ACIT Corporate Circle 4(1), CHENNAI V. LNV Technology Private Ltd., CHENNAI

ITA 1979/CHNY/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7899 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 19-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R ANITHA
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Speculation loss; Set aside
• Section: 14A; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 1979 & 1980/CHNY/2018 / ASSESSMENT YEARS : 2012-13 & 2013-14 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI. VS. M/S. LNV TECHNOLOGY PRIVATE LTD., NO. 18/3, SIGAP ACHI BUILDING 5 TH FLOOR, RUKMANI LAKSHMIPATHY SALAI, EGMORE, CHENNAI 600 008. [PAN: AAACL 6394H] ( / APPELLANT) ( &') /RESPONDENT ) ) * / APPELLANT BY : MS. R. ANITHA, JCIT &') * / RESPONDENT BY : SHRI . S. SRIDHAR, ADVOCATE * /DATE OF HEARING : 18.11.2020 * /DATE OF PRONOUNCEMENT : 07.01.2021 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THE REVENUE FILED THESE APPEALS AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI IN ITA NO. 170, 196 & 308/16-17 DATED 02.04.2018 FOR ASSESSMENT YEARS 2 012-13 & 2013- 14. :-2-: ITA NOS. 1979 & 1980/CHNY/2018 2. M/S. LNV TECHNOLOGY PRIVATE LTD., THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURE, PROJECT CONSULTANTS. WHIL E MAKING THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2012-13 & 2013 -14, THE ASSESSING OFFICER, INTER ALIA, DISALLOWED FORWARD C ONTRACT LOSS CLAIMED BY THE ASSESSEE AND MADE DISALLOWANCE U/S. 14A R.W.R. 8D. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE L D. CIT(A) PARTLY ALLOWED THE APPEALS. AGGRIEVED AGAINST THOSE ORDE RS, THE REVENUE FILED THESE APPEALS WITH COMMON GROUNDS AND HENCE T HE GROUNDS RELATED TO ASSESSMENT YEAR 2012-13 & 2013-14 IS EX TRACTED AS UNDER: 1. THE ORDER OF THE ID. CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LD.CIT(A) ERRED IN ALLOWING THE ASSESSEES C LAIM OF LOSSES INCURRED OVER THE YEARS FROM THE FORWARD CONTRACTS EXECUTED IN ALL THE CONCERNED YEARS BY REFERRING TO THE JURISDICTIONAL ITAT ORDER IN ITA 51 8/MDS/2014 (CHENNAI TRIBUNAL) 2015 IN THE CASE OF DCIT VS RAJKUMAR IMPEX PVT. LTD. HOWEVER THIS DECISION HAS NOT BEEN ACCEPTED BY THE REVENUE AND F URTHER APPEAL HAS BEEN FILED BEFORE THE HONBLE HIGH COURT OF MADRAS AND THE ISSUE HAS NOT YET REACHED FINALITY. 2.1 THE ID. CJT(A) HAS FAILED TO OBSERVE THAT THE AS SESSEE HAD NOT TAKEN CONTRACTS TO THE VALUE OF SALES MADE OR AMOUNT REALI ZABLE. HENCE IT CANNOT BE SAID THAT THE INTENTION OF THE ASSESSEE WAS TO SAFEG UARD AGAINST THE LOSS THROUGH FUTURE PRICE FLUCTUATIONS. THE ASSESSEE ENTERED INTO THE CONTRACT ONLY ON SPECULATIVE BASIS. 3. THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWA NCE MADE U/S.14A BY EXCLUDING CERTAIN EXPENSES FOR THE PURPOSE OF CALCULA TION OF THE DISALLOWANCE U/S. 14A R.W. RULE SD. 3.1 THE LD.CIT(A) S DECISION IS IN CONTRARY TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF K. SOMASUNDARAM AND BROS. V S. CIT (1999) (238 ITR 939) (MAD) WHEREIN IT WAS HELD THAT FUNDS ARE MIXED BAG. :-3-: ITA NOS. 1979 & 1980/CHNY/2018 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE LD. DR INVITING OUR ATTENTION TO THE RELEVAN T PORTION OF THE ASSESSMENT ORDERS SUBMITTED THAT THE ASSESSEE ENTER ED INTO FORWARD CONTRACT FROM SEPTEMBER 2011 AND THE FIRST CONTRACT WAS ENTERED INTO ON 09.09.2011 WITH USD 25,35,027/- AND THE DELIVERY PERIOD WAS IN OCTOBER 2011. THE TOTAL SALES MADE BY THE ASSESSEE UP TO SEPTEMBER, 2011 WAS ONLY USD 4,26,865/-. THUS, THE VALUE OF T HE FIRST CONTRACT ENTERED ITSELF IS ALMOST 5 TIMES OF THE TOTAL SALES MADE TILL THE DATE OF ENTERING INTO THE CONTRACT. ALL THE CONTRACTS ENTE RED WITH STATE BANK OF HYDERABAD WERE ENTERED ON THE SAME DATE I.E., 09.09 .2011 AND THE TOTAL VALUE ON CONTRACT IS USD 1,44,02,863/-. HOWE VER, THE TOTAL SALES MADE UPTO SEPTEMBER 2011 WAS FOR USD 4,26,865/- ONL Y AND THE TOTAL SALES MADE BY THE ASSESSEE FOR THE WHOLE YEAR WAS F OR USD 75,79,618.59/- ONLY. IF THE ASSESSEES INTENTION W AS TO ENTER THESE CONTRACTS TO SAFEGUARD AGAINST THE LOSS THROUGH FUT URE PRICE FLUCTUATION, THEN IT WOULD HAVE TAKEN CONTRACTS TO THE VALUE OF SALES MADE OR THE AMOUNT REALIZABLE. THE VALUE OF CONTRACT ENTERED W ITH STATE BANK OF HYDERABAD ALONE WAS ALMOST TWICE THE TOTAL SALES MA DE FOR THE WHOLE YEAR. THE PERIOD OF CONTRACT ENTERED WAS FOR SHORT DURATIONS, THEREFORE, THE ASSESSEE COULD NOT HAVE FULFILLED THE CONTRACT EVEN WHEN THE FULL :-4-: ITA NOS. 1979 & 1980/CHNY/2018 SALES WERE REALIZED. NOT EVEN ONE SINGLE CONTRACT WAS HONOURED BY THE ASSESSEE DURING THE YEAR. THEREFORE, THE AO RECORD ED A FINDING THAT THE ASSESSEE HAD ENTERED INTO CONTRACT ONLY ON SPEC ULATIVE BASIS. ALL THE CONTRACTS ARE NOT ENTERED TO SAFEGUARD AGAINST THE LOSS THROUGH FUTURE PRICE FLUCTUATIONS. THEREFORE, THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2012-13 IS CO RRECT. 4. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE H AS ENTERED INTO FORWARD CONTRACT IN THE MONTH OF OCTOBER, 2011, FOR THE MONTH OF JUNE, 2012 FOR USD 26,00,000/-. HOWEVER, THE ASSESSEE HA S NOT MADE ANY EXPORT SALES DURING THIS ASSESSMENT YEAR AGAINST TH IS CONTRACT. THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE AT RS. 1,70,82,000/- WAS TREATED BY THE AO AS A SPECULATIVE LOSS. THE LD. C IT(A) WITHOUT EXAMINING THE RELEVANT FACTS, ASSOCIATED CIRCUMSTAN CES AND MATERIAL MERELY EXTRACTED THE ASSESSEES SUBMISSIONS AND ALL OWED THE APPEALS. THEREFORE, THE LD. DR PLEADED THAT THE REVENUES AP PEALS BE ALLOWED ON THIS ISSUE. PER CONTRA, THE LD. AR SUPPORTED TH E ORDERS OF THE LD. CIT(A), TOOK US THROUGH RELEVANT PORTION AND INVITE D OUR ATTENTION TO THE CASE LAWS RELIED ON BY HIM. :-5-: ITA NOS. 1979 & 1980/CHNY/2018 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE ASSESSEE CLAIMS THAT IT HAS ENTERED CONTRACT WITH STATE BANK OF HYDERABAD AND CITY BANK FOR FOREIGN CURRENC Y RATES FOR FUTURE PERIOD. SUCH CONTRACTS WERE ENTERED AGAINST THE TO TAL EXPORT ORDER AGAINST THE OVERSEAS CLIENTS AND HENCE THE LOSS INC URRED BY IT SHOULD BE TREATED AS BUSINESS LOSS AND NOT AS A SPECULATIVE L OSS. ON THE OTHER HAND, THE REVENUE CONTENDS THAT IF THE TOTAL VALUE OF TRANSACTIONS ENTERED FOR THE FUTURE CONTRACT IS MORE THAN THE TO TAL EXPORT TURNOVER OF THE ASSESSEE THEN THE LOSS SUFFERED BY IT IN RESPEC T OF THAT PORTION IN EXCESS OF TRANSACTIONS ARE TO BE CONSIDERED AS SPEC ULATIVE LOSS ONLY AS THE EXCESS TRANSACTION HAS NO PROXIMITY WITH THE EX PORT TURNOVER. THE TOTAL SALES MADE BY THE ASSESSEE UP TO SEPTEMBER, 2 011 WAS USD 4,26,865/- ONLY AND THE TOTAL SALES MADE FOR THE W HOLE YEAR IS AT USD 75,79,618/-. THIS BEING SO, THE ASSESSEES CONTENT ION THAT THE CONTRACTS ENTERED BY IT FOR USD 1,44,02,863/- WHICH WERE TO S AFEGUARD AGAINST THE LOSS THROUGH FUTURE PRICE FLUCTUATIONS NEEDS TO EXAMINED WITH THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES NATURE OF BUSINESS WITH RELEVANT DOCUMENTS OF THE TRANSACTIONS ON WHICH THE ASSESSEE CLAIMS THE LOSS IN THIS CASE. IT IS SEEN FROM THE ASSESSM ENT ORDERS THAT THE AO HAS TAKEN GENERAL VIEW. IT IS MENTIONED THAT THE A SSESSEES NATURE OF BUSINESS IS FABRICATORS OF MACHINERIES/EPC ENGINEER S. HOWEVER, IT IS NOT :-6-: ITA NOS. 1979 & 1980/CHNY/2018 KNOWN WHAT ARE THE PRODUCTS OR COMMODITY SOLD, WITH WHOM AND WHEN THE CONTRACTS WERE ENTERED, WHETHER THE CONTRACTUAL CONDITIONS ARE REASONABLE FROM THE PERSPECTIVE OF A BUSINESS PERSO N, THE FACTS AND CIRCUMSTANCES ASSOCIATED WITH NON-ACTUAL DELIVERY E TC. THE LD. CIT(A) ALSO MERELY EXTRACTED THE SUBMISSIONS OF THE ASSESS EE AND ALLOWED THE APPEALS WITHOUT EXAMINING THE RELEVANT ASPECTS. TH EREFORE, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES PROPER EXAMINATIO N AS TO WHETHER THE IMPUGNED LOSS IS BUSINESS LOSS OR SPECULATIVE LOSS ETC. HENCE WE REMIT THE ISSUES BACK TO THE AO FOR A FRESH EXAMINATION. THE ASSESSEE SHALL LAY RELEVANT EVIDENCE/MATERIALS IN SUPPORT OF ITS C ONTENTION AS TO WHY AND HOW THE IMPUGNED LOSSES CLAIMED BY IT ARE BUSINESS LOSS BEFORE THE AO AND COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCOR DANCE WITH LAW. THE AO IS FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT, BUT HE SHALL FURNISH ADEQUATE OPPORTUNITY TO THE ASSESSSEE ON T HE MATERIAL ETC TO BE USED AGAINST IT AND DECIDE THE MATTER IN ACCORDANC E WITH LAW. IN THE RESULT, THE REVENUES APPEALS ON THIS ISSUES ARE TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT ISSUE IS THAT WHILE MAKING THE ASSESSME NTS FOR ASSESSMENT YEAR 2012-13 & 2013-14, THE AO INVOKING THE PROVISI ONS OF SECTION 14A R.W.R. 8D MADE DISALLOWANCES. AGGRIEVED AGAINST TH OSE ORDERS, THE ASSESSEE FILED APPEALS BEFORE THE LD. CIT(A). THE LD. CIT(A) ON :-7-: ITA NOS. 1979 & 1980/CHNY/2018 EXAMINATION OF THE ASSESSEES SUBMISSIONS HELD THAT THE DISALLOWANCE U/S. 14A R.W.R. 8D SHOULD BE MADE AFTER EXCLUDING THE BA NKING CHARGES AND ACCORDINGLY RESTRICTED THE DISALLOWANCE TO RS. 3,72 ,259/- FOR THE ASSESSMENT YEAR 2012-13 AND RS. 13,00,692/- FOR TH E ASSESSMENT YEAR 2013-14. AGGRIEVED, THE REVENUE FILED THESE APPEA LS. THE LD DR CANVASSED THE CASE ON THE GROUNDS OF APPEAL EXTRACT ED, SUPRA. PER CONTRA, THE LD. AR SUBMITTED THAT WHILE COMPUTING T HE DISALLOWANCE, THE ASSESSING OFFICER INCLUDED BANKING FEES/CHARGES MIS TAKENLY THINKING THAT THEY ARE PART OF INTEREST EXPENDITURE. IT WAS SUBM ITTED BEFORE THE LD CIT(A) THAT THE BANKING FEES/CHARGES CHARGED BY THE BANKER FOR VARIOUS TRANSACTIONS LIKE LC OPENING CHARGES, LC AMENDED CH ARGES, FOREIGN BANKING CHARGES FOR OVERSEAS TRANSACTIONS, COLLECTI ON CHARGES ETC., ARE DIRECTLY RELATED TO PARTY PAYMENTS AND ARE NOT PART OF THE INTEREST EXPENDITURE. AFTER CONSIDERING THE SAME, THE LD. CI T(A) DIRECTED THE AO TO EXCLUDE THE BANKING CHARGES FOR THE PURPOSE OF COMP UTATION OF DISALLOWANCE U/S. 14A R.W.R. 8D. THEREFORE, THE LD . AR SUPPORTED THE ORDERS OF THE LD. CIT(A). 7. WE HEARD THE RIVAL SUBMISSIONS FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR. SINCE THE FINDINGS RECORDED BY THE LD. CIT(A) THAT THE BANK CHARGES/FEES ARE NOT RELATED TO THE INTEREST EXPEND ITURE IS NOT ASSAILED BY THE REVENUE WITH RELEVANT MATEIAL, WE DO NOT FIND A NY REASON TO INTERFERE :-8-: ITA NOS. 1979 & 1980/CHNY/2018 WITH THE ORDERS OF THE LD. CIT(A) AND THEREFORE, TH E CORRESPONDING GROUNDS OF THE REVENUE FAIL FOR BOTH THE ASSESSMENT YEARS. 8. IN THE RESULT, THE REVENUES APPEALS FOR THE ASS ESSMENT YEARS 2012- 13 & 2013-14 ARE PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED ON 07 TH JANUARY, 2021 AT CHENNAI. SD/- ( ) ( V. DURGA RAO ) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 07 TH JANUARY, 2021 JPV *&3454 /COPY TO: 1. ) / APPELLANT 2. &') /RESPONDENT 3. 6 ) ( /CIT(A) 4. 6 /CIT 5. 4& /DR 6. /GF