A.C.I.T Cir - 3 , kolkata, Kolkata V. M/S Dwarkesh Engineering Works Pvt Ltd, Kolkata

ITA 1644/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83165 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Court: TRIBUNAL
• Department Lawyers: DILIP KR RAKSHIT JCITSR
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Opportunity of being heard; Earning of tax free income; Speculation loss
• Section: 14A; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SRI MAHAVIR SINGH, JM& HONBLE S RI SHAMIM YAHYA, AM ] ITA NO.1644/KOL/2012 ASSESSMENT YEAR : 2009-10 ( APPELLANT ) (RESPONDENT) A.C.I.T., CIRCLE-3 .. -VS- M/S.DWARKESH ENGINEER ING KOLKATA WORKS PVT. LTD., KOLKATA (PAN:AAACD 8784 B) FOR THE APPELLANT SHRI DILIP KR.RAKSHIT, JCIT(SR.DR) FOR THE RESPONDENT SHRI MANOJ KATARUKA, ADVOCATE DATE OF HEARING : 22.10.2014 DATE OF PRONOUNCEMENT : 29. 10.2014. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. C.I.T.(A)- I, KOLKATA DT. 22.08.2012 AND PERTAINS TO ASSESSMENT Y EAR 2009-10. 2. THE GROUNDS OF APPEAL RAISED BY REVENUE READ AS UNDER :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF RS.2,33,288/- MADE U/S 14A R.W. R. 8D TO RS.22,303/- WITHOUT APPRECIATING THE FACT THAT IT WAS FOR THE ASSESSEE TO PROVE BY PRODUCING MATERIAL ON RECORD THAT NO INTEREST BEARING FUND WAS UTILIZED F OR INVESTMENTS. 2. THAT THE ORDER OF THE A.O. BE UPHELD IN VIEW OF THE JUDGMENT OF JURISDICTIONAL TRIBUNAL IN THE CASE OF DHANUKA & SONS VS. CIT(CENT RAL)-I, KOLKATA [12 TAXMANN.COM 227 (CAL)2011]. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.1,80,000/- MADE U/S 40A(2)(B) WITHOUT APPRECIATING THE FACT THAT ASSESSEE COMPANY FAILED TO PROVE BY PRODU CING EVIDENCES THAT THE PAYEE RENDERED HER SERVICES TO THE COMPANY AND THE PAYMEN T WAS NOT EXCESSIVE IN TERMS OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE I.T.ACT, 196 1. 4. THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO TR EAT THE LOSS OF RS.18,53,961/- AS NORMAL BUSINESS LOSS WITHOUT TAKING INTO ACCOUNT TH E FACT THAT THE ASSESSEE COMPANY SUFFERED THE SAID LOSS ON ACCOUNT OF COMMODITY FUTU RE TRADING WITHOUT ANY ACTUAL DELIVERY OF NICKEL. 5. THAT THE LD. CIT(A) ERRED IN HOLDING THE SAID LO SS AS NORMAL BUSINESS LOSS WITHOUT APPRECIATING FACT THAT THE LEDGER OF FUTURE TRADING SHOWS THAT ASSESSEE WAS TRYING TO SPECULATE THE RATE OF NICKEL IN THE MARKET AND THUS THE LOSS WAS SPECULATIVE LOSS. ITA.NO.1644/KOL/2012 M/S.DWARKESH ENGG.WORKS PVT.LTD.,KOL A.YR.2009-10 2 6. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, ALTER O R MODIFY ANY GROUND OF APPEAL DURING THE HEARING. 3. APROPOS GROUND PERTAINING TO DISALLOWANCE U/S 1 4A OF THE ACT : ON THIS ISSUE THE AO NOTED THAT THE ASSESSEE COMPANY HAS MADE AN INVESTMENT OF RS.4,63,44,249/- IN QUOTED/UNQUOTED SHARES. AO OPINED THAT INCOME FR OM SHARE INVESTMENT I.E. DIVIDEND IS EXEMPTED, SO AS PER PROVISION OF SECTIO N 14A OF THE ACT THE MANAGERIAL AND ADMINISTRATIVE COST RELATED TO THE SHARE INVEST MENT IS NOT ALLOWABLE EXPENSES. HOWEVER, THE AO NOTED THAT THE ASSESSEE DID NOT DIS CLOSE ANY EXPENSES RELATED TO EXEMPTED INCOME. AO WAS OF THE OPINION THAT PROVISI ON OF SECTION 14A R.W.R. 8D ARE APPLICABLE. IN THIS REGARD THE AO OBSERVED THAT IN VIEW OF THE JUDICIAL PRONOUNCEMENT IN THE CASE OF M/S.GODREJ & BOYCE MFG.CO. LTD. VS D CIT AND IN THE CASE OF CHEM INVEST LTD. VS.ITO 124 TTJ 577 (DEL)(SB) WHEREIN IT WAS HELD THAT IRRESPECTIVE OF ASSESSEES CLAIM OF HAVING NO EXPENSES INCURRED OR HAVING NO EXEMPT INCOME RECEIVED DURING THE YEAR, THE PROVISIONS OF SEC.14A R.W.R. 8 D SHALL APPLY. ACCORDINGLY AO COMPUTED THE DISALLOWANCE OF RS.2,33,288/-. 4. UPON ASSESSEES APPEAL IN THIS REGARD THE LD. CI T(A) REDUCED THE EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPTED INCOME ON AN ESTIM ATE BASIS AND DISALLOWED A FIGURE OF RS.22,303/-. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PER USED THE RECORDS. WE FIND THAT THE ASSESSEE HAS INTER ALIA REITERATED THE EXPENDIT URE BEFORE THE LD. CIT(A) THAT THE INTEREST BEARING FUNDS WERE NOT USED FOR MAKING INV ESTMENTS. HOWEVER, THIS ISSUE HAS NOT BEEN SUBSTANTIATED. IN OUR CONSIDERED OPINION I T NEEDS TO BE REMITTED TO THE FILE OF AO FOR RE-CONSIDERATION. WE ALSO NOTED THAT WHETHER THE ASSESSEE HAS EARNED ANY DIVIDEND INCOME ALSO IS NOT EMANATING FROM THE RECO RDS. LD.COUNSEL OF THE ASSESSEE HAS PLEADED THAT THERE ARE DECISIONS OF HONBLE HIG H COURTS FOR THE PROPOSITION THAT NO DISALLOWANCE IS REQUIRED U/S 14A WHEN NO DIVIDEND I NCOME HAS BEEN EARNED. HENCE THIS ISSUE IS ALSO TO BE REMITTED FOR GIVING A FIND ING ON EXPENDITURE WHICH IS TO BE ITA.NO.1644/KOL/2012 M/S.DWARKESH ENGG.WORKS PVT.LTD.,KOL A.YR.2009-10 3 DISALLOWED IN EARNING EXEMPTED INCOME. ACCORDINGLY THESE ISSUES ARE REMITTED TO THE FILE OF AO. 6. APROPOS GROUND PERTAINING TO DELETION OF ADDITIO N OF RS.1,80,000/- U/S 40A(2)(B) OF THE ACT. ON THIS ISSUE AO NOTED THAT T HE ASSESSEE HAD PAID AN AMOUNT OF RS.1,80,000/- TO SMT.RUCHIRA AJMERA, WIFE OF THE MA NAGING DIRECTOR OF THE COMPANY. AO ASKED THE ASSESSEE TO PRODUCE THE JUSTIFICATION FOR THE SAID PAYMENT WITH EVIDENCE OF DUTY PERFORMED BY SMT.RUCHIRA AJMERA, HER PERSON AL QUALIFICATION AND EXPERIENCE ETC. AO NOTED THAT DESPITE OPPORTUNITY ASSESSEES C OUNSEL COULD NOT PROVE THE JUSTIFICATION AND THEREFORE A SUM OF RS.1,80,000/- WAS DISALLOWED U/S 40A(2)(B) OF THE I.T.ACT. 7. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T RUCHIRA AJMERA WAS INVOLVED IN THE DAY TO DAY MANAGEMENT OF THE ADMINISTRATIVE AFFAIRS OF THE COMPANY, LOOKING INTO THE PAYMENTS, REGISTERS OF ACCOUNTS LOOKING IN TO PAPER WORK, IMPORTANT EMAILS COMMUNICATION WITH OVERSEAS BUYERS ETC. IT WAS ALSO SUBMITTED THAT FOR SUCH TYPE OF WORK THERE CANNOT BE DOCUMENTARY EVIDENCE EXCEPT TH AT SHE WAS ALLOTTED A SEPARATE CHAMBER IN THE REGISTERED OFFICE OF THE COMPANY AND WORKING FROM THERE. IT WAS SUBMITTED THAT THE INCOME HAS BEEN REFLECTED IN HER BOOKS AND TAX WAS DEDUCTED AT SOURCE ON SUCH PAYMENTS MADE. 7.1. CONSIDERING THE ABOVE THE LD. CIT(A) HELD AS U NDER :- THE DETAILS HAVE BEEN PERUSED AND THE RETAINERSHIP FEES OF RS.1,80,000/- HAS BEEN REFLECTED AS INCOME IN THE HANDS OF RUCHIRA AJMERA. TAX HAS ALSO BEEN DEDUCTED AT SOURCE ON SUCH PAYMENTS. THE APPELLANT ARE HAVING T URNOVER OF MORE THAN 36 CRORES AND PAYMENT OF RS.1,80,000/- TO RUCHIRA AJMERA CANNOT B E CONSIDERED AS EXCESSIVE OR UNREASONABLE OR NON-COMMENSURATE TO THE MARKET COND ITION BEING THE WIFE OF THE MANAGING DIRECTOR CANNOT TAKE AWAY THE FACT THAT LO OKING AFTER DAY TO DAY ADMINISTRATIVE AFFAIRS TAKES TIME. MOREOVER, RUCHIR A AJMERA HAS REFLECTED THE INCOME RECEIVED IN HER BOOKS OF ACCOUNTS FOR WHICH RETURN HAS BEEN FILED AND TAX HAS BEEN PAID. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS T HEREFORE DELETED. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PER USED THE RECORDS. WE FIND THAT SMT. RUCHIRA AJMERA HAS BEEN PAID A SUM OF RS.1,80, 000/- FOR THE SERVICES PROVIDED. ITA.NO.1644/KOL/2012 M/S.DWARKESH ENGG.WORKS PVT.LTD.,KOL A.YR.2009-10 4 THE AMOUNT PAID CANNOT BE CONSIDERED TO BE EXCESSIV E OR UNREASONABLE OR NON- COMMENSURATE TO THE MARKET CONDITION AS FOUND BY TH E LD. CIT(A). ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A) IN THIS REGARD. ACCORDINGLY WE UPHOLD THE SAME. 9. APROPOS GROUND PERTAINING TO TREATMENT OF LOSS O F RS.18,53,961/- AS NORMAL BUSINESS LOSS : ON THIS ISSUE AO OBSERVED THAT THE ASSESSEE COMPANY IN ITS P/L A/C HAS DEBITED AN AMOUNT OF RS.18,53,960/- UNDER SAID HEAD. DURING THE COURSE OF HEARING THE A/R OF THE ASSESSEE COMPANY WAS ASKED T O PRODUCE THE DETAILS AND DOCUMENTARY EVIDENCE DULY SUPPORTED WITH BILLS AND VOUCHERS ETC. HE WAS FURTHER ASKED TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT B E TREATED SPECULATION LOSS AS NO ACTUAL DELIVERY IS OBSERVED IN THIS CASE. IN ABSENC E OF RESPONSE AO TREATED IT AS SPECULATION LOSS AND ALLOWED TO BE CARRIED FORWAR D. 10. BEFORE THE LD. CIT(A) THE ASSESSEE MADE ELABORA TE SUBMISSIONS. THE ASSESSEE INTER ALIA SUBMITTED THAT ASSESSEES CASE IS FALLIN G UNDER CLAUSE (A) OF THE PROVISO TO SECTION 43(5) OF THE I.T.ACT AND THIS WAS EXEMPTED FROM THE RIGOURS OF SECTION 43(5) OF THE ACT. THE LD. CIT(A) CONCLUDED AS UNDER :- THE APPELLANT HAS FILED THE SAMPLE CONTRACT NOTES ALONG WITH LEDGER ACCOUNTS OF THE COMMODITY TRADING ALONG WITH SAMPLE PURCHASE BILLS OF RAW MATERIALS AND IT IS NOT A DOUBT THAT IT IS DEALING IN NICKEL WHICH IS ALSO TH E PRIMARY RAW MATERIAL IN HIS MANUFACTURING CONCERN. KEEPING IN VIEW THE FACT THA T THE LEGISLATURE HAS SPECIFICALLY EXCLUDED SUCH TYPE OF SPECULATIVE TRANSACTIONS, TO PROTECT AGAINST BUSINESS FROM BEING A SPECULATIVE TRANSACTION UNDER PROVISO CLAUSE (A) TO SECTION 43(5) OF THE I.T.ACT. IT IS CLEAR THAT THE ASSESSEES CASE FALLS UNDER THE EXEMPTION AND THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PE RUSED THE RECORDS. WE FIND THAT ASSESSEEES CLAIM IS THAT ASSESSEES TRANSACTION AR E EXEMPTED IN AS MUCH AS THEY FALL UNDER CLAUSE (A) OF THE PROVISO TO SECTION 43(5) OF THE ACT PROVIDING EXEMPTION FROM SPECULATIVE TRANSACTIONS. THE SAID CLAUSE PROVIDES EXEMPTION FROM THE DEFINITION OF SPECULATIVE TRANSACTION TO A CONTRACT OF RAW MATERI ALS OR MERCHANDISE ENTERED INTO BY A ITA.NO.1644/KOL/2012 M/S.DWARKESH ENGG.WORKS PVT.LTD.,KOL A.YR.2009-10 5 PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHA NTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HI M. THUS THE ABOVE EXEMPTION IS APPLICABLE TO HEDGING TRANSACTIONS. WE FIND THAT TH OUGH THE ASSESSEE HAD MADE A PLEA IN THIS REGARD BUT THE SAME NEEDS TO PROPERLY EXAMI NED FROM THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A)S ORDER IS LACKING IN THIS REGARD. FURTHERMORE WE ALSO NOTE THAT THE ASSESSEE HAS FAILED TO MAKE ANY SUBMISSION ON T HE ABOVE ISSUE BEFORE THE AO. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF AO. ACCORDINGLY THIS ISSUE IS REMITTED TO T HE FILE OF AO. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 29.10.2014. SD/- SD/- [ MAHAVIR SINGH ] [SHAMIM YAHYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 29.10.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. M/S. DWARKESH ENGINEERING WORKS PVT. LTD., AZIMGANJ HOUSE, 3 RD FLOOR, 7, CAMAC STREET, KOLKATA-700001. 2 A.C.I.T., CIRCLE-3, KOLKATA. 3 . CIT(A)- I, KOLKATA. 4. CIT KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA.NO.1644/KOL/2012 M/S.DWARKESH ENGG.WORKS PVT.LTD.,KOL A.YR.2009-10 6