at source. It was explained that the TDS of Rs. 2,73,958/- was made from rent amount of Rs. 12,27,600/-. It was further explained that the difference pertains to TDS on rent expenses. 31. After considering the facts and the submissions, the ld. CIT(A) observed that the assessee has made total TDS of Rs. 5,19,047/- on total amount of Rs. 4,74,71,878/- and has dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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