ACIT 10(1), MUMBAI V. SUNDARAM MULTIPAP LTD, MUMBAI

ITA 179/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71792 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Principle of natural justice; Speculation loss
• Section: 43(5)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI . , , !!' !!' !!' !!' , # # # # $ $ $ $ BEFORE SHRI D KARUNAKARA RAO, AM AND SHRI SANJAY GA RG, JM ./ ././ ./ ITA NO.8419/MUM/2011 ( #( ' #( ' #( ' #( ' )' )' )' )' / ASST.YEAR 2009-2010) SUNDARAM MULTI PAP LIMITED, 903, DEV PLAZA, OPP ANDHERI FIRE STATION, S V ROAD, ANDHERI (W), MUMBAI- 400 058 PAN : AADCS7829K VS. THE ACIT 10(1), MUMBAI ( *+ *+ *+ *+ /APPELLANT) ( ,-*+ ,-*+ ,-*+ ,-*+ /RESPONDENT) ./ ././ ./ ITA NO.179/MUM/2012 ( #( ' #( ' #( ' #( ' )' )' )' )' / ASST.YEAR 2009-2010) THE ACIT 10(1), MUMBAI VS. SUNDARAM MULTI PAP LIMITED, MUMBAI- 400 058 PAN : AADCS7829K ( *+ *+ *+ *+ /APPELLANT) ( ,-*+ ,-*+ ,-*+ ,-*+ /RESPONDENT) FOR THE ASSESSEE : SHRI VIJAY MEHTA FOR THE REVENUE : SHRI ASHOK SURI ( ( ( ( . .. . / / / / / DATE OF HEARING :18.11.2013. 01) 01) 01) 01) . .. . / / / / / DATE OF PRONOUNCEMENT :27.11.13 2 2 2 2 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER : THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A), MUMBAI, DATED 03.10.2011, PERTAINING TO A.Y. 2009-10. AS BOTH ITA NO 8419/M/11 & 179/M/12 2 THESE APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSE D OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.8419/MUM/2011 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDE R: THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN P ASSING THE ORDER U/S 250 OF THE ACT AND IS IN GROSS VIOLATION OF PRI NCIPLES OF NATURAL JUSTICE. THE LEARNED AR HAS NOT PRESSED THIS GROUND. IT IS ACCORDINGLY, DISMISSED. 3. GROUND NO.2 READS AS UNDER: 2.(I) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACT S IN UPHOLDING THE DECISION OF ASSESSING OFFICER TREATING THE FOREX HE DGING LOSS OF RS.4,69,102/- AS SPECULATIVE LOSS AND ADDING IT BAC K TO THE TOTAL INCOME. (II) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE FOREX HEDGING LOSS IS INCURRED ON ACCOUNT OF NORMAL BUSINESS TRAN SACTIONS AND ALLOWED TO BE SET OFF AGAINST BUSINESS INCOME. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER OBSERVING THAT THE F & O TRANSACTIONS WERE DONE THROUGH MCX-SX PRIOR TO THE DATE OF ITS BEING NOTIFIED AS A RECOGNIZED STOCK EXCHANGE BY THE CBDT U/S. 43(5) OF THE ACT, DISALLOWED THE FOREX HEDGING LOSS OF RS.4,69,102/-. HE TREATED THE SAME AS SPECULATIVE LOSS AND ADDED IT TO THE INCOME OF THE ASSESSEE. BEFORE THE LEARN ED CIT(A) THE ASSESSEE CONTENDED THAT MCX-SX WAS NOTIFIED AS A RECOGNIZED STOCK EXCH ANGE U/S. 43(5)(D)(II) OF THE I.T.ACT BY CBDT VIDE NOTIFICATION DATED 22.05.2009 AND THE TRANSACTION ENTERED INTO THROUGH THIS EXCHANGE PRIOR TO 22.05.2009 WERE ELIG IBLE TRANSACTIONS AS DEFINED IN SEC. 43(5) AS HELD BY THE DELHI BENCH OF THE TRIBUN AL IN THE CASE OF G K ANAND BROS. BUILDWELL (P) LTD. 34 SOT 439. IT WAS FURTHER CONT ENDED THAT THE TRANSACTIONS WERE CARRIED OUT THROUGH HORNIC INVESTMENTS PVT LTD., WH O WAS A REGISTERED MEMBER OF EXCHANGE. SEC. 43(5) DEFINES SPECULATION TRANSACTI ON, A TRANSACTION IN WHICH CONTRACT FOR PURCHASE OR SALE OF COMMODITY INCLUDIN G STOCKS AND SHARES WAS PERIODICAL OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY. THE PROVISO TO SEC.43(5) PROVIDES EXCEPTION TO THE SPECULATIVE TRA NSACTION. THE CLAUSE (D) OF THE PROVISO PROVIDES THAT IF ANY TRANSACTION OF TRADING IN DERIVATIVES IS CARRIED OUT IN A ITA NO 8419/M/11 & 179/M/12 3 RECOGNIZED STOCK EXCHANGE IT SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. CLAUSE (D) WAS INSERTED BY THE FINANCE ACT, 2005 AN D WAS EFFECTIVE FROM 01.04.2006 AND WAS APPLICABLE FROM A.Y 2006-07 ONWARDS, AS HAS BEEN HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES [ITA NO.1294/KOL/2008] VIDE ORDER DATED 31.07.2009. 4. HOWEVER, THE LEARNED CIT(A) OBSERVED THAT AS PER THE PROVISIONS OF SECTION 43(5) PROVISO (D) ONLY THOSE DERIVATIVE TRANSACTION S WERE NON SPECULATIVE TRANSACTIONS WHICH WERE CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE. SINCE MCX-SX WAS RECOGNIZED/NOTIFIED AS RECOGNIZED STOCK EXCHANG E W.E.F 22.05.2009, THE CIT(A) HELD THE TRANSACTIONS CARRIED OUT PRIOR TO THAT PER IOD AS SPECULATIVE IN NATURE AND CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 5. BEFORE US, THE LEARNED AR HAS DRAWN OUR ATTENTIO N TO THE AUTHORITY OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL STYLED AS ACIT VS. ARNAV AKSHAY MEHTA [53 SOT 581], WHEREIN THE QUESTION OF DISALLOWANCE RELATING TO TRANSACTIONS INCURRED IN COMMODITY DERIVATIVE TRADING THROUGH MCX STOCK EXCH ANGE PRIOR TO ITS RECOGNITION WAS RAISED. THE TRIBUNAL HAS HELD AS UNDER: NOW, THE ISSUE IS WHETHER SUCH A NOTIFICATION GIVE N ON 22ND MAY 2009, THROUGH WHICH MCX STOCK EXCHANGE HAS BEEN REC OGNIZED, CAN BE HELD TO BE APPLICABLE FOR THE TRANSACTION UNDERT AKEN IN THE ASSESSMENT YEAR 2007-08 I.E., AFTER 1ST APRIL 2006. FROM THE COMBINED READING OF CLAUSE (D) OF PROVISO TO SECTION 43(5), RULE 6DDA, 6DDB AND EXPLANATION (II) TO SECTION 43(5), IT WOULD BE SEEN THAT THE RULES WHICH HAS BEEN PRESCRIBED ARE ONLY PROCEDURAL IN NA TURE, AS IT PRESCRIBES THE METHOD AS TO HOW TO APPLY FOR NECESS ARY RECOGNITION AND CONSEQUENT NOTIFICATION. HENCE, THESE ARE PUREL Y PROCEDURAL MECHANISM. WHEN A RULE OR PROVISION DOES NOT EFFECT OR EMPOWER ANY RIGHT OR CREATE AN OBLIGATION BUT MERELY RELATES TO PROCEDURAL MECHANISM, THEN IT IS DEEMED TO BE RETROSPECTIVE UN LESS SUCH AN INFERENCE IS LIKELY TO LEAD TO AN ABSURDITY. IF THE AMENDMENT IS MADE IN PROCEDURAL MECHANISM, IT WILL APPLY TO ALL THE PROC EEDINGS PENDING OR TO BE INITIATED. ONCE IN THE STATUTE, IT HAS BEEN P ROVIDED THAT W.E.F. 1ST APRIL 2006, AN ELIGIBLE TRANSACTION CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE WILL NOT BE TREATED AS SPECULATION TRANSAC TION, THEN SIMPLY BECAUSE PROCEDURAL MECHANISM HAS TAKEN A LONG TIME TO RECOGNIZE THE STOCK EXCHANGE, IT WILL NOT LEAD TO AN INFERENCE TH AT THE SAME WOULD BE APPLICABLE FROM THE DATE WHEN THE STOCK EXCHANGE HAS BEEN RECOGNIZED BY THE CENTRAL GOVT. THE NOTIFICATION IS SUED UNDER RULE 6DDB, DOES NOT EMPOWER ANY RIGHT OR CREATE OBLIGATI ON BUT ONLY RECOGNIZES WHAT IS ALREADY PROVIDED IN STATUTE. THU S, THE TRANSACTIONS ITA NO 8419/M/11 & 179/M/12 4 CARRIED OUT THROUGH MCX STOCK EXCHANGE AFTER 1ST AP RIL 2006, WOULD BE ELIGIBLE FOR BEING TREATED AS NON-SPECULATION WI THIN THE MEANING OF CLAUSE (D) OF PROVISO TO SECTION 43(5). VARIOUS CAS E LAWS, AS HAVE BEEN RELIED UPON BY THE LEARNED COUNSEL ALSO, SUPPORT TH IS VIEW THAT RECOGNITION BY THE CENTRAL GOVT. OF THE STOCK EXCHA NGE FROM A LATER DATE WILL NOT DEBAR THE TRANSACTION AS NON-SPECULAT ION, ESPECIALLY AFTER 1ST APRIL 2006. THEREFORE, IN OUR OPINION, THE ASSE SSEE'S DERIVATIVE TRADING THROUGH MCX STOCK EXCHANGE IN THE ASSESSMEN T YEAR 2007-08 IS NON-SPECULATION TRANSACTION AND, THEREFORE, THE LOSS INCURRED IN SUCH TRANSACTIONS IS TO BE TREATED AS NORMAL BUSINESS LO SS AND, ACCORDINGLY, THE FINDINGS OF THE COMMISSIONER (APPEALS), TO THIS EXTENT, IS UPHELD. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. ADMITTEDLY, THE DERIVATIVE TRANSACTION IN THE CASE IN HAND WAS ALSO DONE BY THE ASSESSEE THROUGH THE VERY MCX STOCK EXCHANGE AND IN VIEW OF THE FINDINGS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, THIS ISSUE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 6. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UNDE R: THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN U PHOLDING THE DISALLOWANCE OF RS.8,43,235/- U/S. 40(A)(IA) OF THE ACT. HE HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAS PAID THE TDS AM OUNT BEFORE FILING THE RETURN OF INCOME. WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERAT ION BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF PIYUSH C MEHTA VS. A CIT [52 SOT 27] AND THE TRIBUNAL RELYING ON THE DECISION OF THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF VIRGIN CREATIONS V. ITO [IT APPEAL NO.267 (KOL.) OF 2009] HAS HELD AS UNDER: 19. AMENDMENT TO THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, BY THE FINANCE ACT, 2010 IS RETROSPECTIVE FROM 1.4.200 5. CONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE DURING PREVIO US YEARS RELEVANT TO AND FROM AY 05-06 CAN BE MADE TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FROM FILING RETURN OF INCOME U/S. 139( 1) OF THE ACT. IF PAYMENTS ARE MADE AS AFORESAID, THEN NO DEDUCTION U /S. 40(A)(IA) OF THE ACT CAN BE MADE. ADMITTEDLY IN THE PRESENT CAS E THE ASSESSEE HAD DEPOSITED THE TAX DEDUCTED AT SOURCE ON OR BEFO RE THE DUE DATE OF FILING RETURN OF INCOME U/S. 139(1) OF THE ACT AND THEREFORE THE IMPUGNED DISALLOWANCE DESERVES TO BE DELETED. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO 8419/M/11 & 179/M/12 5 7. ITA 179/MUM/2012 THE SOLE GROUND TAKEN BY THE REVENUE IN ITS APPEAL READS AS UNDER: WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS CORRECT IN ALLOWING THE ASSESSEE S CLAIM OF RS.10,90,928/- U/S. 35DD OF THE ACT WHICH WAS RESTR ICTED TO RS.5,04,588/- BY THE ASSESSING OFFICER WITHOUT APPR ECIATING THE FACTS THAT IT WAS NOT AN ASCERTAINED LIABILITY. THE ASSESSING OFFICER FOLLOWING HIS PREDECESSORS O RDER FOR THE PREVIOUS YEAR IN THE ASSESSEES OWN CASE RESTRICTED THE CLAIM OF DEDUCTI ON U/S. 35DD OF THE ACT TO RS.5,04,588/-. BEFORE THE CIT(A), IT WAS CONTENDED THAT DURING THE AY 2008-09, THE VIDARBHA PAPER MILLS LTD. AND SIHORA PAPER MILL S LTD WAS AMALGAMATED WITH THE ASSESSEE FOR WHICH THE ASSESSEE HAD TO INCUR AMALGA MATION EXPENSES OF RS.25,22,942/ FOR WHICH IT CLAIMED DEDUCTION U/S. 3 5DD OF THE ACT FOR THE PERIOD OF FIVE YEARS IN EQUAL INSTALLMENTS OF RS.5,04,588/-. FURTHER, IT WAS STATED THAT ADDITIONAL SUM OF RS.54,55,942/- WAS PAID BEING STA MP DUTY PERTAINING TO DOCUMENTS OF AMALGAMATION IN THE AY 2008-09. IT W AS THE CLAIM OF THE ASSESSEE THAT THE EXPENSES CRYSTALLIZED DURING THE YEAR UNDE R CONSIDERATION AS PER THE NOTICE DATED 11.02.2009 ISSUED BY THE GENERAL STAMP OFFICE , MUMBAI AND, THEREFORE, FOR THE YEAR UNDER CONSIDERATION, THESE EXPENSES WERE N OT FUTURE EXPENSES AND WERE ALLOWABLE U/S. 35DD OF THE ACT. IT WAS FURTHER SUBM ITTED THAT THOUGH THE EXPENSES WERE PAID IN AY 2010-11, IT PERTAINED TO AY 2009-10 AND RELATED TO AMALGAMATION OF THE ASSESSEE WITH THE VIDARBHA PAPER MILLS LTD. AND SIHORA PAPER MILLS LTD AND, THEREFORE, THE EXPENSES WERE COVERED U/S. 35DD OF T HE ACT. THE ASSESSEE REQUESTED THAT IT WAS ENTITLED TO CLAIM FURTHER DED UCTION OF RS.10,90,928 BEING 1/5 TH OF THE TOTAL EXPENSES OF RS.54,54,639 INCURRED BY T HE ASSESSEE FORM THE YEAR OF AMALGAMATION OR FROM AY 2009-10. THE CIT(A) BEING IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE, DELETED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER OBSERVING THAT THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND LIABILITY OF STAMP DUTY EXPENSES OF RS.54,54,639/- CRYSTALLIZED ON ACCOUNT OF NOTICE DATED 11.02.2009 ISSUED BY THE STATE GOVERNMENT. T HE RELEVANT FINDINGS OF THE CIT(A) ARE REPRODUCED AS UNDER: ITA NO 8419/M/11 & 179/M/12 6 IN THE YEAR UNDER CONSIDERATION, THE LIABILITY OF SUCH STAMP DUTY EXPENSES OF RS.54,54,639/- CRYSTALLIZED ON ACCOUNT OF NOTICE DTD 11.02.2009 ISSUED BY THE GOVERNMENT OF MAHARASHTRA, GENERAL STAMP OFFICE. THOUGH THE PAYMENT OF THIS STAMP DUTY WAS MADE BY APPELLANT IN APRIL, 2009 (I.E. IN A.Y. 2010-11) HOW EVER, SINCE THE APPELLANT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING, THEREFORE, PAYMENT OF SUCH STAMP DUTY WAS ALLOWABLE TO THE APP ELLANT ON MERCANTILE BASIS IN THE YEAR UNDER CONSIDERATION AN D U/S. 35DD OF THE ACT. IN PARA 4 OF THE ASSESSMENT ORDER, THE A.O. H AS SIMPLY DISALLOWED APPELLANTS CLAIM ON THE BASIS OF FINDIN G OF A.O. GIVEN IN THE ASSESSMENT ORDER OF A.Y. 2008-09. HOWEVER, THE FAC TS OF BOTH THE YEARS WERE DIFFERENT. IN A.Y. 2008-09 THESE EXPENS ES WERE FUTURE EXPENSES WHEREAS IN THE YEAR UNDER CONSIDERATION TH ESE EXPENSES WERE ACTUAL EXPENSES ON MERCANTILE BASIS PERTAINING TO THE YEAR UNDER CONSIDERATION. IN THE FACTS AND CIRCUMSTANCES THE A.O. IS DIRECTED TO ALLOW APPELLANTS CLAIM OF DEDUCTION/S. 35DD OF THE ACT AT RS.10,90,928/- BEING 1/5 TH OF TOTAL EXPENSES OF RS.54,54,639/-. THIS GROUND OF APPEAL IS ALLOWED. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE GONE THROUGH THE RECORD. IN OUR VIEW THE LEARNED CIT(A) HAS RIGHTLY OBSERVED THAT AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND THE LIABILITY CRYSTALLIZED ON THE RECEIPT OF NOTICE DATED 11.02.2009, AND AS SUCH THE SAME WAS ALLOWABLE IN THE YEAR UNDER CONSIDERATION. WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE CIT(A) IN THIS RESPECT. IT IS ACCORDINGLY, UPHELD AND THE RE VENUES GROUND IS DISMISSED. 9. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALL OWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS NOVEMBER, 2013. SD/- SD/- D KARUNAKARA RAO SANJAY GARG / ACCOUNTANT MEMBER # # # # / JUDICIAL MEMBER MUMBAI; 3( DATED : 27 TH NOVEMBER, 2013. SA ITA NO 8419/M/11 & 179/M/12 7 2 2 2 2 . .. . ,#/45 ,#/45 ,#/45 ,#/45 65)/ 65)/ 65)/ 65)/ / COPY OF THE ORDER FORWARDED TO : 1. *+ /THE APPELLANT. 2. ,-*+ / THE RESPONDENT. 3. 7 ( ) / THE CIT(A) - 21, MUMBAI. 4. 7 / CIT 5. 58! ,#/#( , , / DR, E BENCH, ITAT, MUMBAI 2( / BY ORDER, -5/ ,#/ //TRUE COPY// 9 / : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI