ESSEL PROPACK LTD, MUMBAI V. ADDL CIT RG 6(2), MUMBAI

ITA 4116/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9711 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 22-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: RAJESH CHAMARIA
• Keywords: Depreciation; Earning of tax free income
• Section: 43B; 14A; 43(5); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4116 /MUM/2013 (ASSESSMENT YEAR: 2008-09) M/S. ESSEL PROPACK LTD. VS. ACIT, RANGE - 6(2) (FORMERLY ESSEL PACKAGING LTD. TOP FLOOR, TIMES TOWER KAMLA CITY, SENAPATI BAPAT MARG LOWER PAREL, MUMBAI 400013 ROOM NO. 504, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACE1568L APPELLANT RESPONDENT APPELLANT BY: SHRI RAJESH CHAMARIA RESPONDENT BY: SHRI V. JUSTIN DATE OF HEARING: 02.08.2017 DATE OF PRONOUNCEMENT: 11.09.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-12, MUMBAI DATED 27.01.2013 FOR A.Y. 2008-09 . 2. GROUND NO. 1 TAKEN BY THE ASSESSEE RELATES TO THE S USTENANCE OF THE DISALLOWANCE OF RS.92,68,533/- OUT OF INTEREST AND RS.38,50,802/- OUT OF EXPENSES UNDER SECTION 14A OF THE INCOME TAX ACT TO TALLING TO RS.1,31,19,335/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO WHILE E XAMINING THE BALANCE SHEET NOTED THAT THERE WERE INVESTMENTS IN EQUITY SHARES TOTALLING TO RS.5,74,03,16,008/-. OUT OF THESE INVESTMENTS RS .4,97,41,55,660/- WAS IN FOREIGN SUBSIDIARIES AND RS.77,01,60,348/- WAS I N INDIAN SUBSIDIARIES. THE ASSESSEE HAS RECEIVED DIVIDEND FROM FOREIGN SUB SIDIARIES TO THE TUNE OF RS.15,47,12,858/- WHICH WAS OFFERED AS INCOME FROM OTHER SOURCES. IT WAS FURTHER NOTED THAT IN THE ORIGINAL COMPUTATION OF I NCOME THE DISALLOWANCE UNDER SECTION 14A HAS BEEN MENTIONED BY THE ASSESSE E AS RS.73,81,010/- ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 2 BUT IN THE REVISED COMPUTATION THIS DISALLOWANCE WA S WITHDRAWN. THE AUDITORS ALSO IN ANNEXURE K CORRESPONDING TO CLAUSE 17(1) IN FORM 3CD COMPUTED THE DISALLOWANCE UNDER SECTION 14A AT RS.7 3,81,010/-. WHEN ASKED FOR THE ASSESSEE SUBMITTED THAT NO DISALLOWAN CE IS REQUIRED TO BE MADE. THE AO DID NOT AGREE WITH THE SUBMISSION OF T HE ASSESSEE BUT MADE DISALLOWANCE AS PER PARA 7 OF THE ORDER UNDER SECTI ON 14A R.W. RULE 8D AMOUNTING TO RS.1,31,19,335/-. ASSESSEE WENT IN APP EAL BEFORE THE CIT(A. THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. 4. THE LEARNED A.R. BEFORE US REFERRED TO PAGE 2 OF TH E PAPER BOOK WHICH CONTAINS THE COMPUTATION OF INCOME AND ON THA T BASIS IT WAS SUBMITTED THAT THE ASSESSEE GOT THE DIVIDEND FROM F OREIGN SUBSIDIARY COMPANIES AMOUNTING TO RS.15,47,12,858/- AND THE SA ME HAS BEEN SHOWN AS INCOME FROM OTHER SOURCES. IT IS NOT THE CASE TH AT THE DIVIDEND EARNED BY THE ASSESSEE HAS BEEN CLAIMED AS EXEMPT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND FROM THE I NVESTMENTS MADE IN INDIAN COMPANIES. THEREFORE, IN VIEW OF THE DECISIO N OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT 3 78 ITR 33 NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. REFERRI NG TO THE SAID DECISION IT WAS SUBMITTED THAT THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. BALLARPUR INDUSTRIES LTD. ITA NO. 51 OF 2016 HAS ALSO TAKEN THE SAME VIEW. 5. THE LEARNED D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND VEHEMENTLY CONTENDED THAT THE AO HAS RIGHTLY COMPUTED THE DISALLOWANCE UNDER SECTION 14A R.W. RU LE 8D. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH TH E CASE LAW RELIED UPON BEFORE US. FROM THE COMPUTATION STATEMENT AS WELL A S THE BALANCE SHEET AS SUBMITTED BY THE ASSESSEE WE NOTED THAT THE ASSE SSEE HAD MADE INVESTMENTS IN FOREIGN SUBSIDIARY COMPANIES AND FRO M THOSE COMPANIES IT GOT THE DIVIDEND INCOME. THE ASSESSEE HAS NOT CLAIM ED THE SAID DIVIDEND INCOME AS EXEMPT. THE DIVIDEND INCOME HAS BEEN SHOW N AS INCOME FROM OTHER SOURCES AND DUE TAX HAS BEEN COMPUTED BY THE ASSESSEE IN THE ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 3 COMPUTATION STATEMENT. THEREFORE NO QUESTION ARISES ON MAKING DISALLOWANCE IN RESPECT OF INVESTMENT MADE IN FOREI GN SUBSIDIARY COMPANY. THE ASSESSEE HAS ALSO MADE INVESTMENTS IN INDIAN CO MPANIES BUT DID NOT EARN ANY DIVIDEND INCOME. IN VIEW OF THE DECISION O F THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT 378 IT R 33 NO EXPENSES CAN BE DISALLOWED UNDER SECTION 14A AS THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. SAME VIEW HAS BEEN TAKEN BY THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. BALLARPUR IN DUSTRIES LTD. ITA NO. 51 OF 2016. NO CONTRARY DECISION WAS BROUGHT TO OUR KN OWLEDGE. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE AO A ND SUSTAINED BY THE CIT(A). THUS GROUND NO. 1 TAKEN BY THE ASSESSEE IS ALLOWED. 7. GROUND NO. 2 RELATES TO THE ADDITION MADE ON ACCOUN T OF INCLUSION OF CENVAT CREDIT IN VALUATION OF CLOSING STOCK. 8. THE FACTS RELATING TO THIS GROUND ARE THAT THE AO N OTED THAT THE ASSESSEE IS FOLLOWING THE EXCLUSIVE METHOD OF ACCOU NTING AND CENVAT HAS NOT BEEN INCLUDED IN THE INVENTORY AND CONSUMPTION. THE AO, THEREFORE, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A DDED THE UNUTILISED CENVAT CREDIT IN THE VALUE OF THE CLOSING STOCK AS ON 31.03.2008 AND THEREBY MADE AN ADDITION OF RS.1,79,57,029/-. WHEN THE MATTER SENT BEFORE THE CIT(A), THE CIT(A) UPHELD THE ACTION OF THE AO ION INVOKING SECTION 145A OF THE INCOME TAX ACT TO COMPUTE CLOSI NG STOCK BUT ON THE ISSUE OF CORRECTNESS OF THE CALCULATION OF THE AO H E DIRECTED THE AO TO TAKE INTO CONSIDERATION THE GRIEVANCES OF THE ASSESSEE A ND VERIFY THE CALCULATION AS MADE AT THE TIME OF ASSESSMENT PROCEEDINGS BY ST RICTLY KEEPING IN VIEW THE PROVISIONS OF SECTION 145A ALONGWITH THE DIRECT IONS OF THE CIT(A) AS GIVEN IN A.Y. 2006-07. THUS ALLOWED THIS GROUND STA TISTICALLY. 9. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT PROVISIONS OF SECTION 145A WERE EFFECTIVE FROM 01.04.1999 AND APPLIES FROM A.Y. 199 9-200 ONWARDS. THE SCOPE AND EFFECT OF SECTION 145A HAVE BEEN ELABORAT ED BY THE DEPARTMENTAL CIRCULAR NO. 772 DATED 23 RD DECEMBER, 1998 AS UNDER: - ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 4 52.1 METHOD OF ACCOUNTING IN CERTAIN CASES:-52.1 THE ISSUE RELATING TO WHETHER THE VALUE OF THE CLOSING STOCK OF THE INPUTS, WORK-IN-PROGRESS AND FINISHED GOODS MUST NECESSARIL Y INCLUDE THE CLEMENT FOR WHICH MODVAT CREDIT IS AVAILABLE, HAS B EEN A MATTER OF CONSIDERABLE LITIGATION OVER THE YEARS. 52.2 CONSISTENT WITH THE OTHER PROVISIONS OF THE FI NANCE (NO.2) ACT, 1998, WITH A VIEW TO PUT AN END TO THIS POINT OF LI TIGATION AND IN ORDER TO ENSURE THAT THE VALUE OF OPENING AND CLOSI NG STOCK REFLECT THE CORRECT VALUE, A NEW SECTION 145A IS IN SERTED. THE SECTION PROVIDES THAT THE VALUATION OF PURCHASE, SA LE AND INVENTORY SHALL BE MADE IN ACCORDANCE WITH THE METHOD OF ACCO UNTING REGULARLY EMPLOYED BY THE ASSESSEE AND SUCH VALUATI ON SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED), ACTUALLY PAID OR INCURRE D BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. FROM THE SAID CIRCULAR IT IS APPARENT THAT THE MAIN OBJECT TO INTRODUCE SECTION 145A IS TO ENSURE THAT VALUE OF OPENING AND CLOSING STOCK REFLECT THE CORRECT VALUE SO THAT THERE IS NO UNNECESSARY L ITIGATION. THE ASSESSEE IN THE INSTANT CASE IS FOLLOWING EXCLUSIVE METHOD. IF THE AO HAD TO INCREASE THE VALUE OF CLOSING STOCK BY TAKING INTO CONSIDERA TION THE CENVAT CREDIT THEN HE HAS TO TAKE INTO CONSIDERATION ALL PURCHASE S ALSO TO INCLUDE THE CENVAT CREDIT. HAD ONCE THAT INCLUDED IN THE PURCHA SES ULTIMATELY THERE IS NO EFFECT ON THE PROFIT AND UNDERSTATEMENT OF THE P ROFIT WOULD NOT ARISE. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS CO. LTD. 261 ITR 275. SIMILAR VIEW WAS ALSO TAKEN BY THE HON'BLE CALCUTTA HIGH COURT IN THE CAS E OF CIT VS. BERGER PAINTS INDIA LTD. 264 ITR 503. THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS (P) LTD . 318 ITR 116 FOLLOWING THE HON'BLE DELHI HIGH COURT DECISION IN THE CASE OF MA HAVIR ALLUMINIMUM LIMITED 297 ITR 77 HELD THAT TO GIVE EFFECT TO SECTION 145A IF THERE IS A CHANGE IN THE CLOSING STOCK AT THE END OF THE YEAR, THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN T HE OPENING STOCK OF THAT YEAR. THIS DOES NOT AMOUNT TO GIVING TOTAL BENEFIT TO TH E ASSESSEE. IT WOULD BE NECESSARY TO COMPUTE THE TRUE AND CORRECT PROFIT FOR THE PURPOSE OF THE ASSESSMENT. IN OUR VIEW, UNDER EITHER SYSTEM OF ACCOUNTING THE ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 5 PROFIT COMPUTED IS A RESULT OF OPERATION OF AN ENTE RPRISE ARE IDENTICAL AS IS EVIDENT FROM THE FOLLOWING ILLUSTRATION: - ASSUME THAT IN CASE OF AN ASSESSES: YEAR ITEM QTY RATE AMOUNT OPENING STOCK 20 PURCHASES 150 10 1500 ED ON PURCHASES 150 2 300 CLOSING STOCK 40 SALES 130 15 1950 ED ON SALES 130 5 650 UNDER THE EXCLUSIVE METHOD: P & L ACCOUNT DR PARTICULARS RS. CR. PARTICULARS RS. OPENING STOCK 200 SALES 1950 PURCHASES 1500 CLOSING STOCK 400 EXCISE DUTY 0 GROSS PROFIT 650 TOTAL 2350 2350 UNDER THE INCLUSIVE METHOD: P & L ACCOUNT DR PARTICULARS RS. CR. PARTICULARS RS. OPENING STOCK 240 SALES 2600 PURCHASES 1800 CLOSING STOCK 480 EXCISE DUTY 650 CREDIT OBTAINED ON CONSUMPTION 260 GROSS PROFIT 650 TOTAL 3340 3340 ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 6 FROM THE AFORESAID ILLUSTRATION IT IS CLEAR THAT TH E PROFIT COMPUTED UNDER THE INCLUSIVE AND THE EXCLUSIVE METHOD OF ACC OUNTING ARE THE SAME AND THERE WOULD NOT BE ANY CHANGE EVEN IF THE PROFI T COMPUTED BY THE ASSESSEE IS ADJUSTED IN ACCORDANCE WITH THE PROVISI ONS CONTAINED U/S 145A OF THE I.T. ACT BECAUSE TO THE EXTENT THE CLOSING S TOCK WILL BE INCREASED. IN RESPECT OF RAW MATERIALS THE COST OF THE PURCHASE A ND THE OPENING STOCK WILL BE INCREASED BY THE COMPONENT OF THE EXCISE DU TY. SINCE THE ISSUE INVOLVED RELATED TO THE VALUATION OF THE CLOSING ST OCK IN RESPECT OF RAW MATERIAL, THE QUESTION OF ANY DISALLOWANCE U/S 43 B WILL ALSO NOT ARISE. WE HAVE GONE THROUGH THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. INDO NIPPO CO. LTD. THIS CASE RELATES TO THE PROVISIONS OF SECTION 145 AND NOT TO THE PROVISIONS OF SECTION 145 A BECA USE SECTION 145 A WAS INSERTED FROM THE ASSESSMENT YEAR 1999-2000. WE HAV E ALSO GONE THROUGH THE ORDER OF THE MARUTI UDYOG LTD. VS. CIT REPORTED IN 92 ITD 119. ALTHOUGH THIS CASE RELATES TO THE CLAIM OF THE DEDU CTION U/S 43B BUT THE PROPOSITION LAID DOWN IN THIS CASE IS EQUALLY APPLI CABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. WE HAVE ALREADY HELD THAT HE PROFIT OF THE ASSESSEE CANNOT BE EFFECTED IF THE ASSESSEE FOLLOWED THE INC LUSIVE METHOD OF ACCOUNTING OR THE EXCLUSIVE METHOD OF ACCOUNTING BE CAUSE IN ANY CASE THE STOCK IS INCREASED TO THAT EXTENT THE DEBIT SIDE IN THE P & L ACCOUNT WHICH WILL BE INCREASED BY THE INCREASE IN VALUE OF OPENI NG STOCK AS WELL AS THE COST OF THE PURCHASE DUE TO THE INCLUSION OF THE EX CISE DUTY INCURRED BY THE ASSESSEE AT THE TIME OF THE PURCHASE OF THE RAW MAT ERIALS. IN VIEW OF THE AFORESAID DISCUSSION THE SECOND GROUND IS ALLOWED. 10. GROUND NO. 3 RELATES TO THE SUSTENANCE OF DISALLO WANCE OF FOREIGN EXCHANGE LOSS OF RS.1,40,84,283/- ON FORWARD CONTRA CTS RELATED TO FOREIGN EXCHANGE CURRENCY. 11. THE FACTS RELATING TO THIS GROUND ARE THAT THE AO N OTED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,40,84,283/- IN R ESPECT OF THE LOSS ON ACCOUNT OF CANCELLATION OF THE FORWARD CONTRACT. WH EN QUESTIONED THE ASSESSEE SUBMITTED THAT IT IS A MULTINATIONAL COMPA NY AND 50% RAW MATERIALS ARE IMPORTED AND 10% SALES ARE EXPORTS. T HE FOREIGN EXCHANGE ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 7 RISKS ARE HEDGED USING FORWARD CONTRACTS ON THE BAS IS OF UNDERLYING PURCHASES, SALE CONTRACTS. THE DEFINITION OF SPECUL ATIVE TRANSACTIONS UNDER SECTION 43(5) IS AN EXHAUSTIVE ONE AND THE TERM DOE S NOT INCLUDE CURRENCY. THE AO WAS NOT SATISFIED WITH THE ASSESSEES EXPLAN ATION. THEREFORE HE TREATED THE LOSS ON CANCELLATION OF THE FORWARD CON TRACT AS LOSS ARISING FROM SPECULATION ACTIVITIES AND DISALLOWED THE SAME. ASS ESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER O F THE AO. 12. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 43(5) WHICH DEFINES SPECULATIVE TRANSACTION. WE NOT ED THAT AS PER THE DEFINITION GIVEN IN SUB-SECTION (5) THE TRANSACTION ENTERED INTO CANNOT BE TREATED TO A SPECULATIVE TRANSACTION. THE DEFINITIO N OF SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) IS AN EXHAUSTIVE O NE AND THE TERM 'COMMODITY' INCLUDING SHARES AND STOCKS BUT DOES NO T INCLUDE CURRENCY. (A) THE TERM 'COMMODITY' IS DEFINED NEITHER IN THE INCOME-TAX ACT NOR IN THE GENERAL CLAUSES ACT. (B) DICTIONARY MEANING OF THE TERM 'COMMODITY' IS ' RAW MATERIAL OR AGRICULTURAL PRODUCT THAT CAN BE BOUGHT AND SOLD SOMETHING USEFUL OR VALUABLE'. (C) ANOTHER DEFINITION FOR THE TERM 'COMMODITY' IS 'ANY PRODUCT THAT CAN BE USED FOR COMMERCE OR AN ARTICLE OF COMMERCE WHICH I S TRADED ON AN AUTHORISED COMMODITY EXCHANGE IS KNOWN AS COMMODITY '. THE ARTICLE SHOULD BE MOVABLE OF VALUE, SOMETHING WHICH IS BOUG HT OR SOLD AND WHICH IS PRODUCED OR USED AS THE SUBJECT OF BARTER OR SAL E. (D) IN SHORT, COMMODITY INCLUDES ALL KINDS OF GOODS . THE FORWARD CONTRACTS (REGULATION) ACT, 1952 (FCRA) DEFINES 'GOODS' AS 'E VERY KIND OF MOVABLE PROPERTY OTHER THAN ACTIONABLE CLAIMS, MONEY AND SE CURITIES'. (E) THE DELHI BENCH OF ITAT IN THE CASE OF MUNJAL S HOWA LTD. V. DCIT 94 TTJ 227 HAS HELD AS UNDER: ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 8 'FOREIGN CURRENCY OR ANY CURRENCY IS NEITHER COMMODITY NOR SHARES. THE SALE OF GOODS ACT SPECIFICALLY EXCLUDES CASH FR OM THE DEFINITION OF GOODS. BESIDES, NO PERSON OTHER THAN AUTHORISED DEA LERS AND MONEY CHANGERS ARE ALLOWED IN INDIA TO TRADE IN FOREIGN C URRENCY, MUCH LESS SPECULATE. S. 8 OF THE FOREIGN EXCHANGE REGULATIONS ACT, 1973, PROVIDES THAT EXCEPT WITH PRIOR GENERAL OR SPECIAL PERMISSION OF THE RBI, NO PERSON OTHER THAN AN AUTHORISED DEALER SHAL L PURCHASE, ACQUIRE, BORROW OR SELL FOREIGN CURRENCY. IN FACT, PRIOR TO THE LERMS, RESIDENTS IN INDIA WERE NOT EVEN PERMITTED TO CANCE L FORWARD CONTRACTS. THE PRESUMPTION OF ANY SPECULATIVE TRANSACTION IS, THEREFORE, DIRECTLY REBUTTED IN VIEW OF THE LEGAL I MPOSSIBILITY AND IN VIEW OF THE FACT THAT FOREIGN CURRENCY WAS N EITHER COMMODITY NOR SHARES. ' (F) THE SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF SHREE CAPITAL SERVICES LTD. V. ACIT 121 ITD 498 HAS HELD THAT DERIVATIVES WITH UNDERLYING AS SHARES AND SECURITIES SHOULD BE ALSO CONSIDERED AS COMMODITIES AS THE UNDERLYING SHARES AND SECURITIES AS SPECIFICALLY INCLUDED WITHIN THE TERM COMMODITIES. ACCORDINGLY, TRANSACTIONS IN SECURITY DERIVATIVES ARE SUBJECT TO THE PROVISIONS OF S. 43(5). HOWEVER, A CURRENCY CANNOT BE TERMED AS A COMMODITY SO AS TO A TTRACT THE PROVISIONS OF S. 43(5). JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF BAD RIDAS GAURIDU (P) LTD. 261 ITR 256 HAS HELD THAT THE ASSESSEE IS NOT A DEALER IN FOREI GN EXCHANGE BUT AN EXPORTER. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN FORWARD MARKET WITH THE BANK. T HE LOSS SUFFERED BY ASSESSEE ON CANCELLATION OF SUCH FORWARD CONTRACTS IS NOT SPECULATIVE AND LOSS IS DEDUCTIBLE AS BUSINESS LOSS. 13. WE NOTED THAT SIMILAR ISSUE HAS AGAIN CAME UP BEFOR E THE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 278 OF 2014 IN THE CASE OF M/S. D. CHETAN & CO. IN WHICH THE QUESTION BEFORE T HE HON'BLE HIGH COURT WAS: - WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION OF MARK TO MARKET LOSS OF RS.78,10,000/- MADE BY THE ASSESSING OFFICE R ON ACCOUNT OF DISALLOWANCE OF LOSS ON FOREIGN EXCHANGE FORWARD CO NTRACT LOSS AND NOT APPRECIATING THE FACT THAT THE SAID LOSS WAS A NOTIONAL LOSS AND HENCE CANNOT BE ALLOWED. ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 9 THE HON'BLE HIGH COURT AFTER DISCUSSING THE SUBMISS IONS OF BOTH PARTIES HELD AS UNDER: - 7. THE IMPUGNED ORDER OF THE TRIBUNAL HAS, WHILE UPHOLDING THE FINDING OF THE CIT (APPEALS), INDEPENDENTLY COME TO THE CONCLUSION THAT THE TRANSACTION ENTERED INTO BY THE RESPONDENT ASSESSEE IS NOT IN THE NATURE OF SPECULATIVE ACTIVITIES. FURTHER THE H EDGING TRANSACTIONS WERE ENTERED INTO SO AS TO COVER VARIATION IN FOREI GN EXCHANGE RATE WHICH WOULD IMPACT ITS BUSINESS OF IMPORT AND EXPOR T OF DIAMONDS. THESE CONCURRENT FINDING OF FACTS ARE NOT SHOWN TO BE PERVERSE IN ANY MANNER. IN FACT, THE ASSESSING OFFICER ALSO IN THE ASSESSMENT ORDER DOES NOT FIND THAT THE TRANSACTION ENTERED INTO BY THE RESPONDENT ASSESSEE WAS SPECULATIVE IN NATURE. IT FURTHER HOLD S THAT AT NO POINT OF TIME DID REVENUE CHALLENGE THE ASSERTION OF THE RES PONDENT ASSESSEE THAT THE ACTIVITY OF ENTERING INTO FORWARD CONTRACT WAS IN THE REGULAR COURSE OF ITS BUSINESS ONLY TO SAFEGUARD AGAINST TH E LOSS ON ACCOUNT OF FOREIGN EXCHANGE VARIATION. EVEN BEFORE THE TRIBUNA L, WE FIND THAT THERE WAS NO SUBMISSION RECORDED ON BEHALF OF THE R EVENUE THAT THE RESPONDENT ASSESSEE SHOULD BE CALLED UPON TO EXPLAI N THE NATURE OF ITS TRANSACTIONS. THUS, THE SUBMISSION NOW BEING MA DE IS WITHOUT ANY FOUNDATION AS THE STAND OF THE ASSESSEE ON FACTS WA S NEVER DISPUTED. SO FAR AS THE RELIANCE ON ACCOUNTING STANDARD11 IS CONCERNED, IT WOULD NOT BY ITSELF DETERMINE WHETHER THE ACTIVITY WAS A PART OF THE RESPONDENT-ASSESSEE'S REGULAR BUSINESS TRANSACTION OR IT WAS A SPECULATIVE TRANSACTION. ON PRESENT FACTS, IT WAS N EVER THE REVENUE'S CONTENTION THAT THE TRANSACTION WAS SPECULATIVE BUT ONLY DISALLOWED ON THE GROUND THAT IT WAS NOTIONAL. LASTLY, THE REL IANCE PLACED ON THE DECISION IN S. VINODKUMAR (SUPRA) IN THE REVENUE'S FAVOUR WOULD NOT BY ITSELF GOVERN THE ISSUES ARISING HEREIN. THIS IS SO AS EVERY DECISION IS RENDERED IN THE CONTEXT OF THE FACTS WHICH ARISE BEFORE THE AUTHORITY FOR ADJUDICATION. MERE CONCLUSION IN FAVOUR OF THE REVENUE IN ANOTHER CASE BY ITSELF WOULD NOT ENTITLE A PARTY TO HAVE AN IDENTICAL RELIEF IN THIS CASE. IN FACT, IF THE REVENUE WAS OF THE VIEW THAT THE FACTS IN S. VINODKUMAR (SUPRA) ARE IDENTICAL / SIMILAR TO THE PRESENT FACT S, THEN RELIANCE WOULD HAVE BEEN PLACED BY THE REVENUE UPON IT AT THE HEARING BEFORE THE TRIBUNAL. THE IMPUGNED ORDER DOE S NOT INDICATE ANY SUCH RELIANCE. IT APPEARS THAT IN S. VINODKUMAR (SUPRA), THE TRIBUNAL HELD THE FORWARD CONTRACT ON FACTS BEFORE IT TO BE SPECULATIVE IN NATURE IN VIEW OF SECTION 43(5) OF THE ACT. HOWE VER, IT APPEARS THAT THE DECISION OF THIS COURT IN CIT VS. BADRIDAS GAURIDAS (P) LTD. WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN IT R ENDERED ITS DECISION IN S. VINODKUMAR (SUPRA). IN THE ABOVE CASE, THIS COURT HAS HELD THA T FORWARD CONTRACT IN FOREIGN EXCHANGE WHEN INCIDENTA L TO CARRYING ON BUSINESS OF COTTON EXPORTER AND DONE TO COVER UP LO SSES ON ACCOUNT OF DIFFERENCES IN FOREIGN EXCHANGE VALUATIONS, WOULD N OT BE SPECULATIVE ACTIVITY BUT A BUSINESS ACTIVITY. ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 10 14. SIMILARLY THE HON'BLE BOMBAY HIGH COURT IN THE CASE CIT VS. M/S. LONDON STAR DIAMOND CO. (INDIA) PVT. LTD. IN A PPEAL NO. 712 OF 2014 VIDE ITS ORDER DATED 19 TH OCTOBER, 2016 ON SIMILAR QUESTION DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE DECI SION OF THE CIT VS. M/S. D. CHETAN & CO. AGAIN WHEN SIMILAR ISSUE WENT BEFOR E THE HON'BLE BOMBAY HIGH COURT IN ITA NO. 1440 OF 2014 IN THE CASE OF C IT VS. M/S. JAIMIN JEWELLER EXPORTS PVT. LTD. THE HON'BLE HIGH COURT V IDE ITS ORDER DATED 17 TH FEBRUARY, 2017 DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE IN VIEW OF THE DECISION IN THE CASE CIT VS. M/S. D. CHETAN & CO. A ND THAT OFCIT VS. M/S. JAIMIN JEWELLER EXPORTS PVT. LTD. 15. THE LEARNED D.R. BEFORE US VEHEMENTLY RELIED ON THE ORDER OF THE CIT(A) BUT COULD NOT CONVINCE US THAT THE FACTS INV OLVED IN THE CASE OF THE ASSESSEE ARE DIFFERENT TO THE DECISIONS AS HAS BEEN GIVEN BY THE HON'BLE BOMBAY HIGH COURT IN THE ABOVE NOTED CASE LAW. 16. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE BOMBAY HIGH COURT WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DELETE THE DISALLOWANCE OF RS.1,40,84,283/-. 17. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY AMOUNTING TO RS.4,42,922/-. THE FACTS RELATING TO THIS ISSUE ARE THAT THE AO NOTED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.97,15,541/- ON REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY. THE AO DISALLOWED A SUM OF RS.4,42,922/- AS THE ASSESSE E FAILED TO PRODUCE BILLS OF THE SAID AMOUNT TO TOPWIN EQUIPMENT SYSTEM . WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE AD DITION. THE LEARNED A.R. BEFORE US VEHEMENTLY CONTENDED THAT THE ASSESSEE HA S PRODUCED THE BILLS BEFORE THE AO. THE AMOUNT OF RS.4,42,822/- RELATES TO THE REPAIRS OF THE PLANTS WHICH WERE DULY ACCOUNTED AND PAID AFTER DED UCTION OF TDS BY THE ASSESSEE. THE LEARNED D.R., ON THE OTHER HAND, RELI ED ON THE ORDER OF THE AO. WE, THEREFORE, IN THE INTEREST OF JUSTICE AND F AIR PLAY TO BOTH PARTIES SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RES TORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION THAT THE AO SHALL VERIFY W HETHER THE ASSESSEE HAD MADE THE PAYMENT TO THESE PARTIES THROUGH AN ACCOUN T PAYEE CHEQUE AND ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 11 HAS DULY ACCOUNTED FOR THE PAYMENT AFTER DEDUCTING TDS ON THE BILLS. IN THE CASE THE AO IS NOT SATISFIED HE MAY MAKE AND IN DEPENDENT INQUIRY FROM THE CONCERNED PARTIES AND TAKEN DECISION N ACC ORDANCE WITH LAW AS IN OUR OPINION KEEPING IN VIEW THE QUANTUM OF REPAIRS AND MAINTENANCE INCURRED BY THE ASSESSEE AT RS.97,15,541/-, THE SUM OF RS.4,42,822/- IS VERY SMALL. NON-PRODUCTION OF BILLS RELATING TO THI S AMOUNT SHOULD NOT BE CONSIDERED AS THESE EXPENSES ARE NON-GENUINE. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 18. FIFTH GROUND RELATES TO REPAIRS AND MAINTENANCE OF OTHER ASSETS AMOUNTING TO RS.18,18,800/-. THE FACTS RELATING TO THIS GROUND ARE THAT THE AO NOTED THAT DURING THE YEAR THE ASSESSEE HAD INCU RRED A SUM OF RS.90,93,999/- ON OTHER REPAIRS AND MAINTENANCE. TH E ASSESSEE PRODUCED THE BILLS DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. THE AO DISALLOWED 20% OF THE EXPENSES ON THE GROUND THAT NO VOUCHERS WERE PRODUCED AND THEREFORE THE EXPENSES WERE NOT VERIFIABLE. WHEN TH E MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD THE SUBMISSIO NS OF BOTH PARTIES AND CAREFULLY CONSIDERED THE ORDERS OF THE TAX AUTHORIT IES BELOW. THE LEARNED A.R. HAS DRAWN OUT ATTENTION TO THE LETTER DATED 23 .12.2011 FROM WHICH IT IS APPARENT THAT THE ASSESSEE HAD DULY PRODUCED THE BILLS FOR VERIFICATION. THEREFORE, IN OUR OPINION, THE OBSERVATION MADE BY THE AO THAT THE ASSESSEE DID NOT PRODUCE THE BILLS DOES NOT HAVE AN Y LEG TO STAND. NOT ONLY THIS WE ALSO NOTED THAT IN THE PRECEDING ASSESSMENT YEAR 2007-08 THE ASSESSEE HAD INCURRED EXPENDITURE ON OTHER REPAIRS AND MAINTENANCE TO THE EXTENT OF RS.89,41,982/- AND DURING THE IMPUGNE D ASSESSMENT YEAR THERE IS ONLY A MINOR INCREASE OF RS.15,20,117/-. I F WE COMPARE THESE FIGURES AS PERCENTAGE TO THE SALE WE NOTED THAT THE RE HAS BEEN SLIGHT DECREASE IN THE EXPENSES. WE, THEREFORE, DELETE THE SAID DISALLOWANCE. THUS, THIS GROUND STANDS ALLOWED. 19. GROUND NO. 6 RELATES TO THE CLAIM OF DEPRECIATION B Y THE ASSESSEE ON UPS @60% BUT ALLOWED BY THE AO AND CONFIRMED BY THE CIT(A) @15% AND THEREBY A SUM OF RS.21,69,239/- WAS DISALL OWED OUT OF THE ITA NO. 4116/MUM/2013 M/S. ESSEL PROPACK LTD. 12 DEPRECIATION CLAIMED BY THE ASSESSEE. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW WE NOTED THAT THIS ISSUE IS DULY COVERED BY THE DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD. 40 SOT 29 5 [9 ITR(T) 712] IN WHICH IT WAS SPECIFICALLY HELD THAT THE UPS SHALL B E ENTITLED FOR DEPRECIATION @60%. SIMILAR VIEW HAS BEEN TAKEN BY B BENCH OF THIS TRIBUNAL IN THE CASE OF MACAWBER ENGINEERING SYSTEM S (I) P. LTD. 19 ITR(T) 302 IN WHICH IT WAS HELD THAT UPS WAS AN ESSENTIAL INGREDIENT IN ORDER TO RUN COMPUTER EFFECTIVELY, THEREFORE THE ASSESSEE SH ALL BE ENTITLED FOR DEPRECIATION @60%. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE BY THE LEARNED D.R. EVEN THOUGH HE HAS VEHEMENTLY RELI ED ON THE ORDER OF THE CIT(A), WE ARE BOUND TO FOLLOW THE DECISION OF THE COORDINATE BENCH. WE ACCORDINGLY DIRECT THE AO TO ALLOW DEPRECIATION TO THE ASSESSEE @60%. THIS, THIS GROUND OF THE ASSESSEE IS ALLOWED. 20. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 11 TH SEPTEMBER, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -12, MUMBAI 4. THE CIT - 6, MUMBAI 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.