TMI Blog2017 (5) TMI 1742X X X X Extracts X X X X X X X X Extracts X X X X ..... 26-5-2017 - Shri N.R.S. Ganesan, Judicial Member And Shri D.S.Sunder Singh, Accountant Member Appellant by : Mr.Supriyo Pal, JCIT Respondent by : Mr.Anil Nair, CA ORDER D.S.Sunder Singh, This is an appeal filed by the Revenue against the Order dated 16.06.2016 of Commissioner of Income Tax (Appeals)-1, Chennai, in ITA No.119/14-15 (New No.ITA165/CIT(A)-1/2014-15) for the AY 2011-12 and raised the following grounds: 1. The order of the, learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The Ld CIT(A) erred in deleting the disallowance made u/s.14A, without appreciating the fact that earning of exempt income is not the criteria for 14A disallowance, and once exempt income bearing investments are made by the assessee, disallowance u/s.14A becomes mandatory in such cases. 3. The Ld.CIT(A) erred in deleting the 14A disallowance, without appreciating the fact that the 14A disallowance was calculated as per specific formula as detailed under Rule 8D of the IT Rules, and further the deletion goes against the Board s circular No. 5/2014 dated 11.2.2014. 4. The Ld.CIT(A) erred in allowing the exchange fluctuation loss wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion had not earned any dividend income during the year ended 31.3.2011, the AO is directed to delete the addition to the tune of ₹ 17,76,044/- made u/s.14A read with Rule 8D. This ground of appeal is allowed. 4.0 We heard both the parties and perused the material placed before us. The assessee stated before the Assessing Officer (in short AO ) as well as the Ld.CIT(A) that it had not earned the dividend income during the previous year relevant to the AY 2011-12. This fact has not been controverted by the Learned Departmental Representative (is short Ld.DR ). Now the issue is settled by the Hon ble jurisdictional High Court in the case of Redington (India) Ltd. v. ACIT that where there is no exempted income in the relevant year, there cannot be disallowance of expenditure u/s.14A in relation to exempted income. We re-produce here under the relevant paragraphs of the Hon ble Jurisdictional High Court order in Redington (India) Ltd.v.Additional Commissioner of Income-tax, Co. Range-V, Chennai, [2017] 77 taxmann.com 257 (Madras) as under: 15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s so arrived by cancellation of forward contracts is not derived from the business of the assessee and is also not attributable to the business affairs of the assessee and since the transactions which have ended up in such losses, have been ultimately settled otherwise than by the actual delivery of foreign exchange, Sec.43(5)v(a) comes into play and the corresponding losses are to be treated as losses from speculation business. The AO distinguished the decisions relied on by the appellant. 16. I have carefully perused the facts in issue, submissions of the appellant and material on record. It is noted that a similar issue in appellant s own case for A.Y. 2009-10 was allowed by CIT(A)-III, Chennai vide order in ITA No.682/11-12/A-III dated 27.2.2013 and was affirmed by the ITAT, Chennai vide its order in ITA No.1250/Mds/2013 dated 27.8.2013. Further on identical grounds in appellant s own case for AY 2010-11, following the above orders, CIT(A)-1, Chennai, vide order in ITA No.60/13-14 dt. 22.5.2015 decided the issue in favour of the appellant. Respectfully following the same, the plea made by the appellant needs to be upheld. Accordingly, this ground of appeal is allowed. 5.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business loss. Revenue was of the opinion that the loss was speculative in nature. Bombay High Court following the decision of the Calcutta High Court in the case of Soorajmull Nagarmull (supra) held that the expenditure would not be covered under section 43(5) of the Act as speculative transaction. It was observed as under: The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee's regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under section 43(5) of the Income-tax Act, speculative transaction has been defined to mean a transaction in which a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as state above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt held that it was not a hedging transaction since there was no evidence that the assessee had adequate stock of raw materials to the extent of hedging transactions. In the case of Joseph John (supra), the Apex Court observed that the burden of proof is upon the assessee to show that the transaction is not speculative transaction but a hedging transaction and further that the finding of the Tribunal that the transaction carried out by the assessee is speculative in nature and not hedging transactions is essentially a finding on a question of fact. The above noted decisions do not directly touch the controversy arising in the present appeal. We find that the decisions of the Bombay High Court and the Calcutta High Court noted above would cover the situation. Tax appeal is therefore dismissed. 25. In the present case, we find that the assessee has incurred loss relating to its business only and in view of the decision of the Hon ble Gujarat High Court in the case of CIT v. Panchmahal Steel Ltd. (supra), this ground of appeal raised by the Revenue is dismissed. Since facts of the assessee s case are the same. Respectfully following the decision of the Hon ble ITAT in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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