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TMI Blog2014 (3) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT (A) had erred in confirming the order of the Ld. ACIT disallowing the claim of Rs. 3,74,00,160/- being the additional depreciation not allowed in the preceding year on the asset put to use by the assessee for less than 180 days. (ii) The Ld. CIT (A) had erred in directing the Ld. ACIT to apply Rule 8D for the purpose of disallowance U/s. 14A of the Act, even when the said Rule has been introduced in the statute only w.e.f 24.03.2008 and hence not applicable to the relevant assessment year. Additional Grounds: (iii) The Revenue had erred by treating the remission of sales tax liability as income of the assessee U/s. 41(1) of the Act. 2.2. Concised lone ground of the assessee in ITA No.06/Mds./10:- (i) The Ld. CIT (A) had erred in disallowing expenses of Rs. 7,24,785/- related to earnings from dividend income by applying Rule 8D of the Act. 2.3. Concised lone ground of the Revenue in ITA No.251/Mds./10:- (i) The Ld. CIT (A) had erred in holding that loss on account of exchange fluctuation should be allowed to the assessee as claimed by it. 3. The brief facts of the case are that the assessee is a limited company, engaged in the business of manufacturing of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and the various submissions made by the AR. I find that the provisions of the Act are very clear. The second proviso to section 32(1), which restricts the depreciation to 50% of the percentage prescribed in respect of assets used for less than 180 days is applicable for additional depreciation also. There is no provision in the act to carry forward and allow the balance depreciation in the next year. Further the additional depreciation is allowable only in respect of new machinery or plant that has been acquired, when the balance 50% of the additional depreciation is proposed to be claimed, the assets are not new machinery or plant eligible for additional depreciation. These assets form part of the opening written down value of the assets. Therefore, these are not entitled for the said additional depreciation. I am therefore of the considered opinion that the claim of the appellant on this ground cannot be allowed. This ground of appeal is therefore dismissed." 3.1.(iii) After hearing both sides and on carefully examining the issue, we find that the matter is held against the assessee by the Tribunal in assessee's own case in ITA No.2136/Mds./2010 for the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mated as the expenses related for earning the dividend income and accordingly disallowed the same. However, when the matter cropped up before the Ld. CIT (A), the Ld. CIT (A) held that, Rule 8D of Income Tax Rules, 1962 has to be applied in making such disallowance. Before us, Ld. A.R. pointed out that the Rule 8D of the Rules is not applicable for the relevant assessment year 2006-07 since it came into force w.e.f 24.03.2008 by the 5th Amendment Rules, 2008. Ld. A.R. further relied on the decision of the Godrej & Boyce Vs. DCIT [2010] 328 ITR 81 (Bom.), wherein it was held that the AO can adopt a reasonable basis for apportioning the disallowable expenses. Ld. D.R. supported the order of the Ld. CIT (A). After hearing both sides and carefully perusing the materials on record, we find that Rule 8D of the Income Tax Rules is not applicable in the case of the assessee because it came into effect only w.e.f 24.03.2008. Prior to this date the decision pointed out by the Ld. A.R. would be applicable. In these circumstances, we are of the considered view that Ld. Assessing Officer reasonably estimated the disallowable expenses being 2% of dividend income earned by the assessee amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Tribunal in ITA No.91/Mds,/2011 for the assessment year 2007-08 which is reproduced herein-below for reference:- "8. The assessee has raised additional grounds of appeal with regard to deferred payment of Sales tax collected. This issue was not raised before the lower authorities. The assessee has retained sales tax collected from customers during the period between 1998-99 to 2004-05 to be paid to the Government in the year 2008-09 onwards in accordance with the scheme introduced by the Government of Maharashtra. The state Government for early recovery of sales tax collected, gave liberty to the assessees to preceding assessment year future sales tax liability on net present value basis. Under the scheme, the assessee opted for early repayment at discounted value and thus, difference of Rs. 87,21,582/- arose, which was treated as 'income from other sources'. The ld. Counsel has contended that the said difference does not amount to remission of liability U/s. 41(1) of the Act. The Special Bench of the Tribunal in the case of Suzler India Ltd. Vs. JCIT (supra), has held that payment of net present value fo the future liability cannot be classified as remission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicated by the Special Bench of the Tribunal. Therefore, respectfully following the same, this ground of appeal of the assessee is allowed." 3. 3.(vi) However, from the above it is apparent that this issue was neither before the Ld. Assessing Officer nor before the Ld. CIT (A) for consideration. Therefore, in the interest of justice we hereby remit the matter back to the file of Ld. Assessing Officer for consideration and to decide the matter according to law and merits. 4. Grounds of the assessee in ITA No.06/Mds./10:- 4.1. Disallowance of expenditure U/s. 14A by applying Rule 8D: Since in the assessee's appeal in ITA No. 43/Mds./10 for the relevant assessment year 2006-07, this issue is decided by us hereinabove by confirming the order of the Ld. Assessing Officer, this appeal has become infructuous and dismissed as such. 5. Grounds of the Revenue in ITA No.251/Mds./10:- 5.1. Disallowance of Loss on account of exchange fluctuation During the course of assessment proceedings, it was noticed by the Ld. Assessing Officer that in the notes to accounts of the assessee in accordance with AS-11 for disclosure or foreign currency transaction, an amount of Rs. 109 lakhs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rumental transactions as an expenses incurred for the purposes of business, since it is contingent in nature. For the aforesaid reasons, the Ld. Assessing Officer added the amount of Rs. 1,08,49,000/- to the income of the assessee for the relevant assessment year. 5.3. The Ld. CIT (A) after examining the issue arrived at the following conclusion:- "3.6. I have carefully considered the facts of the case and the various submissions made by the appellant. Merely because there is no specific provision in the Act, it cannot be said that a particular expenditure or loss can be disallowed. Each expenditure or loss has to be seen in the context in which it was incurred. It is not disputed that the appellant had substantial transactions in foreign exchange and therefore, it is natural that it had to take hedge against potential loss. Though the term used 'derivative' the transactions are basically taking foreign exchange contract hedge against fluctuations. 3.7. The variation in the rate of exchange in the currencies arise mainly on account of (1) demand and supply of currencies in the international market based on their intrinsic value and (2) on account of devaluation done by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was held by the Supreme Court in the case of Ld. CIT vs Cananar Bank (63 ITR 328) that the loss on account of fluctuation of exchange which arise in the course of trading operations and which is incidental to trading operations is allowable as deduction. In the instant case the loss has arisen in the course of appellants trading operation only. This view is also supported by the decision of Bombay High Court in the case of CIT Vs. Bank of India (218 ITR 371). Further the decision of Apex Court in CIT vs. Woodward Governor India P. Ltd. (312 ITR 254) also fortifies the case of the appellant. The Hon'ble Court in that case had observed as under:- "Loss" suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the Balance Sheet date is an item of expenditure U/s. 37(1) of the Income Tax Act, 1961. As clearly laid down by the Supreme Court the loss incurred by the appellant on account of exchange fluctuations has to be allowed as deduction. Respectfully following the above decisions, the claim of the appellant is allowed." 5.4. Before us Ld. A.R. submitted that the appellant was engaged in the business of auto components and for that purpose he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, these transactions cannot be considered as speculative transaction of the assessee. These transactions had arisen only due to the international business transaction of the assessee in order to protect itself from foreign exchange fluctuation. Accordingly, any expenditure related to the same has to be treated as expenditure incurred in the ordinary course of the business of the assessee and shall be allowed as an deduction under the provisions of the Act and shall not be considered as speculative business transaction. Since the facts are not clear from the order of the Ld. Assessing Officer and the Ld. CIT (A); like our predecessors we hereby remit back the matter to the file of Ld. Assessing Officer for verifying the nature of loss incurred and consider the issue on transaction to transaction basis and decide according to law and merits. 6. In the result, the appeal of the assessee in ITA No.43/Mds./10 is partly allowed for statistical purposes, the appeal of assessee in ITA No.06/Mds./12 is dismissed as infructuous and the appeal of the Revenue in ITA No.251/Mds./10 is allowed for statistical purposes as indicated herein above. Order pronounced on 14th March, 2014 at C ..... 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