WEISSER TRADING COMPANY PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-1(3)(2), MUMBAI

ITA 4657/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0736 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 29-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Earning of tax free income; Speculation loss; Capital expenditure
• Section: 234B; 14A; 43(5); 139(5); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 4657 / MUM/20 17 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. WEISSER TRADING COMPANY PRIVATE LIMITED D - 407, TURAKIA PARK, M.G.ROAD OPP. SWIMMING POOL, KANDIVALI (E) MUMBAI 400 067 VS. DY. COMMISSIONER OF INCOME TAX 1(3)(2), MUMBAI PAN/GIR NO. AAACW8358E APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI DHARMESH SHAH REVENUE BY MS. N. HEMALATHA DATE OF HEARING 11 / 01 /201 8 DATE OF PRONOUNCEME NT 18 / 01 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 3, MUMBAI DATED 19/05/2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. FOLLOWING GROUND S HAVE BEEN TAKEN BY THE ASSESSEE: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF TREATING BUSINESS LOSS OF RS. 15,19,346/ - AS SPECULATION BEING LOSS ON TRADING IN CURRENCY DERIVATES ON A RECOGNIZED EXCHANGE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING AN AMOUNT OF RS. 7,00,000/ - BEING ROC FILING FEES FOR INCREASE IN SHARE CAPITAL. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF CONFIRMING THE DISALLOWANCE ITA NO. 4657/MUM/2017 M/S. WEISSER TRADING CO. PVT. LTD., 2 U/S M - A R.W.R SD OF THE ACT OF RS. 1,4 8 ,049/ - . THERE BEING NO DIVIDEND INCOME EARNED BY THE APPELLANT DURING THE YEAR. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF CHARGING INTEREST U/S 234B OF RS. 2,2 1 ,3 6 4/ - & 234C OF RS. 17,664/ - OF THE ACT AS AGAINST NIL RETURN OF INCOME FILED U/S 139(5) OF THE ACT. 5) THE APPELLAN T CRAVES LEAVE TO ADD, TO ALTER OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THIS APPEAL. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND SE CURITIES, FINANCING OF LOANS AND ADVANCES AND TRADING OF FABRICS. DURING THE COURSE OF SC RUTINY AS SESSMENT , AO DISALLOWED ASSESSEES CLAIM OF BUSINESS LOSS AND TRADING OF CURRENCY DERIVATIVES O N RECOGNISED EXCHANGE, BY TREATING THE SAME AS SPECULATION IN N ATURE. 5. I HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT T HE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH IN CASE OF IVF ADVERTISERS PVT. LTD., 39 ITR 541, WHEREIN TRIBUNAL HELD AS UNDER: - THE ASSESSES WAS AN INVESTMENT MANAGEMENT CONSULTANT. FOR THE ASSESSMEN T YEAR 2009 - 10, IT CLAIMED LOSS - ON ACCOUNT OF FOREIGN CURRENCY FUTURES. THE ASSESSING OFFICER HELD THAT THE LOSS COULD NOT BE ALLOWED IN THE LIGHT OF THE PROVISIONS OF SECTION 43(5) OF THE INCOME - TAX ACT, 1961 READ WITH SECTION 2(AC) OF THE SECURITIES CONT RACTS (REGULATION) ACT, 1956. THE COMMISSIONER (APPEALS) CONFIRMED THIS. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT DERIVATIVES INCLUDE FOREIGN CURRENCY. CALL OPTIONS OR PUT OPTIONS WERE TRANSACTIONS OF DERIVATIVE MARKETS AND COULD NOT BE TERMED SPECULATI VE IN NATURE. THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF FOREIGN CURRENCY FUTURES WAS ALLOWABLE.' 6. THE QUESTION RAISED IN THIS APPEAL READS AS UNDER: - ITA NO. 4657/MUM/2017 M/S. WEISSER TRADING CO. PVT. LTD., 3 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED COMMISSIONER OF I NCOME - TAX (APPEALS) OUGHT TO HAVE HELD THAT CLAUSE (D) OF THE PROVISO TO SECTION 43(5) OF THE INCOME - TAX ACT, 1961 ('THE ACT')/ WAS APPLICABLE TO THE TRANSACTIONS IN FOREIGN CURRENCY FUTURES ENTERED INTO BY THE APPELLANT AND THEREFORE THAT THE LOSS FROM TH ESE TRANSACTIONS WAS NOT IN THE NATURE OF SPECULATION LOSS.' 7. THE TRIBUNAL DECIDED THE ISSUE AS UNDER: - CONSIDERING THE RELEVANT PROVISIONS OF THE RELEVANT ACTS, DISCUSSED HERE - IN - ABOVE IN THE LIGHT OF THE HON'BLE MADRAS HIGH COURT AND THE ANSWERS GIV EN TO FREQUENTLY ASKED QUESTIONS BY THE SECURITIES AND EXCHANGE BOARD INDIA AND THE INCORPORATION OF EXCHANGE TRADED CURRENCY DERIVATIVE FROM AUGUST, 2008, THERE REMAIN NO IOTA OF DOUBT THAT THE TRANSACTION OF THE ASSESSEE CANNOT BE TREATED AS SPECULATIVE TRANSACTION. WE HAVE ALSO GONE THROUGH THE COPIES OF THE CONTRACT NOTES INCORPORATED IN THE PAPER BOOK FILED BEFORE US. A PERUSAL OF THE CONTRACT NOTE SHOWS THAT THE ASSESSEE HAS ' EITHER ENTERED INTO A CALL OPTION OR PUT OPTION AND ON THE SETTLEMENT DAY T HE TRANSACTION HAS BEEN SETTLED BY DELIVERY, EITHER THE ASSESSEE HAS PAID US DOLLAR ON THE SETTLEMENT DAY OR HAS TAKEN DELIVERY OF US DOLLAR. TO SUM UP, THE DERIVATIVES INCLUDE FOREIGN CURRENCY AND CALL OPTION/PUT OPTION, ARE TRANSACTIONS OF DERIVATIVE MAR KETS AND CANNOT BE TERMED AS SPECULATIVE IN NATURE. CONSIDERING THE TOTALITY OF THE FACTS AND IN THE LIGHT OF THE JUDICIAL DISCUSSION HEREINABOVE, WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). THE APP EAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 8. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 9. NEXT GRIEVANCE OF ASSESSEE RELATES TO CONFIRMI NG DISALLOWANCE OF RS.7,00,000/ - BEING ROC FEES WERE INCREASED IN SHARE CAPITAL. I FOUND THAT LOWER AUTHORITIES HAVE DECLINED ASSESSEES CLAIM BY FOLLOWING THE ORDER OF SUPREME COURT IN CASE OF BROOKE BOND (INDIA) LTD. (1997) 225 ITR 798, WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED BY THE COMPANY IN ITA NO. 4657/MUM/2017 M/S. WEISSER TRADING CO. PVT. LTD., 4 CONNECTION WITH ISSUE OF SHARES IS DIRECTLY RELATED TO EXPANSION OF CAPITAL BASE OF THE COMPANY, AND IS A CAPITAL EXPENDITURE, EVEN THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY AND IN PROFI T MAKING. THEREFORE, THE CLAIM OF THE ASSESSEE WAS DISALLOWED AND THE AMOUNT OF RS.7,00,000 WAS ADDED TO THE TOTAL INCOME. 10. IT WAS CONTENDED BY LEARNED AR THAT IF THE INCREASE IN CAPITAL BASE IS FOR THE PURPOSE OF WORKING CAPITAL, THEN NO DISALLOW ANCE CAN BE MADE IN TERMS OF DECISION OF THE CO - ORDINATE BENCH IN CASE OF LAKSHMI AUTO COMPONENTS LTD., 101 ITD 209 WHEREIN THE TRIBUNAL HELD AS UNDER: - 12. I HAVE CONSIDERED THE ENTIRE CONSPECTUS OF THE CASE. IN MY OPINION, THE DECISION OF THE APEX COURT IN THE CASE OF BROOKEBOND (INDIA) LTD. (SUPRA) CAN BE APPLIED ONLY AFTER EXAMINING THE OBJECT OF THE CAPITAL ENHANCEMENT. THIS DECISION IS NOT APPLICABLE IF ENHANCEMENT OF CAPITAL WAS MADE FOR GEARING UP FUNDS FOR WORKING CAPITAL. THE OBJECT OF GEARING UP OF THE CAPITAL WAS NOT LOOKED INTO. TOTAL AMOUNT WAS DISALLOWED WITHOUT EXAMINING THE DETAILS. EVEN APPLICABILITY OF SECTION 35D WAS NOT CONSIDERED. IN MY OPINION, THIS IS NOT CORRECT. I HAVE GONE THROUGH THE R EASONING ADDUCED BY THE L D. JUDICIAL MEMBER. I N MY OPINION HE TOOK A CORRECT VIEW IN THE MATTER. I CONCUR WITH HIS DECISION ON THIS ISSUE. 11. IT WAS ALSO ARGUED THAT ALTERNATIVELY AO DID NOT ALLOW THE STATUTORY DEDUCTION U/S.35D OF THE IT ACT. 12. I HAVE CONSIDERED RIVAL CONTENTIONS. HOWEVER, IT IS NOT CLEAR FROM THE RECORD AS TO WHETHER INCREASE IN SHARE CAPITAL WAS FOR ENHANCING THE WORKING CAPITAL OR FOR SOME FIXED CAPITAL INVESTMENT. THE AO HAS ALSO NOT CONSIDERED THE ALTERNATIVE ARGUMENTS OF ASSESSEE WITH REGARD TO DEDUCTION U/S.35D. IN THE INT EREST OF JUSTICE, I RESTORE THIS GROUND FOR FILE OF AO FOR DECIDING AFRESH AS PER LAW. ITA NO. 4657/MUM/2017 M/S. WEISSER TRADING CO. PVT. LTD., 5 13. LAST GRIEVANCE OF ASSESSEE RELATES TO DISALLOWANCE U/S.14A. I FOUND THAT ASSESSEE HAS NO EXEMPT INCOME DURING YEAR UNDER CONSIDERATION. HONBLE DELHI HIGH COURT IN T HE CASE OF CHEMINVEST LIMITED VS. CIT (378 ITR 33) [REVERSING THE LAW LAID DOWN BY THE SPECIAL BENCH OF THE ITAT, DELHI IN THE SAME CASE], HELD AS UNDER : - SECTION 14 A OF THE INCOME - TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (APPLICABILITY) - ASSESSMENT YEAR 2004 - 05 - WHETHER SECTION 14A ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDIBLE IN TOTAL INCOME; HENCE, SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR REC EIVABLE DURING RELEVANT PREVIOUS YEAR - HELD, YES [PARA 23] [IN FAVOUR OF ASSESSEE 14. SIMILARLY, GUJARAT HIGH COURT IN THE CASE THE COMMISSIONER OF INCOME TAX - I V/S CORRTECH ENERGY PVT LTD (TAX APPEAL NO 239 OF 2014) HELD THAT NO DISALLOWANCE CAN BE MA DE WHEN THERE IS NO EXEMPT INCOME. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT, I DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE AO. 15. IN THE RESULT, APPEAL IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED I N THE OPEN COURT ON THIS 18 / 01 /201 8 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 01 /201 8 KARUNA SR. PS ITA NO. 4657/MUM/2017 M/S. WEISSER TRADING CO. PVT. LTD., 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RE SPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//