The Dy. Commr. Of Income Tax, Cir.-1(2), RAJKOT-GUJARAT V. M/s D.M.L. Exim Pvt. Ltd., RAJKOT-GUJARAT

ITA 360/RJT/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8860 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 17-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA
• Assessee Lawyers: MJ RANPURA
• Keywords: Capital asset; Business income; Business expenditure; Earning of tax free income; Services rendered outside India; Retrospective amendment; Non-deduction of tax; Speculation loss; Bad and doubtful debts; Difference of opinion; TDS; Rule 8D; Liquidation
• Section: 143(3); 14A; 40(a)(ia); 43(5); 194C; 195; 201; 194J; 73(1); 13; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER& MS. MADHUMITA ROY, JUDICIAL MEMBER SR. NO. ITA NO. ASSTT. YEAR NAME OF APPELLANT NAME OF RESPONDENT 1. 27/RJT/2016 2012-13 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), RAJKOT M/S. DML EXIM PVT. LTD. 405, EMBASSY TOWER, JAWAHAR ROAD, OPP. PUBLIC GARDEN RAJKOT 2. 360/RJT/2015 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), RAJKOT M/S. DML EXIM PVT. LTD. 405, EMBASSY TOWER, JAWAHAR ROAD, OPP. PUBLIC GARDEN RAJKOT 3. 315/RJT/2015 2011-12 M/S. DML EXIM PVT. LTD. 405, EMBASSY TOWER, JAWAHAR ROAD, OPP. PUBLIC GARDEN RAJKOT THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, RAJKOT ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. N. MAURYA, CIT DR / RESPONDENT BY : SHRI M. J. RANPURA, AR / DATE OF HEARING 25/02/2020 !' / DATE OF PRONOUNCEMENT 28/07/2020 #$ / O R D E R PER MADHUMITA ROY, JUDICIAL MEMBER: IN THIS BUNCH OF APPEALS TWO APPEALS WERE FILED BY THE REVENUE AGAINST THE ORDERS DATED 30.10.2015 & 14.05.2015 PA SSED BY PASSED BY THE LD. CIT(A)-1, RAJKOT FOR A.YS. 2012-13 & 2011-12 RE SPECTIVELY AND THE ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 2 - ASSESSEE HAS COME UP AGAINST THE ORDER DATED 14.05. 2015 FOR A.Y. 2011-12 AND PASSED BY PASSED BY THE LD. CIT(A)-1, RAJKOT AL L UNDER SECTIONS 143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) FOR A.YS. 2011-12 & 2012-13 RESPECTIVELY. ITA NO. 27/RJT/2016 A.Y. 2012-13 IS TAKEN AS THE LE AD CASE. 2. THE GROUND NO. 1 RELATES TO DELETION OF DISALLOW ANCE MADE ON ACCOUNT OF CONTRACT CANCELLATION AMOUNTING TO RS. 2 ,80,05,500/-. THE APPELLANT, A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING OF AGRICULTURAL PRODUCTS, BUILDING CONSTRUC TION AND GENERATION OF POWER/ENERGY, HAS FILED ITS RETURN OF INCOME DECLAR ING INCOME OF RS. 23,96,84,200/- ON 08.09.2012. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS FOUND THAT THE APPELLANT HAS PAID AN AMOUNT OF RS. 2,80,05,500/- A S CONTRACT CANCELLATION CHARGES TO VARIOUS FOREIGN PARTIES AND THE SAME WAS IN THE NATURE OF PAYMENT BEING MADE FOR NON-FULFILLMENT OF THE CONTR ACTUAL TERMS AND CONDITIONS RESULTING IN SETTLEMENT OF CONTRACTS AT A PRICE WHICH IS LOWER THAN PRE-DETERMINED PRICE AS A RESULT OF WHICH THE APPEL LANT HAD TO MAKE PAYMENT IN TERMS OF THE CONTRACT. THE ASSESSEE SUBMITTED T HE COMPLETE DETAILS ON THESE CONTACT INCLUDING THE RELATING DETAILS FOR TH E YEAR UNDER APPEAL AS WELL FOR EARLIER TWO YEARS, AS ALSO THE ARBITRATION AWAR D OF INTERNATIONAL COTTON ASSOCIATION LTD. HOWEVER, THE LD. AO HELD THAT CAN CELLATION OF TRANSACTIONS CAUSED ON ACCOUNT OF NON-DELIVERY WITH IN THE SPECIFIED TIME THE SURPLUS/DEFICIT SO GENERATED LEADING TO PAYMENT OR RECEIPT OF MONEY ACQUIRED THE COLOUR OF SPECULATION PROFIT/LOSS. TH E TRANSACTIONS ARE ARRANGED IN SUCH A WAY AS TO REDUCE THE PROFIT. THE LD. AO HELD THAT AS PER PROVISION OF SEC. 73(1) LOSS OF SPECULATION BUSINESS OR ACTIV ITY CANNOT BE SET OFF ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 3 - AGAINST THE PROFIT GENERATED FROM REGULAR BUSINESS AND UPON HOLDING THE CONTRACT CANCELLATION CHARGES OF RS. 2,80,05,500/- AS SPECULATION LOSS HE ULTIMATELY DISALLOWED THE SAME. IN APPEAL THE SAM E IS ALLOWED AND ADDITION WAS DELETED BY THE LD. CIT(A). HENCE, THE INSTANT APPEAL BEFORE US. 3. AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LD. AR APPEARING FOR THE ASSESSEE TOOK US TO THE DETAILS ANNEXED TO THE PAPER BOOK REGARDING THE CONTRACT CANCELLATION CHARGES OF THE ASSESSEE COMPA NY WHICH WE HAVE CAREFULLY GONE THROUGH. WE HAVE ALSO PERUSED THE S ALES CONTRACT ENTERED INTO BY AND BETWEEN THE ASSESSEE AND THE OTHER PART IES ANNEXED TO THE PAPER BOOK FILED BEFORE US. 4. THE CASE OF THE ASSESSEE IS THIS THAT IT IS IN T HE BUSINESS OF EXPORT OF COTTON AND OTHER AGRICULTURAL PRODUCTS TO VARIOUS C OUNTRIES AND WHILE PROCURING THE EXPORT ORDERS THE APPELLANT ENTERS IN TO CONTRACT PROFORMA INVOICE WITH THE PROPOSED PURCHASERS OF THE FOREIGN COUNTRY SPECIFYING THEREIN THE TERMS OF THE CONTRACT OF GOODS, THE TIM E PERIOD OF SUPPLY AND THE RATE. FAILURE OF THE TERMS OF CONTRACT THOUGH RESU LTS IN MORE LOSS THE SAME DISPUTE IS SETTLED WITH THE PROPOSED BUYER BY PAYIN G THE CANCELLATION CHARGES OR BY GETTING THE DETAILS AS THE CASE MAY B E. THEREFORE, THE CONTRACT CANCELLATION CHARGES ARE IN THE NATURE OF PAYMENT F OR FAILURE TO OBLIGE CONTRACTUAL TERMS AND CONDITIONS RESULTING IN SETTL EMENT OF CONTRACTS AT A PRICE OF LOWER THAN PRE-DETERMINED PRICE AND THUS T HE APPELLANT HAD TO MAKE PAYMENT AS PER TERMS OF CONTRACT. THE CANCELLATION OF THE CONTRACT WAS IN RESPECT OF SUPPLY OF GOODS IN WHICH THE APPELLANT D EALS. IT IS THE APPELLANT WHO KNOWS HIS BUSINESS AND HE KNOWS WHEN TO ENTER I NTO A CONTRACT AND WHEN TO EXIT. TAKING INTO CONSIDERATION THIS PARTI CULAR ASPECT OF THE MATTER THE LD. CIT(A) JUSTIFIED SUCH CANCELLATION OF CONTR ACTS BY THE APPELLANT WHICH ACCORDING TO HIM A PART AND PARCEL OF THE REG ULAR EXPORT BUSINESS. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 4 - DISALLOWANCE OF SUCH CONTRACT CANCELLATION PAYMENT HOLDING IT SPECULATIVE IN NATURE BY THE AO HAS, THEREFORE, BEEN DIRECTED T O BE DELETED. HAVING REGARD TO THE ENTIRE ASPECT OF THE MATTER WE FIND NO AMBIGUITY IN THE ORDER PASSED BY THE LD. CIT(A) WHO TOOK INTO CONSIDERATION OF THE ORDER PASSED BY THE FIRST APPELLATE AUTHORITY WHERE BY AND WHEREUNDER DISALLOWANCE OF CANCELLATION CHARGES FOR NON-DEDUCT ION OF TDS IN RESPECT OF THE IMMEDIATE PRECEDING ORDER WAS DELETED WHICH ACC ORDING TO US IS JUST AND PROPER SO AS TO WARRANT INTERFERENCE. WE, THUS, FI ND NO MERIT IN THE GROUND OF APPEAL PREFERRED BY THE REVENUE AND THUS THE SAM E IS HEREBY DELETED. 5. GROUND NO.2 RELATES TO DISALLOWANCE OF RS. 9,73, 33,826/- BEING EXPORT COMMISSION PAID TO NON-RESIDENT AGENTS, U/S. 40(A)(IA) ON THE GROUND OF NON-DEDUCTION OF TDS. THE CASE OF THE REVENUE IS THIS THAT THE PERSON MA KING PAYMENT TO THE NON-RESIDENT WOULD BE LIABLE TO BE DEDUCTED TAX UNDER SECTION 194H OF THE ACT IF THE PAYMENT SO DISCHARGEABLE TO TAX UNDE R THE ACT IN VIEW OF THE CRUCIAL EXPRESSION IS ANY OTHER SUM CHARGEABLE UND ER THE PROVISION OF THIS ACT UNDER SECTION 195(1) OF THE I.T. ACT. THE CAS E OF THE ASSESSEE IS THIS THAT DISALLOWANCE UNDER SECTION 40(A)(IA) R.W.S. 19 4H WOULD COME INTO PLAY WHEN THE PAYER HAS NOT DEDUCTED THE TAX AT SOURCE O N THE SUM PAID/CREDIT IN THE ACCOUNT OF A RESIDENT. ULTIMATELY THE LD. AO C AME TO A CONCLUSION THAT AS PER AMENDED PROVISION OF SEC. 195(1) OF THE ACT THE APPELLANT IS LIABLE TO DEDUCT TAX AT SOURCE ON THE COMMISSION PAYMENT TO T HE NON-RESIDENT AGENTS. SINCE THE APPELLANT FAILED TO DEDUCT TDS UNDER 194H ON THE SAID PAYMENT, THE EXPENSES HAVE BEEN DISALLOWED AS BUSINESS EXPEN DITURE IN VIEW OF THE PROVISION OF SEC. 40(A)(IA) OF THE ACT. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 5 - 6. AT THE TIME OF HEARING OF THE INSTANT APPEAL LD. DR RELIED UPON THE ORDER PASSED BY THE LD. AO. 7. ON THE OTHER HAND, THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE AO HIMSELF HAS ACCEPTE D THE FACT THAT THE PAYMENT OF COMMISSION IS MADE TO NON-RESIDENT BY RE FERRING TO 195(1) OF THE ACT. IT WAS FURTHER POINTED OUT THAT THE RESPO NDENT HAD PAID COMMISSIONS ON FOREIGN PARTIES FOR RENDERING SERVIC ES FOR SOLICITING CUSTOMERS FOR ITS EXPORT BUSINESS ACTIVITIES. SUCH PARTICULAR FACT HAS NOT BEEN CONSIDERED BY THE LD. AO IN ITS PROPER PERSPEC TIVE AND THE ASSESSEE HAS BEEN MADE LIABLE TO DEDUCT TAX AT SOURCE U/S. 1 94H OF THE ACT. HE HAS FURTHER RELIED UPON THE JUDGMENT PASSED BY THE CO-O RDINATE BENCH IN ITA NO. 573/RJT/2014 FOR A.Y. 2010-11 WHERE THE SIMILAR DISALLOWANCE HAS BEEN DELETED. RELIANCE WAS ALSO PLACED ON THE DECISION PASSED BY THE HONBLE GUJARAT HIGH COURT IN THE PR. COMMISSIONER OF INCOM E TAX VS. MGM EXPORTS IN TAX APPEAL NO. 309 OF 2018. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE RELEV ANT MATERIALS AVAILABLE ON RECORDS. SECTION 195 OF THE ACT CLEARLY PROVIDES THAT UNLES S THE INCOME IS LIABLE TO BE TAXED IN INDIA THERE IS NO OBLIGATION TO WITHHOLD THE TAXES IN INDIA. FURTHER, THE BASIC CONDITION UNDER SECTION 9 OF THE ACT WITH RESPECT TO INCOME ACCRUING AND ARISING IN INDIA NAMELY CONN ECTION WITH THE PROPERTY IN INDIA OR CONTROL AND MANAGEMENT VESTED IN INDIA, ARE NOT SATISFIED IN THE PRESENT CASE. THE COMMISSION EXPE NSES PAID ON EXPORT SALES TO A NON-RESIDENT ADMITTEDLY FOR SERVICES RENDERED OUTSIDE INDIA IS NOT COMING UNDER THE PURVIEW OF SEC. 40(A)(IA) OF THE A CT. IT IS RELEVANT TO MENTION THAT THE COMMISSION SIMPLICITER IS NOT FE ES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT AND SAME BEING T HE NATURE OF BUSINESS ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 6 - INCOME FOR RECIPIENT OF INCOME/PAYEE/NON-RESIDENT, IS NOT TAXABLE IN INDIA IN VIEW OF SEC. 9(1)(I) IN THE CASE OF ABSENCE OF BUSI NESS CONNECTION IN INDIA. 9. IN THIS RESPECT, WE HAVE CONSIDERED THE JUDGMENT PASSED BY THE HONBLE CO-ORDINATE BENCH IN ITA NO. 573/RJT/2014 I N ASSESSEES OWN CASE FOR A.Y. 2010-11; WHILE DEALING WITH THE IDENTICAL ISSUE UPON MAKING THE FOLLOWING OBSERVATION SUCH DISALLOWANCE WAS DELETED . THE FOLLOWING OBSERVATION IS AS FOLLOWS:- 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERI AL AND UNDISPUTED FACTS NEED TO BE TAKEN NOTE OF. DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEDUCTED TAX UN DER SECTION 194C FROM THE PAYMENT AGGREGATING TO RS.67,84,807/- TO THE CUSTOM S HOUSE AGENTS WHEREAS ACCORDING TO THE ASSESSING OFFICER, TAX WAS DEDUCTI BLE UNDER SECTION 194J. THE ASSESSING OFFICER WAS THUS OF THE VIEW THAT THE RE WAS A SHORT DEDUCTION OF TAX AT SOURCE FROM THESE PAYMENTS. IT WAS IN THIS B ACKDROP HE CAME TO THE CONCLUSION THAT THERE WAS FAILURE TO DEDUCT TAX AT SOURCE FROM PAYMENTS TO THE CUSTOMS HOUSE AGENTS AND ACCORDINGLY THE SAME IS TO BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. AGGRIEVED BY THE DISA LLOWANCE SO MADE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT(A). IT WAS, INTER ALIA, CONTENDED BY THE ASSESSEE THAT THE DISALLOWANCE UND ER SECTION 40(A)(IA) CANNOT BE RESORTED TO IN THE CASE OF SHORT DEDUCTIO N OF TAX AT SOURCE, EVEN IF ANY AND, THEREFORE, THE IMPUGNED DISALLOWANCE IS UN SUSTAINABLE IN LAW. RELIANCE WAS PLACED ON HONBLE HIGH COURT OF CALCUT TA IN THE CASE OF CIT VS. S.K. TEKRIWAL, 260 CTR 73. ACCEPTING THESE ARGUMENT S, LEARNED CIT(A) DELETED THE IMPUGNED DISALLOWANCE AND JUSTIFIED HIS STAND AS FOLLOWS :- 7. WHILE HOLDING THAT THE PAYMENTS MADE TO CHAS ARE LI ABLE FOR TAX DEDUCTION AT SOURCE U/S. 194J OF THE IT ACT, 1961, THE ISSUE AT HAND IS WHETHER THE ASSESSING OFFICER IS JUSTIFIED TO DISALLOW THE ENTIRE PAYMENT MADE TO CHAS AT RS.67,84,807/- U/S. 40(A)(IA) OF THE IT ACT, 1961 O N THE GROUND THAT THE APPELLANT HAS DEDUCTED THE TAX ON THE IMPUGNED PAYM ENTS U/S. 194C @ 2% AS AGAINST STIPULATED DEDUCTION OF TAX @ 10% U/S. 194J OF THE IT ACT, 1961. THE ASSESSING OFFICER HAS NOT MADE ANY NOTABLE DISCUSSI ON ON THIS ISSUE. HOWEVER, ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIVE HA S CITED THE JUDGEMENT OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT V S. S.K. TEKRIWAL 260 CTR 0073, WHEREIN IT HAS BEEN HELD THAT EXPENSES ARE N OT LIABLE TO BE DISALLOWED U/S 40(A)(IA) ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE. THE RELEVANT PARAGRAPH OF THE JUDGEMENT IS REPRODUCED HEREUNDER FOR THE SAKE OF BREVITY: WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAS TWO LIMBS ONE IS WHERE, INTER ALIA, ASSESSEE HAS TO DED UCT TAX AND THE SECOND WHERE AFTER DEDUCTING TAX, INTER ALIA, THE ASSESSEE HAS TO PAY INTO GOVERNMENT ACCOUNT. THERE IS NOTHING IN THE SAID SECTION TO TR EAT, INTER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTIO N. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEF AULT AS THE DEDUCTION IS NOT ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 7 - AS REQUIRED BY OR UNDER THE ACT, BUT THE FACTS IS T HAT THIS EXPRESSION, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XIVV-B AN D SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON O R BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THIS S ECTION 40(A)(IA) OF THE ACT REFERS ONLY TO THE DUTY TO DEDUCT TAX AND PAY TO GO VERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS T O THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENT FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S. 2 01 OF THE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 8. APART FROM THE ABOVE CITATION, THE AUT HORISED REPRESENTATIVE HAS CITED THE FOLLOWING JUDGEMENTS TO BUTTRESS HIS ARGU MENTS THAT THE DISALLOWANCE U/S. 40(A)(IA) IS NOT WARRANTED WHEN THE TAX DEDUCT ION AT SOURCES WAS INCORRECTLY ME UNDER A DIFFERENT SECTION WHICH RESU LTED IN THE SHORTFALL. HONBLE ITAT DELHI E BENCH IN THE CASE OF GLAXO S MITHKLINE CONSUMER HEALTHCARE LTD. VS. ITO 12 SOT 221 (DELHI) HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. JIVANLAL LALLOOBHAI& CO. 206 IT R 548 (BOM) HONBLE ITAT, MUMBAI B BENCH IN THE CASE OF ACIT VS. MERC HANT SHIPPING SERVICES (P) LTD. 129 ITD 109 (MUMBAI) HONBLE ITAT MUMABI IN THE CASE OF DCIT VS. CHANDABHOY & JASSOBHOY 49 SOT 448 (MUMBAI) 9. R ESPECTFULLY FOLLOWING THE ABOVE JUDGEMENT, I AM ALSO OF THE VIEW THAT IN A CASE LIKE THIS, WHERE THE APPELLANT HAS DEDUCTED TAX AT SOURCE IN RESPECT OF THE PAYMENTS MADE TO CHAS @ 2% UNDER SECTION 194C, WHEN IT IS REQUIRED T O BE MADE @10% U/S. 194J OF THE IT ACT, 1961, THE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT, 1961 CANNOT BE MADE APPLICABLE. AS HELD BY THE HON BLE HIGH COURT OF CALCUTTA IN THE ABOVE REFERRED CASE THAT IF THERE I S ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY I TEM OR THE NATURE OF PAYMENT FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S. 201 OF THE ACT AND NO DISA LLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER CANNOT B E SUSTAINED. THE ADDITION MADE AT RS.67,84,807/- ON ACCOUNT OF DISALLOWANCE O F PAYMENTS MADE TO CHAS U/S. 40(A)(IA) OF THE IT ACT, 1961 STANDS DELE TED. THIS GROUND OF APPEAL IS ALLOWED. 3. AGGRIEVED BY THE RELIEF SO GRANTED BY THE LD. CIT(A), THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 4. WE HAV E HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DUL Y CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. WE ARE NOT INCLINED TO DISTURB THE VERY WELL REASONED CONCLUSIONS ARRIVED AT BY THE LD. CIT(A) AS HE HAS EXPLAINED AT LENGTH A BINDING JUDICIAL PRECEDEN T FOR THE PROPOSITION THAT A SHORT DEDUCTION OF TAX AT SOURCE, EVEN IF ANY, CANN OT BE VISITED WITH THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. TH EREFORE, THE DISALLOWANCE WAS UNSUSTAINABLE IN LAW AND THE LD. CIT(A) WAS QUI TE JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE. WE APPROVE AND UPHOLD THE ER UDITE AND WELL REASONED STAND TAKEN BY THE LD. CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. APART FROM THAT WE HAVE FURTHER CONSIDERED THE APP EAL PREFERRED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CO-ORDI NATE BENCH IN ALLOWING THE APPEAL. WE HAVE FURTHER CONSIDERED THE JUDGMEN T PASSED BY THE HONBLE ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 8 - JURISDICTIONAL HIGH COURT IN THE MATTER OF PR. COMM ISSIONER OF INCOME TAX VS. MGM EXPORTS IN TAX APPEAL NO. 309 OF 2018. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS:- 6. THE SECOND ISSUE RELATES TO THE ADDITION MADE B Y THE ASSESSING OFFICER OF A SUM OF RS. 5.05 LACS UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE ASSESSEE HAD NOT DEDUCTED TAX A T SOURCE ON FOREIGN COMMISSION PAYMENTS. THE TRIBUNAL HOWEVER, RECORDED THAT THE NON-RESIDENT AGENT OF THE ASSESSEE WAS OPERATING AT HIS OWN LEVE L AND NO PART OF THE INCOME AROSE OR ACCRUED IN INDIA. 7. IN THE RECENT ORDER IN TAX APPEAL NO. 290 OF 201 8, WE HAD DEALT WITH SIMILAR SITUATION MAKING FOLLOWING OBSERVATIONS: 'IT CAN THUS BE SEEN THAT WHILE CONFIRMING THE ORDE R OF CIT [A], THE TRIBUNAL RELIED ON JUDGMENT OF THE SUPREME COURT IN THE CASE OF G.E INDIA TECHNOLOGY CENTRE P. LIMITED VS. COMMISSIONER OF INCOME-TAX &A NR ., REPORTED IN [2010] 327 ITR 456 (SC). IN SUCH JUDGMENT, IT WAS HELD AND OBSERVED THAT C/TAXAP/309/2018 ORDER THE MOST IMPORTANT EXPR ESSION IN SECTION 195 [1] OF THE ACT CONSISTS OF THE WORDS, 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. IT WAS OBSERVED THAT, '..A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE ACT.' COUNSEL FOR THE REVENUE, HOWEVER, D REW OUR ATTENTION TO THE EXPLANATION 2 TO SUB-SECTION [1] OF SECTION 195 OF THE ACT WHICH WAS INSERTED BY THE FINANCE ACT OF 2012 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 1 962. SUCH EXPLANATION READS AS UNDER :- EXPLANATION 2 - FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND TO MA KE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESI DENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS - [I] A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR [II] ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDI A. IT IS INDISPUTABLY TRUE THAT SUCH EXPLANATION INSER TED WITH RETROSPECTIVE EFFECT PROVIDES THAT OBLIGATION TO COMPLY WITH SUBSECTION [1] OF SECTION 195 WOULD EXTEND TO ANY PERSON RESIDENT OR NON-RESIDENT, WHET HER OR NOT NON-RESIDENT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSI NESS CONNECTIONS IN INDIA OR ANY OTHER PERSONS IN ANY MANNER WHATSOEVER IN IN DIA. THIS EXPRESSION WHICH IS ADDED FOR REMOVAL OF DOUBT IS CLEAR FROM T HE PLAIN LANGUAGE THEREOF, MAY HAVE A BEARING WHILE ASCERTAINING WHETHER CERTA IN PAYMENT MADE TO A NON-RESIDENT WAS TAXABLE UNDER THE ACT OR NOT. HOWE VER, ONCE THE CONCLUSION IS ARRIVED THAT SUCH PAYMENT DID NOT ENTAIL TAX LIA BILITY OF THE PAYEE UNDER THE ACT, AS HELD BY THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 9 - P. LIMITED [SUPRA], SUB-SECTION [1] OF SECTION 195 OF THE ACT WOULD NOT APPLY. THE FUNDAMENTAL PRINCIPLE OF DEDUCTING TAX AT SOURC E IN C/TAXAP/309/2018 ORDER CONNECTION WITH PAYMENT ONLY, WHERE THE SUM I S CHARGEABLE TO TAX UNDER THE ACT, STILL CONTINUES TO HOLD THE FIELD. I N THE PRESENT CASE, THE REVENUE HAS NOT SEVEN SERIOUSLY CONTENDED THAT THE PAYMENT TO FOREIGN COMMISSION AGENT WAS NOT TAXABLE IN INDIA. TAX APPEAL IS THEREFORE DISMISSED.' 8. IN THE RESULT, TAX APPEAL IS DISMISSED. FURTHER THAT WE HAVE CONSIDERED THE JUDGMENT PASSE D BY THE CO- ORDINATE BENCH IN THE CASE OF ACIT VS. RIMTEX INDUS TRIES IN ITA NO. 315/RJT/2013 AS RELIED UPON BY THE LD. AR AND THE J UDGMENT PASSED BY THE HONBLE APEX COURT IN THE CASE OF ISHIKAWAJIMA HARI MA HEAVY INDUSTRIES LTD. (2008) 288 ITR 408 (SC). 10. WE FIND THAT THE RATIO LAID DOWN BY ALL THE ABO VE JUDGMENTS HOLDING THAT WHEN THE COMMISSION HAS BEEN PAID TO FOREIGN P ARTIES FOR RENDERING SERVICES ADMITTEDLY ABROAD FOR SOLICITING CUSTOMERS FOR ITS EXPORT BUSINESS ACTIVITIES, THE APPELLANT IS NOT LIABLE FOR SHORT D EDUCTION OF TAX AT SOURCE AND THEREFORE DISALLOWANCE MADE ON THIS SCORE UNDER SEC TION 40(A)(IA) IS NOT PERMISSIBLE. HENCE, KEEPING IN MIND SUCH JUDICIAL PRECEDENT WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE LD. AO UNDER SECTION 40(A)(IA) OF THE A CT HOLDING THAT SUCH COMMISSION IS NOT FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT AND THE SAME BEING IN NATURE OF BUSINESS INCOME FOR RECIPIENT OF INCOME/PAYEE/NON-RESIDENTS IS NOT TAXABLE IN INDIA IN TERMS SEC. 9(1)(I) IN THE ABSENCE OF BUSINESS CONNECTION IN INDIA, SO AS TO WARRANT INTERFERENCE. WE, THEREFORE, FIND NO MERIT IN THE ISSUE RAISED BY THE REVENUE. HENCE, THE SAME IS DISMISSED. 11. THE NEXT GROUND RELATES TO DELETION OF DISALLOW ANCE OF FOREIGN EXCHANGE FLUCTUATION OF RS. 46,28,828/-. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 10 - DURING THE COURSE OF ASSESSMENT PROCEEDING FROM TH E FINAL ACCOUNTS IT WAS GATHERED THAT UNDER THE HEAD ADMINISTRATION / G ENERAL EXPENSES, THE ASSESSEE HAS CLAIMED OTHER GENERAL ADMINISTRATIVE E XPENSES AT RS. 1,21,09,315/-, THE DETAILS WHEREOF WERE ALSO FURNIS HED BEFORE THE AUTHORITIES BELOW. FROM THE DETAILS IT WAS FURTHER FOUND THAT THE GENERAL ADMINISTRATIVE EXPENSES INCLUDED THE FLUCTUATION IN FOREIGN CURREN CY AT RS. 46,28,828/- THE ASSESSEE EXPLAINED HIS CLAIM BEFORE THE AO WHIC H WAS ACCEPTED BY THE LD. AO TO THE EXTENT THAT THE DOLLAR BOOKINGS MADE IN ADVANCE AND SET OFF AGAINST DOLLAR REMITTANCES AS HEDGING TRANSACTION. HOWEVER, DOLLAR BOOKINGS NOT SET OFF AGAINST DOLLAR REMITTANCES ARI SING FROM EXPORTS HAS NOT BEEN ACCEPTED TO BE FRAMED AS HEDGING BY THE LD. AO AS THERE IS BOOKING IN EXCESS OF THE ACTUAL REMITTANCE ACCEPTED TO BE RECE IPT, WHICH ACCORDING TO THE LD. AO FALLS UNDER THE SCOPE AND PURVIEW OF SPE CULATION. HE, THEREFORE, ADDED RS. 46,28,828/- IN RESPECT OF THE CLAIM OF FL UCTUATION IN FOREIGN EXCHANGE CONSIDERING THE SAME AS SPECULATION WITH A RIDER THAT ASSESSEE CAN SET OFF HIS SPECULATION LOSS AGAINST THE SPECULATIO N INCOME AS PROVIDED BY THE ACT. IN APPEAL THE LD. CIT(A) DELETED SUCH ADD ITION RELYING UPON THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PANCHMAHAL STEEL LTD. HENCE, THE INSTANT APPEAL BE FORE US. 12. AT THE TIME OF HEARING OF THE INSTANT APPEAL T HE LD. DR RELIED UPON THE ORDER PASSED BY THE LD. AO. 13. ON THE OTHER HAND, THE LD. COUNSEL APPEARING FO R THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS SQUARELY COVE RED BY THE JUDGMENT PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PANCHMAHAL STEEL LTD. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 11 - 14. WE HAVE HEARD THE RESPECTIVE PARTIES, WE HAVE A LSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD INCLUDING TH E ORDERS PASSED BY THE AUTHORITIES BELOW. IT APPEARS THAT THE ASSESSEE MA DE THE FOLLOWING SUBMISSION BEFORE THE LD. AO:- NORMALLY WHEN WE CONFIRM ANY EXPORT SALE CONTRACT, TO PREVENT ANY FUTURE LOSS DUE TO CHANGE IN EXCHANGE RATES WE BOOK (HEDGE) DOLLARS FROM OUR BANKER ORIENTAL BANK OF COMMERCE WHERE WE HAVE DOCUMENT DISCOUNTING LIMI TS. LATTER ON WE SUBMIT THE DOCUMENTS FOR COLLECTION/DISCOUNT AGAINST THIS DOLL AR BOOKING CONTRACTS. FIRSTLY WE ONLY SALES THE DOLLARS AND NEVER PURCHAS E DOLLARS. AFTER DOLLAR BOOKING WE GIVE SALES DOCUMENTS FOR COLLECTION/DISCOUNT. BEFO RE THE EXPIRY OF THE CONTRACT IF WE CANNOT SUBMIT THE DOCUMENTS THEN THE UNUTILIZED PAR T OF CONTRACT IS SETTLED BY THE BANK. THUS THE FORWARD CONTRACTS DONE BY US ARE ONLY ONE SIDED AND ONLY FOR THE PURPOSE OF HEDGING AND NOT THE PURPOSE OF DOING ANY SPECULATIV E GAIN OR LOSS. THUS IF WE BOOK DOLLAR FOR LATTER PERIOD THEN WE GE T MORE RATE I.E. WE GET PREMIUM AS PER RBI & BANKING PREMIUM RULES. SIMILARLY IF WE GIVE THE DOCUMENTS AGAINST FUTURE P ERIOD OF BOOKING THEN THE BANK GET BACK THE PREMIUM OF THE SAME AND THIS CHARGES THEY DEBIT TO OUR ACCOUNT UNDER THE HEAD OF FORWARD CONTRACT EARLY DELIVERY CHARGES. T HUS THE FORWARD CONTRACT EARLY DELIVERY CHARGES PAID BY US ARE JUST RETURN BACK OF EXCESS PREMIUM WHICH WE GET AT THE TIME OF BOOKING OF DOLLAR. THIS AMOUNT IS NOT AT ALL SPECULATIVE BUT IT IS ROUTINE PRACTICE AND PART AND PARTIAL OF THE BANKING AND EX PORT BUSINESS TRANSACTIONS. THOUGH IN SPITE OF THE SAME THE AO TERMED THE DOLLA R BOOKINGS, WHICH WAS NOT SET OFF AGAINST THE DOLLAR REMITTANCE , AS SPECULATION AND NOT HEDGING SINCE THERE IS BOOKING IN EXCESS OF THE ACT UAL REMITTANCE ACCEPTED TO BE RECEIVED. HOWEVER, AS WE FIND FROM THE RECORDS WHILE ALLOWING THE CLAIM OF THE ASSESSEE THE LD. CIT(A) OBSERVED AS FO LLOWS:- 7.2 I HAVE PERUSED THE ASSESSMENT ORDER AND THE WR ITTEN SUBMISSION FILED BY THE LD. AR. THE AO VIDE PARA 7 OF THE ASSESSMENT ORDER HAD HEL D THAT THE FLUCTUATION IN FOREIGN CURRENCY AROSE ON ACCOUNT OF THE DOLLAR BOO KINGS BY WAY OF ADVANCE CONTRACTS ENTERED INTO BY ASSESSEE WITH THE BANKS A GAINST WHICH THE REALIZATION OF DOLLAR AT THE TIME OF EXPORT IS ADJUSTED AND THE E XTENT OF THE UNUTILIZED DOLLAR BOOKED IN ADVANCE BY THE ASSESSEE WITH THE BANK WHICH REMA INED OUTSTANDING AT THE END OF THE MONTH, WAS CLOSED BY THE BANK BY CREDITING/DEBI TING THE ASSESSEES ACCOUNT TO THE EXTENT OF THE UNUSED DOLLAR LEFT BEHIND OUT OF THE DOLLAR BOOKING FOR WANT OF EXPORT REALIZATION, IS SPECULATIVE I NATURE. ACCORDING TO THE AO,THIS SETTLEMENT IS DONE ON A MONTH TO MONTH BASIS BY THE BAN AND THERE IS NO SQU ARING UP OF TRANSACTIONS BY WAY OF ACTUAL REALIZATION OF DOLLAR. ON THE OTHER HAND , THE LD. AR SUBMITTED THAT, IN THE ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 12 - APPELLANTS EXPORT BUSINESS, THERE IS ALWAYS A RISK OF FLUCTUATING FOREIGN CURRENCY AT THE TIME OF REALIZATION OF SALE PROCEEDS. THEREFOR E IN ORDER TO HEDGE AGAINST THE LOSS, THE APPELLANT ENTERS INTO FORWARD CONTRACTS WITH IT S BANK AND TRIES TO MINIMIZE THE RISK ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE AGAINST THE FUTURE EXPORT SALES REALIZATION. IT IS ALSO SEEN THAT, FORWARD CONTRAC TS ARE EXTENSIVELY USED TO GET EXPORT RECEIVABLES HEDGED AGAINST ADVERSE CURRENCY MOVEMEN TS. THE LD. AR ALSO ADMITS THAT, SUCH CONTRACTS ARE ONLY EXECUTED AGAINST THE EXPORT RECEIVABLES AND THESE FACTS ARE CLEARLY MENTIONED IN THE SAID CONTRACT. SO IT CAN BE SAID THAT THE TRANSACTIONS INVOLVED IN THESE CONTRACTS HAVE DIRECT NEXUS WITH THE EXPORT OF SPECIFIC MERCHANDISE AND EXPORT RECEIVABLES. THE APPELLANTS LD. AR ALS O BROUGHT ON RECORD THE LARGE FLUCTUATION IN FOREIGN CURRENCY DURING THE RELEVANT FINANCIAL YEAR, IN ORDER TO JUSTIFY THE APPELLANTS ACTION OF CURRENCY HEDGING. THIS I S SUMMARIZED SUPRA, IN THE WRITTEN SUBMISSION. AS PER THIS CHART, THERE IS VARIATION OF UPTO 10 USD BETWEEN MAY 2011 AND DECEMBER, 2011. I FIND SUBSTANTIAL FORCE IN THE ABOVE CONTENTION O F THE LD. AR . IT IS ALSO SEEN THAT THE ISSUE IS NOW SQUARELY COVERED BY THE DECIS ION OF THE HON. GUJARAT HIGH COURT IN THE CASE OF CIT VS. PANCHMAHAL STEEL LTD. WHERE IT RELIED UPON ITS OWN DECISION IN THE CASE OF FRIENDS AND FRIENDS SHIPPIN G P. LTD., WHEREIN IT WAS HELD THAT THOUGH THE ASSESSEE IS NOT A DEALER IN FOREIGN EXCH ANGE, IT ENTERED INTO FORWARD CONTRACTS WITH BANKS FOR THE PURPOSE OF HEDGING THE LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE WHILE IMPLEMENTING THE EXPORT CONTRACTS. THE TRANSACTIONS IN FOREIGN EXCHANGES WERE INCIDENTAL TO THE ASSESSEES REGULAR COURSE OF BUSINESS AND THE LOSS WAS THUS NOT A SPECULATIVE LOSS UNDER SECTION 43(5) BUT WAS INCIDENTAL TO THE ASSESSEES BUSINESS AND ALLOWABLE AS SUCH. THUS, T HE HEDGING OF CURRENCY IS INCIDENTAL TO THE APPELLANTS BUSINESS AND THE SAME IS THEREFORE HELD AS ALLOWABLE BUSINESS EXPENDITURE. THE DISALLOWANCE MADE BY THE AO IS THEREFORE DIRECTED TO BE DELETED. THUS, FROM THE ABOVE IT APPEARS THAT IT IS SPECIFIC OBSERVATION MADE BY THE LD. CIT(A) THAT THOUGH THE ASSESSEE IS NOT A DEALER IN FOREIGN EXCHANGE IT HAD ENTERED INTO FORWARD CONTRACTS WITH BANKS FOR THE PURPOSE OF HEDGING THE LOSS DUE TO FLUCTUATION OF FOREIGN EXCH ANGE WHILE IMPLEMENTING THE EXPORT CONTRACTS. SUCH TRANSACTION IN FOREIGN EXCHANGES WERE TRULY IDENTICAL TO THE ASSESSEES REGULAR COURSE OF BUSIN ESS AND HENCE THE LOSS IS NOT A SPECULATIVE ONE UNDER SECTION 43(5) OF THE AC T; THE SAME IS INCIDENTAL TO THE ASSESSEES BUSINESS AND HENCE ALLOWABLE. WE , THEREFORE, TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE ADDITION M ADE BY THE LD. AO ON THE PREMISE THAT HEDGING OF CURRENCY IS INCIDENTAL TO APPELLANTS BUSINESS AND THUS THE SAME IS ALLOWABLE BUSINESS EXPENDITURE , IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE SO AS TO WARRANT INTERFER ENCE. WE, THUS, FIND NO ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 13 - MERIT IN THE CASE MADE OUT BY THE REVENUE. HENCE, THE ORDER IS PASSED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 15. THIS GROUND OF APPEAL RELATES TO DELETION OF DI SALLOWANCE OF RS. 6,02,976/- UNDER SECTION 14 A OF THE ACT. 16. THE BRIEF FACTS REGARDING THE ISSUE IS THIS THA T DURING THE COURSE OF ASSESSMENT PROCEEDING UPON PERUSAL OF THE FINAL ACC OUNTS AND THE BALANCE SHEET IT WAS FOUND THAT THE ASSESSEE MADE INVESTMEN TS WHICH ARE LIKELY TO GENERATE EXEMPT INCOME WHICH WILL NOT FORM PART OF THE GROSS TOTAL INCOME . NO EXPENSES, HOWEVER, WERE ACTIVATED BY THE ASSESSE E TOWARDS EARNING OF THIS INCOME. 17. THE ASSESSMENT PROCEEDING WAS FINALISED UPON MA KING DISALLOWANCE OF RS. 6,02,976/- OUT OF THE INTEREST EXPENSES OF RS. 9,90,30,159/- BY INVOKING THE PROVISION OF SEC. 14 A R.W.R 8D OF THE INCOME TAX ACT, 1961. THIS PARTICULAR DISALLOWANCE WAS MADE ON THE CONTEM PLATION THAT THE APPELLANT MAY RECEIVE INCOME NOT CHARGEABLE TO TAX FROM THE INVESTMENT OF RS. 63,25,000/- AS APPEARING IN THE BALANCE SHEET. HOWEVER, THE SAME WAS DELETED BY THE FIRST APPELLATE AUTHORITY BEFORE THE APPELLATE PROCEEDING. 18. AT THE TIME OF HEARING OF THE INSTANT APPEAL LD . DR RELIED UPON THE ORDER PASSED BY THE LD. AO. 19. ON THE OTHER HAND, THE LD. COUNSEL APPEARING FO R THE ASSESSEE SUBMITTED BEFORE US THAT THE PROVISION OF SUB- SECT ION 1 OF SEC. 14 A OF THE ACT HAS NOT BEEN COMPLIED WITH BY RECORDING SATISFA CTION AS TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THE ADDITION MADE THEREOF BY THE LD.AO IS BAD IN LAW AND DELETION ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 14 - OF THE SAME MADE BY THE LD. CIT-(A) CANNOT BE QUEST IONED. HE THEREFORE PRAYS FOR DISMISSAL OF THE APPEAL PREFERRED BY THE REVENUE. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPECTI VE PARTIES. WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. 20. THE CASE OF THE ASSESSEE BEFORE THE 1ST APPELLA TE AUTHORITY IS THIS THAT SINCE WITHOUT RECORDING SATISFACTION AS CONTEMPLATE D IN SUB-SECTION 1 OF SEC. 14 OF THE ACT, THE LD. AO PROCEEDED TO MADE DISALLO WANCE UNDER SECTION 14 A BY APPLYING PROVISION OF RULE 8D AND AS SUCH THE SAME IS NOT PERMISSIBLE IN THE EYES OF LAW AND THUS NOT SUSTAINABLE. IT APP EARS THAT THE LD. CIT-A RELYING UPON THE SERIES OF JUDGEMENTS DELETED THE A DDITION MADE BY THE LD.AO IN VIEW OF THE PARTICULAR FACT THAT THE LD.AO HAS NOT MADE ANY OBSERVATION AND/OR DELIBERATION BY RECORDING SATISF ACTION SO AS TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT WHICH IS A PRECONDITION FOR APPLYING THE METHOD UNDER SECTION 14A R.W.R 8D FOR DISALLOWING THE EXPENSES. THE JUDGEMEN T PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. GUJARAT STATE FERTILISERS AND CHEMICALS LTD. REPORTED IN 2013, 36 TAXMAN.COM 557 WAS ALSO CONSIDERED BY THE LD. CIT-A WHERE IT WAS HELD THAT WHERE THE ASSESSEE HAD MORE FUNDS THAN INVESTMENT IN SHARES AND BORROW ED FUNDS WERE NOT PROVED TO BE USED FOR SALE, DISALLOWANCE OF 10% OF EXEMPT DIVIDEND INCOME WAS UNSUSTAINABLE. APART FROM THAT THE ORDER PASSED BY THE CO-ORDINATE BENCH IN THE CASE OF TORRENT POWER LTD. VS. DCIT 20 13, 33 TAXMANN.COM 287 WAS ALSO TAKEN CARE OF BY THE LD. CIT-A. THE OP ERATIVE FOR PORTION OF THE SAME IS AS FOLLOWS:- IF NO EXPENDITURE IS INCURRED IN RELATION TO EXEMP T INCOME, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 15 - THE ORDER PASSED BY THE MUMBAI BENCH IN RAJ SHIPPIN G AGENCIES LTD. VS. ADDITIONAL CIT, REPORTED IN 2013, 30 TAXMA NN.COM 347 WAS ALSO CONSIDERED BY THE LD. CIT-A. THE RELEVANT PORTION WHEREOF IS REPRODUCED HEREINBELOW:- EXPENDITURE INCURRED IN RELATION TO INCOME NOT INC LUDIBLE IN TOTAL INCOME [CONDITIONS PRECEDENT] - ASSESSMENT YEAR 2008-09 - WHETHER ASSESSING OFFICER HAS TO EXAMINE ACCOUNTS OF ASSESSEE FIRST AND THEN IF H E IS NOT SATISFIED WITH CORRECTNESS OF CLAIM, ONLY HE CAN INVOKE RULE 8D -HELD, YES - WHET HER FURTHER, DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPEND ITURE AND WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND - HELD, YES - WHETHER W HERE ASSESSING OFFICER HAD NOT RECORDED ANY SATISFACTION WITH REFERENCE TO ACCOUNT S OF ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED, INVOCATION OF RULE 8D FOR DISALLOWING EXPENDITURE UNDER SECTION 14A ON ESTIMATION/PRESUMPTIVE BASIS DID NOT ARISE - HELD, YES IN FACT, WE FIND THAT IN THE ABSENCE OF ANY MATERIA L OR BASIS TO HOLD THAT INTEREST EXPENDITURE DIRECTLY OR INDIRECTLY WA S ATTRIBUTABLE FOR EARNING DIVIDEND INCOME, THE DECISION OF THE LD. CIT-A CANN OT BE SAID TO BE INCORRECT PARTICULARLY TAKING INTO CONSIDERATION TH E FACT OF NON-RECORDING OF SATISFACTION AS ENVISAGED UNDER SUB-SECTION 1 OF SE C. 14 OF THE ACT. HENCE, WE DO NOT FIND ANY MERIT IN THE ISSUE RAISED BY THE REVENUE AND THEREFORE THE SAME IS DISMISSED. ITA NO. 360/RJT/2015 A.Y. 2011-12(DEPARTMENTS APP EAL):- 21. THE FIRST GROUND OF APPEAL BASICALLY RELATES TO DELETION OF DISALLOWANCE OF EXPORT COMMISSION OF RS. 21,60,87,4 54/- UNDER SECTION 40(A)(IA) OF THE ACT. 22. THE IDENTICAL ISSUE HAS ALREADY BEEN DEALT WITH BY US IN ITA NO. 27/RJT/2016 FOR A.Y. 2012-13 AND IN THE ABSENCE OF ANY CHANGED ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 16 - CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS . HENCE, THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS ALSO DISMISSED. 23. THE NEXT GROUND OF APPEAL RELATES TO DELETION O F DISALLOWANCE MADE ON ACCOUNT OF CONTRACT CANCELLATION CHARGES AMOUNTI NG TO RS. 10,04,33,270. THE IDENTICAL ISSUE HAS ALREADY BEEN DEALT WITH BY US IN ITA NO. 27/RJT/2016 FOR A.Y. 2012-13 AND IN THE ABSENCE OF ANY CHANGED CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS . HENCE, THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS ALSO DISMISSED. ITA NO. 315/RJT/2015 A.Y. 2011-12(ASSESSEES APPEAL ):- 24. THE SOLE GROUND OF THE ASSESSEE IN THIS APPEAL RELATES TO THE CONFIRMATION OF DISALLOWANCE OF BAD DEBT/FORFEITURE OF ADVANCE OF RS. 60,07,108/-. THE ASSESSEE PRAYS OTHERWISE. THE BRIEF FACTS LEADING TO THE ISSUE IS THIS THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, UPON VERIFICATION OF THE COP IES OF ACCOUNTS OF THE PARTIES IT WAS FOUND THAT BAD DEBT OF RS. 60,07,105 PERTAINS TO ONE M/S. MANJEET COTTON PVT. LTD. WAS WRITTEN OFF. SUCH AMO UNT REPRESENTS ADVANCES MADE BY THE ASSESSEE TO THE SAID M/S. MANJEET COTTO N PVT. LTD. ACCORDING TO THE LD. AO THE ASSESSEE WAS NOT ELIGIBLE FOR CLA IM ADVANCES OF RS. 60,07,105/- IN VIEW OF THE PROVISION OF SEC. 36(1)( VII) AND 36(2)(I) OF THE ACT. HENCE THE SAME WAS ULTIMATELY DISALLOWED WHIC H WAS, IN TURN, CONFIRMED BY THE FIRST APPELLATE AUTHORITY. HENCE, THE INSTANT APPEAL BEFORE US. 25. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPE CTIVE PARTIES. WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 17 - IT IS THE CASE OF THE ASSESSEE THAT THE ADVANCE PA ID TO THE SAID MANJEET COTTON PVT. LTD. WAS FORFEITED BY IT DUE TO FAILURE OF TAKING DELIVERY OF COTTON WITHIN A STIPULATED TIME AS AGREED UPON ORAL LY. IN DEFAULT, FORFEITURE OF SOME ADVANCES WOULD PREVAIL AS ALSO THE CONDITIO N OF SUCH AGREEMENT. FURTHER THAT, DURING THE PREVIOUS YEAR TOTAL 23.88 CRORES WERE ADVANCES TO THE SAID PRIVATE LIMITED COMPANY BEFORE TAKING DELI VERIES OF COTTON. NOTWITHSTANDING REGULAR ADVANCES TOWARDS PURCHASES OF COTTON, THE ASSESSEE WAS NOT ABLE TO ADVANCE TOWARDS PURCHASES AS AGREED WITH THE SAID COMPANY AND THEREFORE MATERIAL WORTH OF RS. 60 LAKHS WERE N OT ULTIMATELY SUPPLIED BY THE SAID COMPANY TO THE APPELLANT. IN SPITE OF DUE DILIGENCE OF THE ASSESSEE, THE SAME WAS NOT SUPPLIED THEREBY THE ADVANCE OF RS . 60 LAKHS HAVE BEEN FORFEITED BY THE SAID MANJEET COTTON PVT. LTD. ACC ORDING TO THE ASSESSEE, THIS IS NOTHING BUT A BUSINESS LOSS AND NOT BAD DEB TS AS PROVIDED IN SEC. 36(1)(VII) OF THE ACT AND THEREFORE THE SAME IS NOT HIT BY SUB-SECTION 2 OF SEC. 36 OF THE ACT. FORFEITURE OF ADVANCES BEING A LOSS IS HAVING A DIRECT NEXUS WITH THE OPERATION OF THE BUSINESS AND SUCH L OSS IS INCIDENTAL TO THE APPELLANT AS ALSO THE CASE MADE OUT BY THE APPELLAN T BEFORE US. ON THIS ASPECT THE APPELLANT RELIED UPON THE JUDGMENT PASSE D BY THE BOMBAY HIGH COURT IN THE CASE OF NARANDAS MATHURADAS & CO. VS. CIT REPORTED IN 35 ITR 461. 26. ON THE OTHER HAND, THE CASE OF THE REVENUE IS T HIS THAT SUCH A CLAIM IS NOT ALLOWABLE IN TERMS OF THE PROVISION 36(1)(VII) AND 36(2)(I) OF THE ACT. ACCORDING TO THE REVENUE IN ORDER TO CLAIM A BAD DE BT THE TWIN CONDITIONS TO BE FULFILLED I.E. THE AMOUNT IS WRITTEN OFF AS T HE BAD DEBTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND SUCH BAD DEBTS OR PART THEREOF HAS BEEN TAKEN INTO CONSIDERATION IN INCOME OF THE ASSESSEES PREV IOUS YEAR IN WHICH THE AMOUNT OF BAD DEBT OR PART WHEREOF IS WRITTEN OFF O R OF AN EARLIER YEAR. SUCH CONDITION, HOWEVER, WAS NOT FULFILLED BY THE ASSESS EE AS OF THE CASE MADE ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 18 - OUT BY THE REVENUE. FURTHERMORE, THE APPELLANT MAK ES ADVANCES WHICH IS A CURRENT ASSET AND IS OF CAPITAL OUTFLOW AND WHEN TH E SAME IS FORFEITED RESULTING IN A CAPITAL LOSS IT DIRECTLY AFFECTS THE BALANCE SHEET. HENCE, THE SAME CANNOT BE SET OFF A REVENUE LOSS AGAINST THE L EGITIMATE INCOME. 27. WE HAVE ALSO CONSIDERED THE JUDGMENT PASSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NARANDAS MATHURADA S &CO. VS. CIT REPORTED IN 35 ITR 461. WHILE DEALING WITH THE IDE NTICAL ISSUE THE HONBLE COURT WAS PLEASED TO OBSERVE AS FOLLOWS:- 3. THEREFORE, WE MUST APPROACH THIS QUESTION NOT F ROM ANY TECHNICAL POINT OF VIEW, BUT FROM THE BROAD COMMERCIAL ASPECT OF THE MATTER, AND WHAT WE HAVE REALLY TO DECIDE IS WHETHER IN ARRIVING AT THE PROFITS AND GA INS OF A BUSINESS CARRIED ON BY THE ASSESSEE IT WOULD BE PERMISSIBLE TO HIM TO DEDUCT T HIS PARTICULAR LOSS IN ORDER TO ARRIVE AT THE TRUE PROFITS OF THE BUSINESS. IT SHOU LD BE BORNE IN MIND THAT THIS EXPENDITURE IS NOT CLAIMED AS ANY SPECIFIC ALLOWANC E FALLING UNDER SUB-SECTION (2) OF SECTION 10. THE CONTENTION OF THE ASSESSEE IS THAT THIS IS A TRADING LOSS AND THE TRUE PROFITS OF HIS BUSINESS WHICH ARE SUBJECT TO TAX CA NNOT BE ASCERTAINED UNLESS THIS DEDUCTION IS PERMITTED TO HIM. 4. THE ARGUMENT OF MR. JOSHI IS THAT THIS DEPOSIT W AS MADE BY THE ASSESSEE NOT FOR THE PURPOSE OF EARNING PROFITS BUILT FOR THE PURPOSE OF OBTAINING A BUSINESS WHICH WOULD MAKE IT POSSIBLE TO EARN PROFITS. IN OTHER WORDS, H IS CONTENTION IS THAT THE PAYMENT OF THIS DEPOSIT IS ANTECEDENT TO AND DE HORS THE BUSIN ESS WHICH THE ASSESSEE CARRIED ON AND WHICH YIELDED PROFITS TO HIM. APART FROM AUTHOR ITIES TO WHICH WE SHALL PRESENTLY TURN, THE CONTENTION DOES NOT SEEM TO BE TENABLE. T HIS IS NOT A CASE WHERE THE ASSESSEE MAKES THIS DEPOSIT IN ORDER TO ACQUIRE A B USINESS, NOR IS THIS A CASE WHERE AN AMOUNT IS DEPOSITED AS A SORT OF A TEMPORARY INV ESTMENT YIELDING INTEREST, THE DEPOSIT BEING NECESSARY IN ORDER THAT THE ASSESSEE SHOULD BE PERMITTED TO CARRY ON A PARTICULAR BUSINESS. THE ASSESSEE ALREADY HAS HIS B USINESS. HIS BUSINESSES TO SELL VARIOUS COMMODITIES AND IN THE COURSE OF THIS BUSIN ESS, NOT DE HORS IT, HE SUBMITS A TENDER TO THE RAILWAY COMPANY. IT IS O NE OF THE TERMS OF THE TENDER THAT HE MUST MAKE THE DEPOSIT. THEREFORE THE MAKING OF T HE DEPOSIT IS INCIDENTAL TO THE BUSINESS WHICH HE IS CARRYING ON. THIS IS NOT A CAS E WHERE IT IS SUGGESTED THAT THE ASSESSEE COMMITTED A BREACH OF THE CONTRACT FRAUDUL ENTLY OR THAT HE DELIBERATELY FAILED TO DISCHARGE HIS OBLIGATION UNDER THE CONTRA CT. THE FAILURE TO DELIVER THE GOODS TO THE RAILWAY COMPANY WAS INCIDENTAL TO THE BUSINE SS. IT IS SOMETHING WHICH WOULD HAPPEN IN ANY BUSINESS AND WHICH WOULD HAPPEN TO AN Y BUSINESSMAN. THEREFORE, LOOKING AT THE MATTER ON PRINCIPLE AND FROM A BROAD POINT OF VIEW THAT WE HAVE SUGGESTED, IT SEEMS TO US THAT THIS IS A TRADING LO SS AND THE ASSESSEE IS ENTITLED TO DEDUCT IT FROM HIS PROFITS IN ORDER THAT THE ASSESS ABLE PROFITS CAN BE ASCERTAINED. 5. THE TWO AUTHORITIES ON WHICH MR. JOSHI RELIED AR E BOTH DECISIONS OF THE PRIVY COUNCIL, AND AS WILL BE NOTICED, THE FACTS IN THOSE TWO CASES WERE ENTIRELY DIFFERENT. THE FIRST IS TATA HYDRO-ELECTRIC AGENCIES LTD. V. COMMISSIONERS OF INCOME-TAX . THAT IS THE WELL KNOWN CASE AND IT IS IN THE CONTEXT OF THE FACTS THERE THAT THE PRIVY COUNCIL SAID AT PAGE 209 : ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 19 - 'THEIR LORDSHIPS RECOGNISE AND THE DECIDED CASES SH OW HOW DIFFICULT IT IS TO DISCRIMINATE BETWEEN EXPENDITURE WHICH IS AND EXPEN DITURE WHICH IS NOT, INCURRED SOLELY FOR THE PURPOSE OF EARNING PROFITS OR GAINS. ' 6. NOW, IN THE FIRST PLACE, THE PRIVY COUNCIL WAS N OT CONSIDERING THE CASE OF A TRADING LOSS. THE PRIVY COUNCIL WAS CONSIDERING A SPECIFIC ALLOWANCE CLAIMED UNDER THE PROVISIONS OF SECTION 10 (2) OF THE INCOME-TAX ACT , AND EVEN IN DECIDING THAT THE PRIVY COUNCIL FELT DIFFICULTY, AND WERE NOT MADE IN THE P ROCESS OF EARNING PROFITS. THEY DID NOT ARISE OUT OF ANY TRANSACTIONS IN THE CONDUCT OF THEIR BUSINESS. THAT THE ASSESSEES HAD TO MAKE THOSE PAYMENTS NO DOUBT AFFECTED THE EL IMINATED YIELD IN MONEY TO THEM FOR THEIR BUSINESS BUT THE IS NOT THE STATUTORY CRI TERION. THE OBLIGATION TO MAKE THESE PAYMENTS WAS UNDERTAKEN BY THE ASSESSEES IN CONSIDE RATION OF THEIR ACQUISITION OF THE RIGHT AND OPPORTUNITY TO EARN PROFITS, THAT IS, OF THE RIGHT OF CONDUCT THE BUSINESS, AND NOT FOR THE PURPOSE OF PRODUCING PROFITS IN THE CON DUCT OF THE BUSINESS. NOW, THIS ACCORDING TO MR. JOSHI IS THE CRITERION AND THE RAT IO. ASSUMING THAT IS THE CRITERION AND THE RATIO, SURELY THAT IS NOT APPLICABLE TO THE FACTS BEFORE US. HOW CAN IT POSSIBLE BE SAID IN THIS CASE THAT THIS DEPOSIT WAS MADE BY THE ASSESSEE IN ORDER TO ACQUIRE THE RIGHT TO CONDUCT THE BUSINESS AND NOT FOR THE PURPO SE OF PRODUCING PROFITS IN THE CONDUCT OF THE BUSINESS ? THE BUSINESS WAS ALREADY BEING CARRIED ON BY THE ASSESSEE. THIS WAS A TRANSACTION IN THAT BUSINESS. IT IS IN O RDER TO PUT THROUGH THAT TRANSACTION THAT THE DEPOSIT WAS NECESSARY. 7. THE SECOND CASE REFERRED TO BY MR. JOSHI IS COMMISSIONER OF INCOME-TAX V. MOTIRAM NANDRAM . IN THAT CASE THE ASSESSEES WERE CARRYING ON BUSIN ESS OF CLOTH, YARN AND MONEY-LENDING AND THEY WANTED TO START A N EW BUSINESS AND FOR THAT PURPOSE THEY DEPOSITED WITH AN OIL COMPANY RS. 50,0 00. IN CONSIDERATION OF THAT THE ASSESSEES WERE APPOINTED ORGANIZING AGENTS OF THE O IL COMPANY FOR FIVE YEARS FOR A PARTICULAR AREA. THEY WERE TO RECOMMEND THE SELLING AGENTS AND THE SALES WERE TO BE CONDUCTED BY THESE SELLING AGENTS, BUT THE ASSESSES WERE TO RECEIVE CERTAIN COMMISSION ON ALL GOODS SOLD BY THE SELLING AGENTS WITHIN THE AREA AND ALSO ON ALL SALES EFFECTED IN THE AREA BY THE COMPANY. THE DEPO SIT WAS TO YIELD INTEREST AT 7 PER CENT. PART OF THE DEPOSIT WAS REPAID AND THEN THE C OMPANY WENT INTO LIQUIDATION, AND THE ASSESSEES CLAIMED THE PART OF THE DEPOSIT WHICH WAS LOST TO THEM AND THAT CLAIM WAS REJECTED BY THE PRIVY COUNCIL. NOW, IN THE FIRS T PLACE, THE PRIVY COUNCIL TOOK THE VIEW THAT THE DEPOSIT WAS MADE BY THE ASSESSEES FOR THE PURPOSE OF BEING PERMITTED TO ENGAGE IN A BUSINESS AND THAT MUST BE CONSIDERED TO BE A PURPOSE OF SECURING AN ENDURING BENEFIT OF A CAPITAL NATURE. THEREFORE, ON THE FACTS OF THAT CASE WHERE THE ASSESSEES WERE LAUNCHING UPON A NEW BUSINESS AND TH EY COULD ONLY START THIS BUSINESS BY MAKING THIS DEPOSIT, THE PRIVY COUNCIL OBSERVED THAT BY MAKING THE DEPOSIT THEY WERE GETTING A CAPITAL ASSET OF AN ENDURING NATURE, THE CAPITAL ASSET BEING THE BUSINESS. MR. JOSHI SAYS THAT IN THIS CASE ALSO BY MAKING THE DEPOSIT THE ASSESSEE IS OBTAINING A BUSINESS. BUT THAT IS NOT CORRECT. IT I S TRUE THAT UNDER THE INCOME-TAX LAW EVEN A SINGLE VENTURE MAY BE BUSINESS, BUT HIS IS N OT A CASE OF A SINGLE VENTURE. AS WE HAVE POINTED OUT BEFORE, IT IS IN THE COURSE OF THE BUSINESS WHICH THE ASSESSEE HAD BEEN CARRYING ON THAT IT ENTERED INTO THIS PARTICUL AR TRANSACTION. SO THIS IS NEITHER A CASE OF ACQUIRING A NEW BUSINESS, NOR ACQUIRING A J OINT NATURE. FURTHER, AT PAGE 138 SIR GEORGE RANKIN, WHO DELIVERED THE JUDGMENT OF TH E PRIVY COUNCIL, POINTS OUT THAT THE DEPOSIT OF RS. 50,000 MAY BE LOOKED UPON AS A T EMPORARY INVESTMENT BECAUSE IT YIELDED INTEREST WHILE IT REMAINED WITH THE OIL COM PANY. THAT FEATURE IS ALSO ABSENT IN THE CASE BEFORE US. NOBODY CAN SUGGEST THAT THE DEP OSIT WAS MADE BY THE ASSESSEE AS A TEMPORARY INVESTMENT WITH THE RAILWAY COMPANY. IT WAS EXPRESSLY MADE AS AN EARNEST; AS SECURITY FOR CARRYING OUT THE PARTICULA R CONTRACT. THEIR LORDSHIPS ALSO SAY ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 20 - THAT A DEPOSIT MUST BE CONSIDERED IN RELATION TO TH E PARTICULAR BUSINESS, AND WHEN WE LOOK UPON HIS DEPOSIT AND THE RELATION IT HAS TO TH E BUSINESS OF THE ASSESSEE, IT IS CLEAR THAT THE DEPO SIT WAS MADE NOT FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET OF AN ENDURING NATURE O R ACQUIRING A NEW BUSINESS, BUT IT WAS MADE SOLELY FOR THE PURPOSE OF EARNING PROFITS IN THE COURSE OF THE BUSINESS. THE PRIVY COUNCIL ALSO POINTS OUT THAT THE QUESTION THA T SHOULD BE POSED IS - 'WHAT IS THE OBJECT OF THE EXPENDITURE ?' - AND THEY PROCEED TO ANSWER THAT QUESTION BY SAYING - 'IT MUST BE ANSWERED FROM THE STAND-POINT OF THE ASSESS EE AT THE TIME THE DEPOSIT WAS MADE.' FROM THE POINT OF VIEW OF THE ASSESSEE IN TH IS CASE THERE CANNOT BE THE SLIGHTEST DOUBT THAT THE DEPOSIT WAS LOOKED UPON AS A BUSINESS EXPENDITURE AND IF THE DEPOSIT WAS FORFEITED IT WAS A BUSINESS LOSS. 8. THE RESULT IS THAT WE MUST ANSWER THE QUESTION S UBMITTED TO US IN THE AFFIRMATIVE. THE COMMISSIONER TO PAY THE COSTS. 9. QUESTION ANSWERED IN THE AFFIRMATIVE. THUS, IT APPEARS THAT SUCH LOSS WAS INCURRED IN THE CHARACTER OF TRADER AND DURING THE ORDINARY COURSE OF BUSINESS. IF THE RE IS DIRECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS, OR IT IS INCIDENTAL TO IT, THEN THE LOSS IS DEDUCTIBLE SINCE WITHOUT THE BUSIN ESS OPERATION AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN BE EARNED, WHICH IS ALSO THE VIEW OF THE HONBLE COURT AS WE FIND FROM THE JUDGMENT CITED AB OVE. HENCE, TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER IN OUR CONSIDERED VIEW THE SAME IS BUSINESS LOSS AND NOT BAD DEBTS AS PROVIDED IN SEC. 36(1)(VII) AND HENCE THE LOSS IS NOT HIT BY SUB-SECTION 2 OF SECTI ON 36 OF THE ACT. SUCH FORFEITURE OF ADVANCE IS A BUSINESS LOSS HAVING A D IRECT NEXUS WITH THE OPERATION OF THE BUSINESS AND IS INCIDENTAL TO THE BUSINESS CARRIED TOO AND HENCE ALLOWABLE. WE, THEREFORE, DELETE THE ADDITIO N MADE BY THE AUTHORITIES BELOW. THIS GROUND OF APPEAL IS, THUS, ALLOWED. 28. IN THE COMBINED RESULTS, (I) ITA NO. 27/RJT/2016- DEPARTMENTS APPEAL IS DIS MISSED. (II) ITA NO. 360/RJT/2015- DEPARTMENTS APPEAL IS D ISMISSED. (III) ITA NO. 315/RJT/2016- ASSESSEES APPEAL IS AL LOWED. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 21 - 29. BEFORE PARTING WE WOULD LIKE TO MAKE CERTAIN OB SERVATION RELATING TO THE ISSUE CROPPED UP UNDER PRESENT SCENARIO OF COVI D-19 PANDEMIC AS TO WHETHER WHEN THE HEARING OF THE MATTER WAS CONCLUDE D ON 25.02.2020 THE ORDER CAN BE PRONOUNCED TODAY I.E. ON 27.07.2020. THE ISSUE HAS ALREADY BEEN DISCUSSED BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. JSW LTD. (ITA NOS. 6264 & 6103/MUM/2018) PRONOUNCED ON 14.05 .2020 IN THE LIGHT OF WHICH IT IS WELL WITHIN THE TIME LIMIT PERMITTED UNDER RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963 IN VIEW OF THE FOLLO WING OBSERVATIONS MADE THEREIN: 7. HOWEVER, BEFORE WE PART WITH THE MATTER, WE MUS T DEAL WITH ONE PROCEDURAL ISSUE AS WELL. WHILE HEARING OF THESE A PPEALS WAS CONCLUDED ON 8TH JANUARY 2020, THIS ORDER THEREON IS BEING PRONO UNCED TODAY ON THE DAY OF 14TH MAY, 2020, MUCH AFTER THE EXPIRY OF 90 DAYS FROM THE DATE OF CONCLUSION OF HEARING. WE ARE ALSO ALIVE TO THE FAC T THAT RULE 34(5) OF THE INCOME TAX APPELLATE TRIBUNAL RULES 1963, WHICH DEA LS WITH PRONOUNCEMENT OF ORDERS, PROVIDES AS FOLLOWS: (5) THE PRONOUNCEMENT MAY BE IN ANY OF THE FOLLOWIN G MANNERS : (A) THE BENCH MAY PRONOUNCE THE ORDER I MMEDIATELY UPON THE CONCLUSION OF THE HEARING. (B) IN CASE WHERE THE ORDER IS NOT PRONOUNCED IMME DIATELY ON THE CONCLUSION OF THE HEARING, THE BENCH SHALL GIVE A DATE FOR PRONOUNCEMENT. (C) IN A CASE WHERE NO DATE OF PRONOUNC EMENT IS GIVEN BY THE BENCH, EVERY ENDEAVOUR SHALL BE MADE BY THE BENCH TO PR ONOUNCE THE ORDER WITHIN 60 DAYS FROM THE DATE ON WHICH THE HEARING OF THE CASE WAS CONCLUDED BUT, WHERE IT IS NOT PRACTICABLE SO TO DO ON THE GROU ND OF EXCEPTIONAL AND EXTRAORDINARY CIRCUMSTANCES OF THE CASE, THE BENC H SHALL FIX A FUTURE DAY FOR PRONOUNCEMENT OF THE ORDER, AND SUCH DATE SH ALL NOT ORDINARILY (EMPHASIS SUPPLIED BY US NOW) BE A DAY BEYOND A FURTHER PERIOD OF 30 DAYS AND DUE NOTICE OF THE DAY SO FIXED SHALL BE GIVEN ON THE NOTICE BOARD. ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 22 - 8. QUITE CLEARLY, ORDINARILY THE ORDER ON AN APPE AL SHOULD BE PRONOUNCED BY THE BENCH WITHIN NO MORE THAN 90 DAYS FROM THE DATE OF CONCLUDING THE HEARING. IT IS, HOWEVER, IMPORTANT T O NOTE THAT THE EXPRESSION ORDINARILY HAS BEEN USED IN THE SAID RULE ITSELF. THIS RULE WAS INSERTED AS A RESULT OF DIRECTIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHIVSAGAR VEG RESTAURANT VS ACIT [(2009) 317 ITR 4 33 (BOM)] WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, DIRECTED THAT WE, THEREFORE, DIRECT THE PRESIDENT OF THE APPELLATE TRIBUNAL TO FRAME AND LA Y DOWN THE GUIDELINES IN THE SIMILAR LINES AS ARE LAID DOWN BY THE APEX COUR T IN THE CASE OF ANIL RAI (SUPRA) AND TO ISSUE APPROPRIATE ADMINISTRATIVE DIR ECTIONS TO ALL THE BENCHES OF THE TRIBUNAL IN THAT BEHALF. WE HOPE AND TRUST THAT SUITABLE GUIDELINES SHALL BE FRAMED AND ISSUED BY THE PRESIDENT OF THE APPELLATE TRIBUNAL WITHIN SHORTEST REASONABLE TIME AND FOLLOWED STRICTLY BY A LL THE BENCHES OF THE TRIBUNAL. IN THE MEANWHILE(EMPHASIS, BY UNDERLINING , SUPPLIED BY US NOW), ALL THE REVISIONAL AND APPELLATE AUTHORITIES UNDER THE INCOME-TAX ACT ARE DIRECTED TO DECIDE MATTERS HEARD BY THEM WITHIN A P ERIOD OF THREE MONTHS FROM THE DATE CASE IS CLOSED FOR JUDGMENT. IN TH E RULED SO FRAMED, AS A RESULT OF THESE DIRECTIONS, THE EXPRESSION ORDINAR ILY HAS BEEN INSERTED IN THE REQUIREMENT TO PRONOUNCE THE ORDER WITHIN A PER IOD OF 90 DAYS. THE QUESTION THEN ARISES WHETHER THE PASSING OF THIS OR DER, BEYOND NINETY DAYS, WAS NECESSITATED BY ANY EXTRAORDINARY CIRCUMSTANC ES. 9. LET US IN THIS LIGHT REVERT TO THE PREVAILING SI TUATION IN THE COUNTRY. ON 24TH MARCH, 2020, HONBLE PRIME MINISTER OF INDI A TOOK THE BOLD STEP OF IMPOSING A NATIONWIDE LOCKDOWN, FOR 21 DAYS, TO PRE VENT SPREAD OF COVID 19 EPIDEMIC, AND THIS LOCKDOWN WAS EXTENDED FROM TI ME TO TIME. AS A MATTER OF FACT, EVEN BEFORE THIS FORMAL NATIONWIDE LOCKDOWN, THE FUNCTIONING OF THE INCOME TAX APPELLATE TRIBUNAL AT MUMBAI WAS SEVERELY RESTRICTED ON ACCOUNT OF LOCKDOWN BY THE MAHARASHTR A GOVERNMENT, AND ON ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 23 - ACCOUNT OF STRICT ENFORCEMENT OF HEALTH ADVISORIES WITH A VIEW OF CHECKING SPREAD OF COVID 19. THE EPIDEMIC SITUATION IN MUMBA I BEING GRAVE, THERE WAS NOT MUCH OF A RELAXATION IN SUBSEQUENT LOCKDOWN S ALSO. IN ANY CASE, THERE WAS UNPRECEDENTED DISRUPTION OF JUDICIAL WOK ALL OVER THE COUNTRY. AS A MATTER OF FACT, IT HAS BEEN SUCH AN UNPRECEDENTED SITUATION, CAUSING DISRUPTION IN THE FUNCTIONING OF JUDICIAL MACHINERY , THAT HONBLE SUPREME COURT OF INDIA, IN AN UNPRECEDENTED ORDER IN THE HI STORY OF INDIA AND VIDE ORDER DATED 6.5.2020 READ WITH ORDER DATED 23.3.202 0, EXTENDED THE LIMITATION TO EXCLUDE NOT ONLY THIS LOCKDOWN PERIOD BUT ALSO A FEW MORE DAYS PRIOR TO, AND AFTER, THE LOCKDOWN BY OBSERVING THAT IN CASE THE LIMITATION HAS EXPIRED AFTER 15.03.2020 THEN THE PE RIOD FROM 15.03.2020 TILL THE DATE ON WHICH THE LOCKDOWN IS LIFTED IN THE JUR ISDICTIONAL AREA WHERE THE DISPUTE LIES OR WHERE THE CAUSE OF ACTION ARISES SH ALL BE EXTENDED FOR A PERIOD OF 15DAYS AFTER THE LIFTING OF LOCKDOWN. HO NBLE BOMBAY HIGH COURT, IN AN ORDER DATED 15TH APRIL 2020, HAS, BESI DES EXTENDING THE VALIDITY OF ALL INTERIM ORDERS, HAS ALSO OBSERVED THAT, IT IS ALSO CLARIFIED THAT WHILE CALCULATING TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CO NTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY , AND ALSO OBSERVED THAT ARRANGEMENT CONTINUED BY AN ORDER DATED 26TH MARCH 2020 TILL 30TH APRIL 2020 SHALL CONTINUE FURTHER TILL 15TH JUNE 2020. IT HAS BEEN AN UNPRECEDENTED SITUATION NOT ONLY IN INDIA BUT ALL O VER THE WORLD. GOVERNMENT OF INDIA HAS, VIDE NOTIFICATION DATED 19 TH FEBRUARY 2020, TAKEN THE STAND THAT, THE CORONA VIRUS SHOULD BE CONSIDE RED A CASE OF NATURAL CALAMITY AND FMC (I.E. FORCE MAJEURE CLAUSE) MAY BE INVOKED, WHEREVER CONSIDERED APPROPRIATE, FOLLOWING THE DUE PROCEDURE . THE TERM FORCE MAJEURE HAS BEEN DEFINED IN BLACKS LAW DICTIONARY , AS AN EVENT OR EFFECT THAT CAN BE NEITHER ANTICIPATED NOR CONTROLLED WHE N SUCH IS THE POSITION, AND IT IS OFFICIALLY SO NOTIFIED BY THE GOVERNMENT OF INDIA AND THE COVID-19 ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 24 - EPIDEMIC HAS BEEN NOTIFIED AS A DISASTER UNDER THE NATIONAL DISASTER MANAGEMENT ACT, 2005, AND ALSO IN THE LIGHT OF THE DISCUSSIONS ABOVE, THE PERIOD DURING WHICH LOCKDOWN WAS IN FORCE CAN BE AN YTHING BUT AN ORDINARY PERIOD. 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQUIRING PRONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTAN T FACT THAT THE ENTIRE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERI OD OF 90 DAYS BY EXCLUDING AT LEAST THE PERIOD DURING WHICH THE LOCK DOWN WAS IN FORCE. WE MUST FACTOR GROUND REALITIES IN MIND WHILE INTERPRE TING THE TIME LIMIT FOR THE PRONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMN IPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRAGMATISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY IN CONSONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGM ATIC APPROACH AT A TIME WHEN A DISASTER, NOTIFIED UNDER THE DISASTER MANAGE MENT ACT 2005, IS CAUSING UNPRECEDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBTEDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)], HONBLE BOMBAY HIGH COURT DID NOT APPRO VE AN ORDER BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VID E JUDGMENT DATED 15TH APRIL 2020, HELD THAT DIRECTED WHILE CALCUL ATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME-BOUND BY THIS COURT, THE PERIO D FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY. THE EXTRAORDINARY STEP S TAKEN SUO MOTU BY HONBLE JURISDICTIONAL HIGH COURT AND HONBLE SUPRE ME COURT ALSO INDICATE THAT THIS PERIOD OF LOCKDOWN CANNOT BE TREATED AS A N ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE . IN OUR CONSIDERED VIEW, ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 25 - EVEN WITHOUT THE WORDS ORDINARILY, IN THE LIGHT O F THE ABOVE ANALYSIS OF THE LEGAL POSITION, THE PERIOD DURING WHICH LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIMITS SET OUT IN RULE 34(5 ) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EXCEPTION, TO 90-DAY TIME-LIMIT FOR PRONOUNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CAN NOT BE ANY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BECAUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHE N THE HEARING IS CONCLUDED AND THE POINT OF TIME WHEN THE ORDER THER EON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIRED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. 30. ON THE BASIS OF THE OBSERVATION MADE IN THE AFO RESAID JUDGMENT WE EXCLUDE THE PERIOD OF LOCKDOWN WHILE COMPUTING THE LIMITATION PROVIDED UNDER RULE 34(5) OF THE INCOME TAX (APPELLATE TRIBU NAL) RULE 1963. ORDER IS, THUS, PRONOUNCED IN THE OPEN COURT. 31. IN THE COMBINED RESULTS, (I) ITA NO. 27/RJT/2016- DEPARTMENTS APPEAL IS DIS MISSED. (II) ITA NO. 360/RJT/2015- DEPARTMENTS APPEAL IS D ISMISSED. (III) ITA NO. 315/RJT/2016- ASSESSEES APPEAL IS AL LOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28/07/2020 SD/- SD/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 28/07/2020 TANMAY DATTA, SR. PS TRUE COPY ITA NOS.27/RJT/ 2016& 360,315/RJT/2015 A.Y.2011-12,2012-13 - 26 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. '(' ) / CONCERNED CIT 4. ) ( ) / THE CIT(A)- 5. ,- . // , , /DR,ITAT, RAJKOT 6. . 12 3 / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) !', / ITAT, RAJKOT 1. DATE OF DICTATION 24/07/2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.07.2020 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28 /07/2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER