DCIT Vs Oscar Investment Ltd (ITAT Delhi)
ITAT Delhi held that AO duly accepted foreign exchange gain offered to taxation in earlier Assessment Year, hence AO cannot disallow foreign exchange loss assuming it to be a contingent loss in the year under consideration.
Facts-
The Revenue is aggrieved by the deletion of disallowance u/s 14A of the Income-tax Act, 1961 r.w.r 8D of the ITAT Rules, 1963 amounting to Rs. 5,52,52,182/- and secondly, the Revenue is aggrieved by the deletion of addition on account of disallowance of foreign exchange loss of Rs. 11,48,23,000/-.
AO noticed that assessee has earned income not forming part of total income in nature of dividend exempt u/s 10(34)/ 10(35) of the Act. Hence, the assessee was asked to explain why the disallowance should not be made as per section 14A r.w.r. 8D of the Rules.
Notably, the forex gain /loss on such Swap transaction of loan was to be borne by the assessee. The Assessing Officer was of the firm belief that since the liability of the assessee was outstanding in foreign currency, which has resulted loss to the assessee due to fluctuation and since there is no settlement of transaction, loss is clearly a notional loss and was, accordingly, disallowed by the Assessing Officer.
Conclusion-
In our considered opinion, interest cost of Rs. 18.44 crores taken by the Assessing Officer in computing the disallowance is contradictory to the facts discussed hereinabove and therefore, the computation of disallowance made by the Assessing Officer on erroneous facts cannotbe accepted and therefore, the findings of the ld. CIT(A) cannot be faulted with. Accordingly, the grievance of the Revenue is dismissed on the facts of the case in hand.
Foreign exchange fluctuation gain in AY 2010-2011 and 2011-2012 is duly credited to profit and loss account and duly offered to taxation. Following the same principle, the assessee has claimed the loss incurred during the year under consideration and the same cannot be disallowed by AO assuming it to be a contingent loss because when there was gain, AO taxed the same. Hence, the deduction on account of foreign exchange loss suffered by the appellant during the year is duly allowable as loss incurred during the year.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the Revenue is preferred against the order of the CIT(A) – XVI, Delhi dated 27.12.2013 pertaining to Assessment Year 2009-10.
2. The grievances of the Revenue is two-fold – firstly, the Revenue is aggrieved by the deletion of disallowance u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as ‘The Act’] r.w.r 8D of the ITAT Rules, 1963 amounting to Rs. 5,52,52,182/- and secondly, the Revenue is aggrieved by the deletion of addition on account of disallowance of foreign exchange loss of Rs. 11,48,23,000/-.
3. The representatives of both the sides were heard at length, the case records carefully perused.
4. Briefly stated, the facts of the case are that the assessee company is engaged in the business of investing/dealing in shares and securities and financing activities.
5. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has earned income not forming part of total income in nature of dividend exempt u/s 10(34)/10(35) of the Act.
6. The assessee was asked to explain why the disallowance should not be made as per section 14A r.w.r 8D of the Rules.
7. In its reply, the assessee stated that the assessee’s company’s own funds are far too excess of its investments.
8. It was explained that the assessee’s own fund as on 31.03.2009 were at Rs. 1,292.24 crores whereas the investments were at Rs. 201.74 crores. However, since the investments as on 01.04.2008 were more than its own funds, the assessee suo motto computed the disallowance u/s 14A of the Act at Rs. 2,39,59,0968/-.
9. Computation of disallowance made by the assessee was not accepted by the Assessing Officer who proceeded by computing his own disallowance as under:
