DCIT (OSD)-I CR.R-7, MUMBAI V. NIRU IMPEX, MUMBAI

ITA 2741/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48555 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 28-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 08-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Keywords: Business income; Speculative transactions
• Section: 80HHC; 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT) AND SHRI R.K. P ANDA (A.M.) ITA NOS. 2740 & 2741/MUM /2010 ASSESSMENT YEARS 2004-05 & 2003-04 DY. COMMISSIONER OF INCOME TAX (OSD)-1, C.R. 7, ROOM NO. 413, 4 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI- 400 020. VS. M/S NIRU IMPEX, 112-114, THE JEWEL BLDG., OPERA HOUSE, NR. ROXY THEATRE, IST FLOOR, MUMBAI 04. PAN : AACFN2800K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.P. SINGH RESPONDENT BY : MR. SATISH MODY O R D E R PER R.K. PANDA, A.M. T HE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE SEPARATE ORDERS DATED 29.01.2010 AND 6.01.2010 PASS ED BY THE LD. CIT(A)-40, MUMBAI RELATING TO A.YRS 2004-05 & 2003- 04 RESPECTIVELY. SINCE COMMON GROUNDS ARE INVOLVED IN BOTH THE APPEA LS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 2741/MUM/2010 (A.Y. 2003-04) 2. IN GROUND NO. (A) OF THIS APPEAL, THE REVENUE HA S CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO AL LOW THE NETTING OF INTEREST AMOUNTING TO ` 6,88,593/- ON FIXED DEPOSITS AGAINST THE INTEREST ITA 2740 & 2741/M/10 M/S NIRU IMPEX 2 EXPENDITURE ON BORROWED FUNDS WHILE COMPUTING DEDUC TION U/S 80HHC OF THE ACT. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE HAD DEBITED INTEREST OF ` 13,89,249/- RECEIVED FROM BANK DEPOSIT AFTER NETTI NG OFF THE INTEREST RECEIVED ON FDRS. ON BEING QUESTIONED BY THE A.O., THE ASSESSEE EXPLAINED THAT THE PLACEMENT OF DEPOSITS/MARGIN MON EY WITH THE BANK HAVE DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE TO OBTAIN MORE FUNDS FROM THE BANKS. VARIOUS DECISIONS WERE CITED BEFOR E THE A.O. IT WAS ALSO ARGUED THAT IN TERMS OF EXPLANATION (BAA), THERE IS NO SCOPE FOR REDUCING INTEREST RECEIPTS FOR THE PURPOSE OF DETERMINING TH E PROFITS OF THE BUSINESS. THE A.O. REJECTED THE EXPLANATION GIVEN B Y THE ASSESSEE. HE ALSO DID NOT FOLLOW THE ORDER OF THE LD. CIT(A) ON THIS ISSUE FOR THE PRECEDING YEAR ON THE GROUND THAT THE DEPARTMENT HA S PREFERRED APPEAL BEFORE THE TRIBUNAL. HE, ACCORDINGLY, HELD THAT TH E INTEREST INCOME WILL NOT BE INCLUDED IN BUSINESS PROFIT. HE FURTHER HEL D THAT EVEN IF IT IS HELD AS BUSINESS INCOME, IN TERMS OF EXPLANATION (BAA) T O SECTION 80HHC, NETTING IS NOT PERMISSIBLE. IN APPEAL, THE LD. CIT( A) FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-0 2 VIDE ORDER DATED 11.2.2009, DIRECTED THE A.O. TO DETERMINE THE DEDUC TION U/S 80 HHC IN TERMS OF THE DECISION OF THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. KANTILAL CHHOTALAL. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE. WE FIN D THE TRIBUNAL VIDE ITS ORDER IN ITA NO. 1587/MUM/2007DATED 27 TH AUGUST, 2010 FOR A.Y. 2003- 04 HAS HELD THAT NETTING OF INTEREST IS NOT PERMISS IBLE IN VIEW OF THE RECENT DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. REPORTED IN 326 ITR 56. IN VI EW OF THE ABOVE THE ITA 2740 & 2741/M/10 M/S NIRU IMPEX 3 ORDER OF THE CIT(A) ON THIS ISSUE IS REVERSED AND , THE GROUND RAISED BY THE REVENUE IS ALLOWED. 5. IN GROUND NO. (B), THE REVENUE HAS CHALLENGED TH E ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO TREAT THE INCOME ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT AMOUNTING TO ` 24,54,219/- AS BUSINESS INCOME AS AGAINST SPECULATIVE INCOME AS HELD BY THE A.O. 6. THE FACTS IN BRIEF ARE THAT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDING NOTED THAT THE ASSESSEE HAD EARNED INCOM E OF ` 24,54,219/- ON FORWARD CONTRACT CANCELLATION. THE ASSESSEE WAS ASKED TO EXPLAIN WHY IT SHOULD NOT BE TREATED AS SPECULATIVE IN NATURE. IT WAS THE ASSESSEES EXPLANATION THAT THE CONTRACTS WERE DONE TO SAFEGUA RD THE EXCHANGE LOSS OF EXPORT IMPORT PAYMENTS AND WERE NOT SPECULATIVE TRANSACTIONS. THE ASSESSEES ARGUMENTS WERE NOT ACCEPTED BY THE A.O. IT WAS HIS VIEW THAT THE PROFIT EARNED BY THE ASSESSEE HAS NO DIRECT NEX US WITH THE ASSESSEES EXPORT IMPORT BUSINESS AND ACCORDINGLY HE TREATED T HE PROFIT AS SPECULATION PROFIT. WHILE DOING SO HE RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. RAMCHAND RA GUPTA & COMPANY 69 ITR 254 ACCORDING TO WHICH SUCH INCOME I S IN THE NATURE OF SPECULATION PROFIT AS CONTEMPLATED U/S 43(5) OF THE ACT. HE FURTHER MENTIONED THAT ALTHOUGH CIT(A)-VXII, MUMBAI VIDE HI S ORDER DATED 9.12.2005 HAS ALLOWED THE ASSESSEES APPEAL ON SIMI LAR ADDITION MADE IN THE ORIGINAL ASSESSMENT, THE INCOME-TAX DEPARTMENT HAS PREFERRED APPEAL BEFORE THE ITAT. IN LIGHT OF THE FOREGOING, THE IN COME IN QUESTION WAS TREATED AS INCOME FROM SPECULATION BUSINESS. IN APP EAL, FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 03-04 THE CIT(A) HELD THE GAIN OF ` 24,54,219/- IS NOT SPECULATIVE IN NATURE. AGGRIEVE D WITH SUCH ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. ITA 2740 & 2741/M/10 M/S NIRU IMPEX 4 7. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN ITA NO. 1587/MUM/2006 ORDER DATED 27 TH AUGUST, 2010 HAS HELD THAT INCOME ARISING ON ACCOUN T OF A HEDGING TRANSACTION UNDER WHICH THE ASSESSEE ENTERED INTO A CONTRACT FOR SAFEGUARDING THE EXCHANGE LOSS OF EXPORT IMPORT PAY MENTS MAY NOT BE A SPECULATIVE TRANSACTION WITHIN THE MEANING OF SECTI ON 43(5) OF THE ACT. IT WAS RIGHTLY HELD AS A HEDGING TRANSACTION BY THE CI T(A). BUT SINCE THE INCOME DOES NOT RESULT FROM EXPORTS, THEREFORE, IT DOES NOT QUALIFY FOR DEDUCTION U/S 80HHC. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) THAT THE INCOME IS NOT SPECULATIVE IN NATURE HAS BEEN UPHELD . RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL ON THIS ISSUE WE UPHOLD THE ORDER OF THE CIT(A) THAT THE INCOME O N ACCOUNT OF CANCELLATION OF FORWARD CONTRACT AMOUNTING TO ` 24,54,219/- IS BUSINESS INCOME AS AGAINST SPECULATIVE INCOME HELD BY THE A. O. ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO. 2740/MUM/2010 (A.Y. 2004-05) 8. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO TREAT THE INCOME ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT AMOUNTING TO ` 48, 06,336/- AS BUSINESS INCOME WITHOUT APPRECIATING THE PROVISIONS OF SECTI ON 43(5) OF THE I.T. ACT UNDER WHICH THE SAID INCOME WAS ASSESSABLE AS SPECU LATIVE INCOME AS HELD BY THE A.O. 9. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUND IS IDENTICAL TO THE GROUND NO. (B) RAISED IN ITA NO. 2741/MUM/20 10. WE HAVE ALREADY DECIDED THE SAME AND THE GROUND RAISED BY T HE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATIO, THE GROUN D RAISED BY THE REVENUE IS DISMISSED. ITA 2740 & 2741/M/10 M/S NIRU IMPEX 5 10. IN THE RESULT, REVENUES APPEAL IN ITA NO. 2741 /MUM/2010 IS PARTLY ALLOWED WHEREAS APPEAL IN ITA NO. 2740/MUM/2 010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 28.04.2011. SD/- (R.V. EASWAR) PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH APRIL, 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 40, MUMBA I 4. COMMISSIONER OF INCOME TAX, CENTRAL II, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA 2740 & 2741/M/10 M/S NIRU IMPEX 6 1 DRAFT DICTATED ON 2 8 .4.2011 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 2 8 .4.2011 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS ITA 2740 & 2741/M/10 M/S NIRU IMPEX 7