Citizen Metalloys Ltd., Ahmedabad V. The Income tax Officer,Ward-1(3), Ahmedabad

ITA 2372/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9729 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 22-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P B PARMAR
• Keywords: Depreciation; Earning of tax free income; Speculation loss
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2372/AHD/2012 (ASSESSMENT YEAR: 2008-09) CITIZEN METALLOYS LTD., 808, SUKHSAGAR COMPLEX, NR. HOTEL FORTUNE LAND MARK, USMANPURA, AHMEDABAD V/S INCOME TAX OFFICER, WARD- 1 (3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCC1691F APPELLANT BY : SHRI P.B. PARMAR, AR RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R. ( )/ ORDER DATE OF HEARING : 14 -12-201 6 DATE OF PRONOUNCEMENT : 19 -12-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT(A)-6, AHMEDABAD DATED 30.08.2012 PER TAINING TO A.Y. 2008- 09. ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 2 2. THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS O F THE CASE IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING DEFERRED REVENUE EX PENDITURE OF RS.4,03,633/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN DISALLOWING RS.3,27,045/- ON AC COUNT OF DEPRECIATION, INTEREST AND OTHER EXPENDITURE CLAIMED ON VEHICLE. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF LD. AO IN INVOKING PROVISIONS OF S. 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADDITION OF RS.38,333/- U/S 14A OF THE ACT. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING LOSS OF RS.2,64,95 8/- AFTER TREATING THE SAME AS SPECULATIVE LOSS. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING FOREIGN TRAVELLING EXPENDITURE OF RS.2,08,564/-. 3. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF DEFERRE D REVENUE EXPENSES OF RS. 4,03,633/- 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS REDUCED DEFERRED REVENUE EXPE NSES OF RS. 13,54,621/- FROM THE NET PROFIT AS PER PROFIT & LOS S ACCOUNT. THE ASSESSEE WAS ASKED TO GIVE DETAILS OF SUCH EXPENSES AND JUST IFY THE CLAIM OF THE SAME. ASSESSEE FURNISHED THE RELEVANT COPY OF ACCOU NT FROM WHICH A.O. NOTICED THAT THERE WAS OPENING BALANCE OF RS. 4,03, 633/- AND DURING THE YEAR, THE ASSESSEE DEBITED A SUM OF RS. 13,14,870/- ON ACCOUNT OF ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 3 EXHIBITION EXPENSES AND CLAIMED 20% OF THE ABOVE EX PENSES AS SALES EXHIBITION EXPENSES IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCE OF RS. 13,54,621/- WAS SHOWN AS DEFERRED REVENUE EXPENSES. THE A.O. FURTHER FOUND THAT IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS REDUCED THE SAID DEFERRED REVENUE EXPENSES FROM THE PROFIT. ACCORDING TO THE A.O., BY DOING SO, THE ASSESSEE HAS ALSO CLAIMED EXPENSES OF RS. 4,03,633/- WHICH DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THE A.O. ACCORDINGLY MADE THE ADDITION OF RS. 4,03,633/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT SINCE THE ASSESSEE IS A COMPANY, THE TAX RATE IS UNIFORM FOR ALL YEARS AN D, THEREFORE, IT WOULD HAVE NO REVENUE IMPLICATION WHETHER THE IMPUGNED EX PENDITURE IS ALLOWED IN THE YEAR UNDER CONSIDERATION OR ANY OTHER ASSESS MENT YEAR. PER CONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE LD. CIT( A). 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD A BROUGHT FORWARD BALANCE OF RS. 4,03,633/- IN THE DEFERRED REVENUE EXPENSES ACCOUNT . IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAS FURTHER DEBIT ED A SUM OF RS. 13,14,870/- AND OUT OF THE TOTAL EXPENDITURE, THE A SSESSEE HAS WRITTEN OFF 20% IN ITS PROFIT AND LOSS ACCOUNT. WHAT IS SURPRIS ING TO NOTE IS THAT THE BALANCE OF 80% HAS BEEN CLAIMED AS DEDUCTION IN THE COMPUTATION OF INCOME. WE FAIL TO UNDERSTAND HOW THIS ACT OF THE A SSESSEE JUSTIFIY THE BASIC ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 4 ACCOUNTING PRINCIPLES AND IN DOING SO, THE ASSESSEE HAS ALSO WRITTEN OFF THE BROUGHT FORWARD BALANCE WHICH DOES NOT EVEN PERTAIN TO THE YEAR UNDER CONSIDERATION. NO DOUBT, THE ASSESSEE COMPANY IS AS SESSED TO TAX AT THE SAME RATE OF TAX EVERY YEAR BUT IT DOES NOT MEAN TH AT EXPENDITURE CAN BE ALLOWED DEFYING THE BASIC PRINCIPLES OF ACCOUNTANCY . WE, THEREFORE, DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). G ROUND NO. 1 IS ACCORDINGLY DISMISSED. 8. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 3,2 7,045/- ON ACCOUNT OF DEPRECIATION. 9. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON TWO CARS WHICH WERE IN THE NAME OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE A.O. FUR THER FOUND THAT THE ASSESSEE HAS ALSO CHARGED INTEREST ON CAR LOAN AND VEHICLE EXPENSES. SINCE THE CARS WERE NOT IN THE NAME OF THE COMPANY BUT WE RE IN THE NAME OF THE DIRECTORS OF THE COMPANY, THE A.O. PROCEEDED BY MAK ING AN ADDITION OF RS. 3,27,045/- ON ACCOUNT OF DEPRECIATION, INTEREST AND OTHER EXPENSES. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE VEHICLES WERE NO DOUBT IN THE NAME OF THE DIRECTORS BUT WERE DULY RE FLECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AND USED FOR THE PURP OSES OF BUSINESS AND, THEREFORE, DEPRECIATION AND ALL RELATED EXPENDITURE S HAVE TO BE ALLOWED. ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 5 PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 12. AFTER CONSIDERING THE FACTS IN TOTALITY, IN OUR CON SIDERED OPINION, THE ASSESSEE IS ENTITLED FOR CLAIM OF DEPRECIATION ON T HE VEHICLES USED BY IT EVEN THOUGH THEY HAVE BEEN PURCHASED IN THE NAME OF THE DIRECTORS. WE DRAW SUPPORT FROM THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF V-TEX OVERSEAS PVT. LTD. IN ITA NO. 6571/MUM/2013. WE ACC ORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO D ELETE THE ADDITION OF RS. 3,27,045/-. GROUND NO. 2 IS ALLOWED. 13. GROUND NOS. 3 & 4 RELATES TO THE DISALLOWANCES MADE U/S. 14A R.W.R. 8D OF THE ACT. 14. THE A.O. FOUND THAT THE ASSESSEE HAS MADE INVESTMEN T OF RS. 9,96,000/- IN SHARES AND SECURITIES. THE A.O. PROCEEDED BY INVOKI NG PROVISIONS OF SECTION 14A R.W.R. 8D AND MADE THE ADDITION OF RS. 38,333/- . 15. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSID ERATION AND IN THE ABSENCE OF EXEMPT INCOME, DISALLOWANCE U/S. 14A IS UNWARRANTED. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT IN THE ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 6 CASE OF CORRTECH ENERGY PVT. LTD. 372 ITR 97. PER C ONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 17. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION; THEREFO RE, DISALLOWANCE U/S. 14A IS UNWARRANTED. WE FIND THAT WHILE MAKING THE DISALLOWANCES, THE A.O. DREW SUPPORT FROM THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF CHEMINVEST LTD. HOWEVER, THE SAID DECISION OF TH E SPECIAL BENCH HAS BEEN REVERSED BY THE HONBLE HIGH COURT OF DELHI IN 378 ITR 33 WHICH WAS SUBSEQUENTLY FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN 372 ITR 97. 18. RESPECTFULLY FOLLOWING THE SAID RATIO, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION O F RS. 38,333/-. GROUND NOS. 3 & 4 ARE ALLOWED. 19. GROUND NO. 5 RELATES TO THE ADDITION OF RS. 2,64,95 8/- BEING LOSS TREATED AS SPECULATION LOSS. 20. WHILE SCRUTINIZING THE RETURN OF THE ASSESSEE, THE A.O. NOTICED THAT THE ASSESSEE CLAIMED HEDGING LOSS OF RS. 2,29,920/-. TH E ASSESSEE WAS ASKED TO FURNISH DETAILS AND DOCUMENTARY EVIDENCES IN SUPPOR T OF THE ABOVE EXPENSES. NECESSARY DETAILS WERE FURNISHED AND PERU SED BY THE A.O. WHO NOTICED THAT THE ASSESSEE HAS MADE SEVERAL TRANSACT IONS FOR PURCHASE & SALES OF COPPER THROUGH MULTI COMMODITY EXCHANGE AN D THE TRANSACTIONS ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 7 WERE SETTLED OTHER-WISE THAN BY ACTUAL DELIVERY. IN VIEW OF THE ABOVE, THE A.O. TREATED THE LOSS OF RS. 2,29,920/- AS SPECULA TION LOSS. THE A.O. ALSO DISALLOWED MCX TRADING CHARGES. 21. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 22. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF COPPER RODS, FLATS, PVC COATED COPPER TUBES, ETC. THE LD. COUNSEL FURTH ER STATED THAT THE MAIN RAW MATERIAL USED IS COPPER SCRAP WHOSE PRICE IS HI GHLY SENSITIVE IN THE GLOBAL MARKET AND, THEREFORE TO PROTECT AGAINST SUC H PRICE FLUCTUATIONS, THE ASSESSEE USUALLY SELLS AVERAGE QUANTITY OF STOCK OF RAW MATERIAL IN FORWARD MARKET AND AS SOON AS FINISHED GOODS ARE SOLD, THEN RESPECTIVE QUANTITY IS PURCHASED IN FORWARD MARKET. IT IS THE SAY OF THE L D. COUNSEL THAT, BY DOING SO, THE ASSESSEE HEDGES ITS PROBABLE LOSSES. THEREF ORE, THE SAME CANNOT BE TREATED AS A SPECULATION LOSS. PER CONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 23. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREFULLY CONSIDERED THE MODUS OPERANDI OF THE ASSESSEE. THERE IS NO DISPUTE REGARDING THE NATURE OF BUSINESS OF THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT PRICES OF COPPER ARE VERY SENSITIVE TO THE GLOBAL MARKET. TO SAFEGUARD ITS BUSINESS INTERE ST, THE ASSESSEE ENTERED INTO CONTRACT IN THE MULTI COMMODITY EXCHANGE TO HE DGE ITSELF FROM FUTURE LOSSES. TO THIS EXTENT, THE ACTION OF THE ASSESSEE IS JUSTIFIABLE AS THE LOSS IS ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 8 INCURRED DURING THE ORDINARY COURSE OF THE BUSINESS . BUT AT THE SAME TIME, WE FIND THAT THE ASSESSEE HAS NOT DEMONSTRATED ANYT HING BY BRINGING ANY COGENT MATERIAL EVIDENCES ON RECORD IN JUSTIFICATIO N OF ITS LOSS. THE ASSESSEE HAS ALSO NOT BROUGHT ON RECORD THE RELEVANT CONTRAC T NOTES QUA THE MANUFACTURING AND SELLING OF FINISHED PRODUCTS. THE ONUS IS UPON THE ASSESSEE TO DEMONSTRATE ITS CLAIM OF LOSS. MERELY B Y FILING THE COPY OF THE LEDGER ACCOUNT WOULD NOT DO ANY GOOD. HOWEVER, IN T HE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILES O F THE A.O. THE ASSESSEE IS DIRECTED TO DEMONSTRATE THE LOSS WITH ITS MANUFACTU RING AND SELLING ACTIVITIES. THE ASSESSEE IS ALSO DIRECTED TO FURNIS H DETAILS IN RESPECT OF ANY CONTRACT CANCELLED BEFORE THE DUE DATE. THE ASSESSE E IS ALSO DIRECTED TO FURNISH DETAILS IN RESPECT OF UNEXPIRED/OUTSTANDING CONTRACTS AT THE END OF THE YEAR. THE A.O. IS DIRECTED TO VERIFY SUCH DETAI LS AND DECIDE THE ISSUE AFRESH AFTER GIVING A REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. GROUND NO. 5 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 24. GROUND NO. 6 RELATES TO THE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES OF RS. 2,08,564/-. 25. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED THES E EXPENDITURES DURING THE YEAR UNDER CONSIDERATION, WHEREAS THE TRAVELLIN G WAS DONE IN THE SUBSEQUENT FINANCIAL YEAR. THE A.O. ACCORDINGLY DI SALLOWED RS. 2,08,564/- WHICH WAS CONFIRMED BY THE LD. CIT(A). ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 9 26. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THESE EXPENDITURES WERE INCURRED IN THE MONTH OF FEBRUARY AND MARCH I. E. AT THE FAG OF THE FINANCIAL YEAR SO THAT THE DIRECTORS CAN MAKE THEIR FOREIGN TRIP FOR THE PURPOSES OF BUSINESS. IT IS THE SAY OF THE LD. COUN SEL THAT SUCH EXPENDITURES HAVE TO BE BOOKED PRIOR TO THE DATE OF TRAVELLING. THEREFORE, THE SAME HAVE TO BE ALLOWED. PER CONTRA, THE LD. D.R. STRONGLY SU PPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 27. THE UNDISPUTED FACT IS THAT THESE EXPENDITURES PERT AINED TO THE FOREIGN TRAVEL OF THE DIRECTORS. WE FIND THAT SUCH EXPENDIT URE INCLUDE AIR TICKET + VISA CHARGES. SINCE THE TRAVELLING WAS DONE IN THE MONTH OF APRIL, 2008 I.E. NEXT FINANCIAL YEAR, THE AIR TICKETS HAVE TO BE BOO KED PRIOR TO THE DATE OF TRAVELLING AND THE VISA HAVE TO BE TAKEN ACCORDINGL Y. IT IS NOT THE CASE OF THE REVENUE THAT SUCH EXPENDITURES WERE NOT INCURRED FO R THE PURPOSES OF BUSINESS. CONSIDERING THE NATURE OF EXPENDITURE, WE DO NOT FIND ANY MERIT IN THE IMPUGNED DISALLOWANCE. WE, ACCORDINGLY, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITI ON. GROUND NO. 6 IS ACCORDINGLY ALLOWED. 28. THE OTHER GROUNDS RELATES TO THE CHARGING OF INTER EST U/S. 234A, 234B & 234C OF THE ACT AND INITIATION OF PENALTY PROCEEDIN GS U/S. 271(1)(C) OF THE ACT. LEVY OF INTEREST IS MANDATORY, THOUGH CONSEQUE NTIAL. WE ACCORDINGLY DIRECT THE A.O. TO CHARGE INTEREST AS PER THE PROVI SIONS OF THE LAW AND SO FAR AS CHALLENGE TO THE INITIATION OF PENAL PROCEEDINGS IS CONCERNED, IT IS PREMATURE AND IS ACCORDINGLY DISMISSED. ITA NO. 2372 /AHD/2012 . A.Y. 2008-09 10 29. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 12- 20 16. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 19 /12/2016 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD