M/S Arisudana Industries Ltd, Ludhiana V. Assistant Commissioner of Income Tax, Ludhiana

ITA 10/CHANDI/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1221 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 07-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL K MUKHI; D S PURI
• Keywords: Earning of tax free income
• Section: 14A; 43(5); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH . . , ! ' , # $% BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ ITA NO.10/CHD/2016 / ASSESSMENT YEAR : 2012-13 M/S ARISUDANA INDUSTRIES LTD., B-XXIX/143, G.T. ROAD, LUDHIANA. THE A.C.I.T., CIRCLE-V, LUDHIANA. ./ PAN NO.AABCA2449K / APPELLANT / RESPONDENT /ASSESSEE BY : S/SHRI SUNIL K. MUKHI, ADV. & D.S. PURI, ADV. ! / REVENUE BY : SMT.MEENAKSHI VOHRA, SR.DR ' # $ /DATE OF HEARING : 06.03.2019 %&'( $ /DATE OF PRONOUNCEMENT: 04.06.2019 /ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)], DATED 4.12.2015 RELATING TO ASSESSMENT YEAR 2012-13 , ITA NO.10/CHD/2016 A.Y.2012-13 2 PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 (HERE INAFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOUR GROUN DS OF APPEAL. VIDE GROUND NO.1, THE ASSESSEE HAS AGITATED THE ACTION OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.1,86,089/- U/S 14A OF THE ACT ON ACCOUNT OF EXPE NDITURE INCURRED FOR EARNING OF TAX EXEMPT INCOME. 3. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSSESSEE HAS SUBMITTED THAT THE ASSESSEE DURING THE YEAR HAS EAR NED TAX EXEMPT DIVIDEND INCOME OF RS.28,133/- ONLY. THAT AS PER THE LAW LAID DOWN BY THE HON'BLE DELHI HIGH COURT I N THE CASE OF CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 ( DEL), THE TOTAL DISALLOWANCE U/S 14A OF THE ACT CANNOT EX CEED THE TOTAL TAX EXEMPT INCOME EARNED BY THE ASSESSEE. THE RELIANCE IN THIS RESPECT HAS BEEN PLACED ON THE DEC ISIONS OF VARIOUS HIGH COURTS INCLUDING THAT OF THE JURISD ICTIONAL HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILES (2009) 319 ITR 204 (P&H), AND OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CORRTE CH ENERGY P. LTD. (2014) 45 TAXMAN.COM 116 AND FURTHER OF TH E HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/ S SHIVAM ITA NO.10/CHD/2016 A.Y.2012-13 3 MOTORS (P) LTD (2014) 272 CTR (ALL) 277 AND VARIOU S OTHER CASE LAWS. 4. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY TH E AFORESAID DECISIONS OF THE HON'BLE HIGH COURTS. THE HON'BLE DIFFERENT HIGH COURTS OF THE COUNTRY HAVE H ELD THAT THE TOTAL DISALLOWANCE U/S 14A OF THE ACT CANN OT EXCEED THE TOTAL TAX EXEMPT INCOME EARNED BY THE ASSESSEE AND IF NO TAX EXEMPT INCOME IS EARNED BY T HE ASSESSEE, NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE. IN VIEW OF THIS, THE DISALLOWANCE ON THE ISSU E IS RESTRICTED TO THE EXTENT OF THE TOTAL TAX EXEMPT IN COME EARNED BY THE ASSESSEE WHICH COMES AT RS.28,133/-. GROUND OF APPEAL NO.1 IS ACCORDINGLY, PARTLY ALLOWE D. 5. VIDE GROUND NOS.2 & 3 THE ASSESSEE HAS AGITATED THE ACTION OF THE LOWER AUTHORITIES IN MAKING/CONFIRMIN G THE DISALLOWANCE OF RS.83,90,686/- U/S 43(5) OF THE ACT HOLDING THE CURRENCY FORWARD CONTRACTS AS SPECULATI VE TRANSACTIONS. THE LD.COUNSEL FOR THE ASSSESSEE HAS EXPLAINED BEFORE US THAT THE ASSESSEE COMPANY IS EN GAGED IN THE MANUFACTURING OF YARNS AND TRADING OF KNITTE D ITA NO.10/CHD/2016 A.Y.2012-13 4 CLOTHS & YARNS. THE YARNS MANUFACTURED BY THE ASSES SEE COMPANY ARE SOLD IN THE DOMESTIC MARKET AS WELL AS IN THE INTERNATIONAL MARKET. FOR THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE COMPANY RECEIVED EXPORT ORDERS FOR ARO UND US DOLLARS 49,85,000/- FOR SUPPLY OF YARNS TO DIFFE RENT BUYERS IN DIFFERENT COUNTRIES. TO HEDGE THE LOSS, I F ANY, AGAINST ANY FOREIGN EXCHANGE FLUCTUATIONS, THE ASSE SSEE ENTERED IN THE FOREX CONTRACT AND, THEREFORE, INCUR RED LOSS/EXPENDITURE OF RS.83,90,686/-. THE LD.COUNSEL FOR THE ASSSESSEE FURTHER SUBMITTED THAT HEDGING OF THE LOSS CANNOT BE SAID TO BE A SPECULATIVE RATHER IT WAS TO SECURE THE EXPECTED PROFITS. THE HEDGING TRANSACTION AGAIN ST THE APPREHENDED FOREIGN EXCHANGE FLUCTUATION LOSSES IS PERMITTED AND CANNOT BE SAID TO BE A SPECULATIVE TRANSACTION. THE LD.COUNSEL FOR THE ASSSESSEE HAS A LSO INVITED OUR ATTENTION TO THE ORDER DATED 30.8.2017 OF THE CIT(A) IN THE OWN CASE OF THE ASSESSEE FOR SUBSEQUE NT ASSESSMENT YEAR I.E. 2013-14, WHEREIN THE LD.CIT(A) HAS ACCEPTED THE CONTENTION RAISED BY THE ASSESSEE AND HAS HELD THAT THE FOREIGN EXCHANGE FLUCTUATION PROFITS EARNED BY THE ASSESSEE OF RS.14,29,603/- THROUGH HEDGING CONTRACTS TO SAVE THE COMPANY FROM FUTURE LOSSES, C ANNOT BE SAID TO BE SPECULATIVE GAIN. IN VIEW OF THIS, WE DO NOT ITA NO.10/CHD/2016 A.Y.2012-13 5 FIND ANY JUSTIFICATION OF THE CIT(A) IN HOLDING THE TRANSACTION AS SPECULATIVE FOR THE YEAR UNDER CONSIDERATION, WHEREAS IN THE SUBSEQUENT YEAR, THE GAIN EARNED BY THE ASSESSEE ON IDENTICAL TRANSACTION HAS BEEN TREATED AS GAIN EARNED IN NORMAL COURSE OF BUSINESS AND NOT SPECULATIVE. IN VIEW OF THIS GROUND NO.2 & 3 RA ISED BY THE ASSESSEE ARE ACCORDINGLY, ALLOWED. 6. VIDE GROUND NO.4, THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF INTEREST OF RS.10,86,012/- U/S 36(1 )(III) OF THE ACT IN RELATION TO RUNNING DEBIT BALANCE MAINTA INED WITH MASTER CAPITAL SERVICES. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSSESSEE IN THIS RESPECT IS THA T THE RUNNING DEBIT BALANCE MAINTAINED BY THE ASSESSEE WI TH M/S MASTER CAPITAL SERVICES PVT. LTD. IS MARGIN MON EY TO COMPLY WITH LEGAL AND STATUTORY REQUIREMENTS STIPUL ATED BY SEBI AND IS A BUSINESS ADVANCE. THAT IT CANNOT B E SAID TO BE AN INVESTMENT NOT RELATED TO BUSINESS ACTIVIT Y OF THE ASSESSEE. IT HAS BEEN FURTHER SUBMITTED THAT EVEN OTHERWISE, THE OWN FUNDS OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION WERE SUFFICIENT TO MEET THE AFO RESAID ADVANCE. THE LD.COUNSEL FOR THE ASSSESSEE IN THIS R ESPECT HAS ALSO INVITED OUR ATTENTION TO THE ORDER OF THE CIT(A) ITA NO.10/CHD/2016 A.Y.2012-13 6 DATED 30.2.2017 PASSED FOR SUBSEQUENT ASSESSMENT YE AR 2013-14, WHEREIN ON IDENTICAL CIRCUMSTANCES, THE CI T(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD TH AT SINCE THE ASSESSEE WAS HAVING SUFFICIENT OWN INTERE ST FREE FUNDS TO COVER THE INTEREST FREE ADVANCES, HENCE, N O DISALLOWANCE WAS ATTRACTED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES. ADMITTEDLY, THE ASSESSEE WAS MAINTAINING A N ACCOUNT WITH M/S MASTER CAPITAL SERVICES PVT. LTD. AS THE ASSESSEE WAS OBTAINING THEIR SERVICES FOR HEDGING L OSSES AGAINST FOREIGN EXCHANGE FLUCTUATION. THE ASSESSEE HAD TO KEEP A MARGIN MONEY WITH M/S MASTER CAPITAL SERVICE S PVT. LTD. FOR THE PURPOSE OF FORWARD CONTRACTS ENTE RED INTO TO HEDGE THE LOSSES AGAINST FOREIGN EXCHANGE FLUCTU ATION IN RESPECT OF THE AMOUNT RECEIVABLE FROM EXPORTS. I N RESPECT OF THIS ESSENTIALLY WAS RELATED TO THE BUSI NESS ACTIVITY OF THE ASSESSEE. EVEN OTHERWISE, IT HAS NO T BEEN REBUTTED OR DENIED BY THE REVENUE AUTHORITIES THAT THE ASSESSEE WAS HAVING SUFFICIENT FUNDS TO MEET THE AF ORESAID DEBIT BALANCE WITH M/S MASTER CAPITAL SERVICES PVT. LTD. HENCE, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE AFORESAID DISALLOWA NCE ITA NO.10/CHD/2016 A.Y.2012-13 7 U/S 36(1)(III) OF THE ACT AND THE SAME IS ACCORDING LY, ORDERED TO BE DELETED. 8. NO OTHER GROUND IS RAISED OR PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HEREBY TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON04.06.2019. SD/- SD/- . . !' (N.K. SAINI (SANJAY GARG ) / VICE PRESIDENT #$% / JUDICIAL MEMBER '$ /DATED: 4 TH JUNE, 2019 * * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35# / GUARD FILE &) ' / BY ORDER, / ASSISTANT REGISTRAR