K. Paramasivam, Erode V. ACIT, Erode

CO 1/CHNY/2017

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2911 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2017
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR
• Assessee Lawyers: SURPIYO PAL
• Keywords: Business expenditure; Speculation loss; Revenue expenditure
• Section: 43(5); 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NO.: 2910/MDS/2016 / ASSESSMENT YEARS: 2012-13 & C.O. NO. 01/MDS/2017 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NO.15, GANDHIJI ROAD, ERODE 638 001. V. SHRI K. PARAMASIVAM, PROP: M/S. SRI MAHARAJA INDUSTRIES, 128, BHAVANI ROAD, ERODE 638 004. PAN: ADIPP1483D ( /APPELLANT) ( /RESPONDENT/ CROSS OBJECTOR) /APPELLANT BY : SHRI SURPIYO PAL, JCIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE / DATE OF HEARING : 06.04.2017 / DATE OF PRONOUNCEMENT : 05.05.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THE APPEAL OF THE REVENUE AND CROSS OBJECTIONS FILE D BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD.CIT(A )-3, COIMBATORE, DATED 05.07.2016 PERTAINING TO ASSESSMENT YEAR 2012 -13. 2 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 2. THE REVENUE RAISED VARIOUS GROUNDS, WHICH ARE D ISCUSSED ONE BY ONE AS BELOW. 2.1 IN CROSS OBJECTIONS BY THE ASSESSEE IS IN SUPP ORT OF THE ORDER OF LD.CIT(A). 3. THE FIRST GROUND IN REVENUES APPEAL IS WITH R EGARD TO DELETION OF DISALLOWANCE OF COMPOUNDING CHARGES PAID TO SALES T AX DEPARTMENT WITHOUT APPRECIATING THE FACT THAT THE SAID PAYMENT IS AKIN TO PENALTY FOR VIOLATION OF LAW, WHICH IS NOT AN ALLOWABLE EXPENSE S. 4. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS PAID COMPOUNDING FEES OF ` 14,000/- TO THE SALES TAX DEPARTMENT. THE AO WAS OF THE OPINION THAT THE COMPOUNDING FEES IS AKIN TO PENALT Y AND THE SAME WAS DISALLOWED. HOWEVER, LD.CIT(A) ALLOWED THE CLAIM OF ASSESSEE ON THE REASON THE COMPOUNDING FEE CANNOT BE CONCLUDED WIT H PENALTY FOR INFRACTION OF LAW. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ACCORDING TO THE LD.A.R IT IS A COMPENSATOR Y NATURE AND NOT IN PENALTY. HOWEVER, THE FACTS BROUGHT ON RECORD DOES NOT SHOW THE REASON FOR WHICH THE PAYMENT WAS MADE WHETHER IT IS FOR VI OLATION OF LAW OR COMPENSATORY, THE LOSS SUFFERED BY THE STATE AUTHOR ITY. ACCORIDNGLY, WE ARE INCLINED TO REMIT THE ISSUE TO DISALLOW ONLY TH E TAX PAID TOWARDS VIOLATION OF LAW. ACCORDINGLY, THIS ISUSE IS REMIT TED TO THE FILE OF AO FOR FRESH CONSIDERATION. 3 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 6. THE SECOND GROUND IS WITH REGARD TO DIRECTION GIVEN BY LD.CIT(A) TO AO TO ADD ONLY THE NET FIGURE OF TRANSACTION OF CURRENT YEAR ON ACCOUNT OF CESSATION OF LIABILITIES, WITHOUT APPREC IATING THE FACT THAT ONLY IF THE BALANCES ARE OLD AND OUTSTANDING FOR LONG PE RIOD CAN ADDITION BE MADE ON ACCOUNT OF CESSATION OF LIABILITY. 6.1 THE FACTS OF THE ISSUE ARE THAT THERE WAS OUTS TANDING IN THE NAME OF VARIOUS PERSONS AT ` 33,83,413/-. THE AO ASKED THE ASSESSEE TO FILE CONFIRMATION LETTER FROM THOSE PARTIES. THE CONFIR MATION LETTERS ONLY FROM TWO PARTIES, OUT OF THEM WHO HAS STATED THAT T HERE IS NO OUTSTANDING BALANCE OWING TO THEM FROM THE ASSESSE E. THE ASSESSEE HAS NOT FILED CONFIRMATION FROM THE OTHER PARTIES. HENCE, UNCONFIRMED BALANCE OF ` 33,83,413/- WAS CONSIDERED AS NON EXTENDED LIABILIT Y BY THE AO AND THE SAME WAS BROUGHT TO TAX. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD. CIT(A) OBSERVED THAT UNCONFIRMED CREDIT BALANCE NET OF DEBIT/CREDIT FOR THE PREVIOUS YEAR 2011-12 ONLY TO BE CONSIDERED FOR ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ORDER OF LD.CIT(A) IS VERY CRYPTIC. THE RE IS NO DISCUSSION ON ITEM WISE CREDIT, WHICH IS OUTSTANDING FOR LONGER P ERIOD CEASED TO BE EXIST. HENCE, WE ARE NOT IN A POSITION TO APPRECIAT E THE FINDINGS OF THE 4 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 LD.CIT(A). ACCORDINGLY, WE ARE INCLINED TO REMIT T HE ISSUE TO THE FILE OF AO TO EXAMINE EACH CREDIT AND ONLY WHEN IT IS OUTST ANDING FOR REASONABLY FROM LONGER PERIOD FOR WHICH THE ASSESSE E HAS NOT FILED CONFIRMATION TO BE CONFIRMED AS A CESSATION OF LIAB ILITY AND BROUGHT TO TAX. WITH THIS OBSERVATION, WE REMIT THIS ISUSE TO THE FILE OF AO FOR FRESH CONSIDERATION. 8. THE THIRD GROUND IN REVENUES APPEAL IS WITH REG ARD TO DELETION OF DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT WITHOUT APPRECIATING THE FACT THAT HAD THE TRANSACTION BEEN ONLY A PURCHASE TRANS ACTION HOW IS IT THAT THE BILL AMOUNT CONTAIN SUBSTANTIAL LABOUR CHARGE E LEMENT. 9. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE PA ID AN AMOUNT OF ` 2,16,200/- TO M/S.FIBRO PLASS FOR REPAIR OF FENCES AND LABOUR CHARGES. THE ASSESSEE STATED THAT THERE IS NO CONTRACT AND T HIS IS OUTRIGHT PURCHASE OF BAMBOO FOR FENCING. ON APPEAL, THE LD. CIT(A) OBSERVED THAT SINCE THIS IS A PURCHASE TRANSACTION, THERE IS NO NECESSITY OF DEDUCTION OF TDS AND DELETED THE ADDITIONS MADE U/S .40(A0(IA) OF THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THERE IS NO ALLEGATION BY THE AO THAT THE AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF FINANCIAL YEAR. BEING SO , APPLYING THE RATIO LAID DOWN BY SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ME RILYN SHIPPING AND TRANSPORT VS. ACIT IN [2012] 16 ITR (TRIB) 1 (VISA KHAPATNAM)(SB), WE 5 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 ARE INCLINED TO DELETE THE ADDITION MADE U/S.40(A0( IA) OF THE ACT AND THE ORDER OF LD.CIT(A) ON THIS ISSUE IS CONFIRMED. ACCO RDINGLY, THIS GROUND BY REVENUE STANDS DISMISSED. 11. THE LAST GROUND IN REVENUES APPEAL IS WITH R EGARD TO DELETION OF ADDITION MADE IN THE CATEGORY OF SPECULATIVE TRANSA CTION WHILE THE LOSS ON EXCHANGE RATE FLUCTUATION IS HELD TO BE TRADE RE LATED BY LD.CIT(A). 12. THE FACTS OF THE ISSUE ARE THAT ASSESSEE HAD P URCHASED RBD PALMOLIEN OIL AT HIGH SEAS. THOUGH ACTUAL PAYMENT WAS MADE AGAINST THE PURCHASES, THERE EXISTED AN AGREEMENT BETWEEN T HE BUYER AND SELLER THAT THE BUYER HAD THE OPTION TO SETTLE THE DIFFERE NCE BETWEEN THE EXCHANGE RATES, SEPARATELY, WITHIN A PERIOD OF 90 D AYS. ASSESSEE INCURRED LOSS AS PER THIS AGREEMENT WHICH WAS CLAIM ED AS REVENUE EXPENDITURE. THE AO HELD THE LOSS AS SPECULATION LO SS AS THE TRANSACTION DOES NOT INVOLVE ANY DELIVERY OF GOODS. THE AO WAS OF THE OPINION THAT AS PER THE SECOND LEG OF THE PURCHASE AGREEMENT CLE ARLY FALLS WITHIN THE DEFINITION OF SPECULATIVE TRANSACTION. AGGRIVED, T HE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 13. ON APPEAL, THE LD.CIT(A) AFTER EXAMINING THE P ARA 10 OF ASSESSMENT ORDER, CAME TO A CONCLUSION THAT THE TRA NSACTION IS TRADE RELATED AND SPECULATION ASPECT IS NOT ESTABLISHED. SPECULATIVE TRANSACTION IS DEFINED IN 43(5) OF THE ACT. IN THE FIRST PROVIS O TO THE SUB SECTION 6 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 NARRATES THE EXCEPTION THE ASSESSEES CASE FALLS FU NDER CLAUSE (A) OF THE PROVISO REPRODUCED BELOW:- SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHI CH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPTS. HENCE, THE LD.CIT(A) OBSERVED THAT THE LOSS ON EX CHANGE RATE FLUCTUATION IS HELD TO BE TRADE RELATED AND ALLOWED IT AS BUSINESS EXPENSES. AGAINST THIS, THE REVENUE IS IN APPEAL B EFORE US. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY IN THIS CASE M/S.SECUNDERABAD OI LS LTD. HAS SOLD THE GOODS AT HIGH SEA TO THE ASSESSEE AT THE RATE OF CO NVERSION OF US$ ON THE DATE OF SALE AND THE ASSESSEE HAS PAID THE AMOU NT WITHIN ONE MONTH OF THE DATE OF PURCHASE. HOWEVER, THE ASSESSEE HAD TIME TO CLEAR DUES WITHIN 90 DAYS OF IMPORT. THE TRANSACTION ENTERED B Y THE ASSESSEE WITH M/S.SECUNDERABAD OILS LTD. IS THAT THE ASSESSEE HAS PAID THE AMOUNT WITHIN ONE MONTH OF THE DATE OF PURCHASE AND THE TR ANSACTION WAS ENDED. HOWEVER, M/S.SECUNDERABAD OILS LTD. CONTINUE D TO HOLD L/C FOR 90 DAYS AND CAN AVAIL CREDIT FACILITY AND WILL ALS O EARN PROFIT/LOSS DUE TO THE VOLATILITY OF FOREIGN EXCHANGE RATE, I.E. AFTER THE PAYMENT OF IMPORT DUES, THE ASSESSEE KEPT OPEN THE L/C AND DUE TO FLU CTUATION OF EXCHANGE RATE, IT CAUSED TO THE ASSESSEE LOSS OF ` 3,05,84,558/-. ACCORDING TO THE ASSESSEE, THIS LOSS IS NORMAL BUSINESS LOSS TO BE S ET OFF WITH BUSINESS 7 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 INCOME OF ASSESSEE. HOWEVER, THE FACTS BROUGHT ON RECORD SHOW THAT EVEN AFTER SETTLING THE IMPORT DUES, THE ASSESSEE C ONTINUED TO HOLD THE L/C FOR FURTHER PERIOD AND SUFFERED LOSS. THIS LOSS IS NOT ON ACCOUNT OF BUSINESS AND THE BUSINESS TRANSACTION WAS ALREADY CLOSED WHEN THE IMPORT BILL WAS SETTLED BY THE ASSESSEE WITH M/S.SE CUNDERABAD OILS LTD. THE ASSESSEE COMPANY TOOK A SHELTER UNDER PROVISO T O SEC.43(5) WHICH READS AS UNDER:- S.43 (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACT ION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED O THERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCR IPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE-- (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUF ACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM ; OR 14.1 IN OUR OPINION, THE ASSESSEES TRANSACTION CA NNOT BE FIT INTO THE ABOVE PROVISO TO SAY THAT THE ASSESSEE HAS ENTERED INTO CONTRACT TO SAFEGUARD AGAINST THE LOSS THROUGH FUTURE PRICE FLU CTUATIONS IN RESPECT OF HIS CONTRACT FOR ACTUAL DELIVERY OF GOODS MANUFACTU RED BY MERCHANDISE SOLD BY HIM. IN OTHER WORDS, THE ASSESSEE HAS ALRE ADY MADE PAYMENT TO THE IMPORTS PROCURED BY THE ASSESSEE AND ONCE THE P AYMENTS TOWARDS IMPORT WAS SETTLED, IT CANNOT BE SAID THAT THE ASSE SSEE ENTERED INTO HEDGING TRANSACTION TO SAFE GUARD HIS FUTURE LOSS. THE ASSESSEE, IN THIS 8 I.T.A. NO.2910/MDS/2016 & C.O. NO.01/MDS/2017 CASE, SO AS TO SPECULATE FUTURE TRANSACTIONS SO AS TO EARN PROFIT WHICH RESULTED IN LOSS THAT LOSS CANNOT BE CONSTITUTED AS A BUSINESS LOSS AND IT IS ONLY A SPECULATIVE LOSS. ACCORDINGLY, THIS GROUN D RAISED BY THE REVENUE IS ALLOWED. 15. SINCE THE CROSS OBJECTIONS FILED BY THE ASSESS EE IS IN SUPPORTIVE OF ORDER OF LD.CIT(A), IT DOES NOT REQUIRE ANY ADJUDIC ATION AS WE HAVE ADJUDICATED THE REVENUES APPEAL ITSELF. CROSS OBJE CTIONS BY ASSESSEE STAND DISMISSED. 16. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTIONS BY AS SESSEE IS DISMISSED. ORDER PRONOUNCED ON 05 TH MAY, 2017 AT CHENNAI. SD/- SD/- ( . ) ( ) (G. PAVAN KUMAR) (CHANDRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 05 TH MAY, 2017. K S SUNDARAM. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF.