VANGUARD JEWELS LTD, MUMBAI V. DCIT (OSD) 9(1) NOW CHANGED TO DCIT CC 1(1), MUMBAI

ITA 1955/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1382 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 20-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K PODAR
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 1955/MUM/2015 (ASSESSMENT YEAR: 2009-10) M/S. VANGUARD JEWELS LTD. VS. DCIT (OSD) 9(1) OFFICE NO. 501, ADIBABA APTS. GAZDAR SCHEME, 16 TH ROAD NEAR RAJESH KHANNA GARDEN SANTACRUZ (W), MUMBAI-054 OLD CGO BUILDING M.K. ROAD MUMBAI 400020 PAN AAACV3480A APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI S.K. PODAR DATE OF HEARING: 20.12.2016 DATE OF PRONOUNCEMENT: 20.12.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 21, MUMBAI DATED 29.01.2015 FOR A.Y. 2009-10. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF BUYING, SELLING, CUTTING AND POLISHING OF DIAMONDS AND INVESTMENT IN UNQUOTED SHARES, FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 30. 09.2009 DECLARING LOSS OF (-) ` 51,32,320/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE C ASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT OF THE ACT VIDE ORDER DATED 31.12.2011 W HEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT ` 88,58,680/- IN VIEW OF THE FOLLOWING DISALLOWANCES: - I) EXCESS CLAIM OF FOREIGN EXCHANGE LOSS ` 85,99,187/- (II) UNDER SECTION 14A READ WITH RULE 8D ` 53,81,133/- ITA NO. 1955/MUM/2015 M/S. VANGUARD JEWELS LTD. 2 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A.Y. 2 009-10 DATED 31.12.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-21, MUMBAI, WHICH WAS DISMISSED VIDE IMPUGNED ORDER DAT ED 29.01.2005. 3. BEING AGGRIEVED BY THE IMPUGNED ORDER OF THE LEARNE D CIT(A)-21, MUMBAI DATED 29.01.2015, DISMISSING ITS APPEAL FOR A.Y. 2009-10, THE ASSESSEE HAS PREFERRED THIS APPEAL, RAISING THE FOL LOWING GROUNDS: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAD ERRED IN ALLOWING TO LEARNED ASSESSING OFFICER THE COMPUTING AND RESULTANTLY REDUCING THE FOREIGN EXCHANGE LOSS OF A SSESSEE COMPANY BY RS.85,99,187/- IN RESPECT OF THE OUTSTAN DING SUNDRY CREDITORS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAD ERRED IN APPROVING THE ACTION OF LEARNED ASSESSING OFFICER O F APPLYING WRONGLY THE RULE 8D PURSUANT THE PROVISIONS OF SECT ION 14A TO THE ASSESSEE COMPANY WHO IS ENGAGED IN THE BUSINESS OF TRADING IN COMMODITIES AND INVESTMENT IN EQUITY SH ARES. 3. THE APPELLANT CRAVES TO ADD OR ALTER THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEARING OF APPEAL. 4. THIS CASE WAS FIXED FOR HEARING ON A COUPLE OF OCCA SIONS, BUT NONE WAS PRESENT FOR THE ASSESSEE NOR WAS ANY LETTER FIL ED FOR ADJOURNMENT OF HEARING. EVEN NOTICE FOR HEARING ISSUED BY RPAD DID NOT ELICIT ANY RESPONSE FROM THE ASSESSEE. WHEN THE CASE WAS CALLE D FOR HEARING ON 20.12.2016, NONE WAS PRESENT FOR THE ASSESSEE, BUT THE LEARNED D.R. FOR REVENUE WAS PRESENT AND READY TO PRESENT REVENUES SIDE OF THE CASE. IN THE CIRCUMSTANCES, AS MENTIONED ABOVE, WE ARE OF TH E OPINION THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING ITS APPEAL S ERIOUSLY AND THEREFORE PROCEED TO DECIDE THIS APPEAL WITH THE ASSISTANCE O F THE LEARNED D.R. FOR REVENUE AND THE MATERIAL ON RECORD. 5. GROUND NO. 1 FOREIGN EXCHANGE LOSS 5.1 IN THIS GROUND (SUPRA), THE ASSESSEE ASSAILS TH E IMPUGNED ORDER OF THE LEARNED CIT(A) AS ERRONEOUS IN UPHOLDING THE ASSESS ING OFFICERS (AO) ACTION IN REDUCING FOREIGN EXCHANGE LOSS CLAIMED BY THE COMPANY TO THE EXTENT OF ` 85,99,187/- ON OUTSTANDING FOREIGN SUNDRY CREDITS. 5.2 THE LEARNED D.R. SUPPORTED THE FINDING RENDERED BY THE LEARNED CIT(A) ON THIS ISSUE. IT IS SUBMITTED THAT IN THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO HAD OBSERVED THAT THE ASSESSEE HAD DEBITED T OTAL FOREIGN EXCHANGE ITA NO. 1955/MUM/2015 M/S. VANGUARD JEWELS LTD. 3 LOSS OF ` 5,73,30,343/- BY APPLYING THE AVERAGE OF VARIOUS RA TES OF US$ TO RUPEE RANGING BETWEEN ` 48.53 TO ` 59.29; WHEREAS IT SHOULD HAVE BEEN VALUED @ ` 50.64/- AS ON 31.03.2009. AFTER SEEKING THE ASSESSE ES EXPLANATION IN THIS REGARD, THE AO REJECTED THE SAM E AND COMPUTED THAT THE ASSESSEE HAD CLAIMED EXCESS FOREIGN EXCHANGE LO SS FROM FOREIGN SUNDRY CREDITORS TO THE EXTENT OF ` 85,99,187/- (I.E. ` 55,36,77,255/- LESS ` 54,50,78,068/-) WHICH WAS DISALLOWED. THE LEARNED D .R. SUBMITS THAT ON APPEAL THE LEARNED CIT(A) CALLED FOR A REMAND REPOR T FROM THE AO IN THIS REGARD AND AFTER CONSIDERING THE AOS REPORT DATED 24.11.2014 AND THE ASSESSEES SUBMISSIONS SUSTAINED THE DISALLOWANCE M ADE AND AOS COMPUTATION OF FOREIGN EXCHANGE LOSS. IT IS CONTEND ED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO CONTROVER T THE FINDING OF THE AUTHORITIES BELOW AND THEREFORE THIS GROUND RAISED BY THE ASSESSEE SHOULD BE REJECTED. 5.3.1 WE HAVE HEARD THE LEARNED D.R. FOR REVENUE IN THE MATTER AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD. THE RECORDS BEFORE US SHOW THAT THE AO, ON OBSERVING THAT THE A SSESSEE HAD COMPUTED AND CLAIMED FOREIGN EXCHANGE LOSS ON FOREIGN SUNDRY CREDITORS AT ` 55,36,77,255/- APPLYING VARIOUS RATES OF US$ TO RUP EE, REQUIRED ITS EXPLANATION IN THE MATTER. THE AO REJECTED THE EXPL ANATION PUT FORTH BY THE ASSESSEE AND APPLYING THE RATE AS ON 31.03.2009 WHI CH WAS ` 50.64 PER US $ DISALLOWED THE EXCESS FOREIGN EXCHANGE LOSS OF ` 85,99,177/- CLAIMED (I.E. ` 55,36,77,255/- LESS ` 54,50,78,068/-). 5.3.2 ON APPEAL, WE FIND THAT THE LEARNED CIT(A) AF TER CALLING FOR A REMAND REPORT FROM THE AO IN THE MATTER AND CONSIDERING TH E ASSESSEES SUBMISSIONS, DISMISSED THE ASSESSEES GROUNDS RAISE D ON THIS ISSUE HOLDING AS UNDER AT PARAS 3.4 OF THE IMPUGNED ORDER : - 3.4 I HAVE CONSIDERED THE FINDING OF THE ASSESSIN G OFFICER AS WELL AS RIVAL SUBMISSION OF THE APPELLANT THROUGH LETTER DATED 18.04.2012 AND 29.01,2015, CAREFULLY. I HAVE ALSO HEARD THE VA RIOUS ARGUMENTS OF THE LD. A.R. CAREFULLY. I FIND THAT LD. ASSESSIN G OFFICER HAS RIGHTLY CALCULATED FOREIGN EXCHANGE LOSS BY ADOPTING EXCHAN GE RATE AS INDICATED BY RBI AS ON 31.03.2009, @ ` 50.64 WHEREAS, THERE IS NO JUSTIFICATION WHATSOEVER WITH THE APPELLANT TO APPL Y DIFFERENT EXCHANGE RATE WITHOUT ANY SUBSTANTIATION. LD. ASSES SING OFFICER HAS RIGHTLY ADOPTED ` 50.64 OR RATE OF EXCHANGE AS ON 31.3.2009 AGAINST ITA NO. 1955/MUM/2015 M/S. VANGUARD JEWELS LTD. 4 THE RATE ADOPTED BY THE APPELLANT RANGING FROM ` 48.53 TO ` 59.29. OBVIOUSLY, THERE IS NO JUSTIFICATION WHATSOEVER WIT H THE APPELLANT TO ADOPT DIFFERENT RATE OR EXCHANGE FOR THE VALUATION OF SUNDRY CREDIT AS ON 31.3.2009. THEREFORE, SO FAR AS RATE OF EXCHANGE IS CONCERNED THE FINDING OF THE ASSESSING OFFICER IS SUSTAINED. AS REGARDS, CONTENT ION OF THE APPELLANT THAT THERE WAS CLERICAL ERROR FROM ITS SIDE AS THE VALUE OF IMPORTS OF M/S. LAMCO TRADING COMPANY WAS TAKEN AT ` 4,76,07,249/- AS AGAINST THE ACTUAL VALUE OF ` 4,08,91,028/- WHEREAS THIS IMPORT VALUE OF ` 4,76,07,249/- WAS OF M/S. H. K. IMPEX, THERE IS SOM E CONFUSION. LD. ASSESSING OFFICER HAS NOT COMMENTED ON THIS ASP ECT, THOUGH APPELLANT BY LETTER DATED 18.04.2012 HAD REPRESENTE D THIS FACT. IT IS HOWEVER, PERTINENT TO MENTION THAT IF THERE IS IMPO RT OF GOODS / DIAMOND AND IF THERE IS WRONG ENTRY OF IMPORT VALUE IN RESPECT OF CREDIT AS ON 31.3.2009, IT IS NOT UNDERSTOOD AS TO HOW VALUE OF GOODS OR CREDIT AMOUNT OF ` 4,08,91,028/-COULD BE OF ` 42,075989/- IN RESPECT OF LAMCO TRADING. FURTHER, IT IS WORTHWHILE TO MENTION THAT THE DETAILS OF EXCHANGE DIFFERENCE LOSS SUBMITTED BY TH E APPELLANT TO THE ASSESSING OFFICER ON 28.01.2011 DOES NOT REVEAL COR RECT FOREIGN EXCHANGE LOSS CALCULATED ON THE BASIS OF APPLICATIO N OF DIFFERENT RATE OF EXCHANGE. INFACT, APPELLANT HAS ADOPTED THE RATE OF EXCHANGE ON VARIOUS DATES THROUGHOUT THE YEAR DISRESPECTING THE BASIS PRINCIPLE OF PREPARATION OF FINAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT. THE VALUE OF CLOSING STOCK OR OUTSTANDING CREDIT IS TO BE MADE ON LAST DAY OF ACCOUNTING, CONSIDERING THE METHOD OF ACCOUNTING OF SUCH ASSESSEE. IN THIS CASE, METHOD OF ACCOUNTING, AS ADMITTED BY THE ASSESSEE IS MARKET PRICE OR COST WHICHEVER IS LOWER. IN THIS CA SE, ASSESSING OFFICER HAS ADOPTED RATE OF EXCHANGE OF ` 50.64 BEING PREVAILING EXCHANGE RATE AS ON 31.3.2009, HENCE HIS WORKING IN PARA 4 OF THE ASSESSMENT ORDER IS TENABLE IN THE EYE OF LAW. APPA RENTLY, APPELLANT HAS ADOPTED WRONG WORKING FORMULA AND THEREFORE HAS CLAIMED EXCESS FOREIGN EXCHANGE LOSS OF ` 85,99,187/-. THUS, THE FINDING AND CALCULATION OF FOREIGN EXCHANGE LOSS BY THE ASSESSI NG OFFICER IS SUSTAINED. IF THERE IS ANY FACTUAL MISTAKE, AS CLAI MED BY THE APPELLANT AND FOR THAT RECTIFICATION APPLICATION U/S.154 HAS BEEN FILED ON 10.01.2012, IT IS THE DUTY OF THE ASSESSING OFFICER TO REVERIFY THE FACTS AND IF THE CLAIM OF THE APPELLANT IS FOUND CORRECT, THE QUANTUM OF DISALLOWANCE HAS TO BE MODIFIED, ACCORDINGLY. IF HO WEVER THERE IS NO FACTUAL MISTAKES OF FIGURE IN RESPECT OF M/S. LAMCO TRADING COMPANY / M/S. H. K. IMPEX, ASSESSING OFFICER CAN REJECT TH E CLAIM OF THE APPELLANT WHILE DISPOSING THE RECTIFICATION APPLICA TION U/S.154. FURTHER, WHILE GIVING EFFECT TO THIS ORDER, ASSESSI NG OFFICER CAN ALSO CLARIFY THE FACTS OF THE CASE IF NO APPARENT MISTAK E IS THERE, THUS, NO RELIEF CAN BE GRANTED AT THIS STAGE. 5.3.3. AFTER AN APPRECIATION OF THE ORDERS OF THE A UTHORITIES BELOW AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS F AILED TO BRING ON RECORD ANY MATERIAL EVIDENCE BEFORE US TO CONTROVERT THE F INDINGS IN THE IMPUGNED ORDER OF THE LEARNED CIT(A). IN THIS VIEW OF THE MA TTER, WE FIND NO ITA NO. 1955/MUM/2015 M/S. VANGUARD JEWELS LTD. 5 REQUIREMENT TO INTERFERE WITH OR DEVIATE FROM THE F INDING RECORDED BY THE LEARNED CIT(A) ON THIS ISSUE. CONSEQUENTLY, WE DISM ISS GROUND NO. 1 RAISED BY THE ASSESSEE. 6. GROUND NO. 2 DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D 6.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE FINDIN G OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER UPHOLDING THE DISALLOWANCE MA DE BY THE AO UNDER SECTION 14A READ WITH RULE 8D. 6.2 THE LEARNED D.R. FOR REVENUE SUPPORTED THE IMPU GNED ORDER OF THE LEARNED CIT(A) IN UPHOLDING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 6.3.1 WE HAVE HEARD THE LEARNED D.R. FOR REVENUE AN D PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. FROM T HE DETAILS ON RECORD IT IS SEEN THAT THE AO NOTICED THAT THE ASSESSEE HAD EARN ED DIVIDEND INCOME OF ` 21,700/- WHICH WAS EXEMPT UNDER SECTION 10(34) OF T HE ACT AND THAT NO DISALLOWANCE OF EXPENSE INCURRED FOR EARNING SUCH I NCOME WAS DISALLOWED SUO MOTO BY THE ASSESSEE. WE FIND THAT AFTER OBSERV ING THESE FACTS, THE AO SOUGHT THE EXPLANATION OF THE ASSESSEE IN THE MATTE R AND BRUSHED ASIDE THE SAME AS NOT ACCEPTABLE FOR THE STATED REASONS T HAT THE ASSESSEE HAS NOT TAKEN PROPER VALUES OF RESPECTIVE PART OF RULE 8D. IN OUR VIEW, FROM A PERUSAL OF MATERIAL ON RECORD HE THEN PROCEEDED TO SUMMARILY COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(II) AND (III) OF THE I.T. RULE AT ` 53,81,133/-. 6.3.2 SECTION 14A OF THE ACT IS ENACTED IN RELATION TO NON ALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME. SUB-SECTION (2) THEREOF MANDATES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME THAT DOES NOT FROM PART OF THE ASSESSEES TOTAL INCOME IN THE MANNER PRESCR IBED, IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT SUCH EXPENDITURE OR AS PER SUBSECTION (3) OF SECTION 14A OF THE ACT IF ASSESSEE CLAIMS THAT N O EXPENDITURE HAS BEEN INCURRED TO EARN SUCH EXEMPT INCOME. IN OUR VIEW, P ERUSAL OF THE ORDER OF ASSESSMENT SHOWS THAT THE AO, EXCEPT FOR STATING TH AT ASSESSEES EXPLANATION IS NOT ACCEPTABLE FOR THE REASON PROPER VALUES HAVE NOT BEEN TAKEN, HAS NOT SPELT OUT WHAT EXAMINATION OF ACCOUN TS OF THE ASSESSEE ITA NO. 1955/MUM/2015 M/S. VANGUARD JEWELS LTD. 6 HAVE BEEN MADE BY HIM AND IN RESPECT OF WHICH PORTI ON/ITEMS OF VALUES IN THE ASSESSEES ACCOUNTS HE IS NOT SATISFIED WITH. N OTHING TO THIS EFFECT, AS REQUIRED UNDER SECTION 14A(2) & (3) OF THE ACT, HAS BEEN BROUGHT OUT BY THE AO IN THE ORDER OF ASSESSMENT AND IN OUR CONSIDERED VIEW, THE DISALLOWANCE HAS BEEN COMPUTED MECHANICALLY AND WIT HOUT ANY APPLICATION OF MIND OF THE LEGAL POSITION IN THIS R EGARD. IN THIS FACTUAL AND LEGAL MATRIX OF THE CASE, WE SET ASIDE THE ORDERS O F THE AO MAKING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT ` 53,81,133/- AND RESTORE THIS MATTER TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND ADJUDICATION IN THE MANNER PRESCRIBED UNDER SECTION 14A OF THE ACT READ WITH RULE 8 BY WAY OF A SPEAKING ORDER AFTER AFFORD ING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DET AILS/SUBMISSIONS REQUIRED. CONSEQUENTLY, GROUND NO. 2 OF THE ASSESSE ES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO. 3 BEING GENERAL IN NATURE NO ADJUDICATION IS CALLED FOR THEREON. 8. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2009- 10 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 22 ND DECEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -21, MUMBAI 4. THE CIT - 13, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.