DCIT 15(2)(2), MUMBAI V. PADAM STEEL ENTERPRISES P.LTD, MUMBAI

ITA 1941/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8361 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: SHAILESH N DOSHI
• Keywords: Corroborative evidences; Capital expenditure
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO .1941 /MUM. /2015 ( ASSESSMENT YEAR : 2011 12 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 15(2)(2), MUMBAI . APPELLANT V/S PADAM STEEL ENTERPRISES PVT. LTD. 228, HALLMARK SHOPPING COMPLEX VASANT OSCAR, LBS MARG MULUND (W), MUMBAI 400 080 PAN AADCP8264F . RESPONDENT ASSESSE E BY : SHRI SHAILESH N. DOSHI REVENUE BY : SHRI RAJAT MITTAL DATE OF HEARING 08.11.2017 DATE OF ORDER 06.12.2017 O R D E R PER SAKTIJIT DEY, J.M. THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 5 TH JANUARY 2015, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 24, MUMBAI, FOR THE ASSESSMENT YEAR 2011 12. 2 . GROUNDS NO.3 AND 4 BEING GENERAL IN NATURE ARE DISMISSED. 3 . IN GROUND NO.1, REVENUE HAS CHALLENGED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN ALLOWING PARTIAL RELIEF TO THE 2 PADAM STEEL ENTERPRISES PVT. LTD. ASSESSEE WITH REGARD TO PAYMENT OF REGISTRAR OF COMPANIES (ROC) FEES. 4 . BRIEF FACTS ARE, THE ASSESSEE A COMPANY IS ENGAGED IN THE BUS INESS OF WHOLESALE TRADING IN IRON AND STEEL. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH AUGUST 2011, DECLARING TOTAL INCOME OF ` 31,70,457. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 2,10,000 TOWARDS PAYMENT OF ROC FEES IN CONNECTION WITH INCREASE IN SHARE CAPITAL CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM. THOUGH, THE ASSESSEE SUPPORTED HIS CLAIM RELYING UPON CERTAIN JUDICIAL PRECEDEN TS , HOWE VER, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE EXPENDITURE INCURRED FOR INCREASE IN AUTHORIZED CAPITAL IS RELATED TO THE CAPITAL FIELD, HENCE, IS A CAPITAL EXPENDITURE. HE ALSO OBSERVED THAT THE COMPANYS BUSINESS IS ALREADY IN PROGRESS AND, THEREFORE, IT IS NOT AN EXPENDITURE INCURRED PRIOR TO THE SET UP OF BUSINESS. ACCORDINGLY, HE DISALLOWED THE AMOUNT OF ` 2,10,000. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 5 . BEFORE THE LEARNED COMMISSI ONER (APPEALS), THE ASSESSEE PLEADED THAT FOR INCREASING THE AUTHORIZED CAPITAL BY ` 2 CRORE, THE ASSESSEE HAD PAID THE FEES OF ` 2,10,000 TO ROC. THE ASSESSEE 3 PADAM STEEL ENTERPRISES PVT. LTD. SUBMITTED , TO AVAIL ENHANCED CREDIT FACILITY OF ` 2 CRORE AT THE INSISTENCE OF THE BANK THE ASSE SSEE , THOUGH , INCREASED THE AUTHORIZED CAPITAL TO ` 2 CRORE, HOWEVER, THERE WAS NO FRESH INFLOW OF FUNDS TO THE EXTENT OF ` 1.50 CRORE. THEREFORE, IT WAS SUBMITTED, IF AT ALL ANY DISALLOWANCE HAS TO BE MADE IT HAS TO BE RESTRICTED TO 25% OF THE ROC FEES. I N THIS CONTEXT, THE ASSESSEE RELIED UPON THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN DCIT V/S HERO MOTORS LTD., ITA NO.2919 & 2020/DEL./2012 DATED 17 TH MAY 2013. ACCEPTING THE AFORESAID CONTENTION OF THE ASSESSEE, THE LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO ` 52,500. 6 . LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSERVATIONS OF THE ASSESSING O FFICER SUBMITTED THAT SINCE ROC FEES PAID BY THE ASSESSEE IS LINKED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY, IT IS IN THE NATURE OF CAPITAL EXPENDITURE. IN THIS CONTEXT, HE RELIED UPON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN BR O OKE BOND INDIA LTD. V/S CIT, 225 ITR 798. 7 . LEARNED AUTHORISED REPRESENTATIVE STRONGLY SUBMITTED THAT SINCE THERE IS NO FRESH INFUSION OF FUND FOR INCREASING THE CAPITAL BASE OF THE COMPANY, THE EXPENDITURE INCURRED IS REVENUE IN NATURE. 8 . WE HAVE HEARD RIVAL CONTEN TIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, FEES OF ` 2,10,000 PAID TO THE ROC 4 PADAM STEEL ENTERPRISES PVT. LTD. WAS TOWARDS INCREASE OF AUTHORIZED CAPITAL BY ` 2 CRORE. THUS, THERE IS NO DOUBT THAT THE EXPENDITURE INCURRED WAS FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY. T HEREFORE, APPLYING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. V/S CIT, 225 ITR 792 AND BROOKE BOND INDIA LTD. (SUPRA), THE EXPENDITURE INCURRED BEING IN THE NATURE OF CAPITAL EXPENDITURE IS NOT ALLOWABLE. ACCORDINGLY, THE DECISION OF THE LEARNED COMMISSIONER (AP PEALS) ON THIS ISSUE IS REVERSED. GROUND RAISED IS ALLOWED. 9 . IN GROUND NO.2, REVENUE HAS CHALLENGED THE DECISION OF THE FIRST APPELLATE AUTHORITY IN ALLOWING ASSESSEES CLAIM OF LOSS ON FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE. DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE CLAIMED TO HAVE INCURRED LOSS OF ` 31,11,688 ON ACCOUNT OF TRADING IN FOREIGN EXCHANGE DERIVATIVES. HE FURTHER FOUND THAT AFTER ADJUSTING THE FOREIGN EXCHANGE FLUCTUAT ION GAIN OF ` 4,12,017, AGAINST THE FOREX LOSS THE ASSESSEE HAS CLAIMED NET FOREX LOSS OF ` 26,99,671, UNDER THE PROVISO TO SECTION 43(5) OF THE ACT. AFTER VERIFYING THE DETAILS AND THE CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT TO C LAIM THE BENEFIT UNDER SECTION 43(5) OF THE ACT, THE ASSESSEE MUST PROVE WITH SUPPORTING EVIDENCE THAT THE IT HAS ENTERED INTO A CONTRACT FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY IT OR 5 PADAM STEEL ENTERPRISES PVT. LTD. MERCHANDISE SOLD BY IT. HE OBSERVED THAT THE ASSESSEE HAD ENTERED I NTO TWO TRANSACTIONS WHICH DOES NOT COVER THE ASSESSEE FROM FUTURE LOSS OR PRICE FLUCTUATION OF CONTRACTS FOR ACTUAL DELIVERY. HE WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE WITH SUPPORTING EVIDENCE THAT THE TRANSACTIONS ARE NOT SPECULATIVE IN NA TURE. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM OF LOSS OF ` 26,99,671. BEING AGGRIEVED OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 10 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE HAVING FOUND THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTION S IN FOREX DERIVATIVES THROUGH RECOGNIZED STOCK EXCHANGE AND IN THE PROCESS LOSS HAS ARIS E N WHICH CANNOT BE RECORDED AS SPECULATION TRANSACTION. ACCORDINGLY, H E DIRECTED THE ASSESSING OFFICER TO TREAT THE LOSS INCURRED BY THE ASSESSEE AS BUSINESS LOSS AND SET OFF AGAINST THE FOREX GAIN OF ` 4,12,017 AND THE BALANCE AMOUNT TO BE CARRIED FORWARDED. 11 . LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE IS NOT COMING WITHIN THE EXCEPTION OF THE PROVISO TO SECTION 43(5) OF THE ACT. 6 PADAM STEEL ENTERPRISES PVT. LTD. 12 . LEARNED AUTHORISED REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTING THE ORDER OF THE FIRST APPELLATE AUTHORITY SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF FOREX TRANSACTION S . IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE LETTERS DATED 26 TH AUGUST 2013 AND 19 TH NOVEMBER 2013 SUBMITTED BEFORE THE ASSESSING OFFICER. FURTHER, IN SUPPORT OF HIS CONTENTION, LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) G.K. ANAND BROS. BUILDWELL PVT. LTD. V/S ITO, [2009] 34 SOT 439; II ) MONNET PROJECTS INDIA LTD. V/S ACIT, 33 CCH 584 (DEL.); III ) INVENTURUS KNOWLEDGE SERVICES PVT. LTD. V/S ITO, 156 ITD 727 (DEL.); IV ) ITO V/S EMPERROR INTERNATIONAL LTD., 70 SOT 509 (DEL.); V ) DEVESH N. SHAH V/S ITO, 72 TAXMANN.COM 356 (MUM.). VI ) KAMAL KISHORE V/S ACIT, ITA NO.4952/DEL./2016, DATED 13.02.2017; AND VII ) I.V.F. ADVISORS PVT. LTD. V/S ACIT, [2015] 39 ITR (TRIB.) 541. 13 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN FROM THE MATERIALS PLACED ON RECORD , THE FOREX FLUCTUATION LOSS / GAIN WERE DERIVED BY THE ASSESSEE THROUGH TRANSACTIONS ENTERED IN RECOGNIZED STOCK EXCHANGE IN REGULAR COURSE OF ITS BUSINESS, THEREFORE, THE OBSERVATIONS OF THE ASSESSING 7 PADAM STEEL ENTERPRISES PVT. LTD. OFFICER THAT SUCH TRANSACTIONS ARE NOT COMING WITHIN THE EXCEPTION PROVIDED UNDER SECTION 43(5) OF THE ACT IS MISCONCEIVED. ON THE CONTRARY, THE DECISION RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE FULLY SUPPORT THE VIEW EXPRESSED BY THE LEARNED COMMISSIONER (APPE ALS). THAT BEING THE CASE, WE UPHOLD THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE BY DISMISSING THE GROUND RAISED. 14 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.12.2017 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 06.12.2017 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI 8 PADAM STEEL ENTERPRISES PVT. LTD. . DATE INITIAL 1. DRAFT DICTATED ON 22 .11 .2017 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 27 .11 .2017 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 08 .11 .2017 SR.PS 6. DATE OF PRONOUNCEMENT 06 .11 .2017 SR.PS 7. FILE SENT TO THE BENCH CLERK 08 .11 .2017 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER