TMI Blog2017 (8) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... rest, we modify the order passed by Ld CIT(A) on this issue and direct the Assessing Officer to make a disallowance of ₹ 5000/- out of administrative expenses to meet the requirements of 14A of the Act and in our view the same would meet the ends of justice. Addition relating to foreign exchange gains - income disclosed on non-qualifying ship - Held that:- In the instant case, assessee has accounted for the foreign exchange differences arising on ECB loan as per the Accounting Principles and hence the same is required to be ignored for the purpose of computing total income as per the provisions of section 43A of the Act as held in the case of Vodafone East Ltd (2015 (9) TMI 1358 - ITAT KOLKATA). In respect of foreign exchange g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee owned qualifying ships (as per tonnage tax scheme) and non-qualifying ships. Accordingly it offered its income under tonnage scheme for qualifying ships and under Regular Provisions of the Act for non-qualifying ships. The assessing officer, inter alia, added a sum of ₹ 14.26 lakhs us. 14A of the Act and also added foreign exchange gains of ₹ 921.33 lakhs to the total income of the assessee. The learned CIT(A) partly confirmed both the additions referred above. Still aggrieved, the assessee has filed this appeal before us. 4. First issue relates to addition made u/s. 14A of the Act. Learned AR submitted that the assessee earned dividend income of ₹ 2.22 lakhs from mutual fund units and claimed the same as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for as per decision rendered by Hon'ble Jurisdictional High Court in the case of HDFC Bank Ltd. Vs. DCIT (366 ITR 505). We noticed that the assessee has held investments in three schemes of mutual funds and all of them have been liquidated during the year. Accordingly, we are of the view that there is merit in the contentions of the assessee that the provisions of Rule 8D(2)(iii) of the I.T. Rules should not be applied in the facts and circumstances of the case. Since the assessee has received dividend income and since there were activities relating to liquidation of mutual funds, we are of the view that some amount should be disallowed u/s 14A of the Act. Accordingly, in order to put this issue at rest, we modify the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the contentions of the assessee that net foreign exchange gain of ₹ 7.68 crores only should be considered for the purpose of addition. The learned CIT(A) noticed that foreign exchange gain has arisen to the assessee out of loan transactions, whereas in the case of Tag Offshore Ltd. (supra), foreign exchange gain arose on revenue account, i.e., out of debtors and creditors balances. Accordingly, he held that entire amount of net foreign exchange gain is taxable in the hands of the assessee under normal provisions of the Act. Before, the learned CIT(A), the assessee submitted that proportionate gain of ₹ 14.74 lakhs relating to non-qualifying ship (not covered under tonnage tax scheme) has already been offered by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. There is no dispute that the provisions of section 43A of the Act would become applicable for recognizing the exchange fluctuation if the loan was obtained for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section 43A of the Act, the said gain needs to be reduced from the taxable income. We also find that the Learned Assessing Officer having accepted to the facts of the case and the relevant provision of the Income Tax Act in his remand report, ought not to have come on appeal before us on this issue. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the differences are required to be adjusted against the cost of asset at the time of making actual payment. In the instant case, assessee has accounted for the foreign exchange differences arising on ECB loan as per the Accounting Principles and hence the same is required to be ignored for the purpose of computing total income as per the provisions of section 43A of the Act as held in the case of Vodafone East Ltd (supra). 13. In respect of foreign exchange gain difference arising on other items, we noticed that the assessee has allocated the gain between the qualifying ships and non-qualifying ships. Income from qualifying ships is computed under tonnage tax scheme. Since the exchange difference on other items have arisen out of shipp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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