ACIT Cir-1[2] Pune, V. M/s Finolex Industries Ltd, Pune

ITA 274/PUN/2012

• Counselvise Citation: 27424514 RSA 2012
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 10-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Gift; Business income; Earning of tax free income; Speculation loss; Revised return
• Section: 14A; 43(5); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS.31 & 32/PN/2012 (A.YS. 2005-06 & 2006-07) FINOLEX INDUSTRIES LTD., BLOCK D-1, PLOT NO.10, MIDC CHINCHWAD, PUNE 411019 PAN: AAACF2634A APPELLANT VS. ACIT, RANGE 9, PUNE RESPONDENT ITA NO.274/PN/2012 (A.Y. 2005-06) ACIT, RANGE 9, PUNE APPELLANT VS. FINOLEX INDUSTRIES LTD., BLOCK D-1, PLOT NO.10, MIDC CHINCHWAD, PUNE 411019 PAN: AAACF2634A RESPONDENT ASSESSEE BY : SHRI C.H. NA NIWADEKAR DEPARTMENT BY : SHRI P.L. PATHADE DATE OF HEARING : 18.02.2014 DATE OF ORDER : 28.02.2014 ORDER PER BENCH: TWO APPEALS FILED BY THE ASSESSEE AND ONE BY REVEN UE PERTAIN TO THE SAME ASSESSEE FOR TWO YEARS. SO THESE WERE HEA RD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. 2 2. IN ITA NO.31/PN/2012 FOR A.Y. 2005-06, THE ASSES SEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISALLO WANCE OF RS.56,84,000/- BEING PRO RATA PREMIUM PAYABLE ON REDEMPTION OF SECURED NON CONVERTIBLE DEBENTURES OF RS.10 LAKH EACH ISSUED BY THE APPELLANT (PARA 2 TO 7 , P AGE 1 TO 5 OF CIT APPEAL'S ORDER). 2. THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISALLO WANCE OF AMOUNT OF RS.30,33,275/- OUT OF INTEREST & RS.5,00,000/- OUT OF COMMON ESTABLISHMENT EXPENSES BY INVOKING PROVISIONS OF SECTION 14A OF THE INCOME TA X ACT, 1961 WHEN THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE SAID EXEMPT INCOME (PAR A 8 TO 10, PAGE 5 TO 9 OF CIT APPEAL'S ORDER). 3. THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISALLO WANCE OF AMOUNT OF RS.5,01,778/- OUT OF HANGER EXPENSES, BEING LEASE RENT PAID TO AIRPORT AUTHORITY OF INDIA LTD. (PARA 13 & 14 , PAGE 11 & 12 OF CIT APPEAL'S ORDER) . 4. THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISAL LOWANCE OF AMOUNT OF RS.3,00,000/- OUT OF ADVERTISEMENT, PUBLICITY & SALES PROMOTION EXPENSES ON ADHOC BASIS , BEING LEASE RENT PAID TO AIRPORT AUTHORITY OF INDIA LTD. (PARA 15, PAGE 12 OF CIT APPEALS ORDER) 5. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, M ODIFY OR DELETE ABOVE GROUND OF APPEAL, IF NECESSARY. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING AND SELLING PVC RESIN, RIGID PVC PIPES & FITTINGS, FINA NCE, TRADING (IN COMMODITIES, CURRENT INVESTMENTS) LETTING OUT PLANT & MACHINERY & JETTY (FOR PARTIAL USE). 3.1 THE ASSESSING OFFICER DISALLOWED THE DEDUCTION OF 56,84,000/- BEING PRO-RATA PREMIUM PAYABLE ON REDEMPTION OF SEC URED NON- CONVERTIBLE DEBENTURES OF 10 LAKHS EACH. THE ASSESSING OFFICER 3 STATED THAT THE ASSESSEE HAS FILED REVISED RETURN O N 23.07.2007 IN WHICH HE FURTHER CLAIMED DEDUCTION OF 56,84,000/- FOR PREMIUM PAID ON REDEMPTION OF DEBENTURES WAS MADE. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD RELIED ON THE DECISION OF ITS OWN CASE FOR A.Y. 1991-92 IN ITA NO.575/PN/95, WHEREIN THE ITAT, PUNE RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED (1 997) 225 ITR 802 (SC) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE. THE ASSESSING OFFICER STATED THAT THE REVISED RETURN WA S FILED AFTER THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT A.Y I.E. AFTER THE END OF THE STIPULATED PERIOD GIVEN IN SECTION 139(5) OF THE I.T. ACT, THEREFORE, WAS INVALID. THE ASSESSING OFFICER PLACE D RELIANCE ON ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F GOETZ (INDIA) LTD. (2006) 284 ITR 323 (SC), ACCORDING TO WHICH A CLAIM OF REVISION OF INCOME CAN ONLY BE MADE THROUGH A VALID REVISED RETURN FILED BEFORE THE ASSESSING OFFICER. THUS, HE REJECTED THE ASSESSEE'S CLAIM. 3.2 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY, WHEREIN THE ORDER OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE CIT(A). BEFORE US, THE LEARNED AUTHORIZED REPRESEN TATIVE SUBMITTED THAT THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE O F 56,84,000/- BEING PRO-RATA PREMIUM PAYABLE ON REDEMPTION OF SEC URED NON CONVERTIBLE DEBENTURES OF 10 LAKH EACH ISSUED BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF ITAT, PUNE BENCH FOR A.Y. 1991-92 IN ITA NO.575/PN/95, WH EREIN THE TRIBUNAL HELD ON THIS ISSUE AS UNDER: 32. THE GROUND NO.4 RELATES TO THE DISALLOWANCE O F THE CLAIM OF DEDUCTION OF THE GROSS LIABILITY OF RS. 3,94,28, 780/- IN RESPECT OF PREMIUM PAYABLE ON REDEMPTION OF REDEEMA BLE NON- CONVERTIBLE DEBENTURES. THE ASSESSEE CLAIMED THE EN TIRE AMOUNT OF PREMIUM PAYABLE AT THE TIME OF REDUCTION OF THE DEBENTURES (WHICH IS AFTER 10 YEARS) IN THE ASSESSMENT YEAR RE LEVANT TO THE ACCOUNTING YEAR FOR WHICH THE DEBENTURES WERE ISSUE D. THE A.O DISALLOWED THE SAME ON THE GROUND THAT IT IS NOT AN ASCERTAINED LIABILITY. ON APPEAL, THE CIT(A) HELD, FOLLOWING TH E JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF VIT VS. TUNG ABHADRA INDUSTRIES (1994) 207 ITR 553 AND THE M.P. HIGH COU RT IN THE 4 CASE OF M.P. FINANCIAL CORPORATION VS. CIT (1987) 1 65 ITR 765 THAT THE PREMIUM SHOULD BE ALLOWED ON PRO-RATA BASI S SPREAD OVER THE ENTIRE PERIOD OF 10 YEARS AND ACCORDINGLY DIRECTED 1/10 OF THE PREMIUM TO BE ALLOWED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE IS IN APPEAL CONTENDING THAT THE ENTIRE LIABILITY SHOULD BE ALLOWED IN THE ASSESSMEN T YEAR ITSELF. IT IS ALSO SEEN THAT THE DEPARTMENT IN ITS APPEAL H AS PREFERRED A GROUND (GROUND NO. 3) IN ITA NO. 721/PN/1995 CONTEN DING THAT EVEN THE PRO RATA ALLOWANCE OF THE PREMIUM CANNOT B E ACCEPTED. THIS ISSUE IS NOW SETTLED BY THE JUDGMENT OF THE SU PREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION LTD. VS. CIT (1997) 225 ITR 802. IN THIS JUDGMENT IT HAS BEEN HELD THAT THE PREMIUM PAYABLE SHOULD BE SPREAD OVER THE ENTIRE PERIOD IN WHICH THE DEBENTURES HAVE BEEN ISSUED AND PRO RATA ALLOWANCE SHOULD BE GIVEN. RESPECTFULLY FOLLOWING THE JUDGMENT, WE DISMISS THE ASSESSEE'S GROUND, CONFIRM THE DIRECTION OF THE CIT(A). FOR THE SAME REASON, THE D EPARTMENT'S GROUND NO. 3 IN ITS APPEAL IS ALSO REJECTED. 3.3 IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE PRESENT ISSUE WAS SETTLED BY THE HONBLE SUPREME COURT IN T HE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. (SUPR A), WHEREIN, IT HAS BEEN HELD THAT THE PREMIUM PAYABLE SHOULD BE SP READ OVER THE ENTIRE PERIOD IN WHICH THE DEBENTURES HAVE BEEN AND PRORATA ALLOWANCE SHOULD BE GIVEN. THE ASSESSING OFFICER I S DIRECTED ACCORDINGLY. 4. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF AMOUNT OF 30,33,275/- OUT OF INTEREST AND 5,00,000/- OUT OF COMMON ESTABLISHMENT EXPENSES BY INVOKING PROVISIONS OF SE CTION 14A OF THE I.T. ACT, 1961 WHEN THE ASSESSEE HAD NOT INCURR ED ANY EXPENDITURE FOR EARNING THE SAID EXEMPT INCOME. TH E ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE INVESTME NT IN SHARES, MUTUAL FUNDS, ETC. AMOUNTING TO 41319 LAKHS, WHEREAS THE TOTAL INTEREST EXPENDITURE WAS CLAIMED AT 1228 LAKHS. THE ASSESSING OFFICER MADE AN ANALYSIS OF BORROWED FUNDS EMPLOYED IN ASSESSEES BUSINESS, INTEREST FREE BONDS AVAILABLE AND INCRIMI NATORY INVESTMENT MADE DURING THE YEAR AND GAVE THE FINDIN G FOR 5 DISALLOWANCE OF EXPENDITURE AS PER PROVISIONS OF SE CTION 14A OF ACT AS UNDER: '4.3. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN DUL Y CONSIDERED. THERE IS SOME MERIT IN THE ASSESSEE'S C ONTENTION THAT THE LOANS AVAILED BY IT FOR A SPECIFIC PURPOSE CANNOT BE DIVERTED FOR THE PURPOSE OF LONG TERM INVESTMENTS I N SHARES, MUTUAL FUNDS ETC. ACCORDINGLY, THE TERM LOAN AVAILE D BY IT FROM BANKS OF RS.2068.200 LACS FOR SPECIFIC CAPITAL INVESTMENTS AND ALSO SECURED LOANS IN THE FORM OF DEBENTURES IS SUED OF RS. 12556.84 LACS FOR SPECIFIC CAPITAL INVESTMENTS, TOT ALLY AGGREGATING TO RS. 14625.04 LACS (ON WHICH AGGREGAT E INTEREST OF RS.451 LACS HAS BEEN PAID) CANNOT BE DIVERTED FOR T HE PURPOSE OF MAKING SUCH LONG TERM INVESTMENTS. HOWEVER, THE BALANCE LOAN FUNDS OF RS. 4154.84 LACS AVAILED FROM BANKS F OR THE PURPOSE OF WORKING CAPITAL CAN BE DIVERTED FOR MAKI NG SUCH LONG TERM INVESTMENTS. OTHER THAN THESE BANK LOANS OF RS.4154.84 LACS, THE ASSESSEE IS ALSO IN POSSESSION OF INTEREST FREE FUNDS ON ACCOUNT OF SHARE CAPITAL OFRS.12398.4 7 LACS AND ON ACCOUNT OF RESERVES & SURPLUS OFRS.38146.46 LACS , WHICH CAN ALSO BE DIVERTED FOR THE PURPOSE OF MAKING LONG TERM INVESTMENT IN SHARES. THUS, THE AGGREGATE FUNDS (IN TEREST BEARING AND INTEREST FREE) AVAILABLE TO THE ASSESSE E WHICH CAN BE DIVERTED FOR LONG TERM INVESTMENTS ARE OF RS.546 99.77 LACS. (RS.4154.84 LACS + RS.12398.47 LACS + RS.38146.46 L ACS). THE NET INTEREST PAID BY THE ASSESSEE ON SUCH AGGREGATE FUNDS OF RS.54699.77 LACS IS WORKED OUT AT RS. 138.57 LACS, (TOTAL INTEREST (RS. 1228.08 LACS) - INTEREST PAID ON RAW MATERIAL IMPORT (RS.519.51 LACS)- INTEREST PAID ON TERM LOAN S, DEBENTURES ETC. (RS.451 LACS)- BANK CHARGES ON RAW MATERIAL IMPORT OF(RS.L!9 LACS). THUS, THE AVERAGE RATE OF I NTEREST IN RESPECT OF SAID FUNDS OF RS.54699.77 LACS WHICH CAN BE DIVERTED FOR THE PURPOSE OF SUCH LONG TERM INVESTME NTS ETC. WORKS OUT AT 0.25% (RS. 138.57 LACS/RS.54699.77 LAC S). 4.4. THE TOTAL INVESTMENTS SHOWN BY THE ASSESSEE AR E OF RS.41319.00 LACS WHICH COMPRISES OF LONG TERM INVES TMENTS OF RS. 10726.36 LACS AND CURRENT INVESTMENTS OF RS.305 92.64 LACS. OUT OF THE CURRENT INVESTMENT, ONLY AN AMOUNT OF RS. 1721.79 LACS RELATES TO INVESTMENTS MADE FOR EARNIN G EXEMPT DIVIDEND INCOME AND THE BALANCE AMOUNT OF RS.28870. 84 LACS IS RELATED TO INVESTMENT IN GROWTH OPTIONS, THE PRO FIT OF WHICH HAS BEEN OFFERED TO TAX AT NORMAL RATES. THUS, THE AGGREGATE AMOUNT OF FUNDS DIVERTED FOR THE PURPOSE OF MAKING LONG TERM INVESTMENT FOR EARNING EXEMPT DIVIDEND INCOME IS OF RS.12133.09 LACS (RS. 10726.36 + RS. 1721.79). 4.5. THE ASSESSES DOES NOT MAINTAIN A SEPARATE POOL OF FUNDS IN RESPECT OF ITS LONG TERM INVESTMENTS. THEREFORE, ON A REASONABLE BASIS BY APPLYING THE SAID AVERAGE RATE OF INTEREST OF 6 0.25% (COMPUTED IN PARA 4.3 ABOVE) ON THE TOTAL LON G TERM INVESTMENTS OF RS. 12 133. 09 LACS (COMPUTED IN PAR A 4.4 ABOVE) THE INTEREST ATTRIBUTABLE TO LONG TERM INVES TMENTS CAN BE REASONABLY ESTIMATED AT RS.30,33,275/- (0.25 X RS.12133.09/100. 4. 6. MOREOVER, THOUGH IT IS AN ACCEPTED FACT THAT FOR THE PURPOSE OF EARNING DIVIDEND INCOME ETC., IT IS NOT ESSENTIAL TO EXCLUSIVELY DEPLOY STAFF ETC., HOWEVER, CERTAIN ROU TINE TIME OF THE STAFF IS DEFINITELY REQUIRED TO BE DEVOTED FOR THIS PURPOSE. ACCORDINGLY A LUMP SUM AMOUNT OF RS.5,00,000/- IS E STIMATED TO THE EXPENDITURE INCURRED OUT OF STAFF SALARY, AD MINISTRATION EXPENSES ETC. FOR THIS ACTIVITY OF THE ASSESSES. TH US, THE AGGREGATE AMOUNT OF EXPENSES ATTRIBUTABLE TO EARNIN G OF EXEMPT DIVIDEND INCOME IS DETERMINED AT RS.35,33,375/- (RS .30,33,275 + RS.5,00,000/-) ACCORDINGLY AN AMOUNT OF RS.35,33, 275/- IS DISALLOWED AS PER THE PROVISIONS OF SECTION 14A OF THE I.T. ACT AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSES' . 4.1 IN APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER HAS DULY TAKEN INTO ACCOUNT THE ENTIRE INTEREST FREE FU NDS AVAILABLE FOR MAKING INVESTMENT IN INSTRUMENTS FROM WHOM THE EXEM PT INCOME WAS EARNED. THE ASSESSING OFFICER HAS GIVEN THE CR EDIT OF TERM LOAN AND SECURED LOAN IN THE FORM OF DEBENTURES, ETC. WH ICH WAS CONSIDERED TO BE FOR SPECIFIC PURPOSE AND COULD NOT BE DIVERTED FOR MAKING SUCH INVESTMENTS. SIMILAR WAS THE CASE FOR L OAN TAKEN FOR IMPORT OF MATERIALS. AFTER AN EXTENSIVE ANALYSIS RE GARDING WHICH THE RELEVANT PARAS OF THE ASSESSMENT ORDER HAVE BEEN RE PRODUCED ABOVE, THE ASSESSING OFFICER HAS WORKED OUT THE INTEREST C OST OF FUNDS WHICH WERE DIVERTED FOR SUCH LONG TERM INVESTMENT OF SHAR ES, MUTUAL FUNDS ETC. YIELDING DIVIDEND INCOME AT 0.25%. FURTHER, TH E AGGREGATE AMOUNT OF FUNDS DIVERTED FOR MAKING LONG TERM INVES TMENT WAS WORKED OUT AT 12133 LAKHS. BASED ON THIS, THE INTE REST COST OF FUNDS DIVERTED TO MAKE LONG TERM INVESTMENTS WAS WORKED O UT TO 30,33,275/-. THIS DISALLOWANCE WAS OUT OF INTEREST, WAS NOT PRESSED BY THE ASSESSEE, SO SAME IS UPHELD. ADDITIONALLY, THE LUMP SUM AMOUNT OF 5 LAKHS WAS ESTIMATED AND DISALLOWED ON ACCOUNT OF EXPENDITURE INCURRED OUT OF VARIOUS ESTABLISHMENT A ND ADMINISTRATION EXPENSES. 7 4.2 THE STAND OF THE ASSESSEE HAS BEEN THAT THE ASS ESSEE WAS IN A POSSESSION OF INTEREST FREE FUNDS, SO THE ASSESSEE HAS OWN FUNDS WERE MORE THAN ABOVE INVESTMENT, SO THE DISALLOWANC E IS NOT JUSTIFIED. 4.3 IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISS UE TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. 5. THE NEXT ISSUE IS THAT CIT (A) ERRED IN CONFIRMI NG DISALLOWANCE OF AMOUNT OF 5,01,778/- OUT OF HANGER EXPENSES, BEING LEASE RENT PAID TO AIRPORT AUTHORITY OF INDIA LTD. THE ASSESSING OFFICER STATED THAT THE ASSESSEE WAS ACTU ALLY USING THE AIRCRAFT OWNED BY ITS SISTER CONCERN M/S. FINOLEX C ABLES AND ON THE BASIS OF USAGE, RUNNING AND MAINTENANCE EXPENSES OF THE AIRCRAFT WAS SHARED BY THE APPELLANT ALONGWITH M/S.FINOLEX C ABLES LTD. THE SHARE WORKED OUT TO 81.63% FOR THE ASSESSEE AND THE BALANCE FOR M/S. FINOLEX CABLES LTD. ON THE OTHER HAND, IT WAS STATED THAT AIRCRAFT HANGER EXPENSES WAS ENTIRELY CLAIMED BY TH E ASSESSEE COMPANY. THEREFORE, THE ASSESSING OFFICER ALLOWED T HE AIRCRAFT HANGER EXPENSES PAID TO AAI ALSO IN THE SAME RATIO AS RUNNING AND MAINTENANCE EXPENSES WERE SHARED BY THE TWO COMPANI ES. THIS RESULTED IN DISALLOWANCE OF 5,01,778/- OUT OF TOTAL CLAIM OF 27,31,506/- WHICH WAS CONFIRMED BY CIT(A). 5.1 WE ARE NOT INCLINED TO INTERFERE WITH THE FINDI NGS OF CIT(A) WHO HAS UPHELD THE ORDER OF ASSESSING OFFICER BECAUSE T HE ASSESSING OFFICER HAS MADE ALLOCATION OF EXPENSES IN THE SAME RATIO AS RUNNING AND MAINTENANCE EXPENSES WERE BEING SHARED. THIS REASONED FINDING NEEDS NO INTERFERENCE FROM OUR SID E. WE UPHOLD THE SAME. 6. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF AMOUNT OF 3,00,000/- OUT OF ADVERTISEMENT, PUBLICITY & SALES PROMOTION 8 EXPENSES. THE ASSESSING OFFICER OBSERVED THAT THES E INCLUDED ENTERTAINMENT EXPENSES OF 8,91,916/- AND GIFT EXPENSES OF 20,52,147/-. IT WAS OBSERVED THAT IT WAS NOT VERIFI ABLE REGARDING THE SAME BEING WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE, ESPECIALLY ON ACCOUNT OF GIFT AND ENTERTAI NMENT. THEREFORE, 3,00,000/-WAS DISALLOWED ON AN ADHOC BASIS OUT OF THE CLAIM MADE AS ABOVE. CONSIDERING THE EXPLAN ATION AND THE ASSESSING OFFICER'S REASONING, THE CIT(A) UPHEL D THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. 6.1 THIS REASONED FINDING OF AUTHORITIES BELOW NEED S NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 7. AS A RESULT, THE APPEAL OF ASSESSEE IS PARTLY AL LOWED. 8. IN ITA NO.32/PN/2012, THE ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT APPEALS ERRED IN CONFIRMING DISALLO WANCE U/S. 14A AS A PERCENTAGE OF TOTAL LONG TERM INVESTM ENT & ESTIMATING INTEREST THEREON PLUS ADMINISTRATIVE EXP ENSES OF 5,00,000/- ON ADHOC BASIS (THE BASIS BEING ADOPTED FOR A.Y. 2005-06) (PARA 2 TO 9, PAGE 1 TO 7 OF CIT APPEAL'S ORDER). 2. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, M ODIFY OR DELETE ABOVE GROUND OF APPEAL, IF NECESSARY. 9. WE HAVE DECIDED THE SIMILAR ISSUE OF DISALLOWANC E U/S. 14A FOR A.Y. 2005-06 VIDE PARA 7 OF THIS ORDER. FACTS BEIN G SIMILAR, SO FOLLOWING THE SAME REASONING, THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE AS PER FACT AND LAW AFTER PROVIDIN G DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSE. 11. IN ITA NO.274/PN/2012, THE REVENUE HAS FILED TH E APPEAL ON THE FOLLOWING GROUNDS: 9 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD CIT(A) WAS JUSTIFIED IN HOLDING THE LOSS ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS AMOUNTING TO RS.5,13,53,752/- AS ALLOWABLE DEDUCTION IGNORING THE FACT THAT IT IS A SPECULATION LOSS AS PER SEC. 43(5) OF THE I. T. ACT, 1961. 2. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES RIGHT TO ADD OR ALTER THE GROU ND OF APPEAL AT ANY TIME BEFORE DURING THE COURSE OF HEAR ING. 12. THE ASSESSING OFFICER HAS DISALLOWED RS.5,13,53 ,722/- ON ACCOUNT OF CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS ENTERED FOR PURCHASE OF RAW MATERIALS, TO GUARD AGA INST FUTURE FLUCTUATIONS IN FOREIGN EXCHANGE RATES. THE SAME HA S BEEN DISALLOWED AS SPECULATION LOSS BY THE ASSESSING OFFICER BY OBS ERVING THAT THE SPECULATION LOSS CANNOT BE SET OFF AGAINST THE REGU LAR BUSINESS INCOME OF THE ASSESSEE. THE CIT(A) FOLLOWING ITS O WN DECISION IN A.Y. 2000-01 AND THE DECISION OF ITAT, PUNE IN THE CASE OF SISTER CONCERN M/S. FINOLEX CABLES LTD. FOR A.Y. 1996-97, WHEREIN SAID ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN ITA NO.667 & 7 00/PN/99 DATED. 23.12.1999, HAS DECIDED THE APPEAL IN FAVOUR OF ASS ESSEE. WE FIND THAT THE PUNE A BENCH IN ITA NO.1407/PN/11 IN ASS ESSEES APPEAL HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 8. THE NEXT ISSUE RELATES TO LOSS ON CANCELLATION OF FOREIGN EXCHANGE FORWARD CONTRACTS. THE ASSESSING OFFICER DISALLOWED THE LOSS ON CANCELLATION OF FOREIGN EXCHANGE FORWAR D CONTRACTS. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1996-97 IN ITA NO. 677 AND 700/PN/1999 DATED 3-12-2009 ALLOWED THE CLAIM OF T HE ASSESSEE. AFTER HEARING BOTH THE PARTIES WE FIND T HAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY. 1996-97 WHEREIN THE ISSUE HAS BEEN DECIDED AS UNDER: 15. ON CONSIDERATION OF THE SUBMISSIONS OF BOTH TH E PARTIES AND THE MATERIAL AVAILABLE ON RECORD, WE AR E OF THE OPINION THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE 10 BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BADRIDAS GAURIDU (P) LTD. (2003) 261 ITR 256. THE RELEVANT PORTION FROM HEAD-NOTE OF THE SAID JUD GMENT READS AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE, THE ASSESSEE WAS AN EXPORTER OF COTTON. IN ORDER TO HEDGE AGAINST LOSSE S, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR EXPORT O F COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF RS. ____ LAKHS AS A BUSINESS LOSS. IN PRINCIPLE, THE ABOVE RATIO DECIDED IN THE CASE O F BADRIDAS GAUIDU (P) LTD. (SUPRA) IN OUR OPINION, HA S DIRECT APPLICATION TO THE ISSUE UNDER CONSIDERATION IN THI S CASE. THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED AS A BUSINESS LOSS. ACCORDINGLY THE GROUND 5 OF APPEAL IS ALLOWED. 9. FACTS BEING SIMILAR, SO FOLLOWING THE REASONING GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1996-9 7 WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST TH E DEPARTMENT. 13. FACTS BEING SIMILAR, SO FOLLOWING THE SAME R EASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF CIT( A), WHO HAS HELD THAT LOSS ON CANCELLATION OF FOREIGN EXCHANGE CONTR ACT AMOUNTING TO 5,13,53,722/- IS ALLOWABLE DEDUCTION. WE UPHOLD TH E SAME. 14. AS A RESULT, THE REVENUES APPEAL IS DISMISSED. 15. IN THE RESULT, TWO APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED AS INDICATED ABOVE WHILE THE APPEAL FILED B Y REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF FEBRUARY, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 28 TH FEBRUARY, 2014 GCVSR 11 COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE DR, A BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE