ACIT, New Delhi V. M/s. Nalini Jewellers, New Delhi

ITA 4531/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5167 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 09-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RINKU SINGH SENIOR
• Keywords: Speculation loss; Notional interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4531/DEL./2015 (ASSESSMENT YEAR : 2011-12) ACIT, CIRCLE 5 (1), VS. M/S. NALINI JEWELLERS, NEW DELHI. 16/2646-49, BANK STREET, KAROL BAGH, NEW DELHI. (PAN :AAEFN2292D) ITA NO.4181/DEL./2015 (ASSESSMENT YEAR : 2011-12) M/S. NALINI JEWELLERS, VS. ACIT, CIRCLE 5 (1), 16/2646-49, BANK STREET, NEW DELHI. KAROL BAGH, NEW DELHI. (PAN :AAEFN2292D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANAND KUMAR PANDEY, ADVOCATE REVENUE BY : SMT. RINKU SINGH, SENIOR DR DATE OF HEARING : 20.05.2019 DATE OF ORDER : 28.05.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : ITA NO.4531 & 4181/DEL/2015 2 PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. 2. APPELLANT, ACIT, CIRCLE 5 (1), NEW DELHI (HEREIN AFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.04.2015 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-17, NEW DELHI QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA T HAT:- 1. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.1,13,85,924/- DERIVED ON ACCOUNT OF FORWARD CONT RACTS IN RESPECT OF 'FOREIGN CURRENCY' BEING SPECULATIVE PROFIT CAN BE SET OFF OF AGAINST THE LOSS OF RS.1,04,25,309/- DEBITED IN GOLD DESK ACCOU NT. 2. THE LD. CIT(A) AGREED WITH THE AO THAT THE LOSS FROM GOLD DESK TRANSACTIONS IS SPECULATIVE BUT ERRONEOUSLY LD . CIT(A) SUO-MOTO TOOK THE STAND THAT FORWARD CONTRACTS IS SPECULATIV E WITHOUT BEING CLAIMED BY THE ASSESSEE DURING ENTIRE ASSESSMENT PR OCEEDING. EVEN THE ASSESSEE IN THE YEAR UNDER REFERENCE, WHILE FILING THE RETURN OF INCOME ON 24.05.203 HAD TREATED IT TO BE BUSINESS PROFIT. 3. THE CIT(A) HAS ERRED IN IGNORING THE FACT THAT T RANSACTION WAS NOT LISTED/TRADED ON A RECOGNIZED STOCK EXCHANGE, A S ALSO, CIT(A) HAS FURTHER ERRED IN IGNORING THE FACT THAT NEITHER DO THE TRANSACTIONS FALL UNDER THE CONDITION LED DOWN U/S 43(5)( D) OF I. T. ACT, 1961, NOR HAS THE ASSESSEE PRODUCED ANY DOCUMENTARY EVIDENCE DURI NG THE ASSESSMENT PROCEEDINGS SUBSTANTIATING THAT THE TRAN SACTIONS REFERRED TO, BY THE ASSESSEE WERE INDEED 'HEDGING' WHICH ALSO FI NDS CONSONANCE IN THE JUDGMENT OF APEX COURT IN CASE OF CIT VS. JOSEP H JOHN (1968) 67 ITR 74 (SC). 4. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO NS OF RS.54,000/- ON ACCOUNT OF NOTIONAL INTEREST @ 10% O N THE SUM EXPENDED BY THE ASSESSEE TO PARTNERS ON ACCOUNT OF INTEREST FREE ADVANCE. 3. APPELLANT, M/S. NALINI JEWELLERS (HEREINAFTER RE FERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.04.2015 PASSED BY THE COMMI SSIONER OF ITA NO.4531 & 4181/DEL/2015 3 INCOME-TAX (APPEALS)-17, NEW DELHI QUA THE ASSESSME NT YEAR 2011-12 ON THE GROUNDS INTER ALIA THAT:- 1. THAT LEARNED ACIT HAS ERRED IN LAW AND ON FACTS WHILE TREATING RS.1,04,25,309/- BEING THE 'LOSS OF GOLD D ESK ACCOUNT' AS SPECULATIVE LOSS AND LIKE WISE CIT(AL IS NOT JUSTIF IED WHILE CONFIRMING THE SAME. 2. THAT THE LEARNED CIT (A) HAS NOT APPRECIATED THE FACTS OF THE CASE, EXPLANATION OFFERED & PROCEEDED TO HOLD THE L OSS OF RS.1,04,25,309/- AS SPECULATIVE LOSS. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS INTO MANUFACT URING AND EXPORT OF GOLD JEWELLERY AND PROCURES PURE GOLD FROM MINER AL & METAL TRADING CORPORATION LIMITED. ASSESSING OFFICER NOTI CED THAT THE ASSESSEE HAS CLAIMED LOSS ON GOLD DESK-D AMOUNTING TO RS.1,04,25,309/- OF WHICH FULL DETAILS OF LOSS WAS CALLED. ASSESSEE FILED EXTENSIVE DETAILS EXTRACTED IN PARA 3 OF THE ASSESSMENT ORDER BY THE AO. FROM THE REPLY FILED BY THE ASSESSEE, A O FURTHER OBSERVED THAT ASSESSEES TRANSACTIONS ARE IN THE NA TURE OF HEDGING AND COVERED UNDER THE EXCEPTIONS PROVIDED IN SECTIO N 43(5)(A) AND 43(5)(B) OF THE INCOME-TAX ACT, 1961 (FOR SHORT TH E ACT). IT IS ALSO OBSERVED BY THE AO THAT THE ASSESSEE HAS NOT D ISPUTED THAT IT IS INDULGED IN THE DERIVATIVE OF GOLD AND FOREIGN CURR ENCY WHICH IS TREATED AS SPECULATIVE TRANSACTION UNDER SECTION 43 (5) OF THE ACT. DECLINING THE CONTENTIONS RAISED BY THE ASSESSEE, A O PROCEEDED TO CONCLUDE THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE ITA NO.4531 & 4181/DEL/2015 4 TRANSACTION CARRIED OUT BY THE ASSESSEE FIRM ARE FO R HEDGING PURPOSE AND NOT SPECULATIVE TRANSACTION AND THEREBY MADE AN ADDITION OF RS.1,04,25,309. AO ALSO MADE ADDITION OF RS.54,000 /- ON ACCOUNT OF NOTIONAL INTEREST ON THE SUM OF RS.5,40,000/- EX PENDED BY THE ASSESSEE TO PARTNERS ON PROPORTIONATE BASIS @ NOTIO NAL INTEREST OF 10%. 5. ASSESSEE CARRIED THE MATTER BY WAY OF APPEALS BE FORE THE LD. CIT (A) WHO HAS GIVEN PARTIAL RELIEF BY PARTLY ALLO WING THE APPEAL. FEELING AGGRIEVED, BOTH THE REVENUE AS WELL AS ASSE SSEE HAVE COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. AT THE VERY OUTSET, IT IS BROUGHT TO OUR NOTICE BY THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE AP PEALS THAT IDENTICAL ISSUES WERE DECIDED BY THE COORDINATE BEN CH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.4487/DEL/2014 & 4463/DEL/2014 ORDER DATED 27.04.2018 BY DISMISSING THE APPEAL FILED BY THE ASSESSEE AND BY PARTLY ALLOWING THE AP PEAL FILED BY THE REVENUE FOR STATISTICAL PURPOSES. THEN, THE ASSESS EE CARRIED THE MATTER BEFORE THE HONBLE DELHI HIGH COURT WHO HAS PASSED THE ITA NO.4531 & 4181/DEL/2015 5 ORDER DATED 29.04.2019 IN WP (C) 4468/2019 AND ITA 430/2019 BY SETTING ASIDE THE MATTER TO THE AO TO EXAMINE TH E ISSUE WITH RESPECT TO VERIFICATION OF TRANSACTIONS AND CORRELA TION WITH SPECIFIC CONTRACTS BY RETURNING FOLLOWING FINDINGS :- 4. WE HAVE HEARD COUNSEL FOR THE PARTIES. THE LIMITED RELIEF THAT THE ASSESSEE SEEKS IS THAT EVEN WHILE DIRECTING THE REMAND FOR RECONSIDERATION AT THE BEH EST OF THE REVENUE IN ITS APPEAL, ITAT FAILED TO APPREC IATE THE ASSESSEES CONTENTION WITH RESPECT TO THE CONTR ACTS WHICH IT CLAIMED WERE NOT FORWARD CONTRACTS BY VIRT UE OF PROVISO CLAUSES (A) & (B) TO SECTION43 (5) OF THE A CT. THE CONTENTION WAS DECLINED ON THE GROUND THAT NO CORRELATION BETWEEN THE FORWARD CONTRACT TRANSACTIO NS OF GOLD AND CORRESPONDING PURCHASES AND EXPORT OF JEWELLERY WAS ESTABLISHED TO SATISFY THE REQUIREMEN TS OF LAW. THIS COURT IS OF THE OPINION THAT THE ASSESSEE S CONTENTION HAS SOME MERIT THE EARLIER PORTION OF THE MAIN IMPUGNED ORDER SPECIFICALLY NOTICED THE COMPILATION OF DOCUMENTS PRODUCED DURING THE PROCEEDINGS, WHICH CONTAINED SPECIFIC CONTRACTS AND THE TRANSACTIONS WHICH THE REVENUE ALLEGED WERE SPECULATIVE. 5. IN THESE CIRCUMSTANCES, GIVEN THAT THE REVENUES APPEAL HAS BEEN REMITTED, THE ITATS APPROACH IN OU R OPINION WAS NOT CORRECT. ACCORDINGLY, THE ASSESSEE S QUESTION WITH RESPECT TO THE VERIFICATION OF THE TRANSACTIONS AND THE CORRELATION WITH SPECIFIC CONT RACTS SHALL BE EXAMINED HAVING REGARD TO THE ASSESSEES CONTENTIONS AS WELL. ITA 430/2019 AND W.P.(C) 4468/2019 ARE PARTLY ALLOWED IN THE ABOVE TERMS. TH E ITATS IMPUGNED ORDER IS HEREBY SET ASIDE. 8. WE ARE OF THE CONSIDERED VIEW THAT SINCE THE IDE NTICAL ISSUES FOR AY 2010-11 ARE ALREADY PENDING ADJUDICATION BY THE AO HAVING BEEN REMANDED BY THE HONBLE DELHI HIGH COUR T, THE SAME ITA NO.4531 & 4181/DEL/2015 6 ISSUES QUA FOR THE YEAR UNDER ASSESSMENT ARE ALSO R EQUIRED TO BE REMANDED BACK TO THE AO TO DECIDE IN ACCORDANCE WIT H THE ORDER PASSED BY THE HONBLE HIGH COURT. CONSEQUENTLY, BO TH THE APPEALS ARE SET ASIDE TO THE AO TO DECIDE IN ACCORDANCE WIT H THE DECISION TAKEN IN AY 2010-11 BY FOLLOWING THE DIRECTIONS BY THE HONBLE HIGH COURT. CONSEQUENTLY, BOTH THE APPEALS FILED B Y THE ASSESSEE AS WELL AS REVENUE ARE ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF MAY, 2019. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBE R DATED THE 28 TH DAY OF MAY, 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-17, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.