Shri Pravinbhai Mohanbhai Kheni, Surat V. The ACIT.,C.C.-2, Surat

ITA 2839/AHD/2010

• Counselvise Citation: 283920514 RSA 2010
• Duration Of Justice: 1 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S PARIDA
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Question of law; Speculation loss; Commercial expediency; Revised return
• Section: 54F; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 2839/ AHD/2010 (ASSESSMENT YEAR 2007-08) PRAVEENBHAI MOHANBHAI KHENI, 73, SADHNA SOCIETY, ARACHHA ROAD, SURAT VS. ACIT, CC-2, SURAT I.T.A.NO. 451/AHD/2011 (ASSESSMENT YEAR 2007-08) M/S. M KANTILAL EXPORTS, VS. ACIT, CC-2, 1205, PANCHRATNA, SURAT OPERA HOUSE, MUMBAI PAN/GIR NO. : AFZPK3277P (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI M K PATEL, AR RESPONDENT BY: SHRI S S PARIDA, CIT DR DATE OF HEARING: 22.09.2011 DATE OF PRONOUNCEMENT: 21. 10.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THESE ARE APPEALS FILED BY THE ASSESSEE IN TWO DIF FERENT CASES I.E. IN THE CASE OF SHRI PRAVEENBHAI MOHANBHAI KHENI AND IN THE CASE OF M/S. M KANTILAL EXPORT FOR THE SAME ASSESSMENT YEAR I.E. A SSESSMENT YEAR 2007- 08. THE APPEAL OF THE ASSESSEE IN THE CASE OF SHRI P M KHENI IS DIRECTED AGAINST THE ORDER OF CIT(A) II, AHMEDABAD DATED 24. 09.2010 WHEREAS THE 2 ND APPEAL IN THE CASE OF M/S. M KANTILAL EXPORTS IS D IRECTED AGAINST THE I.T.A.NO. /AHD/200 2 ORDER OF CIT(A) II AHMEDABAD DATED 04.01.2011. CON NECTED ISSUE IS INVOLVED IN BOTH THESE CASES, AND THERE IS CONNECTI ON BETWEEN THESE TWO ASSESSES ALSO BECAUSE MR. P M KHENI IS A PARTNER OF THE FIRM M/S. M. KANTILAL EXPORTS AND ORIGINALLY, DEDUCTION REGARDIN G FOREX TRADING LOSS IN FOREIGN CURRENCY TRANSACTION WAS CLAIMED BY SHRI P M KHENI AND WHEN IT WAS NOT ALLOWED IN HIS CASE, THEN A CLAIM IN THE CA SE OF THE FIRM WAS MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS OF THE FIRM . HENCE, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUND NO.1 OF THE APPEAL IN THE CASE OF SHRI P M KHENI IN I.T.A.NO. 2839/AHD/2010 IS AS UNDER: THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ORDER OF THE A.O. OF NOT ALLOWING SE OFF OF SHORT TERM CAPITAL LOSS OF RS.9,99,41,056/- IN FOREX TRANSACTI ONS AGAINST LONG TERM CAPITAL GAIN OF RS.71,67,73,035/- FORM SALE OF SHARES WITHOUT APPRECIATING THE EVIDENCES AND EXPLANATION OF APPEL LANT. THE INTER HEAD SET OFF SHOULD BE ALLOWED AND ADDITION OF RS.9 ,99,41,056/- BE DELETED. 3. GROUND NO.2 OF THE APPEAL IN THE CASE OF M/S. M. KANTILAL EXPORTS IN I.T.A.NO. 451/AHD/2011 IS THE CONNECTED ISSUE AND T HE SAME READS AS UNDER: THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE A.O. OF NOT ALLOWING D EDUCTION OF RS.9,99,41,056/- ON ACCOUNT OF FOREX TRADING LOS IN FOREIGN CURRENCY TRANSACTIONS ALLOWED BY BANKS AGAINST EXPO RT BUSINESS IMPLY ON THE GROUND THAT IT WAS NOT CLAIMED EITHER IN ORI GINAL RETURN OF INCOME OR IN REVISED RETURN OF INCOME BUT CLAIMED I N A COMPUTATION OF INCOME FILED VIDE SUBMISSION DTD. 29.12.09. THE LD. CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE BOTH I N THE CASE OF PARTNER OF ASSESSEE FIRM SHRI PRAVINBHAI MOHANBHAI KHENI AS W3ELL AS IN CASE OF FIRM. THE DEDUCTION OF RS.9,99,41,05 6/- SHOULD THEREFORE, BE ALLOWED. I.T.A.NO. /AHD/200 3 4. THE BRIEF FACTS ON THIS ASPECT TILL THE STAGE OF DISALLOWANCE MADE BY THE A.O. IN THE CASE OF INDIVIDUAL P M KHENI IS NOT ED BY THE LD. CIT(A) IN PARA 2 OF HIS ORDER PASSED IN THE CASE OF INDIVI DUAL WHICH IS AS UNDER: 2. THE FIRST GROUND OF APPEAL IS AGAINST NO T ALLOWING DEDUCTION OF SHORT TERM CAPITAL LOSS RS.9,99,41,056 /- INCURRED BY THE ASSESSEE AGAINST LONG TERM CAPITAL GAIN OF RS.7 1,67,73,035 THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL LOSS OF RS. 9,99,41,056/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE TRANSACTION A ND PRODUCE DOCUMENTARY EVIDENCE IN RESPECT OF THE CLAIM MADE. IT WAS EXPLAINED THAT HE HAD PURCHASED FOREIGN CURRENCY OF THE FIXED PRICE AND SOLD THE SAME AFTER SOME PERIOD ON FOREX TRANSA CTION. UNDER SECTION 43(5) OF THE ACT, THE PROFIT AND LOSS FROM THESE TRANSACTIONS ARE ASSESSED AS INCOME FROM BUSINESS OR PROFESSION. IT WAS FURTHER STATED THAT THE ASSESSEE HAD INCURRED LOSSES IN THE FOREX MARKET BY UTILIZING THE FUNDS O M/S. M. KANTILAL EXPORTS IN W HICH THE ASSESSEE IS A PARTNER. DESPITE THE OBJECTION OF AD THE OTHER 8 PARTNERS, THE ASSESSEE UTILIZED THE CONVERTIBLE FOR EIGN EXCHANGE REALIZED FROM THE EXPORT SALE OF THE FIRM FROM THE BANK ACCOUNT FOR PURCHASE AND SALE OF FOREIGN EXCHANGE IN THE FOREX MARKET AND INCURRED HUGE LOSSES OF RS.9,99,41,056/- WITHOUT CO NSENT OF OTHER PARTNERS. ACCORDINGLY, THE LOSS OF RS.9,99,41,056/ - WAS BORNE BY THE ASSESSEE IN VIEW OF THE DECISION OF ALL THE PAR TNERS TO HOLD THE ASSESSEE RESPONSIBLE FOR FOREX LOSS. THE ASSESSEE R ELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF GOPIKRISHAN & RAMKISHAN VS CIT REPORTED AT 170 ITR 368 WHEREIN IT WAS HELD THAT THE PARTNER HAS TO BEAR SU CH LOSS AND IS ELIGIBLE FOR SET OFF AGAINST INDIVIDUAL INCOME OF T HE PARTNER. THE ASSESSING OFFICER REJECTED THE ASSESSEE'S ' ; EXP LANATION ON THE GROUND THAT IN THE CASE CITED' BY THE ASSESSEE TH E QUESTION BEFORE THE HON BLE COURT WAS TO DECIDE WHETHER THE LOSSES INCURRED BY THE FIRM COULD BE ALLOCATED TO THE MINORS ALSO WHO WERE ADMITTED AS PARTNERS ONLY FOR THE BENEFIT OF THE PARTNERSHIP AS PER THE DEED. THE COURT HAD DECIDED THAT THE ALLOCATION OF LOSSES WOU LD INVOLVE A MINOR BEING BURDENED WITH LOSSES WHICH WAS AGAINST THE PROVISION OF PARTNERSHIP LAW. HENCE, THE SAME IS NOT APPLI CABLE. THERE IS NO SUCH PROVISION TO ALLOCATE THE LOSS ONLY TO ANY PARTNER. ON THE OTHER HAND, THE SAME REQUIRES TO BE ADJUSTED AGAINS T THE OTHER INCOME OF THE FIRM, IT IS PERTINENT TO NOTE THAT EVEN THE CONTRACT NOTES / CERTIFICATES ISSUED BY THE BANKS IN RESPECT OF THE LOSS ON I.T.A.NO. /AHD/200 4 FOREX TRADING IS IN THE NAME OF THE FIRM. FURTHER , THE AMOUNT INVESTED FOR SUCH TRADING IS FROM THE FUNDS OF THE FIRM ONLY. THE ASSESSEE CANNOT CLAIM SUCH LOSS IN HIS CASE MERELY BY PASSING A JV THEREBY DEBITING HIS ACCOUNT WITH THE FIRM. ACCOR DINGLY, THE ASSESSING OFFICER REJECTED THE CLAIM OF SET OFF OF THE LOSS TO THE EXTENT OF RS.9,99,41,0567-. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. IN THE MEANTIME, IN THE CASE OF THE FIRM, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED WRITTEN SUBMISSION BEFORE THE A.O. ON 29.12.2009 SAYING THAT IN THE CASE OF ONE O F THE PARTNERS SHRI P M KHENI, HE HAD CLAIMED LOSS ON ACCOUNT OF FOREX TR ADING LOSS OF RS.9,99,41,056/- AND THE A.O. IN THAT CASE HAS NOT ALLOWED THE LOSS IN THE HANDS OF THAT PARTNER AND HENCE, ALTERNATIVELY, THE LOSS MAY BE ALLOWED IN THAT CASE OF THIS ASSESSEE I.E. PARTNERSHIP FIRM. THIS CLAIM OF THE ASSESSEE WAS REJECTED BY THE A.O. OF THE FIRM ON THE GROUND THAT THE CLAIM CAN ONLY BE ALLOWED IF THE CLAIM IS MADE BY FILING REVISED R ETURN OF INCOME AND SINCE THE TIME FOR FILING REVISED RETURN HAS ELAPSE D, THE CLAIM IS NOT ENTERTAINED. IN THE CASE OF FIRM ALSO, THE ASSESSE E RAISED THIS GROUND BEFORE LD. CIT(A) BUT THIS ISSUE WAS DECIDED BY THE LD. CIT(A) AGAINST THE ASSESSEE BY HOLDING THAT THE LOSS IS INCURRED B Y FORWARD BOOKING OF FOREX CONTRACT AND CANCELLATION THEREOF WITHOUT TAK ING DELIVERY AND HENCE, IT IS A SPECULATION LOSS NOT ALLOWABLE AGAINST OTHE R BUSINESS INCOME. IT IS ALSO HELD BY THE LD. CIT(A) THAT U/S 43(5), THE LOS S CAN BE TREATED AS BUSINESS LOSS ONLY IF THE TRANSACTION IS FOR HEDGIN G TRANSACTION. BUT THE ASSESSEE HAS NOT SHOWN THAT ON THE RELEVANT DATE, T HE ASSESSEE WAS HAVING SUFFICIENT FOREIGN EXCHANGE AGAINST WHICH THE ASSES SEE ENTERED FOR I.T.A.NO. /AHD/200 5 HEDGING TRANSACTION TO AVOID FUTURE LOSS. ON THIS B ASIS, LD. CIT(A) DECIDED THIS ISSUE AGAINST THE ASSESSEE IN THE CASE OF THE FIRM ALSO AND IN THE CASE OF FIRM ALSO, THE ASSESSEE IS IN FURTHER A PPEAL BEFORE US. 7. IT WAS SUBMITTED BY THE LD. A.R. THAT AFFIDAVIT OF THE ASSESSEE SHRI P M KHENI IS AVAILABLE ON PAGES 21-29 OF THE PAPER BO OK AND IN PARTICULAR OUR ATTENTION WAS DRAWN TO PARA 6 OF THE AFFIDAVIT AS PER WHICH, IT HAS BEEN STATED BY HIM THAT HE HAS CARRIED OUT THIS BUSINESS WITHOUT THE KNOWLEDGE AND CONSENT OF OTHER 8 PARTNERS OF M/S. M. KANTILAL EXPORTS CONTRARY TO THE TERMS OF THE PARTNERSHIP DEED AND THEREFORE, HE IS LIABLE TO INDEMNIFY THE FIRM AGAINST THE LOSSES INCURRED OUT OF THE FIR MS FUNDS WHICH HAVE BEEN USED FOR PERSONAL BUSINESS AND BEING UNFAITHFU L TO THE FIRMS FUNDS/PROPERTY. HE ALSO POINTED OUT THAT AS PER TH IS AFFIDAVIT, THE AMOUNT OF LOSS WAS DEBITED BY THE FIRM TO THE CAPITAL ACCO UNT OF THIS PARTNERS SHRI P M KHENI AND THE SAME WAS CLAIMED AS SHORT TERM CA PITAL LOSS IN HIS RETURN OF INCOME IT WAS ALSO SUBMITTED BY HIM THAT ALTHOUGH THIS IS ADMITTED POSITION OF THE FACTS THAT THE FUNDS OF TH E FIRM WERE USED FOR THIS PURPOSES AND THE FORWARD CONTRACT NOTE WAS ISSUED B Y THE RESPECTIVE BANKS IN THE NAME OF THE FIRM M/S. M KANTILAL EXPOR TS BUT SINCE THE ASSESSEE WAS LIABLE TO THE FIRM IN RESPECT OF THIS LOSS, THE SAME SHOULD BE ALLOWED IN THE HANDS OF SHRI P M KHENI, OR ALTERNAT IVELY CLAIM SHOULD BE ALLOWED IN THE HANDS OF THE FIRM AS A BUSINESS LOSS . RELIANCE WAS PLACED ON THE JUDGEMENT OF HONBLE DELHI HIGH COURT RENDER ED IN THE CASE OF CIT VS JAY PARABOLIC SPRINGS LTD. AS REPORTED IN 3 06 ITR 42 AND ALSO ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF KRISH NA FAMILY TRUST VS ACIT AS REPORTED IN 113 TTJ 918 (AHD.) IN SUPPORT O F THIS CONTENTION THAT AS PER THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF GOETZ INDIA LTD. VS CIT AS REPORTED IN 284 ITR 323, ADDIT IONAL GROUND CAN BE I.T.A.NO. /AHD/200 6 RAISED BEFORE THE APPELLATE AUTHORITY AND THE SAME SHOULD BE ADMITTED AND DECIDED. BECAUSE THE JUDGEMENT OF HONBLE APEX COU RT RENDERED IN THE CASE OF GOETZ LTD. (SUPRA) DOES NOT IMPINGE ON THE POWERS OF THE TRIBUNAL U/S 254 OF THE I T ACT. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW IN THE CASE OF BOTH THE ASSESSEES . 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORDS AND HAVE GONE THROUGH THE ORDERS OF AUTHORI TIES BELOW AND THE JUDGEMENTS CITED BY THE LD. A.R. FIRST WE DECIDE A S TO WHETHER THE CLAIM OF THE ASSESSEE IN THE HANDS OF SHRI P M KHENI, A P ARTNER OF THE FIRM M/S. M KANTILAL EXPORTS IS ALLOWABLE OR NOT. WE FIND T HAT IN PARA 4.4 OF THE ASSESSMENT ORDER, IT IS HELD BY THE A.O. THAT THERE IS NO PROVISION IN THE ACT TO ALLOCATE THE LOSS OF A FIRM ONLY TO A PARTNE R BUT THE SAME IS REQUIRED TO BE ADJUSTED AGAINST OTHER INCOME OF THE FIRM. T HE A.O. HAS NOTED THAT EVEN THE CONTRACT NOTE/CERTIFICATE ISSUED BY THE BA NKS IN RESPECT OF THE LOSS ON FOREX TRADING IS IN THE NAME OF THE FIRM AND THE AMOUNT INVESTED FOR SUCH TREADING IS FROM THE FUNDS OF THE FIRM ONLY AN D THEREFORE, INDIVIDUAL ASSESSEE BEING A PARTNER OF THE SAID FIRM, CANNOT C LAIM SUCH LOSS IN HIS CASE MERELY BY PASSING INTERNAL ENTRY AND DEBITING HIS ACCOUNT WITH THE FIRM. THERE IS NO DISPUTE REGARDING THE FACTS AND UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS C ALLED FOR IN THE ORDERS OF AUTHORITIES BELOW IN THE CASE OF THE INDIVIDUAL SHR I P M KHENI BECAUSE WHEN THE LOSS HAS BEEN INCURRED BY INVESTING THE FU NDS OF THE FIRM AND THE CONTRACT NOTES ARE ALSO IN THE NAME OF THE FIRM, SU CH LOSS CANNOT BE CLAIMED BY INDIVIDUAL BEING A PARTNER OF THE FIRM. HENCE, GROUND NO.1 OF THE APPEAL IN THE CASE OF INDIVIDUAL P M KHENI IS R EJECTED. 9. NOW, WE CONSIDER THE ISSUE IN THE HANDS OF THE F IRM AS TO WHETHER THE LOSS IS ALLOWABLE IN THE HANDS OF THE FIRM. REGARD ING THE JUDGMENT CITED I.T.A.NO. /AHD/200 7 BY THE LD. A.R., WE FIND THAT LD. CIT(A) HAS DISCUS SED THE ISSUE IN DETAIL AND HE HAS NOTED THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. AS REPORTED IN 229 ITR 386 (S.C.) IN WHICH IT WAS HELD THAT THE TRIBUNAL H AS TO EXAMINE THE QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUN D BY THE AUTHORITIES BELOW. HE HAS GIVEN A FINDING THAT ALL THE FACTS A RE NOT AVAILABLE ON RECORD AS TO WHETHER THE ASSESSEE WAS HAVING SUFFIC IENT FOREIGN EXCHANGE ON THE RELEVANT DATE AGAINST WHICH THE ASSESSEE HAS ENTERED FOR HEDGING TRANSACTION TO AVOID FUTURE LOSS. IT GOES TO SHOW THAT THE LD. CIT(A) HAD REJECTED THE GROUND OF THE ASSESSEE ON THIS BASIS T HAT NECESSARY FACTS ARE NOT AVAILABLE ON RECORD AND FOR THIS REASON, THIS I SSUE CANNOT BE ADMITTED. BEFORE US, IN THE CASE OF THE FIRM ALSO, A PAPER BO OK HAS BEEN FILED BY THE ASSESSEE CONTAINING 62 PAGES WHICH CONTAINS COPY OF PARTNERSHIP DEED, COPY OF AFFIDAVIT, COPY OF FORWARD FOREIGN EXCHANGE CONTRACTS, COPY OF CONTRACT NOTE ISSUED BY ICICI BANK AND AXIS BANK AN D A CERTIFICATE FROM AXIS BANK ETC. BUT THERE IS NO EVIDENCE AVAILABLE O N RECORD REGARDING ANY FOREIGN EXCHANGE HELD BY THE ASSESSEE FIRM ON THE R ELEVANT DATE WHEN FORWARD FOREIGN EXCHANGE CONTRACT WAS ENTERED INTO BY THE ASSESSEE FIRM. AS PER THE COPY OF CONTRACT NOTE ISSUED BY ICICI BA NK AND AXIS BANK, WHICH ARE CONTAINED IN PAGES 24-48 OF THE PAPER BOO K, ENTIRE LOSS HAS ARISEN ON ACCOUNT OF FORWARD CONTRACT CANCELLATION AND THERE IS NO DELIVERY. AS PER THE CERTIFICATE OF ICICI BANK ON PAGE 24 OF THE PAPER BOOK, THE FORWARD CONTRACT WAS BOOKED BY THE BANK W AS ON 12.07.2006 AND THE SAME WAS CANCELLED ON 27.10.2006 RESULTING INTO A LOSS OF RS.42,74,820/-. SIMILARLY, AS PER THE CONTRACT NOT E OF ICICI BANK AVAILABLE ON PAGE 29 OF THE PAPER BOOK, FORWARD CON TRACT WAS BOOKED ON 10.07.2006 AND IT WAS CANCELLED ON 14.07.2006 RESU LTING INTO LOSS OF I.T.A.NO. /AHD/200 8 RS.9,98,331/-. AS PER THE CONTRACT NOTE OF ICICI B ANK ON PAGE 31 OF THE PAPER BOOK, FORWARD CONTRACT WAS BOOKED ON 10.07.20 06 AND IT WAS CANCELLED ON 26.10.2006 RESULTING INTO LOSS OF RS.5 2,50,180/- IN SOME OTHER CONTRACTS, THERE IS GAIN ALSO WHICH HAS BEEN ADJUSTED AGAINST TOTAL LOSSES. AS PER THE CERTIFICATE OF UTI BANK AVAILAB LE ON PAGE 40 OF THE PAPER BOOK, THE ACCOUNTS OF THE ASSESSEE WAS DEBITE D BY RS.14,52,750/- ON 12.04.2006 ON ACCOUNT OF CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACT. AS PER THE CERTIFICATE OF AXIS BANK AT P AGE 49 OF THE PAPER BOOK, IT HAS BEEN CERTIFIED BY HE BANK THAT THE FIR M HAS BOOKED AND CANCELLED SEVERAL FORWARD CONTRACTS AND HAS TAKEN S OME CONTRACTS ON DELIVERY DURING THE FINANCIAL YEAR 2006-07 AND THE LOSS AMOUNT OF RS.6,19,73,171.23 ARISING OUT OF FORWARD CONTRACT C ANCELLATION LOSS DURING FINANCIAL YEAR 2006-07 IS DEBITED TO THE CURRENT AC COUNT OF THE FIRM. IN THE REVISED COMPUTATION OF THE FIRM AVAILABLE ON PA GE 57 OF THE PAPER BOOK, THE ASSESSEE HAS CLAIMED THE ENTIRE LOSS IN T HE BUSINESS OF FOREIGN EXCHANGE DEALING AGAINST REGULAR BUSINESS INCOME OF THE ASSESSEE WITHOUT BRINGING ON RECORD ANY EVIDENCE IN SUPPORT OF THIS CONTENTION THAT SUCH LOSS WAS INCURRED IN THE COURSE OF HEDGING TRANSACT ION. AS PER THE AFFIDAVIT OF THE PARTNER SHRI P M KHENI WHICH IS AV AILABLE ON PAGE 21-24 OF THE PAPER BOOK, FILED IN HIS CASE, IT HAS BEEN S TATED BY HIM THAT HE HAD CARRIED ON THIS BUSINESS WITHOUT THE KNOWLEDGE OF O THER 8 PARTNERS OF M/S. M KANTILAL EXPORTS AND CONTRARY TO THE TERMS OF PAR TNERSHIP DEED. WHEN A PARTNER OF THE ASSESSEE FIRM WAS CARRYING ON THIS BUSINESS OF FOREIGN EXCHANGE FORWARD CONTRACT WITHOUT THE KNOWLEDGE OF THE OTHER PARTNERS OF THE ASSESSEE FIRM AND CONTRARY TO THE TERMS OF THE PARTNERSHIP DEED, WE FAIL TO UNDERSTAND AS TO HOW THIS LOSS CAN BE CLAIM ED AS BUSINESS LOSS IN THE HANDS OF THE FIRM AND MOREOVER, THE SAME IS NOT SHOWN TO BE ON I.T.A.NO. /AHD/200 9 ACCOUNT OF LOSS INCURRED IN THE COURSE OF HEDGING T RANSACTION OR IN THE COURSE OF DELIVERY BASED TRANSACTION AND, THEREFORE , FOR THIS REASON ALSO, THIS LOSS IS NOT ALLOWABLE IN THE HANDS OF THE FIRM ALSO. THE JUDGEMENTS CITED BY THE LD. A.R. OF THE ASSESSEE ARE OF NO HEL P TO THE ASSESSEE BECAUSE AS PER THESE JUDGMENTS, THE ISSUE CAN BE RA ISED IN APPEAL AS ADDITIONAL GROUND AND IT HAS TO BE DECIDED ON THE B ASIS OF FACTS ON RECORD. AS PER THE FACTS ON RECORD, THE ASSESSEE FIRM COULD NOT ESTABLISH THAT THE LOSS HAS ARISEN IN COURSE OF HEDGING OR IN COURSE O F DELIVERY OF FOREX. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF LD. CIT(A) IN THE CASE OF THE FIRM ALSO. GROUND NO.2 O F THE APPEAL IN THE CASE OF THE FIRM IS ALSO REJECTED. 10. GROUND NO.2 IN THE APPEAL OF INDIVIDUAL SHRI P M KHENI I.E. I.T.A.NO. 2839/AHD/2010 IS AS UNDER: THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ORDER OF THE A.O. OF NOT ALLOWING DE DUCTION U/S 54F OF THE ACT AT RS.6,40,67,338/- AGAINST THE INVESTMENT IN A RESIDENTIAL FLAT AT RS.8,38,00,000/- MADE OUT OF LONG TERM CAPITAL G AIN IN SHARE TRANSACTIONS. AS THE APPELLANT SATISFIED ALL THE C ONDITIONS U/S 54F OF THE ACT, THE DEDUCTION U/S 54F OF THE ACT AT RS.6,4 0,67,338/- SHOULD BE ALLOWED. 11. IT WAS FAIRLY ADMITTED BY THE LD. A.R. THAT THE RE IS NO CASE OF THE ASSESSEE ON THIS ISSUE BECAUSE ADMITTEDLY, THE ASSE SSEE WAS ALREADY HAVING TWO RESIDENTIAL PROPERTIES INCOME OF WHICH W AS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THEREFORE , IT IS CORRECTLY HELD BY THE LD. CIT(A) THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 54F. THIS GROUND IS, THEREFORE, REJECTED. 12. IN THE RESULT, THE APPEAL OF THE INDIVIDUAL IN I.T.A.NO. 2839/AHD/2010 IS DISMISSED. I.T.A.NO. /AHD/200 10 13. GROUND NO.1 OF THE APPEAL IN THE CASE OF THE FI RM IN I.T.A.NO. 451/AHD/2011 IS AS UNDER: THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE A.O. OF DISALLOWING IN TEREST U/S 36(1)(III) OF THE ACT ON TRADE ADVANCE TO SISTER CO NCERNS AND INVESTMENT IN PROPERTY. THE ADDITION OF RS.12,91,1 71/- SHOULD BE DELETED. 14. THE FACTS REGARDING THIS ISSUE TILL THE ASSESSM ENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 2.1 OF HIS ORDER, WHICH IS REPRO DUCED BELOW: THE A.O. HAS FOUND THAT THE ASSESSEE HAD MADE ADVA NCE OF RS.1,22,71,382/- TO M/S. R.VIPUL & CO., A SISTER CO NCERN ON WHICH NO INTEREST WAS CHARGED AND ALSO FUNDS OF RS.27,60, 000/- ARE UTILIZED FOR PURCHASE OF PROPERTY AT AMBY VALLEY WH EREAS THE ASSESSEE IS PAYING INTEREST OF RS.9,51,50,467/- ON THE LOANS TAKEN FORM BANKS. THE A.O. HAS FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT SUFFICIENT FUNDS WERE AVAI LABLE WITH IT AS CAPITAL BALANCE FOR ADVANCING THE AMOUNTS TO SISTER CONCERNS. THEREFORE THE ASSESSEE HAS DIVERTED THE INTEREST BE ARING FUNDS TO SISTER CONCERNS AND INVESTMENT IN PROPERTY FOR NON BUSINESS USE AND THE ASSESSEE HAD AGREED FOR THE ADDITION. HENCE, T HE A.O. HAS DISALLOWED THE CORRESPONDING INTEREST ON THIS AND M ADE THE ADDITION OF RS.12,91,171/-. 15. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESS EE IS IN FURTHER APPEAL BEFORE US. 16. IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSE E THAT THIS ISSUE MAY BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRES H DECISION AFTER ASCERTAINING AS TO WHETHER OWN FUNDS OF THE ASSESSE E WERE AVAILABLE OR NOT AT THE RELEVANT POINT OF TIME. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R. OF THE REVENUE THAT NO SUCH EVIDENCE WAS MADE AVAILABLE BY THE ASSESSEE BEFORE THE A.O. OR BEFORE THE LD. CIT(A) T HAT ANY OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE FOR GIVING INTERES T FREE ADVANCES TO SISTER I.T.A.NO. /AHD/200 11 CONCERN AND FOR PURCHASE OF PROPERTY AND NO BUSINES S PURPOSE WAS SHOWN FOR SUCH ADVANCE AND FOR PURCHASE OF PROPERTY AT AM BY VALLEY. HENCE, THERE IS NO JUSTIFICATION FOR RESTORING BACK THIS M ATTER TO THE FILE OF THE A.O. FOR A FRESH DECISION. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE DISALLOWANCE WAS MADE BY THE A.O. ON THIS BASIS THAT THE BORROWED FUNDS WERE NOT USED BY THE ASSESSEE FOR TH E PURPOSE OF BUSINESS BECAUSE THE SAME WERE ADVANCED TO THE SISTER CONCER N WITHOUT CHARGING ANY INTEREST AND WAS INVESTED IN PROPERTY AT AMBY V ALLEY AND FOR BOTH THESE UTILIZATION OF FUNDS, NO BUSINESS EXPEDIENCY WAS SHOWN BY THE ASSESSEE. BEFORE LD. CIT(A), RELIANCE WAS PLACED O N THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF S.A. BUI LDERS VS CIT AS REPORTED IN 288 ITR 01 AND IT WAS ARGUED THAT PROPE RTY PURCHASED AT AMBY VALLEY WAS FOR BUSINESS PURPOSE AND INTEREST F REE FUNDS WERE GIVEN TO THE SISTER CONCERN FOR COMMERCIAL EXPEDIENCY. T HE FINDING HAS BEEN GIVEN BY THE LD. CIT(A) THAT HE ASSESSEE HAS NOT PR OVED THAT IT IS FROM OWN INTEREST FREE FUNDS AND THE ASSESSEE HAS ALSO N OT PROVED THAT THE ADVANCES WERE TRADE ADVANCES FOR PURCHASE OF DIAMON D AND IT WAS FOR BUSINESS EXPEDIENCY AND PROPERTY AT AMBY VALLEY IS ALSO NOT FOR THE USE FOR BUSINESS PURPOSE. IT WAS HELD BY HIM THAT THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF S.A. BUILDERS (S UPRA), IS NOT APPLICABLE. IN THE PAPER BOOK FILED BEFORE US, THE RE IS NO EVIDENCE SUBMITTED BY THE ASSESSEE THAT INTEREST FREE OWN FU NDS OF THE ASSESSEE WERE AVAILABLE AT THE RELEVANT POINT OF TIME AND HO W THERE IS ANY BUSINESS EXPEDIENCY FOR GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERN AND FOR PURCHASE OF PROPERTY AT AMBY VALLEY. UNDER THESE F ACTS, WE FIND THAT NO I.T.A.NO. /AHD/200 12 INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A) ON THIS ISSUE AND THERE IS NO REASON FOR RESTORING THE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. ACCORDINGLY, GROUND NO.1 OF THE AS SESSEE FIRM IS REJECTED. 18. NOW, THERE IS ONE MORE GROUND NO.3 IN THE CASE OF THE FIRM M/S. M. KANTILAL EXPORTS IN I.T.A.NO. 451/AHD/2011 WHICH IS AS UNDER: THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.4,03,648/- ON ACCOUNT OF FOREIGN TRAVELING EXPENSES WITHOUT APPRECIATING THE FACT OF DISALLOWANCE MADE IN RETURN OF FRINGE BENEFIT TAX. THE ADDITION SHOULD BE DELETED. 19. THE FACTS REGARDING THIS ISSUE TILL THE ASSESSM ENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 4 OF HIS ORDER WHICH IS REPRODUC ED BELOW: GROUND NO.3 IS AGAINST THE ADDITION OF RS.4,03,648 /- ON ACCOUNT OF FOREIGN TRAVELING EXPENSES. THE ASSESSEE CLAIME D FOREIGN TRAVELING EXPENSES OF RS.20,18,238/- BUT HAS NOT GI VEN TRIP WISE DETAILS OF THE VISITS AND THE SPECIFIC PURPOSE OF T HE VISITS. IN THE ABSENCE OF COMPLETE DETAILS, THE A.O. HELD THAT 40% OF THESE EXPENSES IS DISALLOWANCE FOR PERSONAL USE. AS THE ASSESSEE HAS ALREADY DISALLOWED 20% IN FBT RETURN, THE A.O. FURT HER DISALLOWED 20% AND MADE THE ADDITION OF RS.4,30,648/-. 20. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 21. IT IS SUBMITTED BY THE LD. A.R. THAT ON PAGES 5 9-60 OF THE PAPER BOOK ARE THE DETAILS OF FOREIGN TRAVAILING EXPENSES AND HENCE, THERE IS NO BASIS FOR HOLDING THAT 40% OF SUCH EXPENSES IS ON A CCOUNT OF PERSONAL EXPENSES. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND I.T.A.NO. /AHD/200 13 THAT IT IS NOTED BY THE A.O. IN PARA 8 OF THE ASSES SMENT ORDER THAT THE ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF FO REIGN TRAVEL EXPENSES AND PURPOSE OF FOREIGN TRAVEL AND TO GIVE DOCUMENTA RY EVIDENCE TO SUPPORT THAT SUCH TRIP IS FOR BUSINESS PURPOSE ONLY . IT IS FURTHER NOTED BY HIM THAT THE LD. A.R. HAS FILED COUNTRY WISE TRIPS BUT DID NOT GIVE COMPLETE DETAILS OF VISIT AND BUSINESS PURPOSE OF V ISIT. AS PER THE DETAILS OF FOREIGN TRAVEL EXPENSES, APPEARING ON PAGES 59-6 0, WE FIND THAT IN THE DETAILS, ASSESSEE HAS GIVEN NAMES OF THE PERSONS, D ATE OF TRAVEL AND PLACE VISITED AND EXPENDITURE DETAILS ARE GIVEN ONLY REGA RDING TICKETS AND VISA AND PURCHASE OF FOREIGN EXCHANGE. DETAILS TO SHOW THAT HOW THIS FOREIGN EXCHANGE WAS UTILIZED, IS NOT AVAILABLE IN THE DETA ILS AND IT HAS BEEN STATED REGARDING PURPOSE OF TRAVEL THAT IT IS FOR BUSINESS TOUR WITHOUT SPECIFYING AS TO HOW IT WAS A BUSINESS TOUR AND NOT A LEISURE TRIP. THE COUNTRIES VISITED ARE RUSSIA, U.S.A., HONG KONG ETC. IN THE ABSENCE OF ANY SPECIFIC DETAILS REGARDING BUSINESS PURPOSE OF THESE VISITS AND FURTHER DETAILS REGARDING NATURE OF EXPENDITURE INCURRED OUT OF FOR EIGN EXCHANGE PURCHASED, WE FEEL THAT SOME DISALLOWANCE IS NOT UN JUSTIFIED AND HENCE, IN OUR CONSIDERED OPINION, NO INTERFERENCE IS CALLED F OR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO . GROUND NO.3 OF THE ASSE SSEES APPEAL IN THE CASE OF THE FIRM IS ALSO REJECTED. 23. IN THE RESULT, APPEAL OF THE FIRM IS ALSO DISMI SSED. 24. IN THE COMBINED RESULT, BOTH THE APPEALS ARE DI SMISSED. 25. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT., 2011. SD./- SD./- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 21 ST OCT., 2011 SP I.T.A.NO. /AHD/200 14 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 19/10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/10.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.20/10 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 21/10 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.21/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/10/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..