I.T.O Wd - 2(3),kolkata., Kolkata V. M/s LGW Ltd., North 24 Parganas

ITA 267/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99859 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Court: TRIBUNAL
• Department Lawyers: SACHIDANANDA SRIVASTAVA
• Assessee Lawyers: A K TIBREWAL; AMIT AGARWA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business expenditure; Principle of natural justice; Earning of tax free income; Additional evidence; Reasonable cause; Speculation loss
• Section: 43B; 143(3); 50C; 142(1); 14A; 133(6); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [BEFORE SHRI N.V.VASUDEVAN, JM & SHRI WASEEM AHME D, AM] ITA NO.267/KOL/2013 ASSESSMENT YEAR : 2009-10 ( APPELLANT ) (RESPONDENT) I.T.O., WARD-2 (3) -VERSUS- M/S. LGW LIMITED KOLKATA KOLKATA (PAN:AAACL 4670 N) C.O.NO.29/KOL/2013 A/O ITA NO.267/KOL/2013 ASSESSMENT YEAR : 2009-10 M/S. LGW LIMITED -VERSUS- I.T.O., WARD-2(3), KOLKATA KOLKATA (PAN AAACL 4670 N)) (CROSS OBJECTOR) (RESPONDENT) FOR THE DEPARTMENT : SHRI SACHIDANANDA SRIVASTAVA, CIT(DR) FOR THE ASSESSEE : SHRI A.K.TIBREWAL, FCA & SHRI AMIT AGARWAL,ADVOCATE DATE OF HEARING : 08.09.2015. DATE OF PRONOUNCEMENT : 07.10.2015. ORDER PER SHRI N.V.VASUDEVAN, JM ITA NO.267/KOL/2013 IS AN APPEAL FILED BY THE REVENUE AGAINST ORDER DATED 07.12.2012 OF CIT(A)-I, KOLKATA RELATING TO A.Y.200 9-10. THE ASSESSEE HAS FILED A CROSS OBJECTION AGAINST THE VERY SAME ORDER OF CIT( A). ITA NO.267/KOL/2013 (REVENUES APPEAL) : 2. GROUND NO.1 RAISED BY THE REVENUE READS A S FOLLOWS :- (I)THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DELETING THE ADDITION OF RS.1,95,360/- U/S 14A AS M ADE BY THE A.O. IN THE ASSESSMENT ORDER. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE EXPORT AND TRADING OF GOODS. THE ASSESSEE WAS IN RECEIPT OF EX EMPT INCOME OF RS.84,154/-. THE ASSESSEE COMPUTED THE DISALLOWANCE OF EXPENSES INCU RRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME U/S 14A OF T HE ACT R.W. RULE 8D (2)(III) OF THE ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 2 RULES, A SUM OF RS.91,360/-. THE AO ON PERUSAL OF T HE AFORESAID COMPUTATION NOTICED THAT THE ASSESSEE WHILE WORKING OUT THE AVERAGE VAL UE OF INVESTMENTS FOR THE PURPOSE OF APPLICATION OF RULE 8D (2)(III) OF THE RULES HAD NOT CONSIDERED THE SHARE APPLICATION MONEY TO THE EXTENT OF RS.2,08,00,000/- . ACCORDING TO THE ASSESSEE SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS INVESTMENT MADE BY TH E ASSESSEE IN EARNING TAX PAYER INCOME. THE AO, HOWEVER WAS IN THE VIEW THAT SHARE APPLICATION MONEY OUGHT TO HAVE BEEN CONSIDERED WHILE DETERMINING THE AVERAGE VALUE OF INVESTMENT. 4. THE AO ACCORDINGLY DETERMINED THE DISALLOWANC E U/S 14A OF THE ACT AS FOLLOWS :- HENCE REVISED CALCULATION U/S 14A READ WITH RULE- 8D(2)(III) IS BEING INVOKED AS UNDER : AVERAGE VALUE OF INVESTMENT AS CLAIMED BY ASSESSEE RS.1,82,71,923/- ADD: SHARE APPLICATION MONEY RS.2,08,00,000/- REVISED AVERAGE VALUE OF INVESTMENT RS.3,90,71, 923/- AN AMOUNT EQUAL TO ONE HALF PER CENT OF THE AVERAGE VALUE OF INVESTMENT, INCOME OF WHICH DOES NOT FORM PART OF TOTAL INCOME. 0.5% OF RS.3,90,71,923/- RS. 1,95,360/- TOTAL DISALLOWANCE U/S 14A RS. 1,95,360/- 5. ON APPEAL BY THE ASSESSEE, THE CIT(A) AGREE D WITH THE SUBMISSIONS OF THE ASSESSEE THAT SHARE APPLICATION MONEY CANNOT GENERA TE ANY EXEMPT INCOME AND THEREFORE NEED NOT BE CONSIDERED FOR COMPUTING AVER AGE INVESTMENT UNDER RULE 8D(2)(III) OF THE RULES. CIT(A) ALSO OBSERVED THAT THE SHARE APPLICATION MONEY WAS REFUNDED TO THE ASSESSEE AT A LATER PERIOD. AGGRIE VED BY THE ORDER OF THE CIT(A) REVENUE HAS RAISED GROUND NO.(I) BEFORE THE TRIBUNA L. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D R, WHO RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOT ICE THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF MSA SECURITIES SERVICES PVT. L TD. VS ACIT IN ITA NOS.1523- 1524/MDS/2012 DATED 17.10.2012 AND IN THE CASE OF R AINY INVESTMENTS P.LTD VS ACIT IN ITA NO.5491/MUM/2011 DATED 16.01.2013. THE HON OURABLE BENCHES HAVE TAKEN THE VIEW THAT THE SHARE APPLICATION MONEY GETS CONV ERTED INTO SHARES ONLY ON ALLOTMENT BY THE COMPANY. TILL SUCH TIME THE SHARE APPLICATI ON MONEY IS CONVERTED INTO SHARES, THE APPLICANT DOES NOT HAVE ANY RIGHTS OF A SHAREHO LDER/MEMBER. THE SHARE APPLICANT ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 3 SEE WAS NOT ENTITLED TO ANY DIVIDEND. THEREFORE SHA RE APPLICATION MONEY CANNOT BE CONSIDERED AS INVESTMENT WHICH IS LIKELY TO EARN TA X FREE DIVIDEND INCOME. HENCE, THERE CAN BE NO DISALLOWANCE U/S 14A OF THE ACT. 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO TH E RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT ORDER OF CIT(A) ON THIS ISSUE HAS TO BE U PHELD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, SHARE APPLICATION MO NEY IS ONLY IN THE NATURE OF AN OFFER TO BUY SHARES MADE BY THE ASSESSEE. IT IS ONLY AFTE R THE OFFER IS ACCEPTED BY THE COMPANY RESULTING IN A CONCLUDED CONTRACT, THE ASS ESSEE BECOMES THE SHAREHOLDER IN A COMPANY. TILL THIS TIME THE ASSESSEE BECOMES A SHAR EHOLDER, THE ASSESSEE CANNOT HAVE ANY RIGHTS TO CLAIM ANY DIVIDEND THAT MAY BE DECLAR ED BY THE COMPANY. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT WHILE WORKING OUT THE AVERAGE VALUE OF THE INVESTMENTS U/R 8D(2)(III) OF THE RULES THE SHARE A PPLICATION MONEY SHOULD NOT BE INCLUDED. WE HOLD ACCORDINGLY AND DISMISS GROUND NO .(I) RAISED BY THE REVENUE. 8. GROUND NOS.(II) TO (VI) RAISED BY THE RE VENUE READ AS FOLLOWS :- (II) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DELETING THE ADDITION OF RS.15,50,779/- AS DISALLOWANCE OF COMMISSION EXPENSES MADE BY THE A.O. IN THE ASSESSMENT ORDER. (III) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DELETING THE ADDITION OF RS.3,93,618/- U/S 41 AS MADE BY THE A.O. IN THE ASSESSMENT ORDER. (IV) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DELETING THE ADDITION OF RS.32,11,437/- AS DISALLOWANCE U/S 43B MADE BY THE AO IN THE ASSESSMENT ORDER. (V) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DELETING THE ADDITION OF RS.5,618/- AS DIS ALLOWANCE OF PRIOR PERIOD EXPENSES AS MADE BY THE AO IN THE ASSESSMENT ORDER. (VI) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN DIRECTING THE A.O. TO TREAT THE LOSS TO TH E TUNE OF RS.21,01,52,576/- AS NORMAL BUSINESS LOSS INSTEAD OF SPECULATION LOSS. 9. ACCORDING TO THE REVENUE THE RELIEF GIVEN B Y THE CIT(A) WHICH ARE CHALLENGED IN GROUND NOS. (II) TO (VI) AS ABOVE WERE BASED ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE CIT(A). ACCORDING TO THE REVENUE T HE ADDITIONAL EVIDENCE WAS ADMITTED BY CIT(A) IN VIOLATION OF RULE 46A OF THE RULES AND THEREFORE THE ADDITIONS MADE BY THE AO WERE DELETED BY THE CIT(A) AND WHICH ARE THE SUBJECT MATTER OF ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 4 CHALLENGE IN GROUND NOS. (II) TO (VI) SHOULD BE SET ASIDE AND THE AO SHOULD BE AFFORDED AN OPPORTUNITY OF EXAMINING THE FRESH EVIDENCES FIL ED BY THE ASSESSEE BEFORE CIT(A). THE REVENUE HAS RAISED GROUND NO.(VII) IN THIS REG ARD, WHICH READS AS FOLLOWS :- (VII) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I, KOL HAS ERRED IN VIOLATING THE PROVISIONS OF RULE 46A BY AD MITTING FRESH EVIDENCES. 10. WE DEEM IT APPROPRIATE TO DECIDE GROUND N O. (VII) BEFORE WE PROCEED TO DECIDE GROUND NOS. (II) TO (VI) RAISED BY THE REVENUE. AS FAR AS GROUND NO.(VII) RAISED BY THE REVENUE IS CONCERNED THE FACTS THAT EMANATE FROM TH E RECORD ARE THAT THE ASSESSEE FILED FOUR VOLUMES OF PAPER BOOK WITH THE REQUEST TO TREA T THE CONTENTS AND DOCUMENTS IN THE SAID PAPER BOOK AS ADDITIONAL EVIDENCE WITH A REQUE ST TO ADMIT THE ADDITIONAL EVIDENCE IN TERMS OF RULE 46A(1) OF THE RULES IN A HEARING B EFORE CIT(A) ON 07.11.2012. THE CIT(A) DIRECTED THE AO TO FILE HIS OBJECTIONS ON A DDITIONAL EVIDENCE FILED BY THE ASSESSEE. THE AO VIDE REPORT DATED 21.11.2012 OBJEC TED TO ADMISSION OF ADDITIONAL EVIDENCE BY THE CIT(A). THE OBJECTION OF THE AO WA S THAT NONE OF THE CONDITIONS MENTIONED IN CLAUSES (A) TO (D) OF RULE 46A (1) WER E SATISFIED IN THE CASE OF THE ASSESSEE SO AS TO ADMIT ADDITIONAL EVIDENCE. IT IS PERTINENT TO MENTION THAT THE AO HAD NOT RAISED ANY OBJECTIONS WITH REGARD TO THE VERACI TY OF THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE CIT(A) NOR ANY OBJECTIONS WI TH REGARD TO THE RELEVANCE OF THOSE DOCUMENTS TO THE VARIOUS ISSUES RAISED BY THE ASSES SEE BEFORE CIT(A). A COPY OF THE OBJECTION OF THE AO IN THIS LETTER DATED 21.11.2012 IS PLACED AT PAGES 623 AND 624 OF THE ASSESSEES PAPER BOOK. IN THE SAID LETTER THE A O HAS ALSO NOT MADE A REQUEST FOR LIBERTY TO FILE HIS OBJECTIONS ON VERACITY OF THE A DDITIONAL EVIDENCE AND ITS RELEVANCE TO THE CASE OF THE ASSESSEE AT A LATER DATE. 11. THE CIT(A) AFTER CONSIDERING THE OBJECTIONS OF THE AO WAS OF THE VIEW THAT THE AO HAD NOT ASKED FOR ANY OF THE EVIDENCE THAT WERE SOUGHT TO BE FILED BY THE ASSESEE BEFORE CIT(A) AND THAT THE ADDITIONAL EVIDENCE SOUG HT TO BE FILED BEFORE CIT(A) BY THE ASSESSEE ARE RELEVANT AND ESSENTIAL FOR ADJUDIC ATING THE ISSUE BEFORE CIT(A).THE CIT(A) ADMITTED THE ADDITIONAL EVIDENCE FILED BY TH E ASSESSEE. ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 5 12. THE SUBMISSION OF THE LD. DR ON GROUND N O.(VII) WAS THAT THE CIT(A) CALLED UPON THE AO TO FILE HIS OBJECTIONS ONLY WITH REGARD TO THE ADMISSION OF ADDITIONAL EVIDENCE. THE CIT(A) HAVING COME TO THE CONCLUSION THAT THE ADDITIONAL EVIDENCE REQUIRED TO BE ADMITTED, OUGHT TO HAVE CALLED UPON THE AO TO FILE HIS OBJECTIONS WITH REGARD TO THE ADMISSIBILITY, VERACITY AND RELEVANCE OF THE ADDITIONAL EVIDENCE TO THE VARIOUS ISSUES RAISED BY THE ASSESSEE BEFORE CIT(A) . 13. THE LD. COUNSEL FOR THE ASSESSEE, ON T HE OTHER HAND, SUBMITTED BEFORE US THAT RULE 46A(3) ONLY MANDATES AN OPPORTUNITY TO THE AO FOR EXAMINING THE ADDITIONAL EVIDENCE FILED BEFORE CIT(A) OR TO PRODUCE EVIDENCE OR DOCUMENTS IN REBUTTAL TO THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE. ACCOR DING TO HIM IN THE LIGHT OF THE ADMITTED POSITION THAT THE ADDITIONAL EVIDENCE FILE D BY THE ASSESSEE WAS CONFRONTED TO THE AO AND OPPORTUNITY HAVING BEEN GIVEN TO THE AO TO EXAMINE THE EVIDENCES OR DOCUMENTS THERE WAS NO FURTHER REQUIREMENT OF SPECI FICALLY CALLING UPON THE AO TO FILE OBJECTIONS ON THE ADMISSIBILITY, VERACITY AND RELEV ANCE OF THE ADDITIONAL EVIDENCES. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF RAJESH BABUBHAI DAMANIA VS ITO (2002) 122 TAXMAN 61 4 (GUJ) WHEREIN THE HONBLE GUJARAT HIGH COURT TOOK THE VIEW THAT THE TRIBUNAL SHOULD NOT RESTORE BACK TO THE AO TO GIVE ONE MORE INNINGS. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT UNDER RULE 46A (3) OF THE RULES, THE CIT( A) IS ONLY REQUIRED TO AFFORD REASONABLE OPPORTUNITY TO THE AO TO EXAMINE THE EVI DENCE OR DOCUMENTS PRODUCED BY THE ASSESSEE AS ADDITIONAL EVIDENCE BEFORE CIT(A). IN THE PRESENT CASE ADMITTEDLY ALL THE DOCUMENTS FILED BY THE ASSESSEE AS ADDITIONAL E VIDENCE WERE CONFRONTED TO THE AO. THE AO HAS THUS BEEN AFFORDED REASONABLE OPPORTUNIT Y TO EXAMINE THE ADDITIONAL EVIDENCE OR DOCUMENTS PRODUCED AS ADDITIONAL EVIDEN CE BY THE ASSESSEE. RULE 46A OF THE RULES DOES NOT CONTEMPLATE THE PROCEDURE WHEREB Y THE CIT(A) SHOULD CALL FOR OBJECTIONS REGARDING ADMISSIBILITY OF ADDITIONAL EV IDENCE FIRST AND WHEN SUCH ADDITIONAL EVIDENCE ARE ADMITTED AGAIN CALLED FOR O BJECTIONS WITH REGARD TO THE VERACITY AND RELEVANCE OF THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE CIT(A). IT IS ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 6 ALSO CLEAR FROM THE DECISION OF THE CIT(A) THAT THE AO HAD NOT ASKED FOR THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE CIT(A) IN THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE THE ADMISSIBILITY OF THE ADDITIONAL E VIDENCE IN TERMS OF RULE 46A(1) OF THE RULES CANNOT BE FOUND FAULT WITH. THEREFORE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.(VII) RAISED BY THE REVENUE. CON SEQUENTLY THE SAME IS DISMISSED. 15. WE WILL NOW DEAL WITH GROUND NOS. (II) TO (VI) RAISED BY THE REVENUE. AS FAR AS GROUND NO.(II) IS CONCERNED, THE FACTS ARE THAT THE ASSESSEE CLAIMED TO HAVE PAID SHRI .LAXMIKANT JOSHI A SUM OF RS.15,50,779/- AS COMMISS ION AS PER THE ASSESSEES BOOKS OF ACCOUNTS. IN RESPONSE TO NOTICE U/S 133(6) OF TH E ACT BY THE AO, SHRI LAXMIKANT JOSHI SENT A COPY OF THE LEDGER OF THE ASSESSEE AS PER HIS BOOKS OF ACCOUNTS WHICH INDICATED THAT HE HAD NOT RECEIVED ANY PAYMENT FROM THE ASSESSEE DURING THE PREVIOUS YEAR. THE AO THEREFORE DISALLOWED COMMISSION EXPENS ES TO THE TUNE OF RS.15,50,779/. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT SHRI LA XMIKANT JOSHI(HUF) VIDE LETTER DATED 15.12.2011 SENT BY REGISTERED POST TO THE AO INFORMED THE AO THAT THEY HAD IN FACT RECEIVED COMMISSION OF RS.15,50,779/- FROM THE ASSESSEE AND THAT THE ASSESSE HAD ALSO DEDUCTED TDS AT RS.1,69,962/- IN RESPECT OF TH E COMMISSION PAID TO THE ASSESSEE. RELEVANT COPY OF THE INCOME TAX ACKNOWLEDGEMENT OF SHRI LAXMIKANT JOSHI FOR A.Y.2009-10 AND HIS BANK STATEMENT WAS ALSO ENCLOSE D ALONG WITH THE LETTER. THE AO HAD PASSED ORDER OF THE ASSESSMENT ON 27.12.2011. T HIS LETTER WAS APPARENTLY NOT TAKEN COGNIZANCE BY THE AO. AFTER TAKING NOTICE OF THE AFORESAID LETTER OF SHRI LAXMIKANT JOSHI(HUF), CIT(A) DELETED THE ADDITION MADE BY THE AO. 16. THE GRIEVANCE PROJECTED BY THE REVENUE IN GR OUND NO.(II) IS THAT THE REPLY OF SHRI LAXMIKANT JOSHI (HUF) IN RESPONSE TO NOTICE U/S 133 (6) OF THE ACT ALONE OUGHT TO HAVE BEEN CONSIDERED. IN OUR VIEW THE SUBMISSION MA DE BY THE REVENUE CANNOT BE ACCEPTED. THIS IS BECAUSE THE PAYMENT IN QUESTION H AS BEEN MADE BY CHEQUES AND TDS HAS ALSO BEEN MADE BY THE ASSESSEE. THE ANNEXURES T O THE LETTER OF SHRI LAXMIKANT JOSH (HUF) DATED 15.12.2011 WHICH IS AT PAGES 91 T O 93 OF THE ASSESSEES PAPER BOOK CLEARLY DEMONSTRATES THE CLAIM OF THE ASSESSEE. WE, THEREFORE DISMISS GROUND NO.(II) OF THE REVENUE. ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 7 17. AS FAR AS GROUND NO.(III) IS CONCERNED, TH E AO NOTICED FROM COLUMN NO.20 OF THE TAX AUDIT REPORT THAT THE TAX AUDITOR HAD REPOR TED A SUM OF RS.3,93,618/- WAS CHARGEABLE TO TAX U/S 41 OF THE ACT (BENEFIT ACCRUI NG TO AN ASSESSEE ON ACCOUNT OF CEASATION OF LIABILITY). BASED ON THE TAX AUDIT REP ORT THE AO ADDED THE AFORESAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. BEFORE CIT(A) IT WAS POINTED OUT THAT A SUM OF RS.3,93,618/- WAS ALREADY OFFERED TO TAX IN THE PRO FIT AND LOSS ACCOUNT UNDER THE HEAD MISCELLANEOUS RECEIPT IN SCHEDULE-O. THE BREAK-UP O F MISCELLANEOUS RECEIPT HAS BEEN GIVEN WHICH CONTAINS OTHER MISCELLANEOUS RECEIPTS W HICH IS REFERABLE TO THE INSURANCE CLAIM BY THE ASSESSEE FROM NATIONAL INSURANCE COMPA NY LTD. THE AUDITORS ALSO CERTIFIED THAT THE TAX AUDITORS REPORT CONTAINS WRO NG STATEMENT. THESE DOCUMENTS ARE AVAILABLE AT PAGES 94 TO 98 OF THE ASSESSEES PAPER BOOK (1). THE CIT(A) TAKING NOTE OF THE AFORESAID EVIDENCE DELETED THE ADDITION MADE BY THE AO. THE LIMITED REQUEST OF THE LD. DR BEFORE US IS TO SET ASIDE THE ORDER OF C IT(A) AND DIRECT THE AO TO VERIFY THE CLAIM MADE BY THE ASSESSEE AS MADE BEFORE CIT(A). 18. WE HAVE ALREADY HELD WHILE DECIDING GROUND NO.7 THAT THE AO ALREADY HAD AN OPPORTUNITY OF EXAMINING THE ADDITIONAL EVIDENCE FI LED BY THE ASSESSEE AND THEREFORE REQUEST MADE BY THE LD. DR CANNOT BE ACCEPTED. CONS EQUENTLY GROUND NO.(III)RAISED BY THE REVENUE IS DISMISSED. 19. AS FAR AS GROUND NO.(IV) RAISED BY THE RE VENUE IS CONCERNED THE FACTS ARE THAT ON PERUSAL OF COL.21 OF THE TAX AUDIT REPORT, THE AO NOTICED THAT THE ASSESSEE FAILED TO PAY IMPORT DUTY OF RS.31,90,837/- AND SERVICE TAX O F RS.20,600/- BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INCOME U/S 139(1) OF TH E ACT. INVOKING THE PROVISION OF SECTION 43B OF THE ACT, THE AO ADDED A SUM OF RS/. 32,11,437/- AS DISALLOWANCE U/S 43B OF THE ACT TO THE TOTAL INCOME OF THE ASSESSEE. 20. BEFORE CIT(A) ASSESSEE POINTED OUT THAT NO D UTY OF SERVICE TAX WAS OUTSTANDING. THE ASSESSEE FURNISHED CERTIFICATE OF THE AUDITORS IN THIS REGARD WHICH IS AT PAGE 99 OF THE ASSESSEES PAPER BOOK-1. THE SAID CERTIFICATE C LARIFIES THAT THE IMPORT DUTY AND SERVICE TAX WERE NOT OUTSTANDING AS ON 31.03.2009. IT WAS ALSO CLARIFIED THAT THE WHOLE ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 8 AMOUNT OF SERVICE TAX WAS PAID ON 23.04.2009. SIMIL AR EVIDENCE WITH REGARD TO IMPORT DUTY WAS ALSO FILED BY THE ASSESSEE. THE SAME ARE A T PAGE NOS.100-120 OF THE ASSESSEES PAPER BOOK. THE CIT(A) ON PERUSAL OF THE AFORESAID DOCUMENTS WAS OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE WAS JUSTIF IED AND THEREFORE THE ADDITION MADE BY THE AO IS DELETED. THE REQUEST OF THE LD. DR BEF ORE US WAS THAT FRESH OPPORTUNITY BE GIVEN TO THE AO TO EXAMINE THE ADDITIONAL EVIDEN CE FILED BY THE ASSESSEE. 21. WE HAVE ALSO DECIDED GROUND NO.7 THAT THE AO HAD ENOUGH OPPORTUNITY TO LOOK INTO THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE CIT(A). IN THESE CIRCUMSTANCES THE PLEA OF THE REVENUE FOR A FRESH O PPORTUNITY TO THE AO CANNOT BE ACCEPTED. ACCORDINGLY GROUND NO.(IV)4 IS HEREBY REJ ECTED. 22. AS FAR AS GROUND NO.(V) RAISED BY THE REVE NUE IS CONCERNED, THE AO FOUND THAT IN THE TAX AUDIT REPORT THE AUDITOR REPORTED THAT A SUM OF RS.5,618/- WAS PRIOR PERIOD EXPENSES WHICH WAS INADMISSIBLE FOR DEDUCTION. THE AO ACCORDINGLY ADDED BACK A SUM OF RS.5,618/- TO THE TOTAL INCOME OF THE ASSESS EE. 23. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT A SUM OF RS.5,618/- WAS PROFESSIONAL FEE PAID TO SHRI B.P.AGARWAL FOR PREPA RATION AND UPLOADING OF ANNUAL RETURNS FOR THE FINANCIAL YEAR 2006-07. THE BILL DA TED 31.10.2008 WHICH IS AT PAGE 123 OF THE ASSESSEES PAPER BOOK SHOWS THAT THE LIABILI TY ACCRUED TO THE ASSESSEE ONLY ON 31.10.2008 ON RECEIPT OF THE AFORESAID BILL. THE CI T(A) TAKING NOTE OF THE EVIDENCE DELETED THE ADDITION MADE BY THE AO. WE ARE OF THE VIEW THAT THE ORDER ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY TH E SAME IS DISMISSED. 24. AS FAR AS GROUND NO.(VI) RAISED BY THE RE VENUE IS CONCERNED THE FACTS ARE THAT THE ASSESSEE CLAIMED AS DEDUCTION ON ACCOUNT OF FOR EX FORWARD CONTRACTS OF RS.23,66,02,947/-. OUT OF THE ABOVE LOSS TO THE TUN E OF RS.2,66,32,552/- AND ANOTHER SUM OF RS.1,82,181/- WAS A LOSS ON ACCOUNT OF FOREX DERIVATIVES AND GAIN ON ACCOUNT OF GOLD. THE REMAINING LOSS OF RS.21,01,52,576/- W AS LOSS ON ACCOUNT OF FOREX FORWARD CONTRACTS CONSEQUENT TO CANCELLATION OF EX PORT ORDERS. THIS WAS TREATED BY THE ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 9 AO AS SPECULATION LOSS U/S 43(5) OF THE ACT AND WA S ACCORDINGLY CARRIED FORWARD TO BE SET OFF AGAINST SPECULATIVE INCOME IN FUTURE. AS A RESULT A SUM OF RS.21,01,52,576/- WHICH IS PART OF RS.23,66,02,947/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 25. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOLLOWS :- AFTER CAREFUL CONSIDERATION OF ASSESSMENT ORDER AN D A/RS WRITTEN SUBMISSION IT IS NOTICED THAT GROUND NO.9 RELATES DISALLOWANCE OF RS .23,66,02,947/- ON ACCOUNT OF FOREX FORWARD CONTRACTS WHICH WAS TREATED AS SPECULATIVE LOSS BY THE AO AS AGAINST NORMAL BUSINESS EXPENDITURE/LOSS CLAIMED BY ASSESSEE. AS P ER AUDITED ACCOUNTS SUBMITTED BY ASSESSEE CONTINUED TO BE IN THE BUSINESS OF EXPORTS OF RAW-COTTON, HANDICRAFTS, AND OTHER MISCELLANEOUS ITEMS. THE EXPORT SALES IN THIS FINAN CIAL YEAR WERE FOR RS.187.88 CRORES MAINLY TO BANGLADESH. AS PER AUDITED PROFIT AND LOS S A/C ASSESSEE HAD DEBITED A BUSINESS LOSS OF RS.23,66,02947/- ON ACCOUNT OF FOR WARD FOREX CONTRACT TRANSACTIONS. THIS LOSS FIGURE INCLUDED LOSS OF RS.2,66,32,552/- ON ACCOUNT OF FOREX DERIVATIVES AND A GAIN OF RS.1,82,181/- ON ACCOUNT OF GOLD AS MENTION ED IN PAGE 4 OF THE ASSESSMENT ORDER AS UNDER :- EURO BOOKING RS.4,11,29,143/- POINT BOOKING RS.4,81,16,647/- JPY (PROFIT) RS. 17,19,818/- SWISS FRANK RS. 28,79,030/- NORMAL FORWARD CONTRACT-SBI RS.10,46,38,183/- NORMAL FORWARD CONTRACT-FEDERAL BANK RS.1,51,09,391 /- DERIVATIVES RS.2,66,32,552/- GOLD (PROFIT) RS. 1,82,181/- TOTAL RS.23,66,02,947/- THE AO ISSUED A NOTICE U/S 142(1) ALONG WITH THE QU ESTIONNAIRE ON 14.07.2011 WHICH WAS RESPONDED BY ASSESSEE ON VARIOUS DATES AND AO A SKED TO CLARIFY FORWARD CONTRACT LOSS CLAIMED BY ASSESSEE AS PER ORDER SHEET ENTRY O N 02.12.2011 WHICH WAS CLARIFIED BY ASSESSEE VIDE LETTER DATED 16.12.2011. THE AO PASSE D THE ORDER U/S 143(3) ON 27.12.2011 AFTER THE HEARING ON 08.12.2011, 16.12.2 011 AND 22.12.2011 WHEN HE SOUGHT CERTAIN CLARIFICATION FROM THE ASSESSEE ON MATTERS OTHER THAN THE ABOVE FOREX LOSS. THE AO NEVER ASKED FOR THE DETAILED EVIDENCES OF EXPORT CONTRACT CANCELLED VIS--VIS FOREX CONTRACT CANCELLED AND MADE ADDITIONS OF RS.23,66,0 2,947/- AS HE TREATED THE ABOVE LOSS AS SPECULATIVE LOSS U/S 43(5) OF INCOME TAX ACT BY RELYING UPON CBDT INSTRUCTION DATED 23.03.2010 AND THE AO HELD THAT NEXUS BETWEEN LOSSE S SUFFERED DUE CANCELLATION OF FOREX FORWARD CONTRACTS WITH CORRESPONDING VALUE OF EXPORT CONTRACTS WHICH GOT CANCELLED COULD NOT BE ESTABLISHED. DURING THE APPE LLATE PROCEEDINGS ASSESSEE FILED A PAPER BOOK CONTAINING PAGES 1 TO 621 AND REQUESTED FOR FRESH EVIDENCE IN ITS PETITION DATED 07.11.2012. THE RELEVANT PORTION RELATING TO GROUND NO.9 IS AS UNDER : FORWARD FOREX CONTRACT LOSS ON COURSE OF ASSESSMENT PROCEEDINGS, THE AUTHORIZED REPRESENTATIVES OF THE ASSESSEE- COMPANY HAD APPEARED BEFORE THE ASSESSING OFFICER A ND HAD FURNISHED/FILED/PRODUCED VARIOUS DOCUMENTS, EVIDENCES AND EXPLANATIONS RAISE D AND/OR REQUISITIONED FROM TIME TO TIME. WE HAD DEBITED A SUM OF RS.23,66,02,947/- UND ER THE HEAD FORWARD FOREX CONTRACT IN THE PROFIT & LOSS ACCOUNT AND THE SAME WAS CLAIMED AS BUSINESS LOSS. FOR THE FIRST TIME ON 2 ND DECEMBER 2011, THE ASSESSING OFFICER ASKED US TO C LARIFY WHY ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 10 FORWARD FOREX CONTRACT LOSS HAS BEEN CLAIMED AS BU SINESS EXPENDITURE. ON 8 TH DECEMBER, 2011 OUR AUTHORIZED REPRESENTATIVE APPEAR ED BEFORE ASSESSING OFFICER AND EXPLAINED THE AFORESAID MATTER AND PRODUCED BEFORE HIM THE RELEVANT DOCUMENTS AND EVIDENCES RELATING TO AFORESAID CLAIM. THE EXPLANAT ION WAS ALSO FILED IN LETTER DATED 07.12.2011. HAVING BEEN SATISFIED NO FURTHER QUERY WAS RAISED NOR ANY EVIDENCES WERE ASKED TO BE FILED OR FURNISHED UPTO THE DATE OF LAS T HEARING 22.12.2011. THE LD. ASSESSING OFFICER, HOWEVER, PASSED THE ASSE SSMENT ORDER BY ALLEGING THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OR EXPORT CO NTRACTS WHICH WERE CANCELLED BY THE FOREIGN BUYERS TO ESTABLISH A NEXUS BETWEEN EXPORT CONTRACTS CANCELLED VIS--VIS FORWARD CONTRACTS CANCELLED. DURING THE COURSE OF HEARING THE AUTHORIZED REPRESE NTATION APPEARED AND EXPLAINED AND PRODUCED THE DETAILS AND EVIDENCES OF EXPORT CONTRA CTS CANCELLED BY THE BUYERS. SUCH DETAILS AND EVIDENCES WERE NEVER ASKED BY THE ASSES SING OFFICER TO BE FILED BEFORE HIM. IT IS ONLY IN THE ASSESSMENT ORDER ASSESSING OFFICE R HAS ALLEGED THAT SUCH DETAILS WERE NOT FILED. WE ENCLOSED THE XEROX COPY OF THE ORDER SHEET IN RESPECT OF ASSESSMENT PROCEEDINGS, WHICH WOULD REVEAL ALL THE AFORESAID F ACTS. IN THESE CIRCUMSTANCES, WE SUBMIT THAT THERE WAS REASONABLE CAUSE FOR NOT FILI NG THE EVIDENCES RELATING TO CLAIM OF AFORESAID LOSS AS BUSINESS LOSS, WHICH HAVE NOW BEE N FILED WITH A REQUEST TO ACCEPT THE SAME UNDER RULE 46A OF THE INCOME TAX RULES, 1962. SL.NO. PAPER BOOK IDENTIFICATION NO. NATURE OF DOCUMENTS PB PAGE NOS. 6 11 STATEMENT OF PROFIT & LOSS ON FORWARD FOREX CONTRACT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2009-10 132-150 7 12 SAMPLES OF DOCUMENTARY EVIDENCES IN RESPECT OF MAJOR AMOUNT OF LOSSES INCURRED OF FORWARD FOREX CONTRACT WITH REFERENCE TO SALE INVOICES AND BANKS ADVICES 151-595 8 13 STATEMENT OF GAINS IN FOREX EXCHANGE FLUCTUATION INCLUDE DIN SALES ACCOUNT 596-606 9 14 STATEMENT OF MONTH-WISE INVENTORY OF STOCK OF COTTON 607-621 WE SUBMIT THAT THE AFORESAID ADDITIONAL EVIDENCES A RE VITAL AND ESSENTIAL FOR RENDERING JUSTICE AND IN DECIDING THE INSTANT APPEAL AND THER EFORE THE SAME MAY BE ADMITTED UNDER RULE 46A OF THE INCOME TAX RULES, 1962. WE REFER TO THE DECISION OF HONBLE THIRD MEMBER OF PATNA INCOME TAX APPELLATE TRIBUNAL IN TH E CASE OF ABHAY KUMAR SHROFF VS INCOME TAX OFFICER REPORTED IN 63ITD 144 (PAT) TM. WE REFER TO THE FOLLOWING OBSERVATIONS MADE BY HONBLE TRIBUNAL IN THE SAID D ECISION : IT WAS THAT THE ASSESSEE AS A MATTER OF RIGHT COUL D NOT FILE OR FILED THEM BEFORE THE TRIBUNAL AS A MATTER OF COURSE. IF THE ASSESSEE PRO DUCES SOME DOCUMENTS AT THE APPROPRIATE TIME, THEY HAVE TO BE TAKEN INTO CONSID ERATION SUBJECT OF COURSE TO ALL JUST EXCEPTIONS, SUCH AS THEIR RELEVANCE, ETC. IF NOT DO NE AT THE ASSESSMENT STAGE, THE ADMISSION OF DOCUMENTS HAS TO BE GOVERNED BY RULE 4 6A OF THE I.T.RULES 1962., IF PRODUCED FOR THE FIRST TIME BEFORE THE FIRST APPELL ATE AUTHORITY. HAVING MISSED THE BUS ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 11 AND THE MATTER HAVING TRAVELLED TO THE TRIBUNAL, TH E ADMISSION OF DOCUMENTS IS TO BE GOVERNED BY RULE 29 OF THE APPELLATE TRIBUNAL RULES . HENCE, IF THE DOCUMENTS SOUGHT TO BE ADMITTED EVEN AT THE SECOND APPELLATE STAGE ARE OF NATURE AND QUANTITATIVELY SUCH THAT THEY RENDER ASSISTANCE TO THE TRIBUNAL IN PASSING O RDERS OR ARE REQUIRED TO BE ADMITTED FOR ANY OTHER SUBSTANTIAL CAUSE, IT WOULD RATHER B E THE DUTY OF THE TRIBUNAL TO ADMIT THEM. THEREFORE, IF THE RECEIPT OR ADMISSION OF ADD ITIONAL EVIDENCE IS VITAL AND ESSENTIAL FOR THE PURPOSE OF CONSIDERATION OF THE SUBJECT MAT TER OF APPEAL AND TO ARRIVE AT A FINAL AND ULTIMATE DECISION, THE TRIBUNAL IS AMPLY EMPOWE RED TO ADMIT ADDITIONAL EVIDENCE UNDER RULE 29. THEREFORE, THE TRIBUNAL HAD TO ADMIT ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE SINCE THAT WAS VITAL AND ESSENTIAL FOR REN DERING JUSTICE AND IN DECIDING APPEALS. HOWEVER, IT WAS NECESSARY TO GIVE THE DEPARTMENT A REASONABLE OPPORTUNITY OF REBUTTING IT ACCORDING TO THE PRINCIPLE OF NATURE JUSTICE AND FOR THAT PURPOSE THE MATTER WAS RESTORED TO THE FILE OF THE AO. THE AO WAS CONFRONTED WITH THE ADDITIONA L EVIDENCES ON 07.11.2012 AND AO FILED WRITTEN SUBMISSION VIDE LETTER DATED 21.11.20 12 WITH A REQUEST NOT TO ADMIT THE ADDITIONAL EVIDENCES AS PER RULE 46A. THE PAPER BOO K PAGES 132 TO PAGE 621 ARE RELATING TO FOREX FORWARD CONTRACT WITH REFERENCE T O EXPORT ORDERS AND THE RELEVANT BANK ADVICES ALONG WITH THE MONTH-WISE INVENTORY OF STOC K OF COTTON. SINCE AO NEVER ASKED FOR THESE EVIDENCES AND DISALLOWED THE LOSSES CLAIM ED IN THE ASSESSMENT ORDER, THE PRINCIPLE OF NATURAL JUSTICE REQUIRES THAT THESE EV IDENCES SHOULD BE ADMITTED AS PER RULE 46A AND MOREOVER THESE EVIDENCES ARE RELEVANT AND E SSENTIAL TO THE MATTER UNDER CONSIDERATION AS THESE EVIDENCES GO TO THE ROOT OF MATTER THEREFORE THESE ADDITIONAL EVIDENCES ARE ADMITTED IN TERMS OF RULE 46A. IN THE FINANCIAL YEAR UNDER CONSIDERATION A SSESSEE-COMPANY HAD EXPORTED RAW COTTON MAINLY TO BANGLADESH WITH EXPORT TURNOVER OF RS.187.88 CRORES. IN THE PAPER BOOK ASSESSEE HAD FILED A SUMMARY STATEMENT OF LOSS MADE ON THE FORWARD BOOKING AT PAGE 132 TO 147 OF THE PAPER BOOK AND ASSESSEE ALSO FURNISH A DETAILS STATEMENT ABOUT THE CONTRACT NUMBER, DATE, FOREIGN CURRENCY BOOKED AND CANCELLATION OF THE CONTRACT (DUE TO CANCELLATION OR ORIGINAL EXPORT ORDER) WITH THE BAN KS VIZ. SBI AND FEDERAL BANK ALONG WITH THE DATE AND AMOUNT OF LOSS DEBITED BY THE RES PECTIVE BANKS. IT IS PERTINENT TO MENTION THAT THE ABOVE STATEMENT SUMMARY CONTAINS T HE DETAILS OF MANY CONTRACTS WHICH HAVE IN FACT RESULTED IN PROFITS DUE TO CANCELLATIO N OF EXPORT ORDERS AND ARE DULY REFLECTED IN THE BOOKS ACCOUNT OF ASSESSEE. IN ASSESSMENT YEA R 2008-09 THERE WAS A NET GAIN IN CANCELLATION OF FOREIGN EXCHANGE CONTRACTS WITH THE BANKS DUE TO CANCELLATION OF EXPORT ORDERS AND THE NET GAIN WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AS PER ORDER U/S 143(3). THE NET LOSSES (AFTER SETTING OF THE PROFITS ON ACC OUNT OF CANCELLATION OF EXPORT ORDERS) DEBITED DUE TO CANCELLATION OF EXPORT WITH THE SBI AND FEDERAL BANK WERE TO THE TUNE OF RS.23,66,02,947/- MINUS RS.2,66,32,552/- PLUS RS.1, 82,181/- = RS.21,01,52,576/-. THE PAGE 147 TO 150 OF PAPER BOOK CONTAIN THE STATEMENT OF PROFIT AND LOSS ON ACCOUNT OF FOREIGN EXCHANGE DERIVATIVES AND STATEMENT OF GOLD BOOKING FOR RS.2,66,32,552/- (LOSS) AND PROFIT OF RS.1,82,181/- RESPECTIVELY. THESE TRA NSACTIONS ARE NOT RELATED TO ASSESSEES BUSINESS OF EXPORT OF RAW COTTON AND OTHER MISCELLA NEOUS PRODUCTS WHILE THE OTHER TRANSACTIONS INCURRING THE LOSS OF RS.21,01,52,576/ - WERE RELATED TO THE CANCELLATION OF EXPORT ORDERS. THEREFORE ADDITION MADE BY THE AO FO R RS.21,01,52,576/- IS DELETED AS CANCELLATION OF EXPORT ORDERS AND RESULTING LOSS ON CANCELLATION FOREIGN EXCHANGE CONTRACTS WITH THE BANKS WAS NORMAL BUSINESS EXPEND ITURE. THE FOREIGN EXCHANGE ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 12 DERIVATIVE LOSS FOR RS.2,66,32,552/- WITH NO SUPPOR TING OF EXPORT ORDERS IS TREATED AS SPECULATIVE LOSS U/S 43(5) OF THE INCOME TAX ACT AN D CAN ONLY BE SET OFF AGAINST SPECULATIVE PROFITS OF GOLD IN THE FINANCIAL YEAR F OR RS.1,82,181/- AND THE ADDITION MADE BY AO FOR NET AMOUNT OF RS.2,64,50,371/- IS CONFIR MED. THEREFORE GROUND NO.9 IS PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED DR RELIED ON THE ORDER OF THE AO. ACCORDING TO HIM IT WAS INCUMBENT ON THE P ART OF THE ASSESSEE TO ESTABLISH CORRELATION BETWEEN EACH OF THE FORWARD CONTRACT WI TH EXPORT ORDERS AND ONLY THEN CAN IT BE SAID THAT THE LOSS WAS INCIDENTAL TO THE BUSI NESS OF THE ASSESSEE. ACCORDING TO HIM, SUCH CORRELATION HAS NOT BEEN ESTABLISHED BY T HE ASSESSEE BEFORE CIT(A) NOR HAS THE CIT(A) GIVEN SUCH A FINDING BEFORE DELETING THE ADDITION MADE BY THE AO. HE THEREFORE PRAYED THAT THE ADDITION MADE BY THE AO B E RESTORED. IN THE ALTERNATIVE IT WAS PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASID E AND THE ISSUE MAY BE REMANDED TO THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS MADE BEFORE CIT(A) AND THE ORDER OF THE CIT(A). IT IS SEEN FROM THE EVIDENCE ON RECORD THAT IN A.Y. 2008-09 GAIN ON ACC OUNT OF FOREX FORWARD CONTRACT ON CANCELLATION WAS OFFERED AS INCOME BY THE ASSESSEE AND THE SAME WAS BROUGHT TO TAX BY THE AO WHICH IS PLACED AT PAGES 128 TO 131 OF TH E ASSESSEES PAPER BOOK. THE STATEMENT OF PROFIT/LOSS ON FOREX FORWARD CONTRACT DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10 AND THE SAMPLE OF DOCUMENTARY EVIDENCE IN RESPECT OF MAJOR AMOUNT OF LOSS INCURRED ON FOREX FORWARD CONTRACTS WITH REFER ENCE TO SALE INVOICE AND BANK AT PAGES 151 TO 595 OF THE ASSESSEES PAPER BOOK. THE STATEMENT OF GAINS IN FOREX FORWARD CONTRACT INCLUDED IN THE SALES ACCOUNT IS A T PAGES 596 TO 606 OF THE ASSESSEES PAPER BOOK. THE STATEMENT OF MONTH-WISE INVENTORY O F STOCK OF COTTON IS AT PAGES 607- 621 OF ASSESSEES PAPER BOOK. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE SHALL AS A TEST CASE CONSIDER ONE OF THE CONTRACT FOR EXPORT OF CONTRACT AND THE FORW ARD CONTRACT ENTERED INTO BY THE ASSESSEE IN CONNECTION WITH SUCH EXPORT CONTRACT. PAGE 134 OF THE ASSESSEES PAPER ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 13 BOOK CONTAINS THE LIST OF CONTRACT IN WHICH FORWARD CONTRACT IN EURO CURRENCY WERE BOOKED. KS-0000026 IS A FORWARD CONTRACT DATED 17. 7.2008 ENTERED INTO BY THE ASSESSEE WITH STATE BANK OF INDIA TRADE FINANCE CPC , KOLKATA. THE ASSESSEE HAD AN EXPORT ORDER FOR INDIAN RAW COTTON OF 4409200 LBS O F THE VALUE OF 31,74,624 US $ EQUIVALENT TO 10,00,000 EUROS, TO SUPPLY TO ONE M/S .NASSA SPINNING LTD., BANGLADESH. THE CONTRACT WAS CANCELLED BY HB COTTON WHO WAS AGE NT OF M/S.NASSA SPINNING LTD., BANGALDESH ON 21.10.2008. THE PERIOD OF THE CONTRA CT FOR SUPPLY OF COTTON TO BANGALDESH WAS UPTO 22.1.2009. SINCE THE CONTRACT WAS CANCELLED BY COMMUNICATION DATED 24.10.2008, THE BANK INTIMATED THE ASSESSEE T HAT IN VIEW OF THE ADVERSE FLUCTUATION OF EURO CURRENCY, THE ASSESSEE HAD TO B EAR THE LOSS OF RS.1,56,80,527 BECAUSE THE BOOKING RATE AS ON 17.7.2008 WAS 1.5711 THE CANCELLATION DATE WAS 22.1.2009 ON WHICH DATE THE RATE WAS 1.2613. THUS THE ASSESSEE SUFFERED A LOSS ON THE FORWARD CONTRACT IN QUESTION. FROM THE SAMPLE CASE SET OUT ABOVE IT IS CLEAR THAT THE FORWARD CONTRACT IN QUESTION WAS PURELY HEDGING TRA NSACTIONS ENTERED INTO BY THE ASSESSEE TO SAFEGUARD AGAINST LOSS ARISING OUT OF F LUCTUATION IN FOREIGN CURRENCY. SUCH TRANSACTIONS HAVE BEEN HELD IN THE FOLLOWING CASES TO BE NOT SPECULATIVE TRANSACTIONS FALLING WITHIN THE AMBIT OF SEC.43(5) OF THE ACT, C IT VS. SOORAJMULL NAGARMULL (1981) 5 TAXMAN 289 (CAL), CIT VS, BADRIDAS GAURIDU (P) LT D., (2004) 134 TAXMAN 376 (BOM), CIT VS. FRIENDS AND FRIENDS SHIPPING PVT.LTD ., TAX APPEAL NO.251 OF 2010 DATED 23.8.2011 AND CIT VS. PANCHMAHAL STEEL LTD. T AX APPEAL NO.131 OF 2013 DATED 28.3.2013 BY THE HONBLE GUJARAT HIGH COURT. THE CONCLUSIONS OF THE CIT(A) ON THIS ISSUE, IN OUR VIEW THEREFORE DESERVE TO BE UPHELD. ACCORDINGLY, THE GROUND OF APPEAL RAISED BY THE REVENUE IN THIS REGARD IS REJE CTED. 28. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. C.O.NO.29/KOL/2013 (BY THE ASSESSEE) 29. AS FAR AS CROSS OBJECTION IS CONCERNED G ROUND NO.1 RAISED BY THE ASSESSEE IN THE CROSS OBJECTION READS AS FOLLOWS :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN CONFIRMING THE ASSESSMENT OF CAPITAL GAINS ON SALE OF LAND AT RS.3 0,08,799 MADE BY THE ASSESSING OFFICER BY ADOPTING THE SALE CONSIDERATION OF RS.61 ,22,330 RELYING ON THE PROVISIONS OF ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 14 SEC.50C OF THE INCOME TAX ACT, 1961 IGNORING THE AM OUNT OF SALE CONSIDERATION OF RS.60,00,000 ACTUALLY RECEIVED BY THE ASSESSEE COMP ANY. 30. THE ASSESSEE SOLD THE PROPERTY ON WHICH LONG T ERM CAPITAL GAIN WAS DECLARED BY THE ASSESSEE. THE ACTUAL SALE CONSIDERATION RECEIVE D ON TRANSFER WAS A SUM OF RS.60,00,000/-. THE SALE CONSIDERATION ADOPTED BY T HE ASSESSEE FOR THE PURPOSE OF REGISTRATION AND STAMP DUTY WAS A SUM OF RS.61,22,3 30/-. THE AO COMPUTED THE LONG TERM CAPITAL GAIN BY ADOPTING THE SALE CONSIDERATIO N AT RS.61,22,330/- RESULTING IN ADDITION TO THE CAPITAL GAIN DECLARED BY THE ASSESS EE AMOUNTING TO RS.61,22,330/-/. CIT(A) CONFIRMED THE ORDER OF AO TAKING NOTE OF THE PROVISION OF SECTION 50C OF THE ACT. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REL IED ON THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF ACIT VS S.SUVARNA RE KHA IN ITA NO.743/HYD/2009 DATED 29.10.2010 WHEREIN THE HONBLE ITAT, HYDERABA D TOOK THE VIEW THAT IF DIFFERENCE BETWEEN VALUATION FOR THE PURPOSE OF STA MP DUTY AND THE SALE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS 10% OR LESS TH EN THE VALUE ACTUALLY RECEIVED BY THE ASSESSEE SHOULD BE ADOPTED FOR THE PURPOSE OF COMPU TING THE LONG TERM CAPITAL GAIN. 31. WE HAVE CONSIDERED THE SUBMISSIONS MADE O N BEHALF OF THE LD. COUNSEL FOR THE ASSESSEE. THOUGH SECTION 50C OF THE ACT DOES NOT SP EAK OF ANY SUCH VARIATION IN TERMS OF PERCENTAGE BETWEEN VALUE ADOPTED FOR THE PURPOSE OF STAMP DUTY AND THE REGISTRATION AND THE ACTUAL CONSIDERATION RECEIVED ON TRANSFER, KEEPING IN VIEW OF THE DECISION OF THE HONBLE ITAT, HYDERABAD BENCH REFER RED TO ABOVE AND KEEPING IN VIEW OF THE FACT THAT THE DIFFERENCE BETWEEN THE VA LUATION FOR THE STAMP DUTY AND THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE IS LE SS THAN 2% WE ARE OF THE VIEW THAT ADDITION SUSTAINED BY CIT(A) SHOULD BE DELETED. ACC ORDINGLY GROUND NO.1 RAISED BY THE ASSESSEE IN CROSS OBJECTION IS ALLOWED. 32. GROUND NO.2 RAISED BY THE ASSESSEE IN TH E CROSS OBJECTION READS AS FOLLOWS :- 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF LOSS OF RS.5,00,160 INCURRED BY THE ASSESSEE COMPANY ON SALE OF LONG TERM INVESTMENT IN SHARES. ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 15 33. THE ASSESSEE INCURRED A LOSS OF RS.5,00,160/- ON SALE OF LISTED SHARES. THIS WAS CLAIMED AS DEDUCTION IN THE COMPUTATION OF THE TOTA L INCOME. THE AO WAS OF THE VIEW THAT IN SECTION 10(38) OF THE ACT ANY INCOME ARISIN G FROM THE LONG TERM CAPITAL ASSETS BEING EQUITY SHARES IS EXEMPT FROM TAX. THE AO WAS OF THE VIEW THAT EVEN WHERE THERE IS LOSS IN VIEW OF SECTION 10(38) OF THE ACT THE LO SS WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME OF AN ASSESSEE. THE CIT(A) CONFIRME D THE ORDER OF AO. 34. BEFORE US THE SUBMISSION OF THE LD. COUNSEL FO R THE ASSESSEE WAS THAT SECTION 10(38) OF THE ACT USED THE EXPRESSION ANY INCOME AND THEREFORE LOSS ON SALE OF LONG TERM CAPITAL ASSET BEING EQUITY SHARES SHOULD BE AL LOWED AS DEDUCTION. THE LD. DR RELIED ON THE ORDER OF CIT(A). 35. WE ARE OF THE VIEW THAT THE STAND TAKEN BY THE ASSESSEE IS NOT ACCEPTABLE. IN COMMISSIONER OF INCOME-TAX V. HARPRASAD AND CO. P. LTD. 99 ITR 118 (SC)., THE ASSESSEE CLAIMED CAPITAL LOSS ON SALE OF SHARES OF RS.28,662 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1955-56. THE INCOME-T AX OFFICER DISALLOWED THE LOSS ON THE GROUND THAT IT WAS A LOSS OF A CAPITAL NATURE. THE CIT(A) CONFIRMED THE ORDER OF THE ITO. BEFORE TRIBUNAL THE ASSESSEE MODIFIED ITS CLAIM AND SOUGHT THAT THE LOSS WHICH HAD BEEN HELD TO BE A ' CAPITAL LOSS ' BY THE AUTHORITIES BELOW, SHOULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AGAINST P ROFITS AND GAINS, IF ANY, UNDER THE HEAD ' CAPITAL GAINS ' EARNED IN FUTURE, AS LAID D OWN IN SUB-SECTIONS (2A) AND (2B) OF SECTION 24 OF THE ACT. THE TRIBUNAL ACCEPTED THE CO NTENTION OF THE ASSESSEE AND DIRECTED THAT THE ' CAPITAL LOSS ' OF RS. 28,662 SH OULD BE CARRIED FORWARD AND SET OFF AGAINST ' CAPITAL GAINS ', IF ANY, IN FUTURE. ON FURTHER APPEAL THE HONBLE DELHI HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL. ON FURT HER APPEAL BY THE REVENUE, THE FOLLOWING QUESTION WAS CONSIDERED BY THE HONBLE SUPREME COURT: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CAPITAL LOSS OF RS. 28,662 COULD BE DETERMINED AND CARRIED FORWARD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 24 OF THE INDIAN INCOME-TAX ACT, 1922, WHEN THE PROVISIONS OF SECTION 12B OF THE INCOME-TAX ACT, 1922, ITSELF WERE NOT APPLI CABLE IN THE ASSESSMENT YEAR 1955- 56. ' THE HONBLE SUPREME COURT HELD : ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 16 UNDER THE INCOME TAX ACT, 1922 CAPITAL GAIN WAS NO T INCLUDED AS A HEAD OF INCOME AND THEREFORE CAPITAL GAIN DID NOT FORM PART OF THE TOTAL INCOME. CERTAIN IMPORTANT AMENDMENTS WERE EFFECTED IN THE INCOME-TAX ACT BY A CT XXII OF 1947. A NEW DEFINITION OF ' CAPITAL ASSET ' WAS INSERTED AS SEC TION 2(4A) AND ' CAPITAL ASSET ' WAS DEFINED AS ' PROPERTY OF ANY KIND HELD BY AN ASSESS EE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS, PROFESSION OR VOCATION ', AND THE DEF INITION THEN EXCLUDED CERTAIN PROPERTIES MENTIONED IN THAT CLAUSE. THE DEFINITION OF ' INCOME ' WAS ALSO EXPANDED, AND ' INCOME ' WAS DEFINED SO AS TO INCLUDE ' ANY C APITAL GAIN CHARGEABLE ACCORDING TO THE PROVISIONS OF SECTION 12B '. SECTION 6 OF TH E INCOME-TAX ACT WAS ALSO AMENDED BY INCLUDING THEREIN AN ADDITIONAL HEAD OF INCOME, AND THAT ADDITIONAL HEAD WAS ' CAPITAL GAINS, ' SECTION 12B, PROVIDED THAT THE TAX SHALL BE PAYABLE BY AN ASSESSEE UNDER THE HEAD ' CAPITAL GAINS ' IN RESPECT OF ANY PROFITS OR GAINS ARISING FROM THE SALE, EXCHANGE OR TRANSFER OF A CAPITAL ASSET EFFEC TED AFTER 31ST MARCH, 1946, AND THAT SUCH PROFITS AND GAINS SHALL BE DEEMED TO BE INCOME OF THE PREVIOUS YEAR IN WHICH THE SALE, EXCHANGE OR TRANSFER TOOK PLACE. THE INDIAN F INANCE ACT, 1949, VIRTUALLY ABOLISHED THE LEVY AND RESTRICTED THE OPERATION OF SECTION 12B TO ' CAPITAL GAINS ' ARISING BEFORE THE 1ST APRIL, 1948. BUT SECTION 12 B, IN ITS RESTRICTED FORM, AND THE VITH HEAD, ' CAPITAL GAINS ' IN SECTION 6, AND SUB-SECT IONS (2A) AND (2B) OF SECTION 24 WERE NOT DELETED AND CONTINUED TO FORM PART OF THE ACT. THE FINANCE (NO. 3) ACT, 1956, REINTRODUCED THE ' CAPITAL GAINS ' TAX WITH E FFECT FROM THE 31ST MARCH, 1956. IT SUBSTANTIALLY ALTERED THE OLD SECTION 12B AND BROUG HT IT INTO ITS PRESENT FORM. AS A RESULT OF THE FINANCE (NO. 3) ACT OF 1956, 'CAPITAL GAINS ' AGAIN BECAME TAXABLE IN THE ASSESSMENT YEAR 1957-58. THE POSITION THAT EMERGES IS THAT ' CAPITAL GAINS ' ARISING BETWEEN APRIL 1, 1948, AND MARCH 31, 1956, WERE NO T TAXABLE. THE CAPITAL LOSS IN QUESTION RELATED TO THIS PERIOD. IN THE ABOVE BACKGROUND OF LAW, THE HONBLE SUPREME COURT HELD AS FOLLOWS: FROM THE CHARGING PROVISIONS OF THE ACT, IT IS DIS CERNIBLE THAT THE WORDS ' INCOME ' OR ' PROFITS AND GAINS ' SHOULD BE UNDERSTOOD AS IN CLUDING LOSSES ALSO, SO THAT, IN ONE SENSE ' PROFITS AND GAINS ' REPRESENT ' PLUS INCOM E ' WHEREAS LOSSES REPRESENT ' MINUS INCOME ' (1). IN OTHER WORDS, LOSS IS NEGATI VE PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH MUST ENTER INTO COMPUTATION, WHEREVER IT BECOMES MATERIAL, IN THE SAME MODE OF THE TAXABLE I NCOME OF THE ASSESSEE. ALTHOUGH SECTION 6 CLASSIFIES INCOME UNDER SIX HEADS, THE MA IN CHARGING PROVISION IS SECTION 3 WHICH LEVIES INCOME-TAX, AS ONLY ONE TAX, ON THE ' TOTAL INCOME ' OF THE ASSESSEE AS DEFINED IN SECTION 2(15). AN INCOME IN ORDER TO COM E WITHIN THE PURVIEW OF THAT DEFINITION MUST SATISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE THE ' TOTAL AMOUNT OF INCOME, PROFITS AND GAINS REFERRED TO IN SECTION 4( 1) '. SECONDLY, IT MUST BE ' COMPUTED IN THE MANNER LAID DOWN IN THE ACT '. IF EITHER OF THESE CONDITIONS FAILS, THE INCOME WILL NOT BE A PART OF THE TOTAL INCOME THAT CAN BE BROUGHT TO CHARGE. 36. THE HONBLE SUPREME COURT THEREAFTER TOOK NOTE OF THE FACT THAT ANY ' CAPITAL GAINS ' ARISING BETWEEN APRIL 1, 1948, AND APRIL 1 , 1957 WAS NOT CHARGEABLE TO TAX. ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 17 THE HONBLE SUPREME COURT THEREFORE HELD THAT THE S ECOND CONDITION, NAMELY, 'THE MANNER OF COMPUTATION LAID DOWN IN THE ACT' WHICH ' FORMS AN INTEGRAL PART OF THE DEFINITION OF ' TOTAL INCOME ' WAS NOT SATISFIED. THUS, IN THE RELEVANT PREVIOUS YEAR AND THE ASSESSMENT YEAR, OR EVEN IN THE SUBSEQUENT YEAR , CAPITAL GAINS OR 'CAPITAL LOSSES' DID NOT FORM PART OF THE 'TOTAL INCOME' OF THE ASSE SSEE WHICH COULD BE BROUGHT TO CHARGE, AND WERE, THEREFORE, NOT REQUIRED TO BE COM PUTED UNDER THE ACT. THE HONBLE SUPREME COURT ANSWERED THE QUESTION REFERRED TO IT IN FAVOUR OF THE REVENUE. 37. THE LAW LAID DOWN BY THE HONBLE SUPREME COU RT CLEARLY SUPPORTS THE STAND TAKEN BY THE REVENUE. CONSEQUENTLY, THE GROUND OF CROSS-OBJECTION IS WITHOUT ANY MERIT AND THE SAME IS DISMISSED. 38. GROUND NO.3 IN THE CROSS OBJECTION BY THE ASSESSEE WAS NOT PRESSED AND THE SAME IS DISMISSED AS NOT PRESSED. 39. GROUND NO.4 RAISED BY THE ASSESSEE IN THE CROSS OBJECTION IS IN SUPPORT OF THE CONCLUSION OF THE CIT(A) ADMITTING AND CONSIDERING THE ADDITIONAL EVIDENT UNDER RULE 46A OF THE IT RULES. WE HAVE UPHELD THE ACTION OF C IT(A) IN THIS REGARD WHILE DECIDING GROUND NO.(VII) RAISED BY THE REVENUE. FO R THE REASONS STATED THEREIN, THIS GROUND OF CROSS OBJECTION IS ALLOWED. 40. IN THE RESULT THE APPEAL OF THE REVENUE I S DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 7 TH OCTOBER, 2015. SD/- SD/- [WASEEM AHMED] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBE R DATE: 7.10.2015. R.G.(.P.S.) ITA NO.267/KOL/2013 & C.O.NO.29/K OL/2013 M/S. LGW LTD. A.YR.2009-10 18 COPY OF THE ORDER FORWARDED TO: 1 . M/S. LGW LIMITED, RAJARHAT GOPALPUR, NARAYANPUR, 24 -PARGANAS-700136. 2 THE D.C.I.T., CIRCLE-II, KOLKATA. 3 . THE CIT-IV, KOLKATA, 4. THE CIT(A)-XII, KOLKATA. 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES