KETAN CERAMICS PVT. LTD., Nagpur V. THE ACIT, CENTRAL-CIRCLE-2(3), Nagpur

ITA 431/NAG/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5224 (ITAT-NAGPUR)
• Duration Of Justice: 5 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 06-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U U KASAR
• Keywords: Proportionate interest; Speculation loss; Speculative transactions
• Section: 143(3); 43(5)

Judgement Text

UKXIQJ , UKXIQJ IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.431/NAG/2013 / ASSESSMENT YEAR : 201011 KETAN CERAMICS PVT. LTD., C/O. M/S. LOYA BAGRI & CO., CHARTERED ACCOUNTANTS, GANDHIBAG, NAGPUR. PAN : AAACK6099A ....... / APPELLANT / V/S. ACIT, CENTRAL CIRCLE2(3), NAGPUR. / RESPONDENT ASSESSEE BY : SHRI RAJESH LOYA, CA REVENUE BY : SHRI U. U. KASAR, DR / DATE OF HEARING : 26.03.2019 / DATE OF PRONOUNCEMENT : 28.03.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)- 16, MUMBAI [HOLDING CONCURRENT JURISDICTION OF CIT(A)1, NAGPUR] DATED 05.08.2013 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO.431/NAG/2013 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : (1) THAT THE ORDER OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(3), NAGPUR IS BAD IN LAW AND WRONG ON FACTS AND THE LEARNED C.I.T.(A) HAS ERRED IN CONFIRMING THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE ACTION OF BOTH THE AUTHORITIES IS UNJUSTIFIED. (2) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING RS.79,64,700/- FROM OUT OF FINANCIAL EXPENSES AND THE LEARNED CIT(A) WAS UNJUSTIFIED IN ONLY PARTLY ALLOWING THE EXPENDITURE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS AND THEREFORE ALLOWABLE. (3) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE TRADING TRANSACTION, IN WHICH DELIVERY IS NOT TAKEN, CONSTITUTES SPECULATIVE TRANSACTION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRADING TRANSACTIONS ENTERED BY THE ASSESSEE ARE OUTSIDE THE PURVIEW THE DEFINITION OF SPECULATIVE TRANSACTION AS ENVISAGED AS PER SECTION 43(5) OF THE INCOME TAX ACT. (4) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE FINANCIAL EXPENSES (PARTLY) HAVE BEEN INCURRED FOR SPECULATIVE TRANSACTION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE FUNDS AVAILABLE THROUGH LC TRANSACTION HAVE BEEN UTILISED FOR THE WORKING CAPITAL OF THE REGULAR BUSINESS OF THE ASSESSEE. (5) THAT FOR ANY OTHER GROUND WITH KIND PERMISSION OF HON'BLE MEMBERS AT THE TIME OF HEARING OF APPEAL. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING, PROCESSING OF COAL, MARBLE, TITLES, DOLOMITE POWDER. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.76,840/. A SEARCH ACTION WAS CONDUCTED IN THE BUSINESS AND RESIDENTIAL PREMISES OF SHRI MAHESH GUPTA ON 29.07.2009. THE ASSESSMENT WAS EVENTUALLY MADE U/S 3 ITA NO.431/NAG/2013 143(3) OF THE ACT AND AN ADDITION OF RS.79,64,700/- WAS ADDED TO THE TOTAL INCOME RETURNED BY THE ASSESSEE. THE RELEVANT DISCUSSION GIVEN BY THE ASSESSING OFFICER IN PARA 5 AND ITS SUB-PARAGRAPHS OF THE ASSESSMENT ORDER. THE AFORESAID ADDITION RELATES TO THE CLAIM OF FINANCE CHARGES. THE ASSESSEE CLAIMED THE FINANCE CHARGES OF RS.83,52,521/-. THE ASSESSEE PAID THE SAME TOWARDS THE INTEREST EXPENDITURE. 4. THE ASSESSEE ENGAGED IN BOTH COAL TRADING ACTIVITIES AS WELL AS OTHER BUSINESS ACTIVITIES I.E. TRADING, PROCESSING OF COAL, MARBLE TILES, DOLOMITE POWDER ETC. WITH REFERENCE TO THE COAL TRADING ACTIVITIES, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEES COAL TRADING ACTIVITIES ARE NOT DELIVERY BASED. THUS, THIS PART OF BUSINESS OF THE ASSESSEE IS NON- DELIVERY BASIS AND THE ASSESSEE DISCOUNTS THE L/C RATES BY THE BUYERS OF HIS STOCK OF COAL. CONSIDERING THE FACT THAT THE INTEREST EXPENDITURE QUA THE INTEREST BEARING LOANS ARE INVESTED IN COAL BUSINESS, IS NOT GENUINE, THE ASSESSING OFFICER TREATED THE PROPORTIONATE INTEREST EXPENDITURE AS BOGUS EXPENDITURE. 5. THE CIT(A) CONSIDERED THE SAME AS SPECULATION TRANSACTIONS AND INVOKED THE PROVISIONS OF SECTION 43(5) OF THE ACT RELATING TO THE 4 ITA NO.431/NAG/2013 SPECULATIVE TRANSACTIONS. THE CIT(A) ANALYZED THE ISSUE AS PER THE DISCUSSION GIVEN IN PARA 3.3 AND ITS SUB-PARAGRAPHS OF HIS ORDER AND HELD THAT THE SAID EXPENDITURE OF RS.79,64,927/- WHICH IS OUT OF THE ASSESSEES CLAIM OF RS.83,52,521/- ON ACCOUNT OF THE FINANCE CHARGES, FALLS WITHIN THE SCOPE OF THE SPECULATIVE TRANSACTIONS. THE RELEVANT DISCUSSION GIVEN BY THE CIT(A) IN PARA 3.3 AND ITS SUB-PARAGRAPHS OF THE APPELLATE ORDER. EVENTUALLY, THE CIT(A) HELD THAT ONLY RS.3,87,594/- IS ALLOWABLE EXPENDITURE OUT OF THE FINANCE CHARGES CLAIMED BY THE ASSESSEE AT RS.83,52,521/-. FOR THESE DIFFERENT REASONS, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. FOR THE SAKE OF COMPLETENESS, THE RELEVANT DISCUSSION OF THE SAID SUB-PARAGRAPH OF PARA 3.3 OF THE APPELLATE ORDER IS EXTRACTED HEREUNDER :- 3.3 ........... THUS, INTEREST AND FINANCIAL CHARGES INCURRED FOR SPECULATIVE ACTIVITY IS WORKED OUT AT RS.79,64,927/- (BEING THE L/C CHARGES OF RS.4,981 + PROPORTIONATE CHARGES FROM OTHER INTEREST AND FINANCE CHARGES AT RS.79,60,036/- AS WORKED OUT ABOVE) AND THE REMAINING BALANCE EXPENSES OF RS.3,87,594/- (TOTAL INTEREST & FINANCIAL CHARGES OF RS.83,52,521/- LESS RS.79,64,927/- ALLOCATED TO SPECULATIVE TRANSACTIONS) WOULD BE ALLOCATED TOWARDS REGULAR BUSINESS ACTIVITY OF TRADING. THE LATTER INCLUDES INTEREST ON TERM LOAN. THE APPELLANT HAS FURNISHED SEPARATE GP FOR NON-DELIVERY BASED TRANSACTIONS (SPECULATIVE TRANSACTIONS) AT RS.45,91,321/-. SINCE THE INCURRENCE OF INTEREST AND FINANCIAL CHARGES FOR SPECULATIVE TRANSACTIONS IS NOT IN DOUBT SINCE ALL HAVE BEEN ROUTED THROUGH THE APPELLANTS BANK ACCOUNT, THE SAME ARE REQUIRED TO BE ALLOWED AGAINST INCOME FROM SPECULATION ACTIVITY. TAKING GP AT RS.45,91,321/-, AND ALLOWING THE 5 ITA NO.431/NAG/2013 EXPENSES ON ACCOUNT OF INTEREST AND FINANCIAL CHARGES OF RS.79,64,927/- (WORKED OUT AS ABOVE), THE APPELLANT IS SEEN TO HAVE EARNED SPECULATION LOSS AT RS.33,73,606/-. SINCE IN TERMS OF SECTION 73 OF THE ACT, ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY AN ASSESSEE NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS, THE APPELLANT MAY BE ALLOWED TO ADJUST BROUGHT FORWARD SPECULATION LOSS/CARRY FORWARD SPECULATION LOSS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. FOR THE REMAINING INCOME FROM BUSINESS, INTEREST AND FINANCIAL CHARGES OF RS.3,87,594/- WOULD BE ALLOWABLE AS DEDUCTION AS AGAINST RS.83,52,521/- CLAIMED. THE AO IS DIRECTED TO REWORK THE INCOME FROM BUSINESS AND FROM SPECULATION BUSINESS ACCORDINGLY. THE GROUND IS THUS TREATED AS PARTLY ALLOWED. 6. AGGRIEVED WITH THE ABOVE FINDINGS OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE EXTRACTED GROUNDS. 7. REFERRING TO THE GROUND NOS.1 AND 5 WHICH ARE GENERAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT REST OF GROUND NOS.2 TO 4 REVOLVES AROUND THE APPLICABILITY OF THE PROVISIONS OF SECTION 43(5) OF THE ACT. BRINING OUR ATTENTION TO THE SPECIAL REFERENCE TO THE EXPRESSION ULTIMATELY SETTLED USED IN SUB-SECTION (5) OF SECTION 43 OF THE ACT, THE LD. COUNSEL SUBMITTED THAT THIS IS A CASE WHERE THE TRANSACTIONS WERE NEVER SETTLED IN THE MANNER IMPLIED IN THE SAID SUB-SECTION (5) OF SECTION 43 OF THE ACT. WHEN THE BENCH RAISED THE ISSUE RELATING TO THE DETAILS OF TRANSACTIONS WITH SUPPLIER, THE 6 ITA NO.431/NAG/2013 PAYMENTS MADE BY THE ASSESSEE TO THE SUPPLIERS OUT OF THE INTEREST BASED FUNDS, WHERE THE TRANSACTIONS WERE SETTLED, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THESE ISSUES RELATING TO THE SETTLEMENT WAS NEVER THE SUBJECT-MATTER OF THE ADJUDICATION BY THE LOWER AUTHORITIES. THEREFORE, IT IS REQUESTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE RAISED IN GROUND NOS.2 TO 4 MAY BE REMANDED TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION WITH SPECIAL REFERENCE TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 43(5) OF THE ACT. 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). 9. ON HEARING BOTH THE SIDES ON THIS LIMITED ISSUE RELATING TO THE NATURE OF SETTLEMENT OF THE TRANSACTIONS ON ONE SIDE AND/OR THE APPLICABILITY OF THE PROVISIONS OF SECTION 43(5) OF THE ACT ON THE OTHER USE OF THE FUNDS OR FOR COAL BASED TRANSACTIONS, WE FIND THERE IS NEED FOR MORE INFORMATION, THE DATA RELEVANT TO THE TRANSACTIONS TO THE ASSESSEE WITH SUPPLIER, THE USE OF THE LOANS TOWARDS THE COAL TRADING ACTIVITIES, APPLICABILITY OF THE SPECULATION PROVISIONS OF THE INCOME TAX ACT ETC. THEREFORE, FOR WANT OF FACTS/DETAILS, WE FIND THE ISSUE RAISED IN GROUND NOS.2 TO 4 REQUIRED TO BE REMANDED TO THE FILE OF THE CIT(A). 7 ITA NO.431/NAG/2013 THUS, THE GROUND NOS.2 TO 4 ARE ALLOWED FOR STATISTICAL PURPOSES. GENERAL GROUNDS ARE DISMISSED AS SUCH. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28 TH DAY OF MARCH, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER UKXIQJ / NAGPUR; / DATED : 28 TH MARCH, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) 4. THE CIT 5. , , UKXIQJ , UKXIQJ / DR, ITAT, NAGPUR BENCH, NAGPUR. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , UKXIQJ / ITAT, NAGPUR.