Appeal details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 70376 (ITAT-JODHPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-12-2013
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
12-12-2013
Assessment Year
2009-2010
Appeal Filed On
15-05-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.334/JODH/2013 ASST. YEAR: 2009-10 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S. PRINC E ART EXPORTER, CIRCLE-1, JODHPUR. F-288-289, MIA 2 ND PHASE, BASNI, JODHPUR. (PAN: AAAFP 9440 P) (APPELLANT) (RESPONDENT) APPELLANT BY : DR. DEEPAK SEHGAL, CIT (D.R.) RESPONDENT BY : SHRI T.P. GAGGAR DATE OF HEARING : 12.12.2013 DATE OF PRONOUNCEMENT : 13.12.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE FOR A.Y. 2009-10 IS DIR ECTED AGAINST THE ORDER OF LD. CIT(A), JODHPUR DATED 15.03.2013. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PARTNERSHIP FIRM AND CARRIES ON A HANDICRAFT BUSINESS. FOR A.Y. 200 9-10, THE ASSESSEE FIRM FILED ITS RETURN OF INCOME ON 31.08.2009 DECLARING A TOTAL IN COME OF RS.68,38,119/-. DURING THE RELEVANT PERIOD, THE ASSESSEE FIRM HAD DISCLOSE D THE TURNOVER OF 2 ITA NO.334/JODH/2013 A.Y. 2009-10 RS.33,12,93,473/- AND G.P. OF RS.8,64,53,942/- GIVI NG A G.P. RATE OF 26.09% AS COMPARED TO LAST YEARS TURNOVER OF RS.35,94,22,000 /- AND G.P. OF RS.8,99,38,000/- GIVING G.P. RATE OF 25.02%. THE ASSESSEE HAS CLAIM ED EXEMPTION UNDER SECTION 10BA OF THE INCOME TAX ACT, 1961 (THE ACT FOR SHO RT) OF RS.5,51,87,912/- IN RESPECT OF HANDICRAFT ARTICLES CLAIMED TO HAVE BEEN MANUFACTURED AND EXPORTED. THE A.O. NOTICED THAT THE ASSESSEE HAS SHOWN PURCHA SES AS UNDER :- CATEGORY OF GOODS PURCHASED AMOUNT (RS.) WOOD & OTHER RAW MATERIALS RS.16,69,73,020/- POLISH MATERIAL RS.61,37,888/- PACKAGING MATERIAL RS.60,76,680/- STORES & SPARES RS.59,97,039/- RS.18,51,84,627/- LESS DISCOUNT ON PURCHASES RS.2,28,589/- TOTAL PURCHASES RS.18,49,56,038/- 3. THE A.O. HAS OBSERVED THAT MAJOR PART OF THE GOO DS EXPORTED WERE PURCHASED AS FINISHED HANDICRAFT ITEMS FROM OTHER DEALERS WHO ARE ENGAGED IN MANUFACTURING OF THIS ARTICLES. AFTER DRAWING LIST OF SUCH ITEMS ETC., THE A.O. HAS FINALLY FOUND THAT THE TOTAL PURCHASES OF WOOD AND RAW MATERIALS IS ONLY AT RS.1,73,71,269/- AS PER THE BILLS SUBMITTED BY THE ASSESSEE. THE ASSES SEE HAS CLAIMED TOTAL AMOUNT UNDER THIS HEAD AT RS.16,69,73,020/-. THEREFORE, T HE BALANCE PURCHASES OF RS.14.96,01,751/- HAS BEEN TREATED AS PURCHASE OF F INISHED ARTICLES AND NOT MANUFACTURED BY THE ASSESSEE. THEREFORE, WITH REFE RENCE TO SECTION 10BA OF THE 3 ITA NO.334/JODH/2013 A.Y. 2009-10 ACT, HE HAS DISALLOWED THE CLAIM OF DEDUCTION OF RS .5,51,87,912/- MADE UNDER SECTION 10BA AND HAS ADDED BACK THE SAME TO ASSESSE ES TOTAL INCOME OF THIS YEAR. 4. FURTHER THE ASSESSEE HAS CLAIMED OPTION LOSS OF RS.1,99,04,109/- IN FOREIGN CURRENCY TRANSACTION MENTIONED IN SCHEDULE-18 OF P& L ACCOUNT. IN FACT, OPTION IS A DERIVATIVE. AS PER A.O. PROFIT OR LOSS ARRIVING OUT OF TRANSACTION IN DERIVATIVES IS GOVERNED BY THE PROVISIONS OF SECTION 43(5) OF THE ACT. THEREFORE, WITH REFERENCE TO THE DEFINITION OF SPECULATIVE TRANSACTION GIVEN IN THIS SECTION HE HAS OBSERVED IF THE TRANSACTION IN DERIVATIVE IS TRANSACTED ELECTRO CNICALLY IN A RECOGNIZED STOCK EXCHANGE IT HAS TO BE TREATED AS SPECULATIVE TRANSA CTION. HE HAS MENTIONED THAT THE TRANSACTIONS IN THE FOREIGN CURRENCY DERIVATIVE HAS BEEN DONE BY THE ASSESSEE WITH A BANK AND HAS NOT CARRIED OUT ELECTRONICALLY IN A RE COGNIZED STOCK EXCHANGE THEREFORE, HE HAS TREATED THIS TRANSACTION AS SPECU LATIVE AND THE LOSS AS SPECULATIVE LOSS WHICH CANNOT BE SET-OF AGAINST NORMAL BUSINESS PROFITS. 5. DURING THE YEAR THE ASSESSEE HAS RECEIVED DUTY D RAW BACK (DDB) OF RS.54,79,406/- AND THE A.O. PROPOSED TO EXCLUDE THI S FROM THE AMOUNT OF DEDUCTION CLAIMED UNDER SECTION 10BA OF THE ACT BY TREATING IT AS NOT DERIVED FROM THE EXPORT BUSINESS AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE, HE HAS DENIED THIS BENEFIT. 4 ITA NO.334/JODH/2013 A.Y. 2009-10 6. REGARDING DAY TODAY CONSUMPTION OF RAW MATERIALS AND KEEPING IN VIEW THE PAST HISTORY OF TRADING ACCOUNT, THE A.O. HAS ADDED RS.10,00,000/-. THUS, THE A.O. HAS ARRIVED AT A TOTAL INCOME OF THE ASSESSEE OF TH IS YEAR AT RS.8,30,40,211/-. 7. AGGRIEVED , THE ASSESSEE FILED APPEAL AND THE LD . CIT(A) HAS DELETED ALL THESE ABOVE MENTIONED ADDITIONS. NOW THE REVENUE IS AGGR IEVED AND HAS FILED THE PRESENT APPEAL. 8. IN ALL, 18 GROUNDS HAVE BEEN RAISED BY THE REVEN UE IN THIS APPEAL. HOWEVER, THESE GROUNDS RAISE ONLY THREE MATERIAL ISSUES WHIC H PERTAIN TO THE ABOVE MENTIONED ADDITIONS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE RECORDS. 10. GROUND NOS.1 TO 10 ARE IN RELATION TO CLAIM OF THE ASSESSEE MADE UNDER SECTION 10BA OF THE ACT. THE CASE OF THE REVENUE A S PUT FORTH BY THE LD. CIT (D.R.) DR. DEEPAK SEHGAL IS THAT THE LD. CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 10BA OF THE ACT AS THE ASSE SSEE HAS NOT MANUFACTURED THE ITEMS WHICH HAVE BEEN EXPORTED BY IT. HE HAS FURTH ER SUBMITTED THAT THE CONDITIONS 5 ITA NO.334/JODH/2013 A.Y. 2009-10 LAID DOWN IN SECTION 10BA(2)(A) OF THE ACT HAVE NOT BEEN FULFILLED BY THE ASSESSEE FIRM. HE HAS ALSO REFERRED TO THE OBSERVATION OF T HE A.O. WHERE HE HAS MENTIONED THAT MOST OF THE GOODS WERE PURCHASED FINISHED GOOD S AND NOT MANUFACTURED BY THE ASSESSEE. 11. ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIV E SHRI GAGGAR HAS CONTROVERTED THE SUBMISSIONS MADE BY THE LD. CIT (D .R.) AND AFTER RELYING ON THE FINDING OF LD. CIT(A) HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAD PURCHASED UNFINISHED HANDICRAFT ITEMS WHICH WERE VAT-FREE ITE MS/GOODS. HE ARGUED THAT ASSESSEE HAS FULFILLED ALL THE REQUISITE CONDITIONS OF SECTION 10BA(2)(A) OF THE ACT. ACCORDINGLY, HE HAS PRAYED THAT THE FINDING OF THE FIRST APPELLATE AUTHORITY MAY BE CONFIRMED. 12. AFTER COGITATING THE RIVAL STAND INCLUDING THE ORDERS OF A.O. AND THE LD. CIT(A), WE HAVE FOUND THAT THE ASSESSEE HAS NOT EXP ORTED THE GOODS AFTER PURCHASING FROM THE MARKET. IN FACT, THE ASSESSEE PURCHASED UNFINISHED ITEMS FROM THE MARKET WHICH IS DULY REFLECTED FROM THE ORDER O F LD. CIT(A). THE ACTIVITY OF THE ASSESSEE AMOUNTS TO MANUFACTURING ACTIVITY AS PROVI DED IN SECTION 10BA OF THE ACT. THE REQUISITE PROCESSING INVOLVED IN PROCESSI NG THE FINISHED GOODS HAVE BEEN TREATED BY THIS VERY BENCH IN NUMEROUS CASES INCLUD ING THAT OF ITO VS. MAKERS 6 ITA NO.334/JODH/2013 A.Y. 2009-10 MART (JD) REPORTED IN (2013) 158 TTJ (JD) 145 HAS B EEN HELD TO BE A MANUFACTURING ACTIVITY. THE PROCESS INVOLVED IN THIS ASSESSEES CASE ARE EXACTLY SIMILAR TO THAT OF MAKERS MARTS CASE (SUPRA). WE HAVE GONE THROUGH T HE COPY OF THIS ORDER PRODUCED BY THE LD. AUTHORIZED REPRESENTATIVE FOR O UR PERUSAL AND ARE CONVINCED THAT THE ASSESSEE IS ENTITLED TO BENEFIT OF SECTION 10BA OF THE ACT. WE ARE AWARE THAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES WE HAV E RENDERED NUMEROUS DECISIONS HOLDING IN A SIMILAR MANNER. IN THE CASE OF DCIT V S. MANGALAM ART, ARTS & CRAFT EXPORTS AND M/S BASANT, JODHPURIN ITA NO.614/J U/20 08 FOR A.Y. 2005-06, THE JODHPUR BENCH HAS FOUND THAT THE ACTIVITIES IN SUCH CASES AMOUNTS TO MANUFACTURING/PRODUCTION. THE ASSESSEE IS ENGAGED MAINLY IN THE BUSINESS OF MANUFACTURE/PRODUCTION AND EXPORT OF WOODEN HANDICR AFT ITEMS. THESE ITEMS CONTAIN ARTISTIC VALUE WHICH GIVES DISTINCT AND SEP ARATE NOMENCLATURE IN THE MARKET AND SUBSTANTIAL VALUE ADDITION IS MADE TOWARDS THEM . ACCORDINGLY, WE CONFIRM THIS FINDING OF THE LD. CIT(A) AND DISMISS GROUND N OS.1 TO 10 OF REVENUES APPEAL. 13. THE NEXT ISSUE CONTAINED IN GROUND NOS.11 TO 14 IS IN RESPECT OF INCLUSION OF AMOUNT RECEIVED/ACCRUED FROM DUTY DRAW BACK OF RS.5 4,79,406/-. 14. THE A.O. HAS DISALLOWED THIS CLAIM IN VIEW OF T HE DECISION OF M/S LIBERTY INDIA REPORTED IN 317 ITR 218 (S.C.). IN FACT, THI S ISSUE IS ALSO FOUND TO BE COVERED 7 ITA NO.334/JODH/2013 A.Y. 2009-10 BY THE DECISION OF THIS VERY BENCH RENDERED IN THE CASE OF MAKERS MART (SUPRA) WHEREIN THIS BENCH HAD HELD AFTER DISCUSSING EVEN T HE DECISION OF LIBERTY INDIA AND STERLING FOODS ETC. ON WHICH THE A.O. HAS RELIED TH AT DUTY DRAW BACK HAS TO BE CONSIDERED AS INCLUDIBLE IN THE CLAIM OF DEDUCTION UNDER SECTION 10BA OF THE ACT. THEREFORE, BY RESPECTFULLY FOLLOWING THE ABOVE ORDE R OF THE TRIBUNAL, WE CANNOT ALLOW THIS ISSUE IN FAVOUR OF THE REVENUE. WE MAY MENTION THAT THE FACTS OF THIS CASE ARE EXACTLY IDENTICAL TO THE FACTS OF MAKERS M ART (SUPRA). ACCORDINGLY, GROUND NOS.11 TO 14 OF THE REVENUES APPEAL STAND DISMISSE D. 15. THE THIRD ISSUE RAISED VIDE GROUND NOS.15 TO 17 IS REGARDING CLAIM OF OPTION LOSS. 16. THE FACTS OF THIS ISSUE WE HAVE ALREADY DISCUSS ED IN THE FORMER PART OF THIS ORDER. BOTH THE PARTIES HAVE REITERATED THEIR EARL IER STAND AND BEFORE US. WE HAVE FOUND THAT THE ASSESSEE HAS CLAIMED OPTION LOSS OF RS.1,99,04,109/- IN FOREIGN CURRENCY TRANSACTION. THE A.O. HAS NOT ALLOWED THI S CLAIM BY OBSERVING THAT THE OPTION IS A DERIVATION AND ANY PROFIT/LOSS OCCURRED IN SUCH TRANSACTIONS IS GOVERNED BY THE PROVISIONS OF SECTION 43(5) OF THE ACT. HE HAS ALSO NOTED THAT THESE TRANSACTIONS WERE NOT CARRIED OUT ELECTRONICALLY IN RECOGNIZED STOCK EXCHANGE. HOWEVER, THE ASSESSEE IS A EXPORTER OF HANDICRAFT I TEMS AND DUE TO FLUCTUATION IN 8 ITA NO.334/JODH/2013 A.Y. 2009-10 THE RATES OF DOLLAR THE ASSESSEE ENTERED INTO A CON TRACT WITH A BANK TO COVER UP THE RISK OF LOSS ARISING OUT OF SUCH FLUCTUATION IN RAT ES OF DOLLAR. THE MAIN OBJECTION OF THE A.O. IS THAT ASSESSEE HAS NOT DONE THESE TRANSA CTIONS TECHNICALLY IN A RECOGNIZED STOCK EXCHANGE. THEREFORE, THESE TRANSACTIONS HAVE TO BE TREATED AS SPECULATIVE TRANSACTIONS. THEREFORE, ANY LOSS ARISING THEREFRO M CONNOTE SET-OFF AGAINST NORMAL BUSINESS PROFIT IN VIEW OF THE PROVISIONS OF SECTIO N 43(5) OF THE ACT. HOWEVER, THE PLAIN READING OF SECTION 43(5)(A) IT BECOMES AMPLY CLEAR THAT IF ANY PERSON ENTERS INTO A CONTRACT DURING THE COURSE OF BUSINESS TO CO VER UP RISKS FOR PRICE FLUCTUATION AND ACTUAL DELIVERY OF GOODS IS MADE, THEN IT WILL NOT BE TREATED AS SPECULATIVE TRANSACTION. IN THE GIVEN CASE, THE ASSESSEE HAS E XPORTED THE GOODS AND ACTUALLY DELIVERED AND THERE IS NO DISPUTE REGARDING THESE T WO FACTS. THE A.O. HAS NOT DOUBTED THE ACTUAL DELIVERY OF THESE GOODS. ACTUAL LY THE ASSESSEE IS NOT ENGAGED IN TRANSACTIONS OF F&O AND COMMODITIES AND TRANSACTION S ARE DONE ELECTRONICALLY. THE ASSESSEE IS NOT A DEALER IN A FOREIGN EXCHANGE. THIS CONTRACT WAS INCIDENTAL TO ITS REGULAR BUSINESS WHICH CAN BE TREATED AS HATCHI NG (???) CONTRACT. SUCH CONTRACTS ARE TREATED AS NOT SPECULATIVE TRANSACTIONS. THE M UMBAI BENCH OF APPELLATE TRIBUNAL IN THE CASE OF DCIT VS. INTERGOLD (I) LIMI TED REPORTED IN 124 TTJ 337 HAS TAKEN A SIMILAR VIEW. THERE ARE LOT MANY OTHER CAS ES IN THIS REGARD WHICH FAVOUR THE CASE OF THE ASSESSEE. ACCORDINGLY, WE CANNOT I NTERFERE IN THIS FINDING OF LD. 9 ITA NO.334/JODH/2013 A.Y. 2009-10 CIT(A) AS WELL. THEREFORE GROUND NOS.15 TO 17 OF T HIS APPEAL ALSO STANDS DISMISSED. 17. THROUGH GROUND NO.18 THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.10,00,000/- WHICH WAS ADDED IN THE TRADING AC COUNT. FOR THIS, IT WAS STATED BY THE LD. CIT (D.R.) THAT THIS IS AN AGREED ADDITI ON FOR WHICH LD. A.R. /ASSESSEE HAD AGREED FOR THE ADDITION THEREOF. IN THIS REGAR D, THE LD. CIT (D.R.) HAS SHOWN US THE RECORDS OF THIS ASSESSMENT ORDER AND THE ORDER SHEET DATED 14.11.2011 IN WHICH IT HAS BEEN RECORDED THAT THE ASSESSEE HAD AGREED F OR THIS ADDITION. HOWEVER, IN THE ASSESSMENT ORDER AT PAGE NO.2, PARA NO.6, NO SUCH O BSERVATION IS FOUND TO HAVE BEEN MADE BY THE A.O. 18. AFTER HEARING BOTH THE SIDES AND SPECIFICALLY G OING THROUGH THE RECORDS, WE HAVE NOTICED THAT THE A.O. DID NOT FIND ANY MISTAKE /DISCREPANCY IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH ARE AUDITED. THE G. P. RATE DISCLOSED BY THE ASSESSEE IN THIS YEAR IS BETTER THAN THE IMMEDIATELY PASSED A.Y. THIS AMOUNT OF RS.10,00,000/- PERTAINS TO TRADING ADDITION WHICH I N THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE CANNOT BE MADE IN THE HA NDS OF THE ASSESSEE AS PER LAW. HOWEVER, DURING THE HEARING BEFORE US THE LD. AUTHO RIZED REPRESENTATIVE DID NOT COUNTER SUCH AN ADMISSION HAVING BEEN MADE BEFORE T HE A.O. IN THESE 10 ITA NO.334/JODH/2013 A.Y. 2009-10 CIRCUMSTANCES, WE ARE LEFT WITH TWO OPTIONS I.E. (1 ) TO CONFIRM THE ADDITION WHICH GOES BEYOND ALL CANON OF LAW GIVEN IN THE FACTS OF THIS CASE AND (2) WE CAN RESTORE THIS ISSUE TO THE FILE OF A.O. WITH A DIRECTION THA T HE SHALL DECIDE THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE LEGAL POSITION REGARDING MAKING TRADING ADDITIONS WITHOUT REJECTING THE BOOKS OF ACCOUNT AN D AFTER TAKING INTO CONSIDERATION THE ASPECT OF AGREEMENT BY ASSESSEE OR HIS LD. A.R. BEFORE HIM MADE ON 14.11.2011. THE A.O. HAS TO TAKE A JUST DECISION I N THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, WE ALLOW G ROUND NO.18 OF REVENUES APPEAL FOR STATISTICAL PURPOSES. 19. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. (ORDER PRONOUNCED IN THE OPEN COURT ON 13.12.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 TH DECEMBER, 2013 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR
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