Adani Wilmar Ltd., Ahmedabad V. The Addl. CIT, Range-1, Ahmedabad

CO 183/AHD/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5371 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 08-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: P M MEHTA WITH G M THAKOR
• Keywords: Business income; Earning of tax free income; Revised return
• Section: 143(3); 14A; 115JB; 201; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DCIT, CIRCLE - 1(1)(1), AHMEDABAD (APPELLANT /RESPONDENT ) VS THE M/S ADANI WILMER LTD. FORTUNE HOUSE , NR. ADANI HOUSE, MITHAKHALI SIX ROAD, NAVRANGPURA, AHMEDABAD PAN: AABCA8056G (RESPONDENT /CROSS O BJECTOR ) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI P.M. MEHTA WITH G.M. THAKOR DATE OF HEARING : 16 - 10 - 2 018 DATE OF PRONOUNCEMENT : 26 - 10 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL AND ASSESSEE S CROSS OBJECTION FOR A.Y. 2008 - 09 , ARI SE FROM ORDER OF THE CIT(A) - 1, AHMEDABAD DATED 08 - 06 - 2 015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ' THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF MARKED TO MARKET LOSS,' ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK PROFIT. I T A NO . 2532 & CO NO. 183 / A HD/20 15 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 2532 & CO NO. 183 /AHD/20 15 A .Y. 2008 - 09 PAGE NO D CIT VS. M/S. ADANI WILMER LTD. 2 3. THE BRIEF FACT OF THE CASE IS THAT RETURN OF INCOME DECLARING INCOME OF RS. 1 , 40 , 02 , 352/ - WAS FILED ON 29 TH AUGUST, 2008. THE ASSESSEE HAS ALSO FILED REVISED RETURN OF INCOME ON 9 TH SEP, 2009 BY DECLARING TOTAL INCOME OF RS. 1 , 40 , 02 , 352/ - . SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF INCOME U/S. 143(2) OF THE A CT ON 1 8 TH AUGUST, 2009. THE FURTHER FACT OF THE CASE RELATING TO T HE ISSUE OF APPEAL IS AS UNDER. 4. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN MARKED TO MARKET LOSSES AMOUNTING TO RS. 85 , 71 , 639/ - IN ITS BOOKS OF ACCOUNT WHICH WAS ADJUSTED A GAINST BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION . THE ASSESSING OFFI CER WAS OF THE VIEW THAT SUCH L OSS WERE NOTIONAL LOSSES AND THE SAME CANNOT BE ADJUSTED AGAINST THE BUSINESS INCOME. THE ASSESSING OFFICER HAS STATED THAT SUCH LOSSES ON ACCOUN T OF FOREIGN EXCHANGE DERIVATIVES CANNOT BE ALLOWED AGAINST THE TAXABLE INCOME OF AN ASSESSEE AS PER INSTRUCTION NO. 3/2010 DATED 23 RD MARCH, 2010 OF CBDT . THE REFORE ASSESSING OFFICER OBSERVED THAT SUCH LOSSES WAS A NOTIONAL LOSS AND CONTINGENT IN NATURE AND A DDED T HE AMOUNT OF RS . 85 , 71 , 639/ - PERTAINING TO SUCH LOSSES TO THE TO T AL INCOME OF THE ASSESSEE . 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF THE L D. CIT(A) IS REPRODUCED AS UNDER: - I AM INCLINED TO ACCEPT THE CONTENTION OF APPELLANT. THE DETAILS SUBMITTED BY THE APPELLANT ALONG WITH LEDGER ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AS WELL AS WORKING OF MARKED TO MARKET LOSS AND GAIN, REVEALS THAT SUC H LOSS/GAIN IS ON ACCOUNT OF TRADING TRANSACTIONS AS APPELLANT HAS REINSTATED ITS LIABILITY IN FOREIGN CURRENCY AT YEAR END BY APPLYING CLOSING CONVERSION RATE AS ON 31 ST MARCH, 2008. FROM THE DETAILS SUBMITTED BY THE APPELLANT IT IS OBSERVED THAT MARKED TO MARKET LOSS INCURRED BY APPELLANT IS ONLY AT RS. 3161592/ - AS ENTRIES PERTAINING TO MARKED TO MARKET LOSS OF RS. 54,10,047/ - IS ALREADY REVERSED IN VERY SAME ACCOUNT WHICH MEANS THAT SUCH LOSS IS NOT AT ALL CLAIMED BY APPELLANT. IT IS FURTHER OBSERVED THAT ON SIMILAR TRANSACTIONS APPELLANT HAS SHOWN MARKED TO MARKET GAIN OF RS. 20,52,385/ - WHICH IS COMPLETED IGNORED BY ASSESSING OFFICER WHILE MAKING DISALLOWANCE BY TREATING MARKED TO MARKET LOSS AS NOTIONAL LOSS. THUS, THE EVEN IF DISALLOWANCE IS REQUI RED TO BE MADE, IT SHOULD BE RESTRICTED TO RS. 11,09,207/ - . THE FACTS DISCUSSED HEREIN ABOVE CLEARLY ESTABLISH THAT MARKED TO MARKET LOSSES ARE NOT ON ACCOUNT OF FOREIGN EXCHANGE DERIVATIVES ARE ON ACCOUNT OF TRADING TRANSACTIONS PERTAINING TO BUYERS CRED IT IN RESPECT OF IMPORT OF GOODS . THE CIRCULAR NO. 3/2010 RELIED I.T.A NO. 2532 & CO NO. 183 /AHD/20 15 A .Y. 2008 - 09 PAGE NO D CIT VS. M/S. ADANI WILMER LTD. 3 UPON BY ASSESSING OFFICER REFERS TO CLARIFICATION REGARDING ALLOWING LOSSES ON ACCOUNT OF FOREX DERIVATIVES AND READS AS UNDER: - THE ABOVE INSTRUCTION CLEARLY APPLIES TO DERIVATIVE TRANSACTIONS AND NOT TO BE TRADING TRANSACTIONS HENCE THIS ISSUE IS SQUARELY COVERED BY DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD (312 ITR 252) WHEREIN IT IS HELD AS UNDER: - . EVEN HON BLE MUMBAI ITAT ON IDENTICAL FACTS IN THE CASE OF RELIANCE INDUSTRIES LIMITED IN I.T.A. NO. 7223/MUM/2011 (A.Y. 2008 - 09) VIDE IS ORDER DATED 20/11/2013 HAS OBSERVED THAT IN SAID CASE, THE CIT STATED THAT DEDUCTION CLAIMED ON FOREX DERIVATIVE ON ACCOUNT OF LOSSES ARISING OUT OF THE MARK TO MARKET TRANSACTIONS (HEREINAFTER TO BE REFERRED AS MTM) OF RS. 43.78 CRORES, SINCE THESE LOSSES ARE NOTIONAL LOSSES, AS NO SUCH SA LE OF SETTLEMENT HAS TAKEN PLACE AND THEREFORE, ARE CONTINGENT IN NATURE. THE HON BLE ITAT RELYING ON SETTLED LEGAL LAW OF HON BLE SUPREME COURT REFERRED SUPRA DECIDED THE ISSUE IN FAVOUR OF APPELLANT AND OBSERVED AS UNDER: - .. THE HON BLE HYDERABAD ITAT IN THE CASE OF VST INDUSTRIES LTD. VS. ADDITIONAL CIT (ITA NO. 647/HYD/2012 VIDE ITS ORDER DATED 23 RD AUGUST, 2013 HAS HELD AS UNDER: - . IN VIEW OF THE FACTS DISCUSSED HEREIN ABOVE, DISALLOWANCE MADE BY ASSESSING OFFICER FOR RS. 85,71,639/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RE CORED CAREFULLY. WE NOTICED THA T THE ASSESSING OFFICER HAS MADE MARKED TO MARKET DISALLOWANCE TO THE AMOUNT OF RS. 85 , 71 , 639/ - REPRODUCED AS UNDER: - DATE AMOUNT (RS.) REMARKS 31 - 3 - 2008 19,96,455 M2M OPEN EXPOSURE AS ON 31 ST MARCH, 2008. 31 - 3 - 2008 34,13,592 M2M OF IMPORT CON TROL ACCOUNT 31 - 3 - 2008 31,61,592 M2M OF IMPORT CONTROL ACCOUNT TOTAL 85,71,639 IT IS NOTICED THAT ASSESSEE HAD ALREADY REVERSED ON THE VERY SAME DATE ON 31 ST MARCH, 2008 T HE FIRST TWO ENTRIES CITED IN THE ABOVE CHART THEREFORE THE REMAINING MA RKET LOSS WAS ONLY RS. 31 , 61 , 592/ - . IT IS ALSO NOTICED THAT ON SIMILAR I.T.A NO. 2532 & CO NO. 183 /AHD/20 15 A .Y. 2008 - 09 PAGE NO D CIT VS. M/S. ADANI WILMER LTD. 4 TRANSACTION THE ASSESSEE HA D EARNED MARKED TO MARKET GA I N OF RS. 20 , 52 , 385/ - AND SUCH GAIN WAS NOT SET OFF WHILE MAKING DISALLOWANCE BY ASSESSING OFFICER. IT IS ALSO NOTICED THAT FORE IGN EXCHANGE MARKED TO MARKET LOSS PERTAINS TO LOSSES ON ACCOUNT OF OUTSTANDING BORROWING INCLUDING INTEREST ON L/C AND BUYERS CREDIT IN RESPECT OF IMPORT OF GOODS WHICH MEANS THAT LO S S WAS ON ACCOUNT OF TRADING TRANSACTION AS CITED ABOVE. A FTER CONSIDERI NG THE ABOVE , IT IS FOUND THAT THE ACTUAL MARKED TO MARKET LOSS W AS RS. 31 , 61 , 592/ - AND AFTER TAKING INTO ACCOUNT MARKED TO MARKET GAIN OF RS. 20 , 52 , 385/ - , T HE REAL MARKED TO MARKET LOSS COMES TO RS 11,09,207. THE INSTRUCTION NO. 3 OF 2010 IN FACT RELATE D TO LOSSES ON ACCOUNT OF FOREX DERIVATIVES. WE HAVE ALSO PERUSED THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THE ASSESSEE IN THE FOLLOWING CASES. (I) ITA NO. 647/ HYD / 20 1 2 VST INDUSTRIES VS. ADDL. CIT (II) (2013) 35 TAXMANN.COM 553 CIT VS. FRIENDS AND FRIENDS SHI PPING PVT. LTD. (GUJARAT HIGH COURT) IT IS HELD BY THE ITAT HYDERABAD THAT THE ASSESSEE HAS ENTERED INTO FORWARD CONTRACT WITH BANKS RELATING TO ITS EXPORT/IMPORT BUSINESS TRANSACTIONS IN THE ORDINARY COURSE OF BUSINESS WHICH CANNOT BE TREATED AS NOTIONAL LOSS AND THE CBDT INSTRUCTION NO.3 OF 2010 CANNOT BE APPLIED AS IT RELATE TO DERIVATIVE TRANSACTIONS. IN THE LIGHT OF THE ABOVE FACTS AND THE JUDICIAL FINDINGS WE CONSIDER THAT THE LOSS DUE TO FLUCTUATION IN FOREIGN CHANGE IN THE CASE OF THE ASSESSEE CA NNOT BE SAID TO BE SPECULATIVE , T HEREFORE, WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A). ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. CO NO. 183/AHD/2015 7. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.12,10,000 MADE BY THE ASSESSING OFFICER U/S.35D OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE M ADE BY THE ASSESSING OFFICER U /S. 14A OF THE I.T. ACT TO THE EXTENT OF RS.1,62,949. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE U/S.!4A MADE BY THE I.T.A NO. 2532 & CO NO. 183 /AHD/20 15 A .Y. 2008 - 09 PAGE NO D CIT VS. M/S. ADANI WILMER LTD. 5 ASSESSING OFFICER WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT, TO THE EXTENT OF RS. 1,62,949/ - 8. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSESSEE HAS NOT PRESSED GROUND NOS. 1 AND 2, SO, TH E SAME ARE DISMISSED AS NOT PRES SED. CROSS OBJECTION NO. 3 9 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSIN G OFFICER HAS ADDED THE AMOUNT DISALLOWED U/S. 14A TO THE TUNE OF RS. 78 .84 LACS TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT. HOWEVER, THE LD. CIT(A) HAS SUSTAINED THIS ADDITION TO THE EXTENT OF DISALLOWANCE U/S. 14A TO THE AMOUNT OF RS. 1 , 62 , 949/ - . THE LD. CIT(A) HAS AGREED WITH THE DECISION OF ASSESSING OFFICER THAT EXEMPT INCOME IS REQUIRED TO BE ADDED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 1115JB OF THE ACT. 10 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS CONTENDED THAT LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE U/S. 14A TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE AC T . THE LD. COUNSEL HAS PLACED RELIANCE ON THE DECISION OF CADILA HEALTHCARE LTD. VS. ACIT (ITA NO. 3140/AHD/2010 DATED 25/05/2 012. HE HAS ALSO PLACED RELIANCE ON BOMBAY ITAT SCOPE PVT. LTD. DATED 13 TH MARCH, 2013 V IDE ITA NO. 8934/MUM /2010. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 11 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL PRONOUNCEMENTS REFERRED BY THE LD. COUNSEL WHEREIN IT IS HELD DISALLOWANCE U/S 14A CANNOT BE ADDED FOR COMPUTIN G THE BOOK PROFIT U/S. 115JB OF THE ACT. WE HAVE NOTICED THAT IN THE FOLLOWING TWO DECISION OF THE C OORDINATE BENCHES AHMEDABAD IT IS HELD THAT DISALLOWANCE U/S 14 A OF THE ACT CANNOT BE CONSIDERED FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH TRIBUNAL IN VINEET INVESTMENT PVT.LTD. IN ITA NO.502/DEL/20 12 DATED 16.06.2017. I.T.A NO. 2532 & CO NO. 183 /AHD/20 15 A .Y. 2008 - 09 PAGE NO D CIT VS. M/S. ADANI WILMER LTD. 6 (I) ITA NO. 1816/AHD/2011 ARVIND LTD. VS. DCIT (ITAT AHMEDABAD) (II) GUJARAT LEASE FINANCING LTD. VS. ITO ( ITA NO. 876 & 1288/AHD/2005) IN VIEW OF THE MENTIONED FACTS AND JUDICIAL PRONOUNCEMENTS, WE ARE NOT INCLIN ED WITH THE DECISION OF LD. CIT(A), THEREFORE, THE CROSS OBJECTION ON THIS ISSUE F I LED BY THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR O NOUNCED IN THE OPEN C OURT ON 26 - 10 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 26 /10 /2018 / COPY OF ORDER FORWARD ED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,