M/s. The Acetech Machinery Components India Pvt. Ltd., CHENNAI V. DCIT, Coimbatore

ITA 3062/CHNY/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6409 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 01-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Speculation loss
• Section: 43(5); 201; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ./ ITA NO. 3062 /CHNY/201 6 / ASSESSMENT YEAR: 201 2 - 1 3 M/S. THE ACETECH MACHINERY COMPONENTS INDIA PVT. LTD., NO.70 & 71, THIRUMURUGAN NAGAR, VADAVALLI POST, COIMBATORE 641 041. VS. DY .COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 2 , COIMBATORE. [PAN : AACCT 6770D ] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S SRIDHAR , ADVOCATE /RESPONDENT BY : SHRI AR . V SREENIVASAN , JCIT / DATE OF HEARING : 12 .0 6 .2019 / DATE OF PRONOUNCEMENT : 31 .0 7 .2019 / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE FILED THIS APP EAL AGAINST THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) - 1 , CHENNAI, IN APPEAL NO. 13/15 - 16 - 17 DATED 30 .0 8.2016 FOR THE ASSESSMENT YEAR ( AY ) 20 1 2 - 1 3 . 2. M/S. THE ACETECH MACHINERY COMPONENTS INDIA PVT. LTD., THE ASSESSEE, IS ENGAGED IN MANUFACTURI NG OF INDUSTRIAL COMPONENTS AND ITA NO. 3062/ CHNY /201 6 : - 2 - : SHEET METAL WORK . WHILE MAKING THE ASSESSMENT FOR AY 2012 - 13, THE ASSESSING OFFICER (AO) , INTER ALIA , DISALLOWED ; THE FEE PAID TO THE ROC FOR INCREASING THE AUTHORIZED SHARE CAPITAL HOLDING THAT IT IS CAPITAL IN NATURE, RS. 7,33,493/ - SPENT TOWARDS P OOJA EXPENSES, FOUNDATION DAY EXPENSES AND DONATION U/S. 37 AND DISALLOWED RS. 98,30,614/ - DEBIT ED IN THE P & L ACCOUNT AS LOSS ON DERIVATIVE BUSINESS HOLDING THAT IT IS SPECULATIVE IN NATURE. AGGRIEVED , THE ASSESSEE FILE D AN APPEAL BEFORE THE CIT(A) . T HE L D. CIT(A) DISMISSED THE APPEAL ON THESE ISSUES . A GGRIEVED AGAINST TH A T ORDER OF THE L D.CIT(A), THE ASSESSEE FILED THIS APPEAL . 3 . THERE IS THREE DAYS DELAY IN FILING THE APPEAL FOR WHICH THE ASSESSEE FILED A CONDONATION PETITION S UBMIT TING , INTER ALIA , THAT DUE TO MISTAKE IN MISPLACING THE APPEAL PAPERS, THE APPEAL WAS FILED BELATED . S INCE THE DELAY IS BEYOND ITS CONTROL AND NOT WANTON , IT IS PLEADED TO CONDONE THE DELAY AND ADMIT THE APPEAL. ON HEARING BOTH THE PARTIES , THE DELAY IN FILING THE APPEAL IS CONDONED. 4 . THE LD. AUTHORIZED REPRESENTATIVE S UBMITTED THAT ALTHOUGH THE AR APPEARED BEFORE THE LD. CIT(A) , FILED CERTAIN DETAILS AND SOUGHT AN ADJOURNMENT FOR FILING FURTHER DETAILS, THE LD. CIT(A) DISPOSED THE APP EAL BASED ON THE MATERIALS AVAILABLE ON RECORD. HE SUBMITTED THAT THE FEE ITA NO. 3062/ CHNY /201 6 : - 3 - : PAID TO THE ROC FOR INCREASING THE SHARE CAPITAL IS AN ALLOWABLE EXPENDITURE. INVITING OUR ATTENTION TO THE PAPER BOOK, WHEREIN THE LEDGER COPY OF P OOJA EXPENSES INCURRED FROM 02.0 4.2011 TO 31.03.2012 AT RS. 4,79,363/ - IS PLACED , THE AR SUBMITTED THAT THE TEMPLE IS INSIDE THE PREMISES OF THE ASSESSEE, THE ASSESSEE HAS AS A PART OF WELFARE MEASURE WITH ITS EMPLOYEES AND ITS CUSTOMERS HAD INCURRED THESE EXPENSES , VARIOUS HIGH COU RTS HAVE HELD THAT THE P OOJA EXPENSES INCURRED AS PART OF WELFARE EXPENSES ARE ALLOWABLE U/S. 37 AND HENCE THIS CLAIM MAY BE ALLOWED . WITH REGARD TO THE LOSS ON DERIVATIVE BUSINESS, THE AR SUBMITTED THAT THE DERIVATIVE TRANSACTION S ARE NOT SPECULATIVE TRANSACTION S, THEY WERE CARRIED OUT THROUGH A RE COGNIZED STOCK EXCHANGE ONLY , CONTRACT DERIVE D ITS VALUE FROM THE PARTIES , ELIGIBLE TRANSACTIONS WERE CARRIED OUT ELECTRONICALLY ON SCREEN BASED SYSTEMS THROUGH A STOCK BROKER , THEY WERE SUPPORTED BY A TIM E STAMPED CONTRACT NOTE S ISSUED BY BROKER S , STOCK EXCHANGE IS APPROVED BY SEBI AND MAINTAINS THE DETAILS OF CLIENT ETC. THEREFORE, THE AR SUBMITTED THAT THE TRANSACTION S IN FOREIGN CURRENCY DERIVATIVES ARE PART OF A NORMAL BUSINESS TRANSACTION AND THEY ARE N OT SPECULATIVE TRANSACTION S AT ALL . HOWEVER, THE A O DISALLOWED SUCH A CLAIM STATING THAT E VERY DAY THERE IS BUYING AND SELLING OF FOREIGN CURRENCIES WHICH LED TO THE LOSS , SUCH LOSS PARTAKES THE COLOUR OF SPECULATIVE LOSS AS IS EVIDENCED BY THE ITA NO. 3062/ CHNY /201 6 : - 4 - : C ONTRACT NOTE SUPPLIED , IT IS NOT WHOLLY AND EXCLUSIVELY CARRIED OUT FOR THE BUSINESS OF THE ASSESSEE AND T HEREFORE, THE LOSS INCURRED BY THE ASSESSEE A T RS. 98,30,614/ - ON ACCOUNT OF DERIVATIVE BUSINESS IS NOT AN ALLOWABLE EXPENDITURE U/S. 37 AND ACCOR DINGLY HE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL , THE LD.CIT(A) SIMPLY FOLLOWING CERTAIN ITAT DECISIONS , HELD , INTER ALIA, THAT THE ASSESSEE HAS INCURRED HUGE LOSSES ON TRADING IN CURRENCY FUTURES WITHIN A SPAN OF FOUR MONTHS, THAT IS F ROM 09.102011 TILL 05.03.2012 WHICH IS AN INDEPENDENT AND SEPARATE BUSINESS OF THE ASSESSEE. THIS - LOSS IS TREATED AS SPECULATION LOSS AS PER PROVISIONS OF SECTION 43(5) . THE LD. AR TOOK US THROUGH THE PROVIS I ONS OF SECTION 45(3) AND SUBMITTED THAT THE DISA LLOWANCE MADE IS NOT CORRECT AND PLEADED TO ALLOW THE APPEAL . 5 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ROC CHARGES PAID FOR INCREASING TH E SHARE CAPITAL BEING CAPITAL IN NATURE , THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES MAY BE CONFIRMED. WITH REGARD TO THE POOJA EXPENSES, HE RELIED ON THE ORDERS OF LOWER AUTHORITIES. WITH REGARD TO THE SPECULATIVE LOSS, THE DR INVITED OUR ATTENTION TOWARDS PARA 8 & 9 OF THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE SOUG HT AN ADJOURNMENT BEFORE THE LD. CIT(A) PLEADING THAT IT IS CO NTEM PL A TING AN OPTION THROUGH INCOME DISPUTES RESOLUTION ITA NO. 3062/ CHNY /201 6 : - 5 - : PANEL , HOWEVER, IT DID NOT FOLLOW UP . THEREFORE, THE LD. CIT(A) ON DUE EXAMINATION H AS UPHELD THE DISALLOWANCE AND HENCE, THE ORDER O F LD. CIT(A) MAY BE CONFIRMED ON WHICH THE LD. AR SUBMITTED SINCE, THE FACTS ASS OC I A TED WITH THE CASE HAS NOT BEEN EXAMINED PROPERLY THE ISSUE MAY BE REMITTED BACK TO THE AO FOR DUE EXAMINATION. 6 . WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE FEE PAID TO THE ROC FOR INCREASING THE SHARE CAPITAL BEING CAPITAL IN NATURE, THE ASSESSEES CORRESPONDING GROUNDS OF THE APPEAL ARE DISMISSED. WITH REGARD TO THE ASSESSEES CLAIM THAT RS. 4,79,363/ - WAS INCURRED A S AN EXPENDITURE IN THE TEMPLE INSIDE THE ASSESSEES PREMISES AS PART OF WELFARE MEASURE WITH ITS STAFF AND CLIENTS AND HENCE, IT IS AN ALLOWABLE DEDUCTION U/S. 37 OF THE ACT IS IN ACCORDANCE WITH VARIOUS COURT DECISIONS AND HENCE, THE AO IS DIRECTED TO ALLOW TH IS CLAIM OF RS. 4,79,363/ - U/S. 37 OF THE ACT. WITH REGARD TO THE DISALLOWANCE OF LOSS ON DERIVATIVES, WE FIND THAT THE AO PRIMARILY DISALLOWED IT FOR THE REASON THAT THE ASSESSEE BOUGHT AND SOLD FOREIGN CURRENCIES EVERY DAY WHICH LED TO SUCH LOSS , IT IS NOT WHOLLY AND EXCLUSIVELY CARRIED OUT FOR THE BUSINESS OF THE ASSESSEE , THE LOSS SUSTAINED IS ON SPECULATIVE LOSS AS EVIDENCED BY THE CONTRACT NOTE ETC. HOWEVER, THE LD CIT(A) HELD THAT T HE EXPORT BILL O R THE IMPORT LC OF THE ASSESSEE CANNOT BE LINKED TO THE DERIVATIVE TRANSACTION, AS THE DERIVATIVE ITA NO. 3062/ CHNY /201 6 : - 6 - : TRANSACTIONS ARE NOT UNDERTAKEN THROUGH ANY BANKING CHANNELS BUT ONLY THROUGH TRADING WINDOW OF THE NATIONAL STOCK EXCHANGE. THEREFORE, TRADING IN CURRENCY FUTURES ON THE NSE IS A SEPARATE BUSINESS OF THE ASSESSEE AND CANNOT BE LINKED TO THE MANUFACTURING AND SALE OF INDUSTRIAL COMPONENTS AND SHEET METAL WORK. THE ASSESSEE HAS INCURRED HUGE LOSSES ON TRADING IN CURRENCY FUTURES WITHIN A SPAN OF FOUR MONTHS, THAT IS FROM 09.102011 TILL 05.03.2012 WHI CH IS AN INDEPENDENT AND SEPARATE BUSINESS OF THE ASSESSEE. THIS LOSS IS TREATED AS SPECULATION LOSS AS PER PROVISIONS OF SECTION 43(5) . BUT, T HE ASSESSEE PLEAD ED THAT ITS TRANSACTIONS ARE WITHIN THE SCOPE OF THE PROVIS I ONS OF SECTION 45(3) AND THEY FALL WITHIN THE PROVISOS AND THEREFORE THE DISALLOWANCE MADE BY THE AO IS NOT CORRECT . IN THE ABOVE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE AO FOR DUE EXAMINATION. THE ASSESSEE SHALL PLACE ALL MATERIALS IN SUPPORT OF ITS CONTENTION AND SHALL COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCORDANCE WITH LAW. THE AO IS FREE TO CONDUCT APPROPRIATE E NQUIRY AS DEEM ED FIT. HOWEVER, HE SHALL FURNISH ADEQUATE OPPORTUNITY TO THE ASSESSEE ON THE MATERIAL ETC , IF ANY, TO BE USED AGAINST IT AND THEN DECIDE THE MATTER AS TO WHETHER THE FOREIGN CURRENCY TRANSACTION IS CONNECTED WITH EXPORT BILLS, IF IT IS SO , THEN THE LOSS , IF ANY , INCURRED IS TO BE ALLOWED AS A BUSINESS LOSS. ON THE OTHER ITA NO. 3062/ CHNY /201 6 : - 7 - : HAND, IF IT IS A DERIVATE TRANSACTION, THE AO SHALL EXAMINE THE ISSUE U/S. 43(5) , ELABORATELY, AND THEN, DECIDE I N ACCORDANCE WITH LAW. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 31 ST JU LY , 2019 IN CHENNAI. SD/ - SD/ - ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( . ) ( S. JAYARAMAN ) / ACCOUNTANT MEMBER / CHENNA I, / DATED: 31 ST JU LY , 2019 . / COPY TO: 1. / APPELLANT 2. / RESPONDENT 3. ( ) / CIT(A) 4. / CIT 5. / DR 6. / GF