Deputy Commissioner of Income Tax, Circle- 1 (1), Panaji., Panaji V. M/s Goa Carbon Limited., Panaji

ITA 192/PAN/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1430 (ITAT-PANAJI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 12-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH LD
• Assessee Lawyers: K BALARAMAN SR G M FINANCE
• Keywords: Speculation loss; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI, HON'BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 192/PNJ/2015 : (A.Y 2012 - 13) DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PANAJI, GOA. (APPELLANT) VS. M/S. GOA CARBON LIMITED DEMPO HOUSE, CAMPAL, PANAJI, GOA (RESPONDENT) PAN : AAA CG6842K ASSESSEE BY : K. BALARAMAN, SR. G.M - FINANCE REVENUE BY : K.M. MAHESH, LD. DR DATE OF HEARING : 12/08/2015 DATE OF PRONOUNCEMENT : 12/08/2015 O R D E R PER GEORGE MATHAN : 1. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), PANAJI - 1 IN ITA NO. 307/PNJ/14 - 15 DT. 12.2.2015 FOR THE A.Y 2012 - 13. SHRI K.M. MAHESH, LD. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI K. BALARAMAN, SR. GENERAL MANAGER FINANCE OF THE ASSESSEE - COMPANY REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL : 1) THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2 ITA NO. 192/PNJ/2015 (A.Y : 2012 - 13) 2) THE L D CIT(A) HAS ERRED IN DELETING THE ADDITION AMOUNTING TO RS.5,38,77,040/ - MADE BY A.O. WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE IS NOT A FOREIGN EXCHANGE DEALER AND HEDGING LOSS IN FOREIGN EXCHANGE IS NOT ALLOWABLE IN THE CASE OF THE ASSESSEE. 3) THE L D. CIT(A) HAS ERRED IN TREATING THE LOSSES INCURRED BY THE ASSESSEE ON FORWARD CONTRACTS AS HEDGING LOSS INSTEAD OF TREATING IT A S SPECULATIVE LOSS. 4) THE L D. CIT(A) HAS FAILED TO APPRECIATE THE SUPREME COURT DECISION IN THE CASE OF CIT VS. JOSEPH JOHN (1968) 67 ITR 74 HELD THAT THE BURDEN OF PROOF THAT TRANSDUCTIONS CARRIED ON BY THE ASSESSEE ARE NOT SPECULATIVE BUT HEDGING TRAN SACTION IS ON THE ASSESSEE. 5) THE LD. CIT(A) HAS FAILED TO APPRECIATE THE ESSENTIAL FEATURES OF A HEDGING CONTRACT THAT THE HEDGING TRANSACTION SHOULD BE IN THE COMMODITY MANUFACTURED/TRADED BY THE ASSESSEE AND THE HEDGING TRANSACTION TOTAL VALUE SHOULD NOT EXCEED ON ANY GIVEN DATE MORE THAN THE ACTUAL STOCK AVAILABLE WITH THE ASSESSEE, THE RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: I ) JUVI SUBBARAMAIAH & CO. VS. CIT (1964) 51 ITR 742, 753, II) (AP). OMKARMAL AGARWAL VS. CIT (1968) 67 ITR 329, 335 (AP), III) RAGHUNATH DAS PRAH L AD DAS VS. CIT (1976) 104 ITR 95 (ALL), IV) ONKAR SHANKAR TRADING(P) LTD VS. CIT (1974) X CTB 809 (CAL). 6) THE LEARNED CIT(A) IGNORED THE BOARDS CIRCULAR NO.23 (XXXIV - 4) D OF 1960 DATED 12 - 09 - 1960 AND INSTRUCTION NO.3 - 2 010 DATED 23 - 03 - 2010 AND THE ABOVE JUDICIAL DECISIONS, THE LOSSES INCURRED BY THE ASSESSEE ON FORWARD CONTRACTS IS TO BE TREATED AS SPECULATIVE LOSS AND NOT HEDGING LOSS. 7) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND ORDER OF ASSESSING OFFICER RESTORED. 8) THE APPELLANT CRAVES, LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF THE APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 3. IT WAS SUBMITTED BY THE LD. DR THAT IN THE COURSE OF THE ASSESSMENT THE AO HAD DISALLOWED FORWARD PREMIUM EXPENSES. IT WAS THE SUBMISSION THAT THE AO HAD HELD THAT THE FORWARD CONTRACT IN RESPECT OF FOREIGN EXCHANGE WAS A SPECULATIVE LOSS AND NOT HEDGING LOSS AND DISALLOWED THE SAME. IT WAS THE 3 ITA NO. 192/PNJ/2015 (A.Y : 2012 - 13) SUBMISSION THAT THE LD. CIT(A) HAD DELETED THE DISALLOWANCE BY HOLDING THAT THE ASSESSEE HAD IMPORTED RAW MATERIALS FOR USE IN ITS MANUFACTURING BUSINESS AND THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACT TO SAFEGU ARD ITS INTEREST AGAINST VOLATILE FLUCTUATIONS IN THE EXCHANGE RATES. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 4. IN REPLY, THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSEE IS NOT A DEALER IN FOREIGN EXCHANGE AND IN THE CASE OF THE ASSESSEE, THE TOTAL FORWARD CONTRACT HAS NOT EXCEEDED THE VALUE OF THE IMPORTS MADE IN THE YEAR. IT WAS THE FURTHER SUBMISSION THAT THE ASSESSEE HAS AVAILED CREDIT FACILITIES IN THE FORM OF SHORT TERM FOREIGN CURRENCY LOANS AND HAS ALSO REPAID SUCH LOANS AND THE CONSEQUENT FORWARD PREMIUM WAS NOTHING BUT INTEREST AS DEFINED U/S 2(28A) OF THE ACT. IT WAS THE FURTHER SUBMISSION THAT THE ISSUE WAS SQUARE COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. REPORTED IN 312 ITR 254 . 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THOUGH THE ASSESSEE HAS BEEN SPECIFICALLY DIRECTED TO SHOW THAT THE CONTRACTS WERE TAKEN EXCLUSIVELY FOR THE PURCHASE OF RAW MATERIALS, THE ASSESSEE HAS NOT BEEN ABLE TO PROVE SO. IF THE ASSESSEE HAS ENTERED INTO FORWARD CONTRACT EXCLUSIVELY FOR THE PURCHASE OF THE RAW MATE RIALS, THEN, TO THE EXTENT OF SAID PURCHASES OF RAW MATERIALS THE LOSS INCURRED BY THE ASSESSEE IN RESPECT OF THE FORWARD CONTRACT WOULD BE AN ALLOWABLE EXPENDITURE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. REFERRED TO SUPRA . HOWEVER, IF THE FORWARD CONTRACT HAS BEEN ENTERED INTO BY THE ASSESSEE AND THE SAME IS IN EXCESS OF THE COST OF PURCHASES OF RAW MATERIALS, THEN, THE EXCESS OF THE FORWARD CONTRACT IN FOREIGN EXCHANGE WOULD BE TREATED AS SPEC ULATIVE. THIS EVIDENCE 4 ITA NO. 192/PNJ/2015 (A.Y : 2012 - 13) NEEDS TO BE VERIFIED AND EXCLUSIVELY FOR THIS PURPOSE, THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR RE - ADJUDICATION. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12/08/2015. S D / - (N.S. SAINI) ACCOUNTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 12/08/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 5 ITA NO. 192/PNJ/2015 (A.Y : 2012 - 13) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 12/08/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 13/08/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 3 /08/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 3 /08/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 3 /08/2015 SR.PS 6. DATE OF PRONOUNCEMENT 12/08/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 3 /08/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER