TMI Blog2018 (4) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... income from business” while computing deduction u/s.10A - Held that:- Tribunal in Assessee’s own case in AY 2011-12 on identical issue held that interest income arose from fixed deposits that were made out of profits generated from export business and therefore the Assessee was entitled to deduction u/s.10A of the Act on interest income treating the same as part of business income. We are of the view that the source of fixed deposit has to be examined in this AY and since this exercise has not been done by the revenue authorities, we deem it fit to remand the issue to the AO for fresh consideration in the light of the decisions of the Tribunal referred to above. Deduction of loss on account of foreign exchange fluctuation as on the last date of the previous year - addition on the ground that the loss in question was only contingent and hence cannot be allowed - Held that:- a contract has been concluded and a liability has crystallized. In this factual matrix, from the wordings of the Instruction of CBDT, it follows that the loss arising out of the forward contract is not notional. In such a case, the CBDT Instruction requires the Assessing Officer to examine whether such a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover means he consideration in respect of export by the undertaking of art cles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. 4. The AO noticed that while computing export turnover for the purpose of deduction u/s.10A, the Assessee had included a sum of ₹ 91,25,480/- being telecommunication expenses and ₹ 8,07,429 being Insurance expenses. Both the aforesaid expenses had been incurred in foreign currency. The AO therefore excluded the aforesaid sum from the export turnover without excluding them from the total turnover. As a result, the deduction claimed u/s.10A of the Act by the Assessee was allowed at a lesser sum than what was claimed by the Assessee. 5. It was the plea of the Assessee in the appeal against the assessment order before the CIT(A) that at all times during the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by the Assessee is concerned, there are two issues that arise for consideration. The first issue is as to whether the CIT(A) was justified in excluding interest income derived from fixed deposits from income from business while computing deduction u/s.10A of the Act. As far as this issue is considered the Tribunal in Assessee s own case in AY 2011-12 in ITA No.1717/Bang/2017 order dated 2.3.2018, on identical issue held that interest income arose from fixed deposits that were made out of profits generated from export business and therefore the Assessee was entitled to deduction u/s.10A of the Act on interest income treating the same as part of business income. The finding in that year was that the source of fixed deposit was export realization and advances received in the normal course of business. In fact for AY 2010- 11 also the tribunal in ITA No.748/Bang/2016 taken the same view in Assessee s own case and the appeal against that order of the Tribunal was dismissed by the Hon ble Karnataka High Court in ITA No.761/2017 order dated 23.1.2018. We are of the view that the source of fixed deposit has to be examined in this AY and since this exercise has not been done by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The facts of the present case is that the Assessee entered into forward contracts in foreign exchange currency to safe guard against earnings from export on account of exchange fluctuation. The export earnings of the Assessee are received in foreign exchange currency. As a result of fluctuation in exchange rate of foreign currency, the Assessee might receive something less or more than the price at which it had exported its software. To safeguard against adverse fluctuation in foreign exchange and consequent loss, the Assessee entered into forward contracts in foreign exchange. As on the last date of the relevant previous year, the forward contract was subsisting and was not settled. The Assessee as on the last date of the relevant previous year noticed that there was a fluctuation in the foreign exchange rates and consequently as on that date there would be a loss on account of forward contract in foreign exchange and claimed the said loss as a deduction while computing income from business. The AO held that the loss was speculative in nature and cannot be allowed as a deduction. On appeal by the Assessee, the CIT(A) held that the loss is notional and cannot be allowed as a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Standards and the ICAI Guidelines. - The principles enunciated by the Apex Court in the case of CIT Vs. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254/179 taxman 326/312 ITR 254 are applicable to the facts of the ase on hand. 14. The Tribunal held that a contract has been concluded and a liability has crystallized. In this factual matrix, from the wordings of the Instruction of CBDT, it follows that the loss arising out of the forward contract is not notional. In such a case, the CBDT Instruction requires the Assessing Officer to examine whether such a loss is on account of a speculative transaction as contemplated in section 43(5). As discussed earlier, in the case on hand there has been an existing contract with a binding obligation accrued against the assessee when it entered into for ex forward contracts. The forward contracts are in respect of consideration for exports proceeds, which are revenue items. There is an actual contract for sale of merchandise. In this factual matrix, it is clear that the transaction in question will not qualify to be called as speculative transaction. In view of the facts and circumstances of the case on hand, as discussed above ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
