Jurasic Refiners & Jewels Pvt. Ltd. (Formerly Jurassic Finance & Consultants Pvt. Ltd.), Delhi V. Addl. CIT, Special Range- 5, New Delhi

ITA 256/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2622 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 13-01-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Speculation loss; Corroborative evidences; Commercial expediency; Set aside
• Section: 143(3); 234B; 37(1); 208; 73; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “C” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.256/Del/2019 [Assessment Year : 2014-15] Jurasic Refiners & Jewels Pvt.Ltd. [Formerly Jurassic Finance & Consultants Pvt.Ltd.], 11157/1124, 3 rd Floor, Kucha Mahajani, Chandni Chowk, Delhi-110028. PAN-AAACJ0754B vs Addl. CIT, Special Range-5, New Delhi. APPELLANT RESPONDENT Appellant by None Respondent by Shri Rajesh Kumar, CIT DR Date of Hearing 27.07.2022 Date of Pronouncement 27.07.2022 ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2014- 15 is directed against the order of Ld. CIT(A)-36, New Delhi dated 12.10.2018. The assessee has raised following grounds of appeal:- 1. “That the assessment order passed u/s 143(3) of the Income Tax Act 1961 on 30.12.2016 was perverse to the law and to the facts of the case, because of presuming share trading loss of Rs. 81,15,056/- as speculative loss without taking into consideration the cogent information provided, documents produced, filed and placed upon records, arbitrarily, capriciously and due to his guesswork only. 2. That the Ld. CIT(A) has failed to appreciate while upholding the addition of Rs. 81,15,056/- in the hands of the appellant company, that the case of the appellant company is covered under Explanation of Section 73 of the Income Tax Act 1961, though the case of the Page | 2 appellant company is not covered under Explanation of Section 73 of the Act, due to which the additions made could ever be upheld. 3. That the additions of Rs. 81,15,056/- further upheld by the Ld. CIT(A) was further illegal against the law and to the facts of the case, because the appellant company has already produced, filed and placed upon records the entire documents before the Assessing Officer, from which it could not infer that the said transactions are ever covered under Explanation of Section 73 of the Income Tax Act 1961. 4. That the additions made of Rs. 81,15,056/- as upheld by the Ld. CIT(A) was wrong on the facts and in the circumstances of the case, because there was no any fresh material available with the CIT(A), due to which it was opined that the loss incurred as declared of Rs. 81,15,056/- was not allowable as covered under Explanation of Section 73 of the Income Tax Act 1961. 5. That the additions made of Rs. 81,15,056/- was further not justified under the law and to the facts of the case, because the same were made as being the speculative loss incurred by the appellant company which only adjustable against the speculative profit if any be earned, though it was a trading loss and not the speculative loss as presumed by the Assessing Officer. 6. That the finding given by the Assessing Officer that the banking channel is not sacrosanct to prove genuineness of trading loss is also perverse to the law and to the facts of the case, therefore, not tenable, because the supporting documents filed and placed upon records were never doubted or ever controverted by the Assessing Officer prior to draw the adverse inference thereupon. 7. That the further additions made of Rs. 30,40,256/- u/s 36(l)(iii) read with Section 37(1) of the Income Tax Act 1961 as upheld by the Ld. CIT(A), is further perverse to the law and to the facts of the case, because borrowed loans taken/received were never invested in Page | 3 preparation of any FDRs, as the FDRs were prepared only out of the sale proceeds as required mandatory by the bank on account of commercial expediency of their business activities. 8. That the Ld. CIT(A) has also failed to appreciate that in support of the same, the appellant company has already produced, filed and placed upon records all the connected documents before the Assessing Officer, the copies of which were also placed before the Ld. CIT(A), which has not been examined / checked prior to uphold the additions of Rs. 30,40,256/- in the hands of the appellant company. 9. That the addition made of Rs. 30,40,256/- is further wrong on the facts and too, of the provisions of law, because the information provided, documents produced, filed and placed upon records in support of commercial expediency were not taken into consideration, as such adjudicated prior proceeded to finalize the assessment proceedings and upholding the additions so made by the Ld. CIT(A). 10. That the addition made of Rs. 30,40,256/- is further wrong on the facts and too, of the provisions of law, because of the finding given by the Assessing Officer himself in Para-3 of the assessment order that since the enquiry relating to the genuineness of loans are still pending, therefore, the disallowance of interest is also kept pending for consideration in the subsequent year, as such the additions made are laconic and ironic in nature, as such not tenable. 11. That the appellant company has not been provided reasonable and proper opportunity by the Assessing Officer prior proceeded to finalize the assessment proceedings, thereby making illegal and impugned additions in the income declared. 12. That the interest charged u/s 234B and initiation of penalty proceedings u/s 271(l)(c) of the Act, are further illegal as against the law and to the facts of the case. Page | 4 13. That the appellant company assails their right to amend, alter or change any grounds of appeal at any time even during the course of hearing of this instant appeal.” 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. It is seen from the records that since 23.12.2021, no one attending the proceedings on behalf of the assessee. It is seen from the records that notices had been returned back unserved by the Postal Authority with remark “left without address”. The assessee has not provided new address to the Registry. Therefore, the appeal is taken up for hearing in the absence of the assessee. FACTS OF THE CASE 3. Facts giving rise to the present appeal are that the assessee company filed return of income on 18.09.2014 declaring income of Rs.48,59,990/- The case was selected for scrutiny through CASS and the assessment u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed. Thereby, the AO made addition of Rs.81,15,056/- on account of disallowance of loss in trading of shares treating the same as speculative loss. Further, the AO made disallowance of Rs.10,10,497/- in respect of purchase of ornaments from M/s Unnati Eximp International and M/s Mohan Gems & Jewels Pvt.Ltd. The AO further made addition of Rs.30,40,256/- on account of disallowance on interest on borrowed capital. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, partly allowed the appeal of the assessee. Thereby, Ld.CIT(A) deleted the disallowance of Rs.10,10,497/- and rest of other disallowances were sustained. Page | 5 5. Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. 6. Ground Nos.1 to 6 raised by the assessee are against the addition of Rs.81,15,056/-. 7. The AO made addition by observing that the assessee failed to substantiate the genuineness of the transaction and treated the loss claimed by the assessee as speculative losses. Before Ld.CIT(A), it was stated that the assessee company was having DEMAT account with DSE Financial Services Ltd. and their client ID was 00029682 in which the entire proceeds of it, sales were credited and at the time of sale, it was debited. It was stated that the AO failed to adjudicate the issue on the basis of information supplied to him. However, Ld.CIT(A) did not accept the explanation of the assessee and decided the issue against the assessee by observing as under:- 4.2.3.1. “The facts of the case are that the appellant company has suffered loss of (-) Rs. 81,15,056/- in share trading and has claimed it in the profit & Loss account. The AO has observed that the appellant company has failed to substantiate that delivery of shares has been effected in the business of share trading. The AO has also noted information from the public domain that the scrip of JOLYPLS (M/s Jolly plastics Industries Ltd.) is a penny stock scrip. The appellant company has bought shares of this company at Rs. 198.34 per share and sold them @ Rs. 64.57 per share on 21.03.2014. The AO has stated that M/s Jolly plastics Industries Ltd., had petty business having very miniscule profit. The AO has observed that the share market price of M/s Jolly plastics Industries Ltd. despite its turnover at about Rs. 50 Lakh only ranged from Rs. 300 to Rs. 60 per share in the same year and the appellant company is one of the few entities who have traded in this scrip. The AO therefore observed that M/s Jolly plastics Page | 6 Industries Ltd is not a company having any worth for trading at BSF and the loss claimed by the appellant company is not genuine. 4.2.3.2. The AO has then commented that the loss of (-) Rs. 81,15,056/- in share trading incurred by the appellant company is a speculative loss which can only be set off against speculative profits. Accordingly, the AO held that the loss in trading of shares claimed at Rs. 81,15,056/- is speculative loss which is not admissible against business profits. Further, the AO has also said that it is not a genuine transaction. The AO has observed that Banking channel of transactions is not sacrosanct to prove genuineness of the trading loss. 4.2.3.3. The explanation to section 73 of the Income Tax Act is reproduced below: Losses in speculation business 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub- section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income: from any other speculation business, shall, subject to the other-provision of this Chapter, be carried forward to the following; assessment year, and - (i) it shall set off against the profits gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. Page | 7 (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section(2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than [four] assessment years, immediately succeeding the assessment year for which the loss was first computed. [Explanation].:- Where any part of the business of company ([other than a- company whose gross total income consists mainly of income which is- chargeable under the heads ''interest on securities", "Income- from house property", "Capital gains" and "Income from other sources"] or a company [the principle business of which is-the business of trading in shares or banking] or the granting of loans and advances.) consists in the purchase and sale of shares of the companies,, such company shall, for the purpose of this section, be deemed to, be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. It can be seen that the case of the appellant is covered by the explanation to section 73 of the I.T Act, 1961. The submission filed by the appellant have been considered and found not to be tenable. The case laws cited have been perused and are distinguishable in facts. I find no reason to interfere with the AO’s order in this issue and hold that the issue is covered by the explanation to section 73. In view of the above discussion, the appeal on Ground Nos.1,2 and 3 are dismissed.” 8. Ld. Sr. DR opposed the submissions made before Ld.CIT(A) on behalf of the assessee and supported the orders of authorities below and submitted that there is no infirmity into the order of the authorities below as the assessee grossly failed to substantiate its claim. Page | 8 9. We have heard the contention of Ld. Sr. DR and perused the material available on record and gone through the orders of the authorities below. We find that the finding of Ld.CIT(A) is not rebutted by the assessee by placing any supporting evidences on record. In the absence of such evidences, we do not see any reason to interfere into the findings of Ld.CIT(A), the same are thus, upheld. Thus, Ground Nos. 1 to 6 raised by the assessee are dismissed. 10. Ground Nos. 7 to 10 raised by the assessee are against the sustaining of addition of Rs.30,40,256/-. 11. Ld. Sr. DR opposed the submissions of the assessee as made before Ld.CIT(A) and supported the orders of the authorities below. 12. We have heard the contention of Ld. Sr. DR and perused the material available on record and gone through the orders of the authorities below. We find that the AO has given a finding on fact that the assessee failed to substantiate commercial expediency of paying interest of Rs.43,90,367/- on borrowed funds that were invested to earn only interest of Rs.13,50,111/- on fixed deposits. Before Ld.CIT(A), it was stated that the assessee company had not utilized borrowed funds for the purchase of fixed deposits as have been wrongly recorded by the Assessing Authority. However, Ld.CIT(A) decided the issue by observing as under:- 4.4.3.2. “The appellant has submitted that from the perusal of the information given, documents produced, filed and placed upon records, it is clear that the funds were transferred for preparing FDR with HDFC Bank against the OD Limit and were out of the export sale receipts / Page | 9 realized by the appellant company during the year under assessment. The AR of the appellant has stated that in support of this contention, the appellant company has already filed and placed upon records the copy of flow-chart containing all the details alongwith the copy of FDRs, details of the realization of sale proceeds from the export of material with copies of bank statement etc. The AR of the appellant has also stated that the same have also been examined while finalizing the assessment proceedings. The appellant has drawn attention to the Copy of Balance Sheet for the year ending on 31.03.2014 confirming the details of short term borrowings of Rs. 130021624/- under different heads, out of this a sum of Rs. 82672926/- was raised from HDFC Bank OD A/c; Details for the movement of loan funds, creditors parties ledger with copies of their bank statement confirming that the loan / advance taken from the ' parties concerned were not utilized in the FDRs and the FDRs were only prepared out of the business receipts. The AR of appellant has stated that the company has not utilized the borrowed funds for the purchase of FDRs, for which the deduction for the payment of balance interest of Rs. 30,40,256/- was disallowed u/s 36(l)(iii) read with Section 37(1) of the Income Tax Act 1961 by the AO, The AR of the appellant has argued that the borrowed funds were utilized only for the purpose of business and not for the preparation for FDRs. 4.4.3.3. The submission of the appellant has been perused. It is difficult to accept the contention of the appellant that the impugned investment has been made by him for the purpose of its business as the appellant has simply financed the FDR without utilizing the borrowed funds. There is no "commercial expediency". Simply by saying that investment has been made for obtaining OD limit is not good enough to prove commercial expediency. The expression "Commercial Expediency" is an expression of wide import and include such expenditure as a prudent businessman incurs for the purpose of business. Interest at Rs. 43,90,367/- has been Page | 10 claimed against borrowings. Interest on FDRs has been shown at Rs. 13,50,111/-. The appellant company has made investment on-FDRs at Rs. 9,11,65,068/-. The appellant: company has shown short term borrowings of Rs.13,00,21,624/-. It is to be-noted that the-appellant company has generated cash and cash equivalents of Rs. 13,57,32,699/- (as against Rs. 24,14,000/- in A.Y. 2013-14/ only through borrowings. The expenditure may not have been incurred: under legal obligation: but yet it is allowable as business expenditure only if it was incurred on the ground of commercial expediency. Coming to the legal precedents on the issue, it is seen that the Hon’ble Supreme Court in S.A. Builders Ltd. Vs CIT (288 ITR 1) has held that the correct approach to the issue of grant of deduction u/s 36(1)(iii) would be to examine whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. It was held that if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes (which need not necessarily be the business of the assessee itself), the-assessee would, ordinarily be entitled to deduction of interest on its borrowed loans. Having laid down the test for determination of the allow; ability of deduction u/s 36(l)(vii) the Apex Court set aside the matter to be decided afresh. This decision of the Supreme Court overruled a host of High Court decisions to the contrary, which gave a limited interpretations to the scope of the phrase "for the- purposes of business or profession" used in section 36(l)(iii). This decision overruled the Bombay High Court decisions in the case of Phaltan Sugar Works Ltd. Reported in 208 ITR 989 and 215 ITR 582, and approved the Delhi High Court decision in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377. Subsequent to this decision of the Apex Court, the Dept. filed an SLP against the Delhi High Court's decision in Addl. CIT vs Tulips Star Hotels Page | 11 Ltd. reported in 338 ITR 482 wherein the High Court had held that the interest liability on loans borrowed to acquire the equity capital of a subsidiary company which was in the same line of business was allowable deduction u/s 36(1)(iii). While admitting the SLP of the Department, the Supreme Court vide order dated 30.4.2012 directed that the earlier view of the Court in S.A. Builders Ltd. vs CIT should be referred for reconsideration to another Bench of the Court. Based on these decisions of the Apex Court, it needs to be examined whether the amounts in question that were advanced to sister concerns without any interest were justified by reasons of commercial expediency or not. The appellant has provided justification in very casual and mechanical manner in its written submissions filed during appellate proceedings. In yet another case- CIT v. Walchand & Co. (P.) Ltd.[1967] 65 ITR 381 (SC) it was observed that yardstick will have to be taken from the businessman point of view but the businessman must be a prudent businessman), the tax authorities are still entitled to examine the business expediency. This was the ratio of the Punjab and Haryana High Court decision in CIT vs Rockman Cycle Industries Pvt. Ltd. reported in 326 ITR 291 as well as the apex Court decision in SA Builders case (supra). The submissions filed by the Appellant have been considered and not found to be tenable. The case laws cited are distinguishable in facts. Accordingly, the interest expenditure incurred by the appellant that have been claimed u/s 36(l)(iii), cannot be allowed in its entirety.” 13. We find that Ld.CIT(A) has observed that the assessee company has generated cash and cash equivalent of Rs.13,57,32,699/- [as against Rs.24,14,000/- in AY 2013-14] only through borrowings. Ld.CIT(A) further given a finding that the assessee made investment on FDRs at Rs.9,11,65,068/- and it failed to prove commercial expediency. Even before this Tribunal, there is no material suggesting that the interest was paid for business expediency. In the absence of the credible evidence in support of the Page | 12 contention of the assessee that no borrowed fund was utilized for the purpose of making FDRs, no interference would be called for. Therefore, we do not see any infirmity into the order of Ld.CIT(A), the same is hereby affirmed. Thus, Ground Nos.7 to 10 raised by the assessee are dismissed. 14. Ground No.11 to 13 are consequential in nature, need no separate adjudication. 15. In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 27 th July, 2022. Sd/- Sd/- (PRADIP KUMAR KEDIA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI