Ambattur Clothing Ltd., CHENNAI V. DCIT, CHENNAI

ITA 910/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96610 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIB KUMAR HOTA IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Principle of natural justice; Earning of tax free income; Speculation loss; Onus to prove
• Section: 234B; 14A; 43(5); 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . !' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A. NOS.1436, 1643/MDS/2014, 910/MDS/2015 ( / ASSESSMENT YEAR : 2008-09, 2009-10 & 2010-2011) M/S. AMBATTUR CLOTHING LTD, NO.86, E-2, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058 [PAN: AAACA 4127D] ( &' /APPELLANT) VS THE JOINT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI. ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. T. BANUSEKAR, C.A. / RESPONDENT BY : SHRI. RAJIB KUMAR HOTA, IRS, CIT. /DATE OF HEARING : 12.10.2015 /DATE OF PRONOUNCEMENT : 28.12.2015 * / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) -I, CHENNAI, FOR THE ABOVE ASSESSMENT YEARS. I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 2 -: 2. FIRST WE TAKE UP ITA NO.1436/MDS/2014 FOR ADJUDICAT ION. THE FIRST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT ORDER PASSED BY THE LOWER AUTHORITIES IS OPPOSED TO THE PRINCIPL ES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY. THIS GROUND WAS NOT PRESSED BY THE LD. AUTHORISED REPRESENTATIVE AT THE TIME OF HEARING. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED. 3. THE NEXT GROUND IN ITA NO.1436/MDS/2014 RAISED BY T HE ASSESSEE IS WITH REGARD TO DISALLOWANCE U/S.14A OF THE ACT BY INVOKING RULE 8D OF THE INCOME TAX RULES, 1962. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICE R DISALLOWED F94,83,093/- BY INVOKING PROVISIONS OF SEC.14A R.W. RULE 8D(II) OF THE ACT. THE CONTENTION OF THE LD. AUTHORISED REPRESEN TATIVE IS THAT THE ASSESSEE NOT INCURRED ANY EXPENDITURE IN EARNING EX EMPT INCOME THEREFORE NO NOTIONAL EXPENDITURE CAN BE DISALLOWED . THE INVESTMENT MADE WAS FROM FREE FUNDS AND NO BORROWED FUNDS WERE UTILIZED FOR MAKING SUCH INVESTMENTS. THE BORROWED FUNDS ARE IN THE NATURE OF EXPORT PACKING CREDIT, EXPORT BILL DISCOUNTING AND TERMS LOANS WHICH WERE MEANT FOR SPECIFIC PURPOSE AND WERE USED FOR THAT PURPOSE ONLY. THE DISALLOWANCE AT THE RATE OF 5% OF AVERAGE OF IN VESTMENT IS ON I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 3 -: HIGHER SIDE. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY SPECIFIC REASON AS PER THE MANDATE OF SEC. 14A(2) BEFORE INV OKING RULE 8D. HE RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF TVS INVESTMENTS LTD VS. ACIT IN ITA NO.1609/MDS/2012, DATED 29.01.2013 AND IN THAT CASE THE TRIBUNAL HELD THAT 2% OF THE DIVIDEND INCOME CA N BE TAKEN AS EXPENDITURE FOR EARNING SUCH INCOME AND THE SAME MA Y BE ADOPTED IN THIS CASE ALSO. THE LD. AUTHORISED REPRESENTATIVE FURTHER RELIED ON THE FOLLOWING ORDERS OF THE VARIOUS HIGH COURTS AND TRI BUNALS:- A. CIT VS HERO CYCLES (323 ITR 518) P & H HIGH COURT. B. DCIT VS. JINDAL PHOTO LTD IN ITA NO.4539/DEL/2010, DT. 22.12.2010. C. AUCHTEL PRODUCTS VS. ACIT IN ITA NO.3183/MUM/2011, DT. 30.4.2012. D. JUSTICE SAM P. BHARUCHA VS. ACIT IN ITA NO.3859/MUM /2011. E. CIT VS. HOTEL SAVERA 23 ITR 795 MAD. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT, IF AT ALL, THE EXPENSES CAN BE REASONABLY ESTIMATED AS BEING ATTRI BUTABLE TO MANAGEMENT OF INVESTMENT PORTFOLIOS, SALARY AND ASS OCIATED ADMINISTRATIVE EXPENSES, THE EXPENSES MAY BE RESTRI CTED TO 2% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE IN THE CURRE NT YEAR. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 4 -: 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. THOUGH RULE 8D OF INCOME TAX RULES 1962 I S NOT APPLICABLE, AND PROVISIONS OF SEC.14A OF THE ACT IS ONLY APPLIC ABLE FOR THE ASSESSMENT YEAR 2008-2009 AS THE RULE WAS INTRODUCE D W.E.F. 24.03.2008. THE ASSESSEE MIGHT HAVE INCURRED CERTA IN ADMINISTRATIVE EXPENDITURE TO EARN THIS INCOME. BEING SO, AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S . SIMPSON AND COMPANY LTD VS. DCIT IN T.C.(A) NO.2621 OF 2006 DECIDED ON 15.10.2012 , WE ARE INCLINED TO DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEM PT INCOME TOWARDS EXPENDITURE INCURRED TO EARN EXEMPT INCOME. THIS G ROUND OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. THE NEXT GROUND RAISED BY THE ASSESSEE IN THIS APPE AL IS WITH REGARD TO EXCLUSION OF INTEREST ON THE MARGIN MONEY DEPOSITED WITH THE BANK WHILE COMPUTING THE DEDUCTION U/S.10B OF THE A CT. 8. THE LD. AUTHORISED REPRESENTATIVE CONTESTED THE SAI D DISALLOWANCE AND SUBMITTED THAT THE ASSESSEE HAS CL AIMED DEDUCTION U/S.10B ON INTEREST INCOME FROM BANK DEPOSITS, THE INCOME IS NETTED OFF AGAINST THE BUSINESS INCOME. THE ASSESSEE EARN ED THE INTEREST INCOME ON DEPOSIT GIVEN AS COLLATERAL SECURITY FOR OBTAINING EXPORT I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 5 -: CREDIT WHICH HAS DIRECT NEXUS WITH THE INDUSTRIAL U NDERTAKING AND SHOULD BE TREATED AS INCOME DERIVED FROM THE ASSESS EES UNDERTAKING AS PROFITS AND GAINS OF BUSINESS. THE LD. AUTHORIS ED REPRESENTATIVE RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES P. LTD 247 CTR 372, THE ASSESSEE HAS CLAIMED THAT IF THE INTEREST INCOME IS EXCLUDED FROM THE CO MPUTATION U/S.10B AND TREATED AS INCOME FROM OTHER SOURCES, THE CORRE SPONDING EXPENDITURE FOR EARNING SUCH INTEREST WILL HAVE TO BE EXCLUDED AS PER SECTION 57(III) OF THE ACT. 9. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. SIMILAR ISSUE WAS CONSIDERED BY MADRAS HIG H COURT IN THE CASE OF DOLLAR APPARELS VS. ITO (294 ITR 484) WHEREIN IT WAS HELD THAT INTEREST ON DEPOSITS WITH BANK EVEN ASSUMING THAT THE BANK HAD INSISTED FOR MAKING SHORT TERM DEPOSITS FOR OPENING LETTERS OF CREDIT IS NOT INCOME DERIVED FROM EXPORT BUSINESS HENCE NOT E LIGIBLE FOR DEDUCTION U/S.80HHC. BEING SO, APPLYING THIS SAME RATIO, WE ARE INCLINED TO DISMISS THIS GROUND OF THE ASSESSEE. I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 6 -: 11. THE LAST GROUND RAISED BY THE ASSESSEE IS WITH RE GARD TO LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. S INCE, THE INTEREST IS CONSEQUENTIAL AND MANDATORY IN NATURE, THE SAME TO BE CONSIDERED BY ASSESSING OFFICER WHILE PASSING CONSEQUENTIAL OR DER. WITH THESE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS DISMISS ED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1436/MDS/2014 IS PARTLY ALLOWED. 13. NOW, WE TAKE UP ITA NO.1643/MDS/2014 AND ITA NO.910/MDS/2015 FOR ADJUDICATION:- THE FIRST COMMON GROUND RAISED IN THESE TWO APPEALS ARE WITH REGARD TO VIOLATION O F PRINCIPLES OF NATURAL JUSTICE. THIS GROUND OF THE APPEAL OF THE ASSESSEE IS DISMISSED HAS NOT PRESSED. 14. THE NEXT COMMON GROUND RAISED IN THESE APPEALS ARE WITH REGARD TO DISALLOWANCE U/S.14A READ WITH RULE 8D O F THE ACT. 15. THE FACTS AS NARRATED IN ASSESSMENT YEAR 2009-2010 ARE THAT THE ASSESSEE ACCOUNTED AN AMOUNT OF F29,55,654/- AS DIV IDEND DURING THE YEAR AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF T HE ACT. AS PER THE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 7 -: PROVISIONS OF SEC.14A OF THE ACT, NO DEDUCTION SHAL L BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ASSESSING OF FICER HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE COUNSEL STA TING THAT ASSESSEE HAS INCURRED AN AMOUNT OF F10,11,58,000/- AS INTER EST ON ITS BORROWED CAPITAL DURING THE YEAR. THOUGH THE ASSES SEE CLAIMED THAT SUCH BORROWED FUNDS WERE NOT UTILIZED FOR MAKING IN VESTMENT, IT COULD NOT CLEARLY ESTABLISH THE SAME. FUNDS FOR A COMPAN Y CAME IN A COMMON KITTY AND IT COMPRISES OF BORROWED FUNDS, SH ARE CAPITAL AND RETAINED EARNINGS (RESERVES AND SURPLUS). THEREFORE , THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE THAT NO PORTION O F INTEREST PAID TO INVESTMENT IS NOT VALID. FURTHER, IT IS LOGICAL TO CONCLUDE THAT A PORTION OF THE ROUTINE EXPENDITURE TO MAINTAIN ITS ESTABLIS HMENT AND ADMINISTRATION CAN BE ATTRIBUTABLE TOWARDS THE ACTI VITY OF MAKING INVESTMENTS TO EARN DIVIDEND. FURTHER, IT IS THE F ACT THAT THE MANAGERIAL STAFF AND DIRECTORS ASSOCIATED ENTERPRIS E INVOLVED IN MAKING DECISION ON INVESTMENTS. HENCE, A PORTION O F THIS MANAGERIAL REMUNERATION AND DIRECTORS REMUNERATION DEFINITELY BE ATTRIBUTABLE TOWARDS EARNING SUCH EXEMPT INCOME AND TO FURTHER T O DETERMINE THE EXPENSES ATTRIBUTABLE TO EARNING SUCH EXEMPT INCOME , THE FINANCE ACT, 2006 HAD BROUGHT IN THE PROVISIONS OF SEC.14A(2) WH ICH REQUIRES THE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 8 -: ASSESSING OFFICER TO DETERMINE THE EXPENSES ALREADY RELATING TO AN EXEMPT INCOME IN ACCORDANCE WITH RULE 8D. THE ASSES SING OFFICER PLACED RELIANCE ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. DCIT , WHEREIN IT WAS HELD THAT DISALLOWANCE UNDER RULE 8D R.W.S. 14A(2) IS FAIR AND REASONABLE. ACCORDINGLY, THE ASSESSING OFFICER MADE DISALLOWANCE OF F9,91,59,315 /- U/S.14A OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE COMMISSIONER OF INCOME TAX (APPEALS). 16. ON APPEAL, THE COMMISSIONER OF INCOME TAX OBSERVED THAT THE AO HAS MADE DISALLOWANCE BY INVOKING LIMBS (II) & ( III) OF RULE 8D(2). THE AO HAS GIVEN OPPORTUNITY TO THE ASSESSEE TO EXP LAIN THE EXPENDITURE RELATABLE TO EXEMPT INCOME. ON BEING NO T SATISFIED WITH THE EXPLANATION, THE AO HAD MADE THE DISALLOWANCE B Y INVOKING PROVISIONS OF S.14A R.W. RULE 8D. THE AO HAS NOTIC ED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME BUT NOT DISAL LOWED ANY EXPENDITURE RELATABLE TO EARNING OF SUCH INCOME EVE N THOUGH IT HAS DEBITED SEVERAL EXPENSES IN EARNING INCOME DURING T HE YEAR. THE AO IS OF THE OPINION THAT SOME EXPENDITURE, DIRECT OR IND IRECT, MUST HAVE BEEN INCURRED AND SUCH EXPENDITURE SHOULD BE DISALL OWED AS PER I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 9 -: SEC.14A. THE ASSESSING OFFICER WENT BY THE PRINCIP LE EX NIHILO NIHIL FIT (OUT OF NOTHING NOTHING COMES). FURTHER, 14A(3) ITSELF STATES THAT, THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO APPL Y IN RELATION TO A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 16.1 WHICH MEANS TO SAY THAT PROVISIONS OF SEC.14 A ARE APPLICABLE EVEN IF THE ASSESSEE CLAIMS THAT IT HAS NOT INCURRE D ANY EXPENDITURE IN EARNING EXEMPT INCOME. WITH REGARD TO SATISFACTION/ REASONING OF THE AO IN REJECTING THE CLAIM OF THE ASSESSEE, THE ITAT MUMBAI IN THE CASE OF AUCHTEL PRODUCTS V. ACIT IN ITA NO.3183/MUM/2011 DA TED 30.4.2012 HELD THAT SATISFACTION OF AO IS THE SINE QUA NON FOR DISALLOWANCE U/S 14A. HOWEVER, THIS SATISFACTION SH OULD BE WITH DUE REGARD TO THE 'ACCOUNTS'. THE PROVISIONS OF S.14A(2 ) STATES THAT ' .. .. IF THE ASSESSING OFFICER, HAVING REGARD TO THE A CCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH CORRECTNESS OF THE CLAIM OF THE ASSESSEE, .... '. 16.2 IN THE CASE OF CIT V. HERO CYCLES LTD (323 ITR 518) (P&H) (2010) THIS FACTUAL REQUIREMENT HAS BEEN LAID OUT VERY CL EARLY. IT READS AS UNDER (PARA 4): 'DISALLOWANCE UNDER SEC.14A REQUIRES FINDING OF INC URRING OF EXPENDITURE, WHERE IT IS FOUND THAT FOR EARNING EXE MPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWAN CE U/S 14A. CANNOT STAND.' I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 10 -: THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS TH AT READING OF THIS DICTUM SHOWS THAT THE FIRST PART OF THE SENTEN CE BESTOWS THE RESPONSIBILITY ON THE AO TO GIVE A FINDING THAT THE RE IS AN EXPENDITURE INCURRED RELATABLE TO EXEMPT INCOME. SO FAR AS THE SECOND PART IS CONCERNED, IT IS INCUMBENT ON THE PART OF THE ASSES SEE TO GIVE A SIMILAR FINDING THAT THERE IS NO SUCH EXPENDITURE W HICH HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. OF COURSE, BOTH FINDINGS SHOULD BE 'HAVING REGARD TO THE ACCOUNTS'. WHEN THE DETAIL S OF EXPENDITURE - DIRECT, INDIRECT, INTEREST EXPENDITURE, INVESTMENT, USE OF OWN FUNDS, UTILITY OF SECURED LOANS, TRADE PROFITS OF THE YEAR , ETC., - RELATABLE TO EXEMPT INCOME AND TAXABLE INCOME, ARE NOT FORTHCOMI NG IN THE FORM OF SEPARATE ACCOUNTS, THEN THE AO IS AT LIBERTY TO INVOKE THE PROVISIONS OF S.14A R.W. RULE 8D(2) AND ARRIVE AT AN AMOUNT FO R DISALLOWANCE. IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD V. DCIT (328 ITR 81) (2010) (BOM.), IT MADE IT AMPLY CLEAR (PARA 67) THAT, 'EVEN IN THE ABSENCE OF SUB-SECTION (2) AND (3) OF SECTION 14A AND OF RULE 8D, THE AO WAS NOT PRECLUDED FROM MAKING APPOR TIONMENT. SUCH AN APPORTIONMENT WOULD HAVE TO BE MADE IN ORDER TO GIVE EFFECT TO THE SUBSTANTIVE PROVISIONS OF SUB-SEC (1) OF S. 14A WHI CH PROVIDES THAT NO DEDUCTION WOULD BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. CONSEQUENTLY, DE HORS THE PROVISIONS OF SUB-SEC (2) AND (3) OF SEC.14A AND RULE 8D, THE ASSESSING OFFICER WAS ENTI TLED TO DETERMINE BY THE APPLICATION OF A REASONABLE METHOD AS TO WHA T QUANTUM OF THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD HAVE TO BE DISALLOWED ON I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 11 -: THE GROUND THAT IT WAS INCURRED IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 16.3 FROM THE ASSESSEE'S SIDE IT SHOULD COME FORWAR D WITH EVIDENCE/FINDING TO SHOW THAT THERE WAS NO SUCH EXP ENDITURE INCURRED FOR EARNING EXEMPT INCOME. THE SIMPLE RHETORIC THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THEREFOR E INVOKING OF S.14A IS NOT CORRECT, IS NOT ACCEPTABLE. THEREFORE, WHEN THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN THE ABSENCE OF DETAILED ACCOUNTS, WE CANNOT FIND FAULT WITH THE AO WHEN HE MAKES DISALLOWANCE BY INVOKING PROVISIONS OF S.1 4A. IN MY OPINION THIS IS A SUFFICIENT REASON FOR AO'S DISSATISFACTIO N AND INVOKING OF THE PROVISIONS. BEFORE ME ALSO, THE ASSESSEE HAS NOT PR ODUCED ANY COGENT EVIDENCE TO SHOW THAT IT HAS NOT INCURRED ANY EXPEN DITURE FOR EARNING EXEMPT INCOME EXCEPT GIVING VERBAL ARGUMENTS. THERE FORE, I AM SATISFIED THAT AO HAS RIGHTLY INVOKED THE PROVISION S. WITH REGARD TO ONUS, THE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE C ASE OF DAGA CAPITAL MANAGEMENT P LTD (117 ITD 169) (2008) HAS OBSERVED THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARYANA LAND RECLAMATION AND DEVELOPMENT CORPORATION (302 ITR 21 8 ) WHEREIN IT HAS HELD THAT, 'FROM THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH C OURT IN HARYANA LAND RECLAMATION & DEVELOPMENT CORPN. V. CIT I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 12 -: (2008) 302 ITR 218, TWO THINGS ARE NOTICEABLE, VIZ., FIRST, THE ONUS TO PROVE THAT THE EXPENDITURE WAS INCURRED IN THE TAXABLE BUSINESS OPERATIONS AND NOT THE EXEMPT INCOME IS UP ON THE ASSESSEE AND SECONDLY.' 16.4 WITH REGARD TO ANOTHER LINE OF ARGUMENT THAT T HE INCOME DISALLOWED IS MORE THAN THE DIVIDEND INCOME EARNED, IT IS DECIDED IN THE CASE OF CHEMINVEST LTD (121 ITO 318) (2009) (DEL) (SB) THAT DISALLOWANCE U/S 14A R.W.RULE 8D CAN BE MADE IRRESP ECTIVE OF THE FACT WHETHER THE ASSESSEE HAS EARNED EXEMPT INCOME OR NO T DURING THAT YEAR. THIS VIEW IS FURTHER SUPPORTED BY THE LATEST BOARD'S CIRCULAR NO.5/2014 DATED 11.2.2014. HAVING OWN FUNDS AND NO BORROWED FUNDS WERE USED FOR INVESTMENT EARNING EXEMPT INCOM E IS ALSO NOT ACCEPTABLE IN VIEW OF THE RECENT DECISION OF THE MA DRAS HIGH COURT IN THE CASE OF BEACH MINERALS COMPANY P LTD IN T.C. (A PPEAL) NO.681 OF 2013 DATED 2.12.2013 WHEREIN IT WAS HELD THAT THE MERE FACT OF THE AVAILABILITY OF 46 CRORES AN D ODD BY ITSELF CANNOT BE TAKEN AS FURNISHING OF GOOD EXPLANATION A S REGARDS THE INVESTMENT. EVEN WITH THE RESERVES & SURPLUS FI GURE QUOTED IN THE BALANCE SHEET, WE FEEL THAT THE ASSES SEE HAS THE RESPONSIBILITY OF EXPLAINING THE INTEREST EXPENDITU RE OF 4.09 CRORES THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD (213 ITR 340), WHICH STATES THAT IF INTEREST-FREE OWN FUNDS ARE AVAILABLE, IT CAN BE PRESUMED THAT INVEST MENTS WERE MADE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 13 -: FROM INTEREST-FREE FUNDS IS ALSO NOT ACCEPTABLE FOR THE SIMPLE REASON THAT THIS IS ONLY A PRESUMPTION WHICH HAS NO RELEVA NCE IN THE PARIANCE OF LAW. THEY HAVE NOT LAID DOWN ANY FORMULA OR RULE AND THE CASE IS DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. WITH REGARD TO SECURED LOANS, THE APPELLANT HAS TO PROVE THAT THE LOANS BORROWED WERE FOR A SPECIFIC PURPOSE AND THE SAME WERE UTILI ZED ONLY FOR THAT SPECIFIC PURPOSE AND NOT INVESTED IN THE AVENUES WH ICH HAVE EARNED EXEMPT INCOME. EVEN THIS ARGUMENT ALSO HAS TO BE TA KEN WITH A PINCH OF SALT SINCE THERE IS A POSSIBILITY OF PARKING THE IDLE FUNDS FOR TEMPORARY PERIOD IN EXEMPT INCOME EARNING AVENUES A ND RECOUPED WITH THE OTHER SURPLUSES OF THE YEAR DURING THE COU RSE OF TIME. IT IS ASTONISHING TO NOTE THAT THE APPELLANT IS KEEN TO K EEP RECORD OF THE EXPENSES RELATABLE TO TAXABLE INCOME WHEREAS IT IS NOT SO KEEN TO KEEP THE TRACK OF THE EXPENDITURE RELATABLE TO EXEMPT IN COME. WHEN THE APPELLANT SHOWS EXPENDITURE RELATABLE TO EARNING OF VARIOUS HEADS OF INCOME IN ITS P&L ALC BUT UNABLE TO SEPARATE THE EXPENDITURE RELATABLE TO EXEMPT INCOME AND TAXABLE INCOME, A SCIENTIFIC F ORMULA IN THE FORM OF RULE 8D HAS BEEN DEVISED. THE APPELLANT SHOULD I TSELF HAVE INVOKED THE PROVISIONS OF RULE 8D FOR THE DISALLOWANCE OF E XPENDITURE RELATABLE TO EXEMPT INCOME, SINCE IT IS APPLICABLE FOR THE AY. IN QUESTION IN VIEW OF THE DECISION IN THE CASE OF GODREJ & BOYCE (SUPRA). ACCORDINGLY, THE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 14 -: COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS I N APPEAL BEFORE US. 17. WE HAVE HEARD BOTH THE SIDES, PERUSED THE WRITTEN S UBMISSIONS FILED BY THE ASSESSEE AND WELL AS THE DECISIONS REL IED BY THE ASSESSEE. THE MAIN CONTENTION OF THE ASSESSEES COUNSEL IS TH AT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPTED I NCOME AND THE ASSESSEE HAS NOT USED ANY INTEREST BEARING FUNDS F OR INVESTMENT. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE ASSESSE E HAS GIVEN SUFFICIENT OPPORTUNITY TO EXPLAIN THAT THE EXPENDIT URE WAS INCURRED FOR EARNING EXEMPTED INCOME AND THE ASSESSEE HAS NOT PR ODUCED NECESSARY EVIDENCE TO SUPPORT ITS CASE. IN OUR OPI NION, THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. IN ITA NO.5592/MUM/2012 DATED 1 .1.2015 AND THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT IN ITA NO.117 OF 2015 DATED 25.2.2015 IS HAVING BEARING ON THIS ISSUE, WHEREIN IT WAS OBSERVED AS UNDER : 6. HEARD BOTH THE PARTIES. ON A PERUSAL OF THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. (SUPRA), WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL HOLDING THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 15 -: 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONG WITH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCED THEIR ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY SUBMITTING THAT N O EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THEREFORE, NO DISALLOWANCE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRONGLY DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE LD. FIRST APPELLATE AUTHORITY AS APPORTIONMENT OF EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS DONE AS PER THE PROVISIONS OF THE ACT. IT WAS PLEADED THAT SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 16 -: BEFORE THIS TRIBUNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. FOLLOWING THE ABOVE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE ARE OF THE OPINION THAT DISALLOWANCE U/S.14A R.W. R ULE 8D SHOULD NOT EXCEED THE EXEMPT INCOME. THE MUMBAI BENCH IN ITS ORDER SUSTAINED THE DISALLOWANCE ON APPLICABILITY OF PROVISIONS OF SEC.14A R.W. RULE 8D. HOWEVER, THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS THAT DISALLOWANCE IF AT ALL SHOULD BE MADE, IT SHOULD BE RESTRICTED TO E XEMPT INCOME EARNED AND NOT BEYOND THAT. ACCORDINGLY, THE AO IS DIRECT ED TO LOOK AT THIS ISSUE ON THIS ANGLE AND DECIDE IT AFRESH IN THE LIG HT OF THE ABOVE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 17 -: DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL. ACCO RDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED . 18. THE NEXT COMMON GROUND RAISED IN THESE TWO APPEALS ARE WITH REGARD TO TREATING THE LOSS ON ACCOUNT OF CANCELLAT ION OF FORWARD CONTRACTS IN FOREX DERIVATIVES AS BUSINESS LOSS AND NOT AS SPECULATION LOSS. 19. THE FACTS OF THE ISSUE ARE THAT THE DISALLOWANCE O F CLAIM OF LOSS OF F69,26,01,324/- ON ACCOUNT OF CANCELLATION OF FO RWARD CONTRACTS IN FOREX DERIVATIVES TREATING IT AS A SPECULATION LOSS . THE ASSESSEE HAD CLAIMED THE SAID LOSS AS AGAINST THE BUSINESS INCO ME. THE AO AFTER ANALYZING THE ASSESSEE'S TRANSACTIONS IN THE LIGHT OF THE DEFINITION GIVEN IN SEC.43(5), HELD THAT THEY ARE I N THE NATURE OF SPECULATIVE TRANSACTION, SINCE IT SATISFIES THE SAI D PROVISION. RELIANCE WAS ALSO PLACED ON COMFUND FINANCIAL SERVICES (I) LTD VS. DCIT (ITAT BANGALORE BENCH) AND ACIT VS. K.MOHAN & CO. (EXPORT S) (P) LTD (2010) (39 DTR 97 ). IN VIEW OF THE DETAILED DISCUSSIONS, THE AO HAS CONCLUDED THAT THE INCOME/LOSS FROM OPTIONS AND FOR WARD CONTRACTS ENTERED BY THE ASSESSEE FORMS PART OF THE SPECULATI ON BUSINESS AS PER EXPLANATION 2 TO SECTION 28 AND DISALLOWED THE ENTI RE AMOUNT CLAIMED BY THE ASSESSEE HOWEVER, THE AO HAS ALLOWED THE SAM E TO BE CARRIED I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 18 -: FORWARD FOR SET OFF AGAINST ANY FUTURE SPECULATIVE INCOME. FURTHER, THE AO HAS OBSERVED THAT AS PER THE INFORMATION GIVEN B Y THE ASSESSEE THE CONTRACTS WERE NOT SETTLED BY ACTUAL DELIVERY BUT B Y CANCELLATION OR PREMATURE CLOSURE BY PAYING OR RECEIVING THE DIFFER ENCE IN AMOUNT BETWEEN THE RATE AT WHICH THE CONTRACT HAS BEEN ENT ERED AND THE PREVAILING EXCHANGE RATE ON THE DATE OF CANCELLATIO N OF THE SETTLEMENT. 20. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE AO HAS DISALLOWED THE LOSS ON ACC OUNT OF CANCELLATION OR POSTPONEMENT OF FORWARD CONTRACTS H OLDING THAT THE LOSS SO ARRIVED AT IS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE AND ALSO AS PER SEC 43(5) THE LOSS IS TO BE TREATED AS 'LOSSES FROM SPECULATION BUSINESS'. THE ASSESSEE HAS CONTENDED T HAT FOREIGN CURRENCY LOSSES ARE ON REVENUE ACCOUNT ONLY AND ARE INCIDENTAL TO THE CORE BUSINESS OF THE ASSESSEE OF MANUFACTURE AND EX PORT OF GARMENTS AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. THIS I SSUE HAS ENGAGED THE ATTENTION OF VARIOUS COURTS FOR QUITE SOMETIME . THE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA 312 ITR 254 (SC) HELD THAT THE LOSS IN FOREIGN EXCHANGE, IF ANY, AS AT THE END OF THE YEAR WOULD BE DEDUCTIBLE U/S 37 BY VALUING THE OUTS TANDING LIABILITY AT THE RATE MARKED TO MARKET AS ON DATE OF CLOSING OF ACCOUNTS, AND THE I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 19 -: METHOD OF ACCOUNTING THAT HAS BEEN REGULARLY FOLLOW ED WOULD HAVE TO BE CONTINUED FOR THE SAKE OF CONSISTENCY. IN COMING TO THESE CONCLUSIONS, THE SUPREME COURT FOLLOWED THE RATION ALE OF ITS EARLIER DECISION IN SUTLEJ COTTON MILLS LTD. VS. CIT 116 ITR 1 WHERE IT WAS HELD THAT PROFIT OR LOSS IN FLUCTUATION OF FOREIGN CURR ENCY WOULD ORDINARILY BE A TRADING PROFIT OR LOSS, IF HELD ON THE REVENUE ACCOUNT AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EARMARKED I N BUSINESS. THE ID. AR HAS CLARIFIED THAT THE FORWARD CONTRACT WAS ON R EVENUE ACCOUNT AND NOT FOR CAPITAL ASSETS. THE DECISION SO RENDERED IN WOODWARD GOVERNOR INDIA (SUPRA) WAS APPLIED AND THE LAW WAS REITERATED IN ONGC VS CIT, 322 ITR 180 (SC) REVERSING THE DECISION OF THE UTTARAKHAND HIGH COURT IN THE SAME CASE REPORTED IN 301 ITR 415 (UTTARAKHAND), WHICH HAD TREATED THE EXCHANGE LOSS BOTH RELATING TO CURRENT AND CAPITAL ACCOUNT AS A CONTINGENT LIABILI TY. SUPREME COURT IN CIT V. MARUTI UDYOG, 320 ITR 729 (SC ) DECIDED THAT DEPRECIATION ON COST ENHANCED BY CAPITALIZATION OF FOREIGN EXCHANGE LOSS WAS DEDUCTIBLE FOLLOWING THE DECISION IN WOODWARD GOVERNOR INDIA (SUPRA). THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTIC ED THE RELEVANCE OF THE CASE LAW RELIED ON BY THE ASSESSEE WITH REGA RD TO CLOSURE OF FORWARD CONTRACTS. THE LOSS, AS A RESULT OF CLOSURE OF FORWARD CONTRACT, HAS BEEN RECOGNIZED AS BUSINESS LOSS BY VARIOUS COURTS AND IT I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 20 -: REMAINED AS SETTLED BY NOW. THE COMMISSIONER OF INC OME TAX (APPEALS) ALSO AGREE WITH THE ASSESSEE THAT THE FOR WARD CONTRACT ENTERED AS A TOOL OF HEDGING HAS ALSO BEEN RECOGNIZ ED BY VARIOUS DECISIONS, MORE SO, WHEN THEY ARE FULLY COVERED BY THE EXPORT INVOICES AND AS PER THE REGULATIONS OF RBI AND FEMA NO BUSIN ESS MAN CAN ORDINARILY ENGAGE HIMSELF IN SPECULATION ACTIVITY. HOWEVER, THE PRESENT ISSUE IN QUESTION IS WHETHER THE LOSS ON ACCOUNT OF PREMATURE CLOSURE OF THE FORWARD CONTRACTS CAN BE ALLOWED AS BUSINESS LOSS. THIS SPECIFIC QUESTION HAS BEEN ANSWERED BY THE ITAT MUMBAI IN TH E CASE OF LONDON STAR DIAMOND COMPANY (I) P LTD V DCIT IN ITA NO.6169/M/2012 , RELIED ON BY THE ASSESSEE, AS AN ALTERNATE PLEA. AS PER THIS DECISION THE TRIBUNAL HAS OBSERVED THE REA SONS FOR FORECLOSURE OF THE FORWARD CONTRACTS AS A GUIDE TO DECIDE WHETH ER THE LOSS INCURRED DUE TO SUCH ACTION SHOULD BE ALLOWED AS BU SINESS LOSS OR NOT. IT WAS HELD THAT A LOSS ARISING FROM CANCELLATION O F MATURED CONTRACTS IS ALLOWED IN FAVOUR OF THE ASSESSEE. IT IS A SETTL ED ISSUE THAT THE ASSESSEE HAS TO DISCHARGE THE ONUS ON WHY HE HAS TO RESORT TO PREMATURE CANCELLATION. WHILE SETTING ASIDE THE ORD ER OF THE AO IN THE ABOVE REFERRED CASE, THE IT AT HAS DIRECTED THE AO TO DISALLOW THE LOSS IN THE ABSENCE OF SPECIFIC EXPLANATION AS TO WHY TH E FORWARD CONTRACTS WERE CANCELLED PREMATURELY. IN THE ABOVE REFERRED C ASE, THE ITAT HAS I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 21 -: ALLOWED ONE SEGMENT OF FORWARD CONTRACTS WHICH WERE CLOSED THREE DAYS BEFORE THE DUE DATE AND THE EXPLANATION GIVEN BY THE ASSESSEE AS WEEK-END DAYS WAS ACCEPTED. IN ANOTHER SEGMENT OF FORWARD CONTRACTS WHICH WERE CANCELLED PREMATURELY, THE EXP LANATION GIVEN BY THE ASSESSEE WAS VERY GENERAL AND THE DELAY WAS MOR E THAN THREE DAYS (MORE THAN A MONTH). THE COMMISSIONER OF INC OME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER ANY FORWARD CONTRACTS HAVE BEEN CANCELLED PREMATURELY AND VERIF Y THE REASON SUBMITTED FOR SUCH PREMATURE CANCELLATION AND ALLOW ED THE APPEAL FOR STATISTICAL PURPOSES. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 21. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. IN THIS CASE, THE COMMISSIONER OF INCOME T AX (APPEALS) GIVEN AN DIRECTION TO THE ASSESSING OFFICER TO VERI FY ANY FORWARD CONTRACTS HAVE BEEN CANCELLED PREMATURELY AND VERIF Y THE REASONS FOR PREMATURE CANCELLATION IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) P. LTD VS. DCIT IN ITA NO.6169/M/201 2, DATED 11.10.2013 WHEREIN IT WAS OBSERVED THAT LOSS ARISING FROM CANCELLATION OF PREMATURE IS ALLO WED AS BUSINESS LOSS. BEING SO, THE ASSESSEE CANNOT HAVE ANY GRIEV ANCE ON THIS ISSUE AS COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN D IRECTION TO I.T.A.NOS.1436 & 1643/MDS/14 & I.T. A. NO.910/MDS/2015. :- 22 -: FOLLOW THE TRIBUNAL ORDER. FURTHER, WE MAKE IT CL EAR THAT LOSS ARISING OUT OF DERIVATIVE TRANSACTION IN EXCESS OF EXPORT T URNOVER HAS TO BE CONSIDERED AS SPECULATIVE LOSS BECAUSE EXCESS DERIV ATIVE TRANSACTION HAS NO PROXIMITY WITH EXPORT TURNOVER. WITH THESE O BSERVATIONS, WE REJECT THE GROUND OF THE ASSESSEE. THE APPEALS OF THE ASSESSEE IN ITA NO.1643/MDS/2014 AND ITA NO.910/MDS/2015 ARE PA RTLY ALLOWED. 22. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA N OS.1436, 1643/MDS/2014 AND ITA NO.910/MDS/2015 ARE PARTLY AL LOWED. ORDER PRONOUNCED ON MONDAY, THE 28 TH OF DECEMBER, 2015, AT CHENNAI. SD/- SD/- ( . !' ) V. DURGA RAO # / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' /CHENNAI. #$ /DATED:28.12.2015. KV $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF.