DCIT, CIR-10(1), KOLKATA, Kolkata V. M/s. Lucky Gold Star Company Ltd., Kolkata

ITA 1382/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6551 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 24-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: MANISH TIWARI
• Keywords: Business income; Depreciation; Transfer pricing; Earning of tax free income; Question of law; Fair market value; Speculation loss
• Section: 143(3); 14A; 37(1); 37

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1381 - 1382 / KOL / 20 16 ASSESSMENT YEARS :2012-13 & 2013-14 DCIT, CIRCLE-10(1), P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA V/S . M/S LUCKY GOLD STAR CO. LTD., 19, R.N.MUKHERJEE ROAD, KOLKATA-001 [ PAN NO.AAACL 5626 N ] /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI MANISH TIWARI, FCA /BY RESPONDENT SHRI S. DASGUPTA, ADDL. CIT-DR /DATE OF HEARING 22-02-2018 /DATE OF PRONOUNCEMENT 20-04-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE DIFFERENT ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-4, KO LKATA OF EVEN DATE I.E., 26.04.2016. ASSESSMENTS WERE FRAMED BY DCIT, CIRCLE -10(1), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDERS DATED 26.03.2016 & 2.02.2016 RESPECTIVEL Y FOR ASSESSMENT YEARS 2012-13 & 2013-14. SHRI S. DASGUPTA, LD. DEPARTMENTAL REPRESENTATIVE A PPEARED ON BEHALF OF REVENUE AND SHRI MANISH TIWARI, LD. AUTHORIZED REPR ESENTATIVE APPEARED ON BEHALF OF ASSESSEE. FIRST WE TAKE UP ITA NO.1381/KOL/2016 FOR A.Y. 12-1 3 . 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 2 I. THAT ON THE FACT AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,81,91,249/- ON A WRON G APPRECIATION OF FACTS IGNORING THE PROVISIONS OF SECTION 37 & SECTIONS 40 A(2). II. THAT ON THE FACT AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.56,352/- ON A WRONG APP RECIATION OF FACTS IGNORING THE PROVISIONS OF SECTION 2(24)(X) READ WITH SECTIO N 36(1)(VA) IN THE CASE OF EMPLOYEES CONTRIBUTION AND OVERRULE THE JUDICIAL PR ONOUNCEMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GSRTC WHICH WAS CONCLUDED AFTER CONSIDERING THE RATIO JUDGMENT IN T HE CASE OF ALOM EXTRUSTION LTD. III. THAT THE APPELLANT CRAVES TO ADD, DELETE OR MO DIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. FIRST ISSUE RAISED BY REVENUE IN GROUND NO. (I) IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER FOR 2,81,91,249/- ON ACCOUNT OF BOGUS LOSS. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF TRAD ING & MANUFACTURING OF SILK FABRICS AND DEALING IN SHARES & SECURITIES. TH E ASSESSEE DURING THE YEAR FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 2, 35,66,933 ONLY. THE AO DURING THE ASSESSMENT PROCEEDINGS RE-CASTS A SSESSEES MANUFACTURING-CUM-TRADING ACCOUNT FOR ITS BUSINESS OF SILK FABRICS AS ON 31.3.2012 WHICH IS REPRODUCED AS UNDER : TRA DING ACCOUNT IN RESPECT OF SILK FABRICS DESCRIPTION AMOUNT IN RUPEES DESCRIPTION AMOUNT IN RUPEES OPENING STOCK OF RAW MATERIAL 18,43,11,429 SALE OF PRODUCTS 64,63,53,582 64,63,53 ,582 OPENING STOCK OF FINISHED GOODS 42,44,31,448 60,87,42,877 PURCHASE OF FINISHED GOODS 12,57,02,400 CLOSING STOCK OF RAW MATERIAL 7,61,28,901 PURCHASE OF RAW MATERIAL 4,15,470 12,61,17,870 CLOSING STOCK OF FINISHED GOODS 8,61,050 7,69,89,951 GROSS LOSS 1,15,17,214 TOTAL 73,48,60,747 TOTAL 73,48,60,747 FROM THE ABOVE THE AO DETERMINED THE LOSS FROM ITS SILK BUSINESS FOR RS.1,15,17,214.00 ONLY. THE AO DETERMINED THE LOSS FROM THE SAID BUSINESS WITHOUT INCLUDING THE DIRECT COST AND INDIRECT COST WHICH HAS BEEN INCURRED ON ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 3 THE CONSUMPTION OF RAW MATERIALS OF RUPEES 23,38,84 ,928/- ONLY. THE AO FURTHER DETERMINED THE LOSS FROM SILK FABRIC BUSINE SS OF THE ASSESSEE AFTER INCLUDING THE DIRECT AND INDIRECT COST AT RS. 2,81, 91,249/- ONLY. 4.1 THE AO DURING THE ASSESSMENT PROCEEDINGS ALSO O BSERVED THAT THE ASSESSEE HAS MADE PURCHASES OF FINISHED GOODS DURIN G THE YEAR WORTH OF RS.12,56,44,789/- ONLY. OUT OF THE TOTAL PURCHASES, GOODS WORTH OF RS.7,87,12,837/- ONLY WERE PURCHASED FROM THE PARTI ES WHICH ARE KNOWN/ RELATED AND LOCATED AT THE SAME ADDRESS OF THE ASSE SSEE. THE DETAILS OF SUCH PARTIES STAND AS UNDER:- ASSESSEE PURCHASED FI NISHED GOODS OF RS.7,87,12,837/- SL.NO NAME OF PARTIES PURCHASE AMOUNT REMARKS 1 EASTERN SILK INDUSTRIES LTD FINISHED GOODS 6,21,05, 334/- PARTIES ARE KNOW/RELATED AND LOCATED AT 19, R.N. MUKHERJEE ROAD, KOLKTA-700001 2 P.K. TEXTILES PVT. LTD. -DO- 44,22,503 3 TARUN FABRICS PVT. & VIKRAMSILA FABRICS PVT. -DO- 91,67,500 SIMILARLY THE AO ALSO OBSERVED THAT THE MAJOR SALES HAVE BEEN MADE BY THE ASSESSEE TO THE PARTIES KNOWN/ RELATED AND LOCATED AT THE ADDRESS OF THE ASSESSEE OUT OF THE TOTAL SALES CLAIMED BY IT. THE DETAILS OF THE PARTIES TO WHOM THE SALES WERE MADE BY THE ASSESSEE STAND AS U NDER:- SL.NO. NAME OF PARTY SALE AMOUNT 1 EASTERN SILK INDUSTRIES LTD. 43,69,30,775 2 ETHICS COMMERCIALS LTD. 10,28,635 3 P.K. TEXTILES LTD 66,49,444 4 VIKRAMSILA FABRICS PVT LTD 1,67,460 5 GEMINI OVERSEAS LTD 16,52,46,414 6 UNIVERSAL OVERSEAS LTD. 1,57,29,364 IN VIEW OF ABOVE THE AO WAS OF THE VIEW THAT BUSINE SS LOSS OF RS.2,81,91,249.00 FROM THE BUSINESS OF SILK FABRIC IS THE RESULT OF CIRCULAR TRADING AMONG THE KNOWN/ RELATED PARTIES WHICH ARE LOCATED AT THE SAME ADDRESS OF THE ASSESSEE. ACCORDINGLY THE AO ISSUED SHOW CAUSE NOTICE VIDE ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 4 LETTER DATED 13.03.2015 TO JUSTIFY THE IMPUGNED BUS INESS LOSS. IN COMPLIANCE THERETO THE ASSESSEE FAILED TO OFFER ANY EXPLANATIO N. THEREFORE THE AO TREATED THE AFORESAID LOSS AS BOGUS AND HELD THAT THE SAME IS DISALLOWABLE EITHER U/S40A(2) OR SECTION 37(1) OF THE ACT. ACCORDINGLY THE AO DISALLOWED THE IMPUGNED LOSS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD CIT (A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE TRADING ACC OUNT PREPARED BY THE AO IS BASED ON WRONG ASSUMPTION OF FACTS. THE ASSESSEE AC CORDINGLY FILED THE FRESH TRADING ACCOUNT AFTER INCORPORATING THE MANUFACTURI NG EXPENSES WHICH IS REPRODUCED AS UNDER:- TRADING ACCOUNT FOR THE YEAR EN DED 31.03.12(SILK BUSINESS) PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNT TO OPENING STOCK BY SALES 4,53,46,782 RAW MATERIAL 18,43,11,429 FINISHED GOODS 40,57,25,097 59,00,36,526 BY CLOSING STOCK RAW MATERIAL 8,61,050 TO PURCHASE FINISHED GOODS 6,69,52,825 6,78,131, 875 FINISHED GOODS 12,57,02,400 RAW MATERIAL 4,15,470 12,61,17,870 MANUFACTURING EXPENSES 51,81,570 BY GROSS LOSS 81,35,309 71,61,54,396 71,61,54,396 THE ASSESSEE SUBMITTED THAT THE AO HAS TAKEN THE SA LE OF RS.10,06,800/- AS PART OF SALES OF THE FABRICS THOUGH THE SAME REPRES ENTS AS SALE OF SHARES. THE ASSESSEE ALSO SUBMITTED THAT THE AO HAS NOT GIVEN A NY REASONS FOR MAKING THE DISALLOWANCE OF THE BUSINESS LOSS U/S 40A(2) OF THE ACT. THE AMOUNT OF DIRECT EXPENSES WAS ONLY INCURRED WITH THE RELATED PARTIES. ALL THE NECESSARY DETAILS AS DESIRED BY THE AO DURING THE ASSESSMENT PROCEEDINGS WERE DULY FURNISHED BY THE ASSESSEE THEREFORE THE FINDING OF THE AO THAT THE ASSESSEE FAILED TO FURNISH NECESSARY DETAILS IS WRONG. THE A SSESSEE ALSO SUBMITTED THAT IT INCURRED LOSS OF RS.46,697.00 ON ACCOUNT OF SALE PURCHASE OF SHARES DURING THE YEAR AND SIMILARLY THE LOSS OF RS.92,67,733/- W AS INCURRED DUE TO FLUCTUATION IN THE MARKET PRICE OF THE SHARES. THE LD CIT(A) AFTER CONSIDERING ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 5 THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 5.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. I FIND THAT THE A CTIVITIES OF BUSINESS OF THE APPELLANT INCLUDING MODUS OPERANDI REMAINS THE SAME AS DISCUSSED WHILE DEALING SIMILAR DISALLOWANCE IN AY 2013-14 (IT NO.1 472/CIT(A)-4/15- 16/KOL.). A PERUSAL OF THE OBSERVATIONS AND FINDING S RECORDED IN THE PRESENT APPEAL HOWEVER, SHOWS THAT AO HAS DISALLOWED THE MA NUFACTURING-CUM- TRADING LOSS ON SILK FABRICS INCLUDING DIRECT AND I NDIRECT EXPENSES OF THE AGGREGATE AMOUNT OF 2,81,91,249/- BY REFERRING TO SECTION 40A(2)(B) AND 37 OF INCOME TAX ACT, 1961. I AGREE WITH THE CONTENTIO N OF THE AR THAT GROSS LOSS FROM TRADING IN SILK FABRICS ARRIVED AT 1,15,17,214/- AT PAR 2.1 OF THE ORDER SUFFERS FROM IRREGULARITIES. IT IS CLEAR FROM NOTE 16 OF AUDITED ACCOUNTS THAT SALE OF PRODUCTS CONSISTS OF SALE OF SILKS FABRICS AS WELL AS TRADING IN SHARES. AO HAS CONSIDERED THE ENTIRE SALE CONSIDERATION AS RELATABLE TO BUSINESS OF SILK FABRICS WHICH IS WRONG. MOREOVER, THE DIRECT A ND INDIRECT COST CONSIDERED FOR DISALLOWANCE IS ALSO WRONG AND EXCESSIVE. THE D IRECT COST I.E. MANUFACTURING EXPENSES AS PER NOTE 24 OF AUDITED AC COUNTS AMOUNTS TO 51,81,570/-. THE SCRUTINY AND EXAMINATION OF TRADIN G A/C FROM SILK FABRICS SUBMITTED BY THE AR AT ITEM 5 REVEALS GROSS LOSS FR OM THIS BUSINESS INCLUDING DIRECT EXPENSES (MFG. EXPENSES) AMOUNTS TO 81,35,309/- ONLY AND NOT 1,15,17,214/-. 5.2 AS REGARDS APPLICABILITY OF THE PROVISIONS OF S ECTION 40A(2)((B) AND SECTION 37 OF THE ACT FOR DISALLOWANCE OF GROSS BUSINESS LO SS ON SILKS FABRICS, I HAVE ALREADY GIVEN MY FINDINGS WHILE DECIDING APPEAL FOR ASSESSMENT YEAR 2013- 14. FOR SIMILAR REASON THE DISALLOWANCE U/S. 40A(2) (B) AND 37 OF THE ACT IS CONSIDERED AS INAPPLICABLE TO THE FACTS OF THE PRES ENT CASE SO FAR AS IT RELATES TO MFG-CUM-TRADING IN SILK BUSINESS. 5.3 I ALSO FULLY AGREE WITH THE CONTENTIONS OF THE AR THAT THE ASSESSMENT ORDER DOES NOT INDICATE ANY COGENT REASON FOR DENYING EMP LOYEES BENEFIT EXPENSES (NOTE 21), FINANCE COST 9(NOTE 22), DEPRECIATION ET C (NOTE 23) AND ADMINISTRATIVE & SELLING & DISTRIBUTION EXPENSES (N OTE 24) WHICH AGGREGATES TO 2,06,51,871/-. AS SUCH, THE DISALLOWANCE OF INDIREC T EXPENSES AGGREGATING TO 2,06,51,871/- AS PER NOTE 21 TO 24 IS NOT SUSTAINAB LE BEING UNFOUNDED. AS REGARDS THE APPLICATION OF THE PROVISIONS OF SECTIO N 37 OF INCOME TAX ACT, 1961 I FIND THAT AO HAS DRAWN AVERSE INFERENCE ON M ERE SUSPICION AND SURMISES THAT THE OFFICE OF THE APPELLANT COMPANY A S WELL AS THE PARTIES TO WHOM SILK FABRICS WERE SOLD HAPPENED TO BE IN THE S AME PREMISES. IT IS TRUE THAT THE APPELLANT COMPANY AS WELL AS EXPORTER COMP ANIES TO WHOM GOODS WERE SOLD BELONG TO THE SAME GROUP. HOWEVER, THE ME RE FACT THAT BOTH PURCHASER AND SELLER BELONG TO SAME GROUP OR HAVING OFFICE AT THE SAME PREMISES DOES NOT SUGGEST DISALLOWANCE OF LOSS WITH OUT CAUSING ANY ENQUIRY TO DELETE IRREGULARITIES AND / OR FRAUD OR COLLUSIO N ETC. CONSIDERING THE TOTALITY OF FACTS EXPLAINED ABOVE AND THE FACT THAT SUCH BUSINE SS ACTIVITIES WITH ASSOCIATED / RELATED PARTIES WERE ACCEPTED IN EARLI ER YEARS. I HAVE NO HESITATION TO HOLD THAT DISALLOWANCE OF ENTIRE BUSI NESS LOSS ON TRADING IN SILK FABRICS IS NOT PROPER. THE DISALLOWANCE OF GROSS LO SS OF 81,35,309/- FROM MANUFACTURING CUM TRADING IN SILK FABRICS AS WELL A S DISALLOWANCE OF INDIRECT ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 6 EXPENSES OF 2,06,51,871/- ON SUCH BUSINESS ACTIVITIES ARE DIREC TED TO BE DELETED. 5.4 I MAY NOW PROCEED TO DEAL WITH LOSS RESULTING F ROM PURCHASE AND SALE OF SHARES. THE TRADING ACCOUNT OF SUCH ACTIVITY OF BUS INESS AS FURNISHED BY THE AR REVEALS THAT THERE IS NO PURCHASE OF SHARE IN TH E CURRENT YEAR. TWO SCRIPTS HELD AS OPENING STOCK SOLD DURING THE YEARS RESULTE D IN LOSS OF 46,697/- AS UNDER:- NAME OF SCRIPT NO OF SHARES STOCK PRICE ON 01.04.11 SALE PRICE LOSS TATA SKYLINE & HEALTH FORMS LTD. 6100 (QUOTED) 53,497/- 6,800/- (46,697/-) P.K. REGENCY (P) LTD 100000 (UNQUOTED) 110,00,000/- 10,00,000/- NIL 46,697/-) IN ADDITION TO THE ABOVE THE ASSESSEE SUFFERED LOSS OF 92,67,733/- DUE TO FLUCTUATION OF MARKET VALUE AND THE METHOD OF VALUA TION ADOPTED. THUS THE AGGREGATE LOSS FROM THIS BUSINESS AMOUNTS TO 93,14,430/-. THE AR HAS NOT ACCEPTED THE APPLICATION OF EXPLANATION TO SECTION 73 OF THE ACT SO FAR AS LOSS OF 46,697/- IS CONCERNED. HE HAS ALSO VEHEMENTLY OBJEC TED AGAINST APPLICATION OF EXPLANATION TO SECTION 73 OF THE ACT IN RESPECT OF LOSS ON VALUATION DUE TO MARKET FLUCTUATION. THE SAME ISSUE HAS ALREADY BEEN DECIDED BY ME WHILE DEALING WITH THE SAME ISSUE FOR AY 2013 -14 BY FOLLOWING THE DECISION OF ITAT KOLKATA BENCH. RESPECTFULLY FOLLO WING THE SAID DECISION, I DIRECT THE AO TO TREAT THE AGGREGATE LOSS OF 93,14,430/- ON SHARE TRADING ACTIVITY A SPECULATIVE IN NATURE AS PER EXPLANATION TO SECTION 73 OF INCOME TAX ACT, 1961. AO IS ALSO DIRECTED TO ALLOW CARRY FORWA RD OF SUCH SPECULATION LOSS FOR SETTING OFF AGAINST FUTURE SPECULATIVE PROFIT. THIS GROUND IS ALLOWED ACCORDINGLY. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE I S IN APPEAL BEFORE US. 6. THE LD DR BEFORE US SUBMITTED THAT THE LOSS WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF TRANSACTIONS OF SALE PURCHAS E MADE BY THE ASSESSEE WITH THE RELATED PARTIES. THEREFORE, SUCH LOSS ON S ALE PURCHASE OF SHARES SHALL NOT BE ALLOWED AS DEDUCTION. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LD AR BEFORE US SUBMI TTED THAT THE ASSESSEE PRODUCES HANDLOOM FABRICS AND CARRIES OUT EMBROIDER Y WORK ON SUCH FABRICS. THE ASSESSEE HAS INFRASTRUCTURE FACILITIES TO CARRY OUT THE PROCESSING WORK SUCH DYEING WITH DIFFERENT COLORS / CHEMICALS. THER EAFTER, THE ASSESSEE IS SUPPLYING THE SILK FABRICS TO ITS ASSOCIATED COMPAN Y MAINLY EASTERN SILK INDUSTRIES LTD (FOR SHORT ESIL). THE GOODS ARE PREP ARED AS PER THE SPECIFICATIONS OF THE ESIL AND IN CASE IF ANY DEFEC TS IS FOUND OUT THEN THE ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 7 SAME IS EITHER REMANUFACTURED OR RECTIFIED OR SOLD AT LOSS DEPENDING UPON THE DEFECTS IN THE FINAL PRODUCT. IN THE YEAR UNDER CON SIDERATION THE ASSESSEE FAILED TO PROVIDE THE PRODUCT TO THE EXPORTER COMPA NY AS PER THE SPECIFICATIONS THEREFORE SUCH GOODS WERE SOLD AT LOSS. THE LEARNED AR ALSO REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD CIT(A). THE LD. AR ALSO SUBMITTED THAT THE ACTIVITY OF THE ASSESSEE BEING TRADING OF SILK FABRICS AS WELL AS DEALING IN SHARES AND SECURITIES WERE ACCEPTED BY THE DEPARTMENT IN ALL THE EARLIER YEARS AND NO DISALLOW ANCE OF WHATSOEVER WAS MADE BY THE REVENUE. THE AR ALSO SUBMITTED THAT THE ACTIVITIES OF THE ASSESSEE IN THE ASSESSMENT YEAR 2013-14 WERE DULY A CCEPTED AND THEREFORE NO DISALLOWANCE IN THE YEAR UNDER CONSIDERATION CAN BE MADE. THE AO ALSO FAILED TO PRESENT THE CORRECT FIGURES O F LOSS AND IT HAS NOT BROUGHT ON RECORD THE ACTUAL DIRECT EXPENSES AS WELL AS IND IRECT EXPENSES INCURRED BY THE ASSESSEE WHICH WERE DULY REFLECTED IN THE FINAN CIAL STATEMENTS AND THE SAME WERE IN THE POSSESSION OF THE AO. THE LEARNED AR ALSO SUBMITTED THAT THE PROVISIONS OF SECTION 40A(2) OF THE ACT CANNOT BE APPLIED TO THE CASE ON HAND AS THE AO HAS NOT BROUGHT ANYTHING ON RECORD I .E. THE COMPARABLE CASES SUGGESTING THAT THE ASSESSEE HAS MADE PURCHASES AND SALES AT A PRICE LOWER THAN THE MARKET PRICE OR VICE VERSA WITH A VIEW TO INCUR THE LOSS. THE AO HAS NOT POINTED OUT ANY DEFECTS IN THE FINAN CIAL STATEMENTS PREPARED BY THE ASSESSEE WHICH WAS AVAILABLE BEFORE HIM DURI NG THE ASSESSMENT PROCEEDINGS. THE LEARNED AR VEHEMENTLY SUPPORTED TH E ORDER OF LD CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE HAVE ALR EADY BEEN ELABORATED IN THE PRECEDING PARAGRAPH THEREFORE WE ARE NOT INCLINED T O REPEAT THE SAME FOR THE SAKE OF BREVITY. THE DISALLOWANCE WAS MADE BY THE A O CONSIDERING THE TRANSACTIONS OF PURCHASES AND SALES MADE BY THE ASS ESSEE WITH THE KNOWN, RELATED PARTIES HAVING THE SAME ADDRESS OF THE ASSE SSEE. AT THIS JUNCTURE, WE ARE INCLINED TO REPRODUCE THE PROVISIONS OF SECTION 40A(2) OF THE OF THE ACT WHICH READS AS UNDER:- ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 8 [ EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRC UMSTANCES. 39 40A. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFEC T NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION. 40 (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE I N RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON 41 REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE 42 [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS A DEDUCTION. THE PROVISIONS OF SECTION 40A(2) OF THE ACT REQUIRE S THAT THE DISALLOWANCES OF THE EXPENSES CAN BE MADE IF FOUND BY THE AO THAT TH E EXPENSES INCURRED BY THE ASSESSEE ARE EXCESSIVE OR UNREASONABLE IN COMPA RISON TO THE MARKET RATE. THUS TO INVOKE THE PROVISIONS OF SECTION 40A OF THE ACT THE AO HAS TO FULFILL THE FOLLOWING CONDITIONS 1. THERE HAS TO BE RELATIONSHIP BETWEEN THE ASSESSE E AND THE ASSOCIATED PARTIES AS SPECIFIED UNDER CLAUSE (B) TO SECTION 40 A(2) OF THE ACT. 2. THE ASSESSEE INCURRED THE EXPENSES AND THE PAYME NT FOR THE SAME IS MADE TO THE ASSOCIATED PARTIES. THE COMPARABLE CASE S ARE SUGGESTING THAT THE ASSESSEE HAS INCURRED COST EXCESSIVE OR UN REASONABLE. AT THE THRESHOLD, WE OBSERVED THAT THE AO HAS NOT B ROUGHT ANYTHING ON RECORD SUGGESTING THAT THE TRANSACTIONS WERE MADE BY THE A SSESSEE WITH THE ASSOCIATED ENTERPRISES. ON THIS COUNT, WE FIND THAT THE ORDER OF THE AO IS NON- SPEAKING AND IT FAILED TO BRING ON RECORD THE NECES SARY DETAILS AS REQUIRED UNDER THE PROVISIONS OF SECTION 40A OF THE ACT. SIMILARLY THE AO WAS TO BRING ON RECORD THE COMPARA BLE CASES SUGGESTING THAT THE ASSESSEE HAS INCURRED EXCESSIVE COST OR UNREASO NABLE COST BUT NO SUCH CASES HAS BEEN BROUGHT ON RECORD BY THE AO. EVEN ASSUMING THAT THE ASSESSEE HAS MADE SALES TO T HE ASSOCIATED PARTIES BUT YET THE PROVISIONS OF SECTION 40A OF THE ACT CA NNOT BE APPLIED. IT IS ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 9 BECAUSE THIS PROVISION OF SECTION SPEAKS FOR THE EX PENSES INCURRED BY THE ASSESSEE AND IT DOES SPEAK FOR THE SALE MADE TO THE ASSOCIATED PARTY. THEREFORE THE SALES MADE BY THE ASSESSEE TO ESIL CA NNOT BE GOVERNED UNDER THE PROVISIONS OF SECTION 40A OF THE ACT. IT WAS ALSO OBSERVED THAT SIMILAR TRANSACTIONS AS M ADE BY THE ASSESSEE AND DISCUSSED ABOVE WERE ACCEPTED BY THE REVENUE IN THE EARLIER YEARS AND NO DISALLOWANCE OF WHATSOEVER WAS MADE. WE ALSO OBSERV E THAT THE AMOUNTS OF THE LOSS SHOWN BY THE ASSESSING OFFICER IN ITS RE-C ASTED TRADING ACCOUNT ARE NOT MATCHING WITH THE FIGURES SHOWN BY THE ASSESSEE IN ITS AUDITED FINANCIAL STATEMENTS. IT WAS ALSO OBSERVED THAT THE INDIRECT COST AND DIRECT COST HAS BEEN INCURRED BY THE ASSESSEE IN ITS SILK BUSINESS BUT THE ORDER OF THE AO ON THIS ASPECT IS SILENT. THEREFORE AN INFERENCE CAN B E DRAWN THAT THERE WAS NOT ANY INVOLVEMENT OF THE RELATED PARTIES IN CASE OF D IRECT AND INDIRECT COST INCURRED BY THE ASSESSEE. 7.1 ON SPECIFIC QUESTION RAISED FROM THE BENCH TO T HE LEARNED DR ABOUT THE TRANSACTIONS MADE BY THE ASSESSEE WITH THE RELATED PARTIES, THE LEARNED DR FAILED TO BRING ANYTHING ON RECORD CONTRARY TO THE FINDING OF LEARNED CIT-A AS WELL AS ARGUMENTS ADVANCED BY THE LEARNED AR. IN VI EW OF ABOVE WE HOLD THAT NO DISALLOWANCE U/S 40A OF THE ACT CAN BE MADE IN T HE GIVEN FACTS & CIRCUMSTANCES. SIMILARLY, WE ALSO OBSERVED THE AO HAS MADE THE DIS ALLOWANCE OF THE IMPUGNED LOSS U/S 37(1) OF THE ACT WITHOUT BRINGING ANY DEFECTS IN THE BOOKS OF ACCOUNTS AND THE EXPENSES CLAIMED BY THE ASSESSEE. THE AO HAS THE RE- CASTED THE TRADING ACCOUNT OF THE ASSESSEE WHICH PR OVES THAT THE NECESSARY INFORMATION WERE AVAILABLE WITH THE AO ON THE BASIS OF WHICH THE TRADING ACCOUNT WAS PREPARED. THEREFORE THE ALLEGATION OF T HE AO THAT THE ASSESSEE FAILED TO FURNISH THE NECESSARY INFORMATION DOES NO T HOLD GOOD. IN VIEW OF ABOVE WE HOLD THAT THERE WAS NO INFIRMITY IN THE OR DER OF LEARNED CIT-A. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 10 8. NEXT ISSUE RAISED BY REVENUE IN GROUND (II) IS T HAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 56,352/- ON ACCOUNT OF NON- PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDEN T FUND. 9. THE ASSESSEE DURING THE YEAR HAS SHOWN RECEIPTS OF 56,352/- FORM ITS EMPLOYEES WHICH WAS TO BE DEPOSITED IN PF ACCOUNT WITHIN DUE DATE PRESCRIBED UNDER THE PF ACT. BUT ASSESSEE FAILED TO DO SO. THE NECESSARY DETAILS OF EMPLOYEES CONTRIBUTION TOWARDS PF AND D UE DATE OF ITS PAYMENT AND ACTUAL DATE OF PAYMENT STAND AT UNDER:- MOTH AMOUNT RECEIVED DUE DATE OF PAYMENT ACTUAL DATE OF PAYMENT MAY, 2011 47,262.00 20.06.2011 22.06.2011 MARCH, 2012 9,090.00 20.04.2012 02.06.2012 TOTAL 56,352.00 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO TRE ATED THE ABOVE AMOUNT OF EMPLOYEES CONTRIBUTION AS INCOME OF ASSESSEE U/ S 2(24)(X) OF THE ACT AND DISALLOWED THE SAME UNDER THE PROVISION OF SEC. 36( 1)(VA) OF THE ACT. THUS, THE AMOUNT WAS DISALLOWED AND ADDED TO THE TOTAL IN COME OF ASSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- 6.1 THE SIMILAR ISSUE IS COVERED BY THE DECISION OF THE JURISDICTIONAL HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS. VIJA Y SHREE LTD. ITA NO.2456 OF 2011 WHEREIN IT WAS HELD THAT AS LONG AS THE SAID D EPOSITS WERE MADE BEFORE THE FILING OF RETURN U/S. 139(1), THE SAME WOULD ST AND ALLOWABLE FOR DEDUCTION. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF CALCUTTA IN THE MATTER, THE ADDITION MADE BY THE AO IN THIS REGARD IS DIRECTED TO BE DELETED . THESE GROUND STAND ALLOWED. THE REVENUE BEING AGGRIEVED BY THIS ORDER OF LD. CI T(A) IS IN APPEAL BEFORE US. 11 BEFORE US BOTH PARTIES RELIED ON THE ORDER OF AU THORITIES BELOW AS FAVORABLE TO THEM. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE PAYMENT FOR THE EMPLOYEE PROVIDENT FUND WAS MADE BEFORE THE DUE DAT E OF FURNISHING THE ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 11 RETURN OF INCOME AS SPECIFIED U/S 139(1) OF THE ACT . THUS THE SAME CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE IN VIEW O F JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S VIJAY SHREE LIMITED VIDE ITAT NO. 245 OF 2011 IN GA NO.2607 OF 2011 DATED 7 TH SEPTEMBER, 2011, WHEREIN IT HAS BEEN HELD AS UNDER:- AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARI NG ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF T HE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD. , WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE HAS HELD THAT T HE AMENDMENT TO THE SECOND PROVISO TO THE SEC. 43(B) OF THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATIVE IN NATURE AND IS RE QUIRED TO BE APPLIED RETROSPECTIVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF THE AMOUNT PAID BY THE EMPLOYEES CONTRIBUTION BEYOND DUE DATE WAS DEDUCTIBLE BY INVO KING THE AFORESAID AMENDED PROVISIONS OF SECTION 43(B) OF THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSES SEE AND AGAINST THE REVENUE BY THE JURISDICTIONAL HIGH COURT IN THE CAS E OF M/S VIJAY SHREE LIMITED (SUPRA), HENCE, RESPECTFULLY FOLLOWING THE SAME, W E DISMISSED REVENUES GROUND OF APPEAL. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ITA NO.1382/KOL/2016 FOR A.Y 13-14 . 14. REVENUE HAS RAISED THE FOLLOWING GROUNDS:- I. THAT ON THE FACT AND CIRCUMSTANCE OF THE CASE, T HE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.76,48,385/- ON A WRONG APPRECIATION OF FACTS IGNORING THE PROVISIONS OF SECTION 37 & SECTIONS 40 A(2). II. THAT ON THE FACT AND CIRCUMSTANCE OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.46,80,089/- ON ACCOUNT OF WRONG APPRECIATION OF FACTS IGNORING THE PROVISIONS OF SECTION 73. III. THAT ON THE FACT AND CIRCUMSTANCE OF THE CASE, THE LD. CIT(A) ERRED IN LAW IN DELETING THE ADDITION OF RS.23,75,795/- U/S. 14A UNDER RULE 8D AND OVERRULE THE JUDICIAL PRONOUNCEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD. VS. DCIT RANGE 10(2) MUMBAI [201 0] 194 TAXMAN 203 BOMBAY. III. THAT THE APPELLANT CRAVES TO ADD, DELETE OR MO DIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 12 15. FIRST ISSUE RAISED BY REVENUE IN GROUND NO.(I) IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER FOR 76,48,385/- ON ACCOUNT OF BOGUS LOSS. 16. WE HAVE ALREADY DEALT THIS ISSUE ELABORATELY WH ILE ADJUDICATING THE GROUND OF APPEAL OF REVENUE IN ITA NO.1381/KOL/2016. SINCE WE HAVE DISMISSED THIS GROUND OF APPEAL OF REVENUE, FOLLOWI NG THE SAME ANALOGY WE ALSO DISMISS THIS GROUND OF APPEAL OF REVENUE. 17. NEXT ISSUE RAISED BY REVENUE IN GROUND NO.(II) IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 46,80,089/- UNDER THE PROVISION OF SECTION 73 OF THE ACT. 18. THE ASSESSEE DURING THE YEAR HAS SHOWN LOSS OF 46,80,089/- ON ACCOUNT OF DEALING IN SHARES WITH THE RELATED PART IES. THE DETAILS OF IMPUGNED LOSS STAND AS UNDER:- NAME NO. OF SHARES VALUE ON 01.04.12/COST PRICE VALUE ON 31.03.13/SALE PRICE TRADING LOSS/GAIN VALUATION LOSS EASTERN SILK INDUSTRIES LTD. 17,51,580 RS.69,18,741 RS,35,20,676/- NIL (RS.33,9 8,065/- GEMINI OVERSEAS LTD. 20,540 RS.2,47,334/- RS. 41,080/- (RS.2,06,254) NIL P.K. TEXTILES LTD. 40,632 RS.1,92,481/- RS. 81,264/- (RS.1,11,217) NIL TARUN FABRICS LTD 19,000 RS.9,50,000/- RS. 19,000/- (RS.9,31,000) NIL RAVI SERVICES (P) LTD 8,730 RS. 42,283/- RS. 8,730/- (RS.33,553) NIL TOTAL LOSSES COMPUTED F ROM SHARE DEALINGS (RS12,82,024) (RS.33,98,065) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO TRE ATED THE IMPUGNED LOSS AS SPECULATION LOSS IN PURSUANCE TO PROVISION OF EX PLANATION TO SECTION 73 OF THE ACT AND ACCORDINGLY HELD THAT IT SHALL NOT BE A LLOWED TO BE SET OFF AGAINST ANY OTHER INCOME OF THE ASSESSEE. 19. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO CONFIRMED THAT THE IMPUGNED LOSS IS SPECULATION LOS S BY OBSERVING AS UNDER:- 6.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT. I FIND THAT ITT KOLKATA BENCH IN THE CASE OF PAHARPUR COOLING T OWER LTD. VS. DCIT ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 13 REPORTED IN 85 ITD 745 (KOL) DECIDED SIMILAR DISPUT E IN FAVOUR OF REVENUE AND AGAINST THE TAXPAYER AT PARA 17 OF THE ORDER. IT WA S HELD THAT THRUST OF THE PROVISIONS UNDER EXPLANATION TO SECTION 73 WAS ON T HE NATURE OF BUSINESS RATHER THAN NATURE OF TRANSACTIONS. IT IS THUS IMMA TERIAL AS TO WHETHER PROFIT AROSE ON ACCOUNT OF SALE AND PURCHASE OF SHARES BUT TO THE EXTENT IT AROSE OUT OF BUSINESS INCLUDING PURCHASE AND SALE OF THE SAME . IN THIS RESPECT, PROVISIONS OF EXPLANATION TO SECTION 73 WOULD COME INTO PLAY. I FIND NO INFIRMITY IN THE ASSESSING OFFICER'S ORDER IN SO FAR AS THIS LOSS OF 46,80,089/- IS CONSIDERED AS SPECULATIVE IN NATURE. 20. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, IT WA S OBSERVED THAT THE AO HAS TREATED THE IMPUGNED LOSS OF 46,80,089/- AS SPECULATION LOSS AS PER THE PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT. THE VIEW OF THE AO WAS SUBSEQUENTLY CONFIRMED BY LD. CIT(A). THEREFORE THE RE IS NO GRIEVANCE TO THE REVENUE. ACCORDINGLY, THE GROUND FILED BY THE REVEN UE IS INFRUCTUOUS AND LIABLE TO BE DISMISSED. THUS, GROUND OF REVENUE IS DISMISSED. 22. LAST ISSUE RAISED BY REVENUE IN GROUND NO.(III ) IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 23,75,795/- U/S. 14A R.W.R. 8D OF THE INCOME TAX RULE, 1962. 23. THE ASSESSEE DURING THE YEAR HAS SHOWN DIVIDEND INCOME OF 15,375/- ONLY WHICH WAS CLAIMED AS EXEMPTED INCOME U/S 10(34 ) OF THE ACT. THE ASSESSEE IN ITS RETURN OF INCOME DISALLOWED THE SUM OF 2307/- ONLY VOLUNTARILY BEING DEMAT CHARGES IN PURSUANCE TO THE CLAUSE (I) SUB-RULE 2 OF RULE 8D OF IT RULES, 1962. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS SUBMITTED THAT IT DEALS IN SHARES BUSINESS THEREFOR E NO DISALLOWANCE CAN BE MADE. HOWEVER, THE AO DISREGARDED THE CONTENTION OF ASSESSEE AND INVOKED THE PROVISION OF RULE 8D OF IT RULES. ACCORDINGLY A O MADE THE FOLLOWING THE DISALLOWANCE:- I) DIRECT EXPENSE RULE 8D(2)(II) 2,307/- II) INTEREST EXPENSE RULE 8D(2)(I) 3,12,820/- III) ADMINISTRATIVE EXPENSES RULE 8D(22)(III) 33,265/- ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 14 3,46,085/- THUS, THE AO MADE THE DISALLOWANCE OF THE AFORESAID EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 24. AGGRIEVED ASSESSEE PREFERRED IN APPEAL BEFORE L D. CIT(A) WHO PARTLY DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- 7.1 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS FILED BY THE APP. THE AO HAS DISALLOWED A SUM OF 3,46,085/- U/S. 14A READ WITH RULE 8D. I FIND THAT THE SIMILAR ISSUE HAS ALREADY BEEN DECIDED BY THE HON'BLE DELHI HIGH COURT AND THUS FOLLOWING THE JUDGMENT O F THE SAID HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD. VS. CIT (IT A NO.117/2015). I HOLD THAT DISALLOWANCE U/S. 14A READ WITH RULE 8D CANNOT EXCE ED THE EXEMPT INCOME. I AGREE WITH THE CONTENTIONS OF THE APPELLANT THAT TH E DISALLOWANCE U/S. 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME A S IN THE FOREGOING. IN THE INSTANT CASE THERE IS NO DISPUTE THAT THE APPEL LANT HAS EARNED EXEMPT INCOME OF 15,375/-, THUS, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE US/S. 14A READ WITH RULE 8D TO THE EXTENT OF 15,375/-. IN VIEW OF THIS, THE APPELLANT GETS RELIEF OF 3,30,710/- ( 3,46,085 MINUS 15375 ). ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED A DISCUSSED SUPRA. THE REVENUE, BEING AGGRIEVED BY THIS ORDER OF LD. C IT(A) IS IN APPEAL BEFORE US. 25. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE W E FIND THAT IT IS UNDISPUTED FACT THAT ASSESSEE IS DEALING IN SHARES AND SECURIT IES AND ALL THE INVESTMENTS IN SHARES AND SECURITIES HAVE BEEN CLASSIFIED AS ST OCK-IN-TRADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. G.K.K. CAPITAL MARKETS (P) LTD. REPORTED IN 392 ITR 196 (CAL) HAS HELD THAT IF THE ASSESSEE IS INTO THE TRADING BUSINESS OF SHARES / SECURITIES THEN NO DISALLOWANC E CAN BE MADE UNDER THE PROVISION OF SECTION 14A R.W.R. 8D OF IT RULES. THE RELEVANT EXTRACT IS REPRODUCED BELOW:- 9. IN DHANUKA & SONS CASE (SUPRA) IT WAS FOUND THERE WAS NO DISPUTE THAT PART OF THE INCOME OF THE ASSESSEE FROM ITS BUSINES S WAS FROM DIVIDEND WHEREAS THE ASSESSEE WAS UNABLE TO PRODUCE ANY MATE RIAL BEFORE THE AUTHORITY BELOW SHOWING THE SOURCE FROM WHICH SUCH SHARES WERE ACQUIRED. THAT DECISION IS DISTINGUISHABLE ON FACTS AS NOT AP PLICABLE TO THIS CASE. WE ALSO DO NOT FIND THE REVENUE HAD URGED THAT THE EXP ENDITURE BEING DISALLOWED ITA NO.1381-82/KOL/2016 A.Y S 21-13 & 13-14 DCIT, CIR-10(1), KOL. VS. M/S LU CKY GODL STAR CO. LTD. PAGE 15 WAS IN RELATION TO EXEMPT INCOME NOT ARISING IN THE PREVIOUS YEAR FOR APPLICATION OF THE SAID CIRCULAR TO BE CONSIDERED. THE ASSESSING OFFICER HAD ACCEPTED THE CORRECTNESS OF THE DISALLOWABLE EXPEND ITURE OFFERED BY THE ASSESSEE ON ITS CLAIM OF RS.25,68,04,353/- AS LONG TERM CAPITAL GAIN. HE DID NOT ALLOW THE CLAIM ITSELF TREATING THE SAID AMOUNT AS BUSINESS INCOME TO THEREAFTER DISALLOW THE OFFERED EXPENDITURE. 10. IN VIEW OF THE CLEAR FINDING OF FACT REGARDING THE EXEMPT INCOME CLAIMED TREATED TO BE BUSINESS INCOME AND THE SHARES HELD B Y THE ASSESSEE HAVING BEEN TREATED AS STOCK IN TRADE, WE DO NOT FIND THE CASE INVOLVES A SUBSTANTIAL QUESTION OF LAW. THE APPLICATION AND APPEAL ARE THU S DISMISSED. AS THE PRINCIPLE LAID DOWN BY HON'BLE JURISDICTIONA L HIGH COURT IS SQUARELY APPLICABLE TO THE INSTANT FACTS OF THE CASE, WE FIN D NO REASON TO INTERFERE IN THE ORDER OF LD. CIT-A. THUS, AO IS DIRECTED TO DELETE THE ADDITION MADE UNDER THE PROVISION OF SECTION 14A R.W.R. 8D OF THE IT RULES, 1962. HENCE, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 27. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 28. IN COMBINE RESULT, BOTH THE APPEAL OF REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 20/ 04/2018 SD/- SD/- (' ) ( ) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S )- 20 / 04 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S LUCKY GOLD STAR CO. LTD. 19, R.N.MUKH ERJEE ROAD,KOLKATA-001 2. /REVENUE-DCIT, CIRCLE-10(1), P-7, CHOWRINGHEE SQUAR E, 3 RD FLOOR,KOLKATA-69 3. 4 5 / CONCERNED CIT KOLKATA 4. 5- / CIT (A) KOLKATA 5. 8 ''4, 4, / DR, ITAT, KOLKATA 6. = / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 4,