WALCHANDNAGAR INDUSTRIES LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 3826/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83523 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: VASANTI B PATEL
• Keywords: Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , ! '#$% , & '( BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO. 3826/MUM/2013 ( ) ) ) ) / ASSESSMENT YEAR : 2009-2010 M/S. WALCHANDNAGAR INDUSTRIES LTD., 3, WALCHAND TERRACES, TARDEO ROAD, MUMBAI-400 034 THE ACIT, RANGE 5(3), AAYAKAR BHAVAN, MUMBAI-400 020 (* & ./ + ./PAN/GIR NO. : AAACW 0541M ( *, /APPELLANT ) .. ( -.*, / RESPONDENT ) *, / / APPELLANT BY : ` SMT. VASANTI B. PATEL -.*, 0 / /RESPONDENT BY : SMT. PARMINDER 0 12& / DATE OF HEARING :21.08.2014 34) 0 12& / DATE OF PRONOUNCEMENT : 21.08.2014 ' 5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAI NST THE ORDER OF THE LD. CIT(A)-9, MUMBAI DT. 27.02.2013 PERTAINING TO ASSES SMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF RS. 2,28,01,7 07/- BEING MARKED TO MARKET LOSSES ON ACCOUNT OF EXCHANGE RATE FLUCTUATI ON AND GROUND NO. 2 RELATES TO THE DISALLOWANCE OF EXPENDITURE OF RS. 3 8,04,004/- U/S. 14A OF THE ACT READ WITH RULE 8D. ITA NO.3826/M/2013 2 3. THE ASSESSEE IS A MANUFACTURER OF ENGINEERING GO ODS. THE RETURN OF INCOME WAS FILED ON 30.9.2009 DECLARING TOTAL INCOM E OF RS. 33, 31,95,858/-. THE SAME WAS REVISED ON 15.1.2010 AND THE INCOME WAS REVISED AT RS. 30,85,58,881/-. THE RETURN WAS SEL ECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE I SSUED AND SERVED UPON THE ASSESSEE. 3.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN LOSS OF RS. 9,47,29,783/- ON ACCOUNT OF FOREIGN EXCHANGE CURRENCY RATE FLUCTUATI ON. THE ASSESSEE WAS ASKED TO FURNISH DETAILS. THE ASSESSEE FILED A DET AILED REPLY DT. 29.11.2011. ON PERUSING THE DETAILS, THE ASSESSING OFFICER NOTICED THAT THE LOSS OF RS. 2,28,01,707/- WAS ON ACCOUNT OF MAR KED TO MARKET LOSS. THE AO WAS OF THE OPINION THAT THE SAME HAS TO BE D ISALLOWED AS PER INSTRUCTION NO. 3 OF 2010 DT. 23.3.2010. 3.2. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY TH E EXCHANGE RATE FLUCTUATION LOSS SHOULD NOT BE TREATED AS SPECULATI ON LOSS. THE ASSESSEE EXPLAINED THE DIFFERENCE BETWEEN FORWARD CONTRACTS AND OPTION CONTRACTS. THE AO DID NOT ACCEPT THE DETAILED SUBMISSION OF TH E ASSESSEE. THE AO WAS OF THE OPINION THAT THE LOSS ARISING FROM REVAL UATION AS ON 31.3.2009 IS A NOTIONAL LOSS AND CANNOT BE ALLOWED AS EXPENDI TURE U/S. 37(1) OF THE ACT. THE AO ACCORDINGLY DISALLOWED RS. 2,28,01,707 /-. PROCEEDING FURTHER, THE AO NOTICED THAT THE ASSESSEE HAS EARNE D DIVIDEND INCOME OF RS. 2,46,69,235/-. THE AO WAS OF THE OPINION THAT THE DISALLOWANCE NEED TO BE MADE U/S. 14A R.W. RULE 8D AND COMPUTED THE D ISALLOWANCE AT RS. 38,04,004/-. ITA NO.3826/M/2013 3 4. AGGRIEVED BY THESE TWO ADDITIONS, THE ASSESSEE C ARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ISSUE OF DISALLOWANCE ON ACCOUNT OF MARKED TO MARKET LOSS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PVT. LTD . 312 ITR 254. 6. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 7. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNS EL. THE HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A (SUPRA) HAS HELD THAT LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FL UCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF THE BALANCE SHEE T IS AN ITEM OF EXPENDITURE U/S. 37(1) OF THE ACT. RESPECTFULLY F OLLOWING THE DECISION OF THE HONBLE SUPREME COURT, THE AO IS DIRECTED TO DE LETE THE DISALLOWANCE OF RS. 2,28,01.707/-. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 8. IN SO FAR AS THE DISALLOWANCE U/S. 14A R.W. RULE 8D IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE REVENUE AUTHORITIES HAVE FAILED TO APPRECIATE THE EVIDENCES WHICH WERE PRODUCED IN THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PR OCEEDINGS. IT IS THE SAY OF THE LD. COUNSEL THAT PROVISIONS OF SEC. 14A(3) W OULD APPLY ONLY IF THE OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE, IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS B EEN INCURRED TO EARN TAX FREE INCOME. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. ITA NO.3826/M/2013 4 10. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. T HE AO HAS NOT REFERRED TO THE BALANCE SHEET FIGURES OF THE ASSESSEE. THE AO HAS ALSO NOT GIVEN ANY FINDINGS WHETHER THE BORROWED FUNDS WERE ALSO U SED FOR MAKING THE INVESTMENTS. THE AO HAS ALSO NOT CONSIDERED THE CL AIM OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUND S. IN THE INTEREST OF JUSTICE, IN OUR CONSIDERED OPINION, THIS ISSUE NEED S TO BE READJUDICATED AFRESH. WE, ACCORDINGLY SET ASIDE THIS ISSUE TO TH E FILE OF THE AO. THE AO IS DIRECTED TO SHOW THAT THE ASSESSEE HAS ACTUAL LY INCURRED CERTAIN EXPENDITURE FOR EARNING THE EXEMPT INCOME CONSIDERI NG THE FACTS AND THE FIGURES OF THE BALANCE SHEET OF THE ASSESSEE. THE ASSESSEE IS DIRECTED TO FILE NECESSARY DETAILS BEFORE THE AO. NEEDLESS TO MENTION, THE AO SHALL GIVE A REASONABLE AND FAIR OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2014 ' 5 0 4) & 6 7'8 21.8.2014 4 0 9 SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) / PRESIDENT & '( / ACCOUNTANT MEMBER MUMBAI; 7' DATED 21 ST AUGUST, 2014 . . ./ RJ , SR. PS ITA NO.3826/M/2013 5 . ' 5 ' 5 ' 5 ' 5 0 00 0 -1' -1' -1' -1' : ')1 : ')1 : ')1 : ')1 / COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. '<9 -1 , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. ' 5 ' 5 ' 5 ' 5 / BY ORDER, .'1 -1 //TRUE COPY// ? ?? ? / @ @ @ @ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI