DCIT - 4(2)(2), MUMBAI V. GBTL LTD. (FORMERLY KNOWN AS M/S. GRASIM BHIWANI TEXTILES LTD.), MUMBAI

ITA 2668/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3904 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 01-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T S KHALSADR
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Capital asset; Capital receipt; Set aside
• Section: 43B; 56(2); 48; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI BEFORE SHRI SHAMIM YAHYA, AM AND AMARJIT SINGH, JM ITA NO. 2668/MUM/2018 (ASSESSMENT YEAR: 2013-14) DCIT-4(2)(2) ROOM NO.640, 6 TH FLOOR AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 VS. M/S. GBTL LTD. (FORMERLY KNOWN AS M/S. GRASIM BHIWANI TEXTILES LTD.) 409, COTTON EXCHANGE BUILDING KALBADEVI ROAD, MUMBAI-400 002 PAN/GIR NO. A ACCG9347F (APPELLANT) : (RESPONDENT) APPELLANT BY : SHRI T.S.KHALSA-DR RESPONDENT BY : DR. K.SHIVARAM - AR DATE OF HEARING : 03/03 /2021 DATE OF PRONOUNCEMENT : 28 /0 5 /2021 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-9, MUMBAI (LD .CIT(A) FOR SHORT) DATED 02.02.2018 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y .) 2013-14. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF SALARY PROVISIONS U/S. 43B(F) OF THE I.T. ACT, 1961 AMOUNTING TO RS.30,02,616/- WITH OUT APPRECIATING THE FACT THAT PROVISION FOR LEAVE SALARY ONLY AN ESTIMATE AN D WAS NOT ACTUAL PAID, THUS MAKING IT A CONTINGENT LIABILITY.' 2. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN TREATED THE GRANT OF RS.2,27,74,314 /- RECEIVED FROM HOLDING COMPANY AS CAPITAL RECEIPT AS THE SAME WAS NOT USED FOR CREATING ANY CAPITAL ASSET BUT WAS USED TO PAY SALARY TO THE DIRECTOR.' 3. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN RELYING ON THE CASE LAW IN THE CASE OF CIT VS. DEUTSCHE POST BANK HOME FINANCE LTD. [2012] 209 TAXMAN 313 (DELHI ) AS THE CASE LAW APPLIES TO MONEY RECEIVED FROM HOLDING COMPANY TO R ECOUP LOSSES AND NOT APPLICABLE TO MONEY RECEIVED FOR PAYING SALARY OF D IRECTORS IN CONTRAVENTION OF THE COMPANY ACT, 2013.' 2 2668/MUM/2018 4. 'ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LOSS O N FORWARD CONTRACTS OF RS.74,306/-WITHOUT APPRECIATING THE FACTS THAT NO B ENEFIT OF ADJUSTMENT OF INCOME OR GAIN ON ACCOUNT OF MARK TO MARKET LOSSES OR GAIN WILL BE GIVEN AS PER THE CBDT INSTRUCTION NO.3/2010.' 3. APROPOS GROUND NO.1 BRIEF FACTS ON THE ISSUE ARE THAT PROVISION FOR LEA VE SALARY WAS DISALLOWED BY THE ASSESSING OFFICER BY HOLDING THAT THE LEAVE SALARY IS CONTINGENT IN NATURE. THE ASSESSING OFFICER OBSERVED THAT THE LEA VE SALARY MAY OR MAY NOT BE ENCASHED BY THE EMPLOYEES IN FUTURE DATE AS SOME OF THE EMPLOYEES MAY ACTUALLY TAKE LEAVE. HENCE HE MADE THE DISALLOWANCE OF THE PROVISION UNDER SECTION 43B(F). 4. UPON ASSESSEES APPEAL LD.CIT(A) DELETED THE ADD ITION BY RELYING UPON A DECISION OF THE ITAT ON SIMILAR ISSUE IN CASE OF TH E ASSESSEES GROUP CONCERN. WE MAY GAINFULLY REFER TO THE ORDER OF THE LD.CIT(A ) AS UNDER:- 6.6 I FIND THAT THE MUMBAI ITAT IN THE CASE OF TH E APPELLANT'S GROUP COMPANY ADITYA BIRLA NUVO LTD. V ACIT [2015] 68 SOT 403 (MUMBAI - TRIB.) HAS HELD THAT LEAVE SALARY IS NOT ATTRACTED BY SECT ION 43B(F) OF THE ACT. THE HON'BLE ITAT HELD AS FOLLOWS: '15.7 WE HAVE CAREFULLY PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND THE CLAIM OF THE ASSESSEE VIS-A-VIS SEC.43B(F). A PERUS AL OF SEC. 43B(F) SHOWS THAT THE EXPLANATION TO SEC. 43B REFERRING TO THE AMENDM ENT OF THE WORD ANY SUM PAYABLE IS APPLICABLE ONLY FOR CLAUSE (A) OF SEC.43 B WHICH MEANS THAT IT IS NOT APPLICABLE FOR CLAUSE (F).HON'BLE ANDHRA PRADESH H IGH COURT IN THE CASE OF SRIKAKOLLU SHUBBARAO & CO.173 ITR 708 HAS HELD THA T IN ORDER TO APPLY THE PROVISIONS OF SEC. 43B NOT ONLY BE THE LIABILITY TO PAY THE TAX OR DUTY BE INCURRED IN THE ACCOUNTING YEAR BUT ALSO SHOULD BE STATUTORILY PAYABLE IN THE ACCOUNTING YEAR. IN OUR CONSIDERED OPINION, THE PRO VISION FOR LEAVE SALARY IS NOT A STATUTORY LIABILITY BUT ONLY A CONTRACTUAL LI ABILITY WHICH IS PAYABLE ONLY IF THE EMPLOYEES RESIGNS OR RETIRED FROM THE SERVIC ES. WE ALSO FIND THAT THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXCIDE I NDUSTRIES LTD. (SUPRA) HAS STRUCK DOWN SEC. 43B(F) BEING ARBITRARY, UNCONSCION ABLE AND DE HORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOV ERS 245 ITR 428. IT IS RELEVANT TO STATE THAT THE TRIBUNAL IN THE CASE OF CIT V. UNIVERSAL MEDICARE IN ITA NO. 6191/M/08, HAS FOLLOWED THE DECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS AND DIRECTED THE AO TO ALLOW THE AMOUNTS SO CLAIMED. RESPECTFULLY FOLLOWING THE AFORE DISCUSSED DECISIONS, WE DIRECT THE AO TO ALLOW THE CLAIM OF PROVISIONS FOR LEAVE SALAR Y. GROUND NO. 6 IS ACCORDINGLY ALLOWED.' 6.7 I FIND THAT THE HON'BLE ITAT MUMBAI HAS HELD THAT LEAVE ENCASHMENT IS NOT A STATUTORY LIABILITY BUT A CONTRACTUAL LIABILI TY AND HENCE DOES NOT ATTRACT SECTION 43B. FURTHER, AS PER EXPLANATION 2 TO SECTI ON 43B, THE LEAVE 3 2668/MUM/2018 ENCASHMENT MUST BE BOTH DUE AND PAYABLE TO BE DISAL LOWED UNDER SECTION 43B. THUS, FOLLOWING THE ITAT DECISION IN ADITYA BI RLA NUVO LTD. V ACIT (SUPRA], THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT AND THE DISALLOWANCE OF LEAVE SALARY OF RS 30.02.616/- IS D ELETED. 5. AGAINST THE ABOVE ORDER REVENUE IS IN APPEA L BEFORE US. 6. HAVING HEARD BOTH THE PARTIES AND PERUSED T HE RECORD, WE FIND THAT THE ISSUE IS DULY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT REFERRED BY THE LD.CIT(A) AS ABOVE. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. HENCE, WE ARE UPHOLD ORDER OF LD.CIT(A). 7. APROPOS GROUND NO. 2 AND 3 BRIEF FACTS ON THIS ISSUE ARE THAT THE ASSESSEE COM PANY WAS REQUIRED TO MAKE PAYMENT TO ITS DIRECTORS. DUE TO THE CONSTRAIN TS OF PROVISIONS OF COMPANIES ACT WITH REGARD TO MANAGERIAL REMUNERATIO N IT COULD NOT PAY MORE THAN RS. 48 LAKHS. HENCE, IT RECEIVED A GRANT OF RS 2,27,74,314/- FROM ITS HOLDING COMPANY M/S GRASIM INDUSTRIES LTD. IT HAD A DJUSTED THE REMUNERATION PAID RS. 2.76 CRORES AGAINST IT. IT ONLY CLAIMED TH E BALANCE RS. 48 LAKHS REMUNERATION PAID BY DEBIT TO THE P&L ACCOUNT. HOWE VER IN COMPUTATION OF INCOME IT REDUCED THE ENTIRE REMUNERATION FROM ITS INCOME WITHOUT OFFERING THE GRANT AS INCOME. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ID ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY NOT THE GRANT SHOULD BE TREATED AS A REVENUE RECEIPT IN THESE CIRCUMSTANCES. THE AS SESSEE REPLIED THAT IT WAS A CAPITAL GRANT AND WAS A VOLUNTARY GIVEN TO IT TO CO MPLY WITH MANAGERIAL REMUNERATION PROVISION AS PER SCHEDULE XIII OF THE COMPANIES ACT. HENCE IT WAS NOT IN THE NATURE OF TRADING RECEIPT. FURTHER, THE CAPITAL GRANT WAS NOT CLAIMED AS EXPENDITURE IN THE HANDS OF THE HOLDING COMPANY. HENCE THE ASSESSEE JUSTIFIED UTILISATION OF SAID GRANT AS ITS EXPENDITURE FROM ITS TOTAL INCOME CHARGEABLE TO TAX AND AT THE SAME TIME TREAT ING THE GRANT AS EXEMPT. THE ASSESSEE ALSO SUBMITTED THAT IT HAD INADVERTENT LY CLAIMED AN EXEMPTION FOR RS 1,87,74,314/- IN ITS RETURN OF INCOME ALTHOUGH T HE GRANT RECEIVED WAS RS 2,2 7,74,314/-. THE ID ASSESSING OFFICER WAS OF THE VIEW THAT SCHEDULE XIII OF THE COMPANIES ACT DID NOT MANDATE THAT THE GRANT WA S TO BE TREATED AS A CAPITAL RECEIPT. THE ID ASSESSING OFFICER OBSERVED THAT THE GRANT WAS NOT A LOAN/ADVANCE. THEREFORE, THE GRANT WAS NOTHING BUT A BENEFIT TO BE TAXED UNDER 4 2668/MUM/2018 SECTION 56 OF THE ACT. THE ID ASSESSING OFFICER WAS OF THE VIEW THAT IN THE CIRCUMSTANCES THE GRANT WAS INCOME FROM OTHER SOURC ES AND HENCE HE ADDED THE GRANT TO THE TOTAL INCOME OF THE ASSESSEE. 8. UPON ASSESSES APPEAL LD.CIT(A), FURTHER BROUGHT ON RECORD, THE FACTUAL DETAILS ON THIS ISSUE AS UNDER:- 8.2 IN THIS CASE, THE ASSESSEE PAID AN AMOUNT OF RS.2.76 CRORES TO MR THOMAS VARGHESE, DIRECTOR OF THE APPELLANT COMPANY. AS PER COMPANIES ACT, 1956, THE MAXIMUM REMUNERATION PAYABLE BY COMPANIES WITH INADEQUATE PROFITS IS RS.48 LAKHS. HENCE, THE ASSESSEE RECEIVE D A GRANT OF THE BALANCE MONEY OF RS. 2,27,74,314/- FROM ITS HOLDING COMPANY . THE ENTIRE GRANT WAS PAID TO MR. THOMAS VARGHESE, DIRECTOR OF THE APPELL ANT COMPANY. 8.3 IN THE PROFIT AND LOSS, THE APPELLANT DEBITED ENTIRE SALARY PAID TO MR. VARGHESE OF RS.2.76 CRORES AND CREDITED GRANT RECEI VED OF RS.2.27 CRROES. IN OTHER WARDS, THE APPELLANT CLAIMED NET DEDUCTION OF RS.48 LAKHS BEING DIRECTOR FEES PAID TO MR.THOMAS VARGHESE. IN THE RE TURN OF INCOME, THE APPELLANT CLAIMED DEDUCTION FOR THE ENTIRE DIRECTOR S REMUNERATION OF RS.2.76 CRORES, BUT EXCLUDED THE CAPITAL GRANT RECEIVED. 9. LD.CIT(A) FOUND THAT THE IT MAY BE NOTED THAT THIS GRANT IS A FORM OF DONATION. LEARNED CIT(A) FURTHER OBSERVED THAT HOWE VER, THE HOLDING COMPANY M/S. GRASIM INDUSTRIES LTD HAS NOT CLAIMED DEDUCTIO N FOR THE GRANT IN ITS INCOME TAX RETURN. THIS OBSERVATION WAS MADE DESPIT E NOTING THAT THE GRANT WAS CLAIMED AS EXEMPT AND ITS UTILISATION WAS CLAIM ED BY THE ASSESSEE AS ITS DEDUCTION FROM TAXABLE INCOME. 10. LD.CIT(A) REFERRED TO FOLLOWING DECISIONS:- I. HONBLE SUPREME COURT IN SIEMENS PUBLIC COMMUNI CATION NETWORK (P.) LTD. VS. CIT[2017] 390 ITR 1 (SC) II. HONBLE DELHI HIGH COURT IN CIT V DEUTS CHE POST BANK HOME FINANCE LTD. [2012] 209 TAXMAN 313 (DELHI) 11. REFERRING TO THE ABOVE DECISION LD.CIT(A) DELET ED THE DISALLOWANCES HOLDING AS UNDER:- 8.9 THUS, COURTS HAVE HELD THAT IF THE GRANT FROM HOLDING COMPANY WAS TO RECOUP LOSSES AND SAFEGUARD THEIR INTEREST IN THE S UBSIDIARY, IT OUGHT TO BE TAXED AS A CAPITAL RECEIPT. IN THE PRESENT CASE, AL THOUGH THE APPELLANT COMPANY IS NOT MAKING A LOSS, THE GRANT WAS USED TO MEET THE OPERATIONAL EXPENSES OF THE APPELLANT COMPANY. THE GRANT WAS TO WARDS ENSURING THAT BUSINESS IS CONTINUED AND TO ENSURE SURVIVAL OF BUS INESS. THUS, THE GRANT WAS TO SAFEGUARD THE HOLDING COMPANY'S INTEREST IN THE APPELLANT COMPANY. 5 2668/MUM/2018 AS PER SCHEDULE XIII OF THE .COMPANIES ACT 1956, TH E APPELLANT COULD PAY A MAXIMUM REMUNERATION OF RS 48 LAKHS TO ITS DIRECTOR . HENCE, THE APPELLANT WAS PREVENTED FROM MAKING FURTHER PAYMENT TO THE DI RECTOR AND HAD TO GET FUNDS FROM ITS HOLDING COMPANY. MERELY SINCE THE GR ANT IS CREDITED TO THE PROFIT & LOSS ACCOUNT DOES NOT MAKE IT A REVENUE RE CEIPT. THE GRANT WAS NOT CLAIMED AS A DEDUCTION IN THE HANDS OF THE DONOR I. E. M/S. GRASIM INDUSTRIES LTD. IN VIEW OF THE ABOVE, EVEN THOUGH THE DIRECTOR 'S FEES WERE CLAIMED AS A DEDUCTION, THE GRANT OUGHT TO BE TREATED AS A CAPIT AL RECEIPT. FURTHER, I AM NOT IN AGREEMENT WITH THE FINDINGS OF THE ID ASSESS ING OFFICER THAT THE GRANT IS A BENEFIT TAXABLE UNDER SECTION 56 OF THE ACT. T HIS IS JUST A BALD STATEMENT AND THE ASSESSING OFFICER HAS NOT SPECIFIED UNDER W HICH LIMB OF SECTION 56 THIS GRANT IS TAXABLE. 8.10 ONE MORE ASPECT OF THIS ISSUE HAS BEEN BROU GHT TO MY NOTICE THAT THE CAPITAL GRANT RECEIVED FROM THE HOLDING COMPANY WAS RS 2,27,74,314/-. HOWEVER, THE AMOUNT OF DEDUCTION CLAIMED IN THE RET URN OF INCOME WAS ERRONEOUSLY RS 1,87,74,314/-, HENCE, THE ID ASSESSI NG OFFICER ONLY DISALLOWED GRANT OF RS 1,87,74,314/-. IN THE GROUND S OF APPEAL, THE APPELLANT HAS MENTIONED THAT THE PROFIT AND LOSS OF THE APPEL LANT HAS BEEN CREDITED BY A GRANT OF RS 2,27,74,314/-. IT IS ARGUED THAT MERE LY BECAUSE THE APPELLANT MADE A TYPING MISTAKE IN ITS RETURN OF INCOME, IT C ANNOT BE PENALIZED FOR ITS WRONG DOING. THE RIGHT AMOUNT OF TAX AS PER LAW OUG HT TO BE COLLECTED. IN VIEW OF THE ABOVE, THE APPELLANT OUGHT TO BE ENTITL ED TO RELIEF OF RS 2,27,74,314/- IE THE ENTIRE CAPITAL GRANT CREDITED TO THE PROFIT AND LOSS ACCOUNT. THUS, GROUND NO 3 OF THE APPEAL IS ALLOWED . THE APPELLANT IS ENTITLED TO RELIEF OF RS 2,27,74,314/ SUBJECT TO FU RTHER VERIFICATION BY AO, OF CLAIMS BEING MADE BY THE APPELLANT AS REFERRED TO A BOVE. 12. AGAINST THE ABOVE ORDER, REVENUE IS IN APPE AL BEFORE US. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. 14. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT WHILE ASSESSEE HAS TREATED THE AMOUNT RECEIVED FROM ITS HOLDING COMPAN Y AS A TAX-FREE GRANT AND AT THE SAME TIME TREATED THE UTILISATION OUT OF IT AS AN EXPENDITURE IN ITS COMPUTATION OF INCOME. LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THIS IS TOTALLY CONTRADICTORY AND UNSUSTAINABLE PRO POSITION AND LEARNED CIT(A) HAS COMPLETELY ERRED IN HIS ORDER. HE FURTHER SUBMI TTED THAT THE CASE LAWS REFERRED BY LEARNED CIT(A) ARE NOT AT ALL APPLICABL E ON THE FACTS OF THE CASE. HE SUBMITTED THAT IN THE CASE LAWS REFERRED BY LEARNED CIT(A), THE HOLDING COMPANY WAS GIVING AMOUNT TO ITS SUBSIDIARY COMPANI ES I.E. THE ASSESSES WHO WERE LOSS MAKING COMPANIES. HENCE, THE AMOUNT WAS R ECEIVED FOR THE SURVIVAL OF THE COMPANIES AND RECOVERY OF LOSS. HE SUBMITTED THAT IN THE PRESENT CASE ASSESSEE HAS MADE A PROFIT OF RS.12.77 CRORES AND H ENCE FACTS ARE DIFFERENT. 6 2668/MUM/2018 15. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS RECEIVED FROM THE HOLDING COMPANY TO PAY DIRECTOR REMUNERATI ON AS THE ASSESSEE WAS NOT IN A POSITION TO PAY IN EXCESS OF RS. 48 LAKHS AS PER THE PROVISIONS OF THE COMPANIES ACT. HE FURTHER SUBMITTED THAT THE ASSESS ING OFFICER HAS TREATED THE SAME AS INCOME TAXABLE UNDER SECTION 56 WITHOUT SPE CIFYING ANY SECTION. THAT SECTION 56 OF THE ACT AS IT STOOD FOR ASSESSMENT YE AR DID NOT CONTAIN ANY PROVISION TO TAX CAPITAL GRANT. THAT SECTION 56 WAS AMENDED BY THE FINANCE ACT W.E.F. APRIL, 2017. IT INSERTED SUB-SECTION 56(2) T HEREBY WIDENING THE SCOPE OF INCOME FROM OTHER SOURCES FROM A.Y. 2013-14 AND THE LAW AS IT STOOD DURING THE YEAR THE SAME WAS NOT WITHIN THE AMBIT OF SECTI ON 56. FURTHERMORE, HE PLACED RELIANCE UPON THE HON'BLE SUPREME COURT DECI SION IN THE CASE OF CIT VS. MAHARASHTRA SUGARLESS (160 ITR 920) FOR THE PROPOSI TION THAT IT IS A DUTY CAST ON THE ITO TO APPLY THE RELEVANT PROVISIONS OF THE ACT FOR THE PURPOSE OF DETERMINING THE TRUE FIGURE OF THE ASSESSEE AS TAXA BLE INCOME AND THE CONSEQUENTIAL TAX LIABILITY. WITHOUT PREJUDICE TO T HE ABOVE SUBMISSION LEARNED COUNSEL OF THE ASSESSEES RELIANCE ON THE FOLLOWING CASE LAWS AS UNDER :- CIT VS. MAHALAXMI SUGAR MILLS CO. LTD. (160 ITR 920 )(SUPREME COURT) SIEMENS PUBLIC COMMUNICATION NETWORK (P) LTD. VS. C IT (390 ITR ) (SUPREME COURT) CIT VS. DEUTSCHE POST BANK HOME FINANCE LTD. (24 TA XAMNN.COM 341) (DELHI HIGH COURT) PCIT VS. SATE FISHERIES DEVELOPMENT CORPORATION LTD . (94 TAXMANN.COM 466) (CALCUTTA HIGH COURT) 16. FURTHERMORE LEARNED COUNSEL OF THE ASSESSEE IN HIS WRITTEN SUBMISSION SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, THER E IS NO CONTRAVENTION OF THE COMPANIES ACT. THAT NEITHER THE ASSESSEE COMPANY NO R THE HOLDING COMPANY HAS CLAIMED THE SAID PAYMENT AS ALLOWABLE DEDUCTION IN PROFIT AND LOSS ACCOUNT. THAT THE HOLDING COMPANY HAS GIVEN THE GRA NT TO MEET THE CAPITAL LOSS, HENCE, CANNOT BE ASSESSED AS INCOME FROM OTHE R SOURCES. HE REITERATED THAT THIS IS CAPITAL GRANT AND CANNOT BE TAXED. HE FURTHER RELIED ON FOLLOWING CASE LAWS :- CADELL WEAVING MILL CO. (P) LTD. VS. CIT (249 ITR 2 65)(BOM HC) CIT VS. D.P. SANDU BROS. CHEMBUR (P) LTD. (273 ITR1 (SC) CIT VS. SMT. T.P. SIDHWA (133 ITR 840)(BOM HC) 7 2668/MUM/2018 17. IN REJOINDER LEARNED DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT EVEN IF THE PARTICULAR RECEIPT IS NOT CONSIDERED UNDER SECT ION 56(2) THE SAME WOULD NOT TAKE AWAY THE GENERALITY OF THE PROVISIONS OF SECTI ON 56(1), WHICH STATES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FR OM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME TAX UNDER TH E HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME TAX UNDE R ANY OF THE HEADS SPECIFIED IN SECTION 14 ITEMS A TO E. HE FURTHER SUBMITTED TH AT SECTION 56(2) ONLY PRESCRIBES IN PARTICULARS OF INCOMES, WHICH SHALL B E CHARGEABLE TO INCOME TAX UNDER THE INCOME FROM OTHER SOURCE. HENCE HE PLEADE D THAT THE ADDITION OF RECEIPT OF RS. 2,27,74,314/- FROM HOLDING COMPANY I S TO BE UPHELD. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED RECORDS. AS PER THE UNDISPUTED FACT IN THIS CASE ASSESSEE COMPA NY HAS PAID REMUNERATION TO ITS DIRECTOR AS PER THE PROVISIONS OF THE COMPAN IES ACT, ASSESSEE COMPANY COULD PAY ONLY RS. 48 LAKHS. THE REMUNERATION PAYAB LE WAS RS. 2.76 CRORES. SO ASSESSEE RECEIVED FUND FROM THE HOLDING COMPANY TO PAY THE BALANCE I.E. RS. 2.27 CRORES. THE ASSESSEE ACCOUNTED FOR THE AMOUNT SO RECEIVED AS GRANT AND DEBITED THE REMUNERATION PAID AGAINST THE SAID GRAN T. ONLY THE BALANCE I.E. INCOME OF THE REMUNERATION PAID OVER GRANT RECEIVED WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THUS THE DEBIT TO PROFIT AND LOSS ACCOUNT WAS ONLY RS. 48 LAKHS REMUNERATION PAID. HOWEVER IN COMPUTATION OF INCOME IT REDUCED THE DIRECTORS REMUNERATION PAID OUT OF THE GRANT AS ITS DEDUCTION FROM PROFIT. THUS IT HAS DEDUCTED RS. 2.27 CRORES REMUNERATION PAID O UT OF GRANT FROM TOTAL INCOME WITHOUT OFFERING THE EQUIVALENT GRANT AS INC OME. THUS WITHOUT TAKING CREDIT OF THE SUM RECEIVED THE COMPANY DEDUCTED THE PAYMENT OUT OF IT FROM ITS INCOME. 19. WE FIND THAT THE AFORESAID CONDUCT IS UNSUSTAIN ABLE. THE CONTENTION OF THE ASSESSEE IS THAT THE SAID SUM WAS RECEIVED FROM HOLDING COMPANY TO ENABLE IT TO PAY DIRECTORS REMUNERATION BEYOND THE LIMITS PRESCRIBED BY THE COMPANIES ACT. HENCE, THE SAME IS NOT AN INCOME BUT A CAPITAL GRANT. THIS ARGUMENT IS ACCEPTABLE TO THE EXTENT THE EXPENDITURE OUT OF THE SAID IS NOT TREATED AS DEDUCTION FROM PROFITS/INCOME. THE ASSESSEE HAS DON E SO AND HENCE THE 8 2668/MUM/2018 AMOUNT RECEIVED CANNOT BE TREATED AS NON-TAXABLE IN COME AS AT THE SAME TIME THE EXPENDITURE OUT OF IT IS CLAIMED AS AN EXPENDIT URE/DEDUCTION. AS REFERRED ABOVE, THE CASE LAWS REFERRED BY THE LEARNED COUNSE L OF THE ASSESSEE ARE NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE. IN THOSE C ASES THE AMOUNTS WERE RECEIVED BY THE ASSESSEE COMPANY WHICH WERE INCURRI NG HEAVY LOSSES TO RECOUP THE LOSSES AND FOR THE SURVIVAL. IN THE PRESENT CAS E, THE SITUATION IS NOT AT ALL LIKE THAT. MOREOVER, IN NONE OF THOSE CASES THE ASS ESSEE HAD MADE SUCH AN EFFORT TO REDUCE THE UTILISATION OF GRANT IN ITS CO MPUTATION OF INCOME. FURTHER LEARNED COUNSEL OF THE ASSESSEE HAS CLAIMED THAT NE ITHER THE ASSESSEE COMPANY NOR THE HOLDING COMPANY HAS SHOWN THE SAME AMOUNT A S EXPENDITURE IN PROFIT AND LOSS ACCOUNT. THIS IS ABSOLUTELY IRRELEVANT CLA IM MADE IN THE WRITTEN SUBMISSION BY THE LEARNED COUNSEL OF THE ASSESSEE. IN THE ASSESSEE COMPANY'S COMPUTATION OF INCOME THE AMOUNT PAID HAS BEEN CLAI MED AS DEDUCTION. SO IT IS ADMITTEDLY CLAIMED AS A DEDUCTION. THE CLAIM THA T ASSESSEE HAS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT IS ON THE CUSP OF A MISLEADING STATEMENT. ANOTHER SUBMISSION OF THE LEARNED COUNSEL OF THE AS SESSEE IS THAT SECTION 56(2) IS NOT APPLICABLE TO THE CURRENT ASSESSMENT YEAR IN THIS ECONOMY. FIRSTLY WE NOTE THAT AS DISCUSSED ABOVE, IT IS NOT THE ISSUE O F TAXABILITY OR THE CHARGEABLE OF THE RECEIPT IN ISOLATION. BUT THE CLAIM OF DEDUC TION FOR UTILISATION OF THE SO- CALLED EXEMPT GRANT WHICH HAS TO BE CONSIDERED ALON GWITH. THIS IS THE ACTUAL SUBJECT MATTER OF DEBATE OVER HERE. HENCE THIS CLAI M OF THE LEARNED COUNSEL OF THE ASSESSEE THAT ASSESSING OFFICER HAS QUOTED WRON G SECTION IS NOT AT ALL SUSTAINABLE. MOREOVER, IT IS SETTLED LAW THAT QUOTI NG A WRONG SECTION IS NOT FATAL. FURTHERMORE ASSESSING OFFICER HAS NOT SPECIFICALLY INVOKED SECTION 56(2). THE DUBIOUS METHOD ADOPTED BY THE ASSESSEE OF CLAIMING THE UTILISATION OF GRANT AS DEDUCTION FROM TAXABLE INCOME WITHOUT OFFERING THE CORRESPONDING GRANT AS INCOME CANNOT BE BRUSHED ASIDE ON THE CLAIM THAT IT IS NOT DEBITED TO PROFIT AND LOSS ACCOUNT. AS IN SUBSTANCE THE ASSESSEE IS CLAIM ING THE UTILISATION OF GRANT AS DEDUCTION IN THE COMPUTATION OF INCOME. 20. IN THIS VIEW OF THE MATTER IN OUR CONSIDERED OP INION CIT(A) HAS COMPLETELY ERRED IN THIS REGARD. THE AMOUNT RECEIV ED FROM THE HOLDING COMPANY CANNOT BE ALLOWED TO BE TREATED AS EXEMPT I F THE UTILISATION OUT OF IT IS 9 2668/MUM/2018 ALLOWED AS DEDUCTION FROM THE TOTAL INCOME CHARGEAB LE TO TAX. THE ASSESSEE CANNOT TREAT THE GRANT AS ITS NOT TAXABLE INCOME AN D AT THE SAME TIME CLAIM UTILISATION OUT OF IT AS A DEDUCTION FROM TOTAL INC OME. HENCE, WE ARE OF THE CONSIDERED OPINION THAT THE SUM OF RS. 2.27 CRORES HAS BEEN RIGHTLY BROUGHT TO TAX IN AS MUCH AS ITS UTILISATION AS REMUNERATION H AS BEEN CLAIMED AND ALLOWED AS DEDUCTION. THE EFFECT OF THIS ADDITION/DISALLOWA NCE IS ASSESSEES DUBIOUS ACT OF NOT HAVING CLAIMED THE EXPENDITURE/UTILISATION O F GRANT OSTENSIBLY THOUGH PROFIT AND LOSS ACCOUNT BUT CLAIMING IT THOUGH DEDU CTION IN COMPUTATION OF INCOME SURREPTITIOUSLY IS NULLIFIED. HENCE, WE SET ASIDE THE ORDERS OF LEARNED CIT(A) AND ALLOW THE REVENUES APPEAL ON AFORESAID REASONING. 21. APROPOS GROUND NO.4 IN THIS CASE, THE APPELLANT ENTERED INTO EXPORT SAL E TRANSPORTATIONS FOR SALE OF YARN/FABRICS/TEXTILES. AS PER THE CONTRACTS , IT WAS TO RECEIVE A SUM IN US DOLLARS ON A FUTURE DATE. IN ORDER TO SAFEGUARD ITS ELF AGAINST THE VALUE OF THE DOLLAR, THE APPELLANT ENTERED INTO FORWARD CONTRACT S WITH HDFC BANK. UNDER THIS CONTRACT, THE APPELLANT SECURED THE RUPEES IT WAS TO RECEIVE AGAINST THE DOLLAR. IN SOME CASES, THE FORWARD CONTRACT WAS OUT STANDING AT THE YEAR END. IN SUCH CASES, THE CONTRACT WAS BENCHMARKED AGAINST TH E PREVAILING DOLLAR RATES AS ON 31 ST MARCH TO ARRIVE AT THE MARK TO MARKET PROFIT/LOSS. AS A RESULT, THE APPELLANT CLAIMED MARK TO MARKET LOSS OF RS 74,306/ -. THE ID ASSESSING OFFICER ASKED THE APPELLANT TO JUSTIFY WHY SUCH LOSS WAS CL AIMED. THE APPELLANT CONTENDED THAT THE LOSS WAS AS-11 AND SECTION 209(3 ) OF THE COMPANIES ACT. THE APPELLANT ALSO RELIED ON THE HON'BLE SUPREME CO URT JUDGMENT IN THE CASE OF WOODWARD GOVERNOR INDIA P LTD (312 ITR 254} IN S UPPORT OF ITS CLAIM. THE ID ASSESSING OFFICER WAS OF THE VIEW THAT THE DECISION OF WOODWARD GOVERNOR INDIA P LTD [SUPRA] WAS IN THE CONTEXT OF SUNDRY CREDITOR S/DEBTORS AND WAS NOT RELEVANT. THE ID ASSESSING OFFICER DISTINGUISHED FO RWARD CONTRACTS FROM FUTURE CONTRACTS AND HELD THAT FORWARDS ARE OTC IN NATURE, CUSTOMIZED, LESS LIQUID, WITHOUT MARGIN AND SETTLEMENT HAPPENS AT THE END. T HE ASSESSING OFFICER RELIED ON THE CASE OF ALEMBIC CHEMICAL WORKS V CIT (266 ITR 47) (GUJ) WHICH HELD THAT A LIABILITY IS SAID TO BE INCURRED ONLY W HEN DISPUTE BETWEEN THE PARTIES IS SETTLED. THE ID ASSESSING OFFICER RELIE D UPON THE MADRAS HIGH COURT 10 2668/MUM/2018 DECISION OF INDIAN OVERSEAS BANK LTD V CIT (246 ITR 206) (MAD) IN WHICH IT WAS HELD THAT NOTIONAL FOREIGN EXCHANGE LOSS COULD NOT BE ALLOWED AND IT WAS TO BE ALLOWED ONLY ON SETTLEMENT. IN VIEW OF THE ABOVE, T HE ID ASSESSING OFFICER DISALLOWED THE MARK TO MARKET LOSS OF RS 74,306/-. 22. UPON ASSESSEES APPEAL LD.CIT(A) REFERRED TO S EVERAL CASE LAWS AND DISTINGUISHED THE DECISION REFERRED BY THE ASSESSIN G OFFICER. HE CONCLUDED AS UNDER:- 9.9 IN VIEW OF ALL THE ABOVE FACTORS, I AM OF THE VIEW THAT THE FORWARD CONTRACT MARKET TO MARKET LOSS IS AN ALLOWABLE DEDUCTION. TH E LOSS WAS INCURRED FOR THE PURPOSE OF BUSINESS AND REVENUE IN NATURE AS TH E FORWARD CONTRACTS WERE PURCHASED IN CONNECTION WITH THE APPELLANTS EXPORT OBLIGATION. THUS, GROUND NO.4 OF THE APPEAL IS ALLOWED AND THE DISALL OWANCE MADE BY THE LD. ASSESSING OFFICER IS HEREBY DELETED. THE APPELLANT IS ENTITLED TO RELIEF OF RS.74,306/-. 23. AS REGARDS THE ABOVE REVENUE IS IN APPEAL BEFOR E US. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. 25. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ASSESSING OFFICERS ORDER. 26. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. LEARNED COUNSEL REFERRED TO THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. D. CHETAN & CO. [2017] 390 ITR 36 (BOM HC), WHERE IT WAS HELD THAT FORWARD CONTRAC TS FOR PURPOSE OF HEDGING IN COURSE OF NORMAL BUSINESS ACTIVITIES OF IMPORT A ND EXPORT DONE TO COVER UP LOSSES ON ACCOUNT OF DIFFERENCES IN FOREIGN EXCHANG E VALUATIONS WOULD NOT BE SPECULATIVE ACTIVITY, BUT BUSINESS ACTIVITY. THAT I N THE JURISDICTIONAL TRIBUNAL DECISION IN THE CASE OF S. VINODKUMAR DIAMONDS (P.) LTD. V. DTY CIT [2020] 118 TAXMANN.COM 317 (MUM TRIB.), IT WAS HELD THAT WHEN FORWARD CONTRACT IN FOREIGN EXCHANGE WAS INCIDENTAL TO CARRYING ON BUSI NESS OF EXPORT AND WAS DONE TO COVER UP LOSSES ON ACCOUNT DIFFERENCE IN FO REIGN EXCHANGE VALUATION, SAME WOULD NOT BE SPECULATIVE ACTIVITY BUT A BUSINE SS ACTIVITY. HE FURTHER RELIED UPON THE DECISION OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF FOODS AND INNS LTD. V. ACIT 159 ITD 1007, WHERE IT WAS HELD THAT W HERE ASSESSEE ENGAGED IN 11 2668/MUM/2018 MANUFACTURE AND EXPORT OF PROCESSED FOOD PRODUCTS, IN ORDER TO SAFEGUARD ITSELF AGAINST FLUCTUATIONS IN EXCHANGE RATES OF FOREIGN C URRENCY, ENTERED INTO FOREIGN EXCHANGE FORWARD CONTRACTS WITH BANKS AGAINST CONFI RMED EXPORT ORDER, HEDGING LOSS SUFFERED BY ASSESSEE IN RESPECT OF SAI D FORWARD CONTRACTS WAS TO BE ALLOWED AS BUSINESS LOSS. 27. UPON CAREFUL CONSIDERATION WE FIND OURSELVES IN AGREEMENT WITH THE CONTENTION THAT THE ISSUE IS DULY COVERED IN FAVOUR OF THE ASSESSEE BY THE CASE LAWS REFERRED ABOVE. HENCE, WE UPHOLD THE ORDER OF LEARNED CIT(A). 28. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN CO URT ON 28.5.2021. SD/- SD/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 28.05.2021 THIRUMALESH , SR. PS/PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI