M/S PREMIER INDUSTRIES (INDAI) LTD., Indore V. THE ACIT 4(1), RANGE-4, Indore

ITA 611/IND/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1556 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-10-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 08-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B J BORICHA
• Assessee Lawyers: S N AGRAWAL
• Keywords: Business expenditure; Transactions in derivatives; Earning of tax free income; Question of law; Speculation loss; Capital receipt; TDS; Rule 8D
• Section: 143(3); 142(1); 14A; 43(5)

Judgement Text

PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.610/IND/2016 & 611/IND/2016 ASSESSMENT YEARS 2011-12 & 2012-13 REVENUE BY S HRI B.J. BORICHA , SR.DR ASSESSEE BY S/ SHRI S.N. AGRAWAL & PANKAJ MOGRA,CAS DATE OF HEARING 24 .10. 2018 DATE OF PRONOUNCEMENT 1 9 .1 1 .2018 O R D E R PER MANISH BORAD, AM. THE ABOVE CAPTIONED TWO APPEALS ARE FILED AT THE IN STANCE OF SAME ASSESSEE. ITA NO.610/IND/2016 & ITA NO.611/IND/201 6 PERTAINING TO ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVE LY ARE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-II (IN SHORT LD.CIT(A)], INDORE DATED 2 9.02.2016 WHICH ARE M/S. PREMIER INDUSTRIES (INDIA) LTD, C/O M. MEHTA & CO, 11/5, SOUTH TUKOGANJ, INDORE VS. J CIT , RANGE-1, INDORE ( APPELLANT ) (RESPONDENT ) PAN NO. AABCP1890P PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 2 ARISING OUT OF THE ORDER U/S 143(3) OF THE INCOME T AX ACT 1961(IN SHORT THE ACT) DATED 29.02.2016 FRAMED BY JCIT-RA NGE-1, INDORE. 2. THE RELEVANT GROUNDS IN THESE TWO APPEALS READS AS FOLLOWS; I.T.A. NO.610/IND/2016 FOR A.Y. 2011-12 01]. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CLT(A) ERRED IN MAINTAINING THE DISALLOWANCE AS MAD E BY THE LD. A.O. IN RESPECT OF HEDGING LOSS OF RS. 37,88,391/- INCURRE D BY THE ASSESSEE IN ITS BUSINESS COMMODITIES AS SPECULATIVE LOSS AS AGAINST BUSINESS LOSS AS CLAIMED BY THE ASSESSEE WITHOUT PROPERLY APPRECIATI NG THE FACTS OF THE CASE AND SUBMISSION MADE BEFORE HIM. 2.1] THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TILE CASE THE LD CIT(A) ERRED IN MAINTAINING ADDITION OF RS. 6,82,287/- OUT OF TOTAL DISALLOWANCE RS 10,56,000/- AS MADE BY THE A.O. IN RESPECT OF IN VESTMENT IN SHARES OF NARMADA SUGAR LTD EVEN WHEN ON THE FACTS OF THE CAS E SAID DISALLOWANCE IS NOT MAINTAINABLE MORE SO WHEN HON'BLE BENCH IN T HE CASE OF THE ASSESSEE COMPANY FOR THE ASST. YEAR 2006-07 ITSELF HAS DELETED SIMILAR ADDITION. 2.2]. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN MAINTAINING ADDITION OF RS.6,82,287/- OUT OF THE TOTAL DISALLOWANCE OF 10,56,000/- MADE BY THE A.O. IN RES PECT OF INVESTMENT IN SHARES OF NARMADA SUGAR LTD BY HOLDING THAT ASSESSE E HAS HIMSELF WORKED OUT THE SAID AMOUNT OF DISALLOWANCE AS PER P ROVISIONS OF SEC. 14A READ WITH RULE 8D EVEN WHEN THE SAID AMOUNT OF DISA LLOWANCE WAS NOT ACCEPTED BY THE ASSESSEE BUT CALCULATION OF DISALLO WANCE U/S 14A R.W.RULE 8D WAS PROVIDED AS AN ALTERNATIVE ARGUMENT ONLY. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 3 I.T.A. NO.611/IND/2016 ASSESSMENT YEAR 2012-13 1.1] THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT (A) ERRED IN MAINTAINING ADDITION OF RS 1,73,382/-- OUT OF TOTAL DISALLOWANCE RS 10,56,000/- AS MADE BY THE A.O. IN RESPECT OF I NVESTMENT IN SHARES OF NARMADA SUGAR LTD EVEN WHEN ON THE FACTS OF THE CAS E SAID DISALLOWANCE IS NOT MAINTAINABLE MORE SO WHEN HON'BLE BENCH IN T HE CASE OF THE ASSESSEE COMPANY FOR THE ASST. YEAR 2006-07 ITSELF HAS DELETED SIMILAR ADDITION. 1.2]. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN MAINTAINING ADDITION OF RS.1,73,382/- OUT OF THE TOTAL DISALLOWANCE OF 10,56,000/- MADE BY THE A.O. IN RES PECT OF INVESTMENT IN SHARES OF NARMADA SUGAR LTD BY HOLDING THAT ASSESSE E HAS HIMSELF WORKED OUT THE SAID AMOUNT OF DISALLOWANCE AS PER P ROVISIONS OF SEC. 14A READ WITH RULE 80 EVEN WHEN THE SAID AMOUNT OF DISA LLOWANCE WAS NOT ACCEPTED BY THE ASSESSEE BUT CALCULATION OF DISALLO WANCE U/S 14A R.W.RULE 80 WAS PROVIDED AS AN ALTERNATIVE ARGUMENT ONLY. 3. PERUSAL OF THE GROUNDS RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2011-12 AND 2012-13 SHOWS THAT ONLY TWO ISSUES NEEDS TO BE ADJUDICATED. (1) DISALLOWANCE OF HEDGING LOSS OF RS.37,88,391/- AGAINST THE BUSINESS LOSS CLAIMED IN ASSESSMENT YEAR 2011-12. (2) DISALLOWANCE U/S 14A OF THE ACT RS.6,82,287/- A ND RS.1,73,382/- FOR ASSESSMENT YEAR 2011-12 AND 2012- 13 RESPECTIVELY. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 4 4. AS THE ISSUES RAISED ARE COMMON AND RELATES TO T HE SAME ASSESSEE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR SAKE OF CONVENIENCE AN D BREVITY. 5. FOR ADJUDICATION OF THE ISSUES RAISED BY THE ASS ESSEE, WE WILL TAKE UP THE FACTS OF ASSESSMENT YEAR 2011-12. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D TRADING OF SOYA PREMIER NUTRITION AND DIARY PRODUCTS. LOSS OF RS.5,71,57,685/- DECLARED IN THE INCOME TAX RETURN E-FILED ON 20.9.2011. CASE SELECTED FOR SCRUTINY THROUGH CASS . NECESSARY NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE DULY SERVED UPON THE ASSESSEE. WHILE EXAMINING THE DETAILS AND FINANCIA L STATEMENTS, LD.A.O OBSERVED THAT THE ASSESSEE HAS CLAIMED LIQUI DATED DAMAGES OF RS.37,88,391/- AS BUSINESS EXPENDITURE BEING THE LOSS SUFFERED FROM THE CONTRACTS WHEREIN NO PHYSICAL DELIVERY OF GOODS WAS DONE. ASSESSEE FAILED TO PROVIDE SATISFACTORY DETAILS WHI CH COULD PROVE THAT THE CASE OF ASSESSEE FALLS UNDER THE PROVISO ( A) OF SECTION 43(5) OF THE ACT AND THAT THE CONTRACTS GIVING RISE TO AL LEGED LOSS OF RS.37,88,391/- WERE ENTERED INTO FOR GUARDING AGAIN ST THE FUTURE PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 5 PRICE FLUCTUATIONS IN RESPECT OF THE CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY IT. LD.A.O ACCORDINGLY DISAL LOWED CLAIM OF LIQUIDATED DAMAGES OF RS.37,88,391/-. DISALLOWANCE WAS ALSO MADE TOWARDS INTEREST PAID AT RS.10,56,000/- FOR TH E INVESTMENT MADE FOR NON BUSINESS PURPOSE IN THE EQUITY SHARES OF GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED. MINOR DISALLOWA NCE OF PRIOR PERIOD EXPENSES OF RS.30,856/- WAS ALSO MADE AND AF TER MAKING ADDITION OF RS.48,75,247/- LOSS ASSESSED TO RS.5,22 ,82,440/-. 7. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD .CIT(A) AND PARTLY SUCCEEDED AS LD.CIT(A) DELETED THE DISALLOWA NCE FOR PRIOR PERIOD EXPENSES OF RS.30,856/- AND CONFIRMED THE DI SALLOWANCE OF LIQUIDATED DAMAGES OF RS.37,88,391/- CLAIMED AS BUS INESS EXPENDITURE AND AS REGARDS DISALLOWANCE OF INTEREST AT RS.10,56,000/-, LD.CIT(A) FOLLOWING THE DECISION OF I.T.A.T. FOR A.Y. 2006-07 HELD THAT NO DISALLOWANCE WAS CALLED FOR OV ER AND ABOVE THE AMOUNT SUO-MOTO DISALLOWED BY THE ASSESSEE U/S 14A OF THE ACT AT RS.6,82,287/- WHILE FURNISHING THE INCOME TAX RE TURN. 8. AGGRIEVED ASSESSEE IS NOW IN APPEAL BEFORE THE T RIBUNAL. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 6 9. THE LD.COUNSEL FOR THE ASSESSEE MADE FOLLOWING S UBMISSIONS RELATING TO LIQUIDATED DAMAGES AT RS.37,88,391/-. 1.1] THAT IN THE SAID GROUND OF APPEAL THE ASSESSE E HAS CHALLENGED THE DISALLOWANCE OF BUSINESS LOSS AS CLAIMED BY THE ASS ESSEE COMPANY UNDER THE HEAD ' LIQUIDATED DAMAGES' OF RS. 37,88,3 91/- AND CONSIDERING THE SAME AS SPECULATIVE LOSS. 1.2] THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS CLAIMED LOSS UNDER THE HEAD' LIQUIDATED DAMAGES ' OF RS.1,50,13,291/- AS PER SCHEDULE 0 OF THE AUDITED B ALANCE SHEET. THAT LIQUIDATED DAMAGES OF RS. 1,50,13,291/- CONSISTED O F FOLLOWING TWO ITEMS:- S.NO. PARTICULARS AMOUNT (RS.) 01. LIQUIDATED DAMAGES 1,12,24,900 02. COMMODITY HEDGING LOSS THROUGH COMMODITY 37,88,391 EXCHANGE TOTAL 1,50,13,291 1.3] THAT ENTIRE DETAILS RELATED TO THE LIQUIDATED DAMAGES WAS FILED BEFORE THE LD. A.O. WHICH IS ALSO MENTIONED IN THE ASSESSMENT ORDER. DETAILS OF THE SAME ARE AVAILABLE ON PAGES 31 TO 46 OF THE PAPER BOOK FILED BEFORE YOUR HONOUR. 1.4] THE LD. A.O. HAS ALLOWED THE CLAIM OF LIQUIDAT ED DAMAGES OF RS. 1,12,24,900/- AS CLAIMED BY THE ASSESSEE HOWEVER HE HAS DISALLOWED THE CLAIM OF RS. 37,88,391/- AS CLAIMED TOWARDS COMMODI TY HEDGING LOSS THROUGH COMMODITY EXCHANGE. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 7 1.5] IN THIS RESPECT IT IS SUBMITTED THAT THE ASSES SEE COMPANY IS MAINLY CARRYING ON THE BUSINESS OF MANUFACTURING AND TRADI NG BUSINESS OF SOYA OIL AND D OIL CAKE. THAT THIS BEING THE AGRO BASED AND HIGHLY VOLATILE PRODUCT AND THE RATES OF RAW MATERIAL AND FINISHED PRODUCT CHANGE FREQUENTLY. THUS TO GIVE STABILITY, STRENGTH AND SU PPORT TO THE BUSINESS THE ASSESSEE COMPANY HAS BEEN CARRYING ON THE FORWA RD TRADING OF SOYA COMMODITY IN THE COMMODITY EXCHANGE LIKE NCDEX WHIC H IS APPROVED BY THE GOVERNMENT FOR THIS PURPOSE. 1.6] IT IS PERTINENT TO NOTE THAT THE ASSESSEE WAS CARRYING THE BUSINESS ONLY IN SOYA COMMODITY. THAT IN SUPPORT OF ABOVE CO NTENTION ALL BILLS WERE PRODUCED BEFORE THE LD. A.O. FOR VERIFICATION. PARTY WISE DETAILS OF NCDX SETTLEMENT INCOME/LOSS ALONG WITH RELEVANT SUP PORTING PAPERS WERE ALSO FILED BEFORE THE A.O. 1.7] THE ASSESSEE HAD DULY FILED THE COPY OF ACCOUN TS OF ALL THE BROKERS THROUGH WHOM THE ABOVE TRANSACTIONS WERE ENTERED AL ONG WITH THEIR COMPLETE POSTAL ADDRESS AND INCOME TAX PAN. COPIES OF SAME ARE ALSO AVAILABLE ON PAGE 31 TO 104 OF THE PAPER BOOK AS FI LED BEFORE YOUR HONOUR. 1.8] THAT OUT OF THE TOTAL CLAIM OF LOSS OF RS. 37, 88,391/- AS CLAIMED TOWARDS COMMODITY HEDGING LOSS THE ASSESSEE HAS PAI D BROKERAGE OF RS.26,28,179/- TO THE BROKERS ON WHICH THE ASSESSEE HAS ALSO DULY DEDUCTED THE TDS AND REMAINING AMOUNT OF RS. 11,60, 212/- ONLY WAS TOWARDS HEDGING LOSS. THAT TOTAL STATEMENT GIVING T HE DETAILS OF SETTLEMENT OF CONTRACT FOR THE A.Y. 2011-12 IS AVAI LABLE ON PAGE 126 TO 137 OF THE PAPER BOOK FILED BEFORE YOUR HONOUR. 1.9] THAT THE SPECULATIVE TRANSACTION IS DEFINED IN SUB SECTION 5 OF SECTION 43 RELEVANT PORTION OF WHICH IS AS FOLLOWS: PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 8 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WH ICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) . .. A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A P ERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING+ BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E SOLD BY HIM; OR (B) . (C) . (D) SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; 1.10] AS IS CLEAR FROM THE AFORESAID PROVISION, THA T IF A CONTRACT IN COMMODITY IS ENTERED FOR HEDGING THE LOSS IN COMMOD ITY, DEALT IN, THE SAME SHALL NOT FALL UNDER THE DEFINITION OF SPECULA TION MEANING THEREBY THAT THE SAME WILL BE BUSINESS LOSS. 1.11] THAT THE PRESENT CASE IS SQUARELY COVERED UND ER THE PROVISIONS OF SECTION 43(5) PROVISO (A) AND IT DOES NOT COME UNDE R THE PURVIEW OF SPECULATIVE TRANSACTION. IN VIEW OF THE ABOVE THE L OSS AS INCURRED BY THE ASSESSEE COMPANY OF RS.37,88,391/- TOWARDS SETTLEME NT OF CONTRACT THROUGH FORWARD CONTRACT OF SALE/PURCHASE BE KINDLY BE TREATED AS NORMAL BUSINESS. THE DISALLOWANCE AS MADE BY THE LD . A.O. AND MAINTAINED BY THE LD. CIT(A) BY CONSIDERING THE SAM E AS SPECULATIVE LOSS MAY KINDLY BE DELETED IN FULL. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 9 10. LD. COUNSEL FOR THE ASSESSEE FURTHER MADE FOLLO WING SUBMISSIONS RELATING DISALLOWANCE MADE U/S 14A OF T HE ACT SUO- MOTO MADE BY THE ASSESSEE AND DULY CONFIRMED BY LD. CIT(A) FOR A.Y. 2011-12 AND 2012-13 ALONG WITH RELYING ON VARI OUS JUDGMENTS; GROUND NO.2.1 2.1] THAT IN THE SAID GROUND OF APPEAL THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST OF RS.6,82,287/- MAINTAINE D BY THE LD. CIT(A) OUT OF TOTAL DISALLOWANCE OF RS. 10,56,000/- MADE B Y THE LD. A.O. TOWARDS INTEREST PAID. 2.2] THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF RS .88,00,000/- IN THE SHARE CAPITAL OF NARMADA SUGAR LIMITED PRIOR TO ASS T. YEAR 1995-96 . THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE HAS DIVERTED ITS INTEREST BEARING FUNDS FOR INVESTMENT IN THE SHARES OF NARMADA SUGAR LIMITED AND THEREBY HE HAS DISALLOWED, AN AMOUNT OF RS.10,56,000/- OUT OF INTEREST PAID ON THE BASIS OF EARLIER YEAR. THE LD CIT[A] MAINTAINED THE DISALLOWANCE OF RS 6,82,287/- AS PER PROVISION OF S ECTION 14A OF THE ACT. 2.3] THE ASSESSEE CLAIMED THAT ON THE BASIS OF INV ESTMENT MADE IN THE SHARES OF M/S GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED, IT HAD OBTAINED EXEMPTION OF ITS LIABILITY UNDER THE M.P. SALES TAX ACT. 2.4] THE ASSESSING OFFICER WHILE PASSING ORDER U/S 143(3) DATED 30.01.2015 HAS FURTHER OBSERVED THAT THE SAID ADDIT ION WAS MADE ON THE BASIS OF ADDITION MADE IN THE EARLIER ASSESSMENT YE ARS. IT IS WORTHWHILE TO MENTION THAT THE SAID DISALLOWANCE WAS FIRSTLY M ADE IN THE ASSESSMENT YEAR 1995-96. 2.5.1] THAT THE INVESTMENT OF RS.88 LACS IN THE SHA RE OF GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED WAS MADE PRIOR TO ASSES SMENT YEAR 1995-96. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 10 THAT NO FRESH INVESTMENT WAS MADE AFTER THE SAID PE RIOD. THAT THE APPELLATE AUTHORITIES IN THE FOLLOWING ASSESSMENT Y EARS DELETED THE SAID ADDITION IN THE PAST YEARS, DETAILS OF THE SAME IS AS UNDER-: DISALLOWANCE OUT OF INTEREST PAID ON ACCOUNT OF INV ESTMENT MADE IN THE SHARES OF GIRDHARILAL SUGARS & ALLIED INDUSTRIES FO RMALLY KNOWN AS NARMADA SUGAR LTD. ASSESSMENT AMOUNT APPEAL FILED BY THE DEPARTMENT BEFORE ITAT. HON'BLE YEAR DISALLOWANCE ITAT DISMISSING THE APPEAL MADE BY T HE A.O. TOWARDS SAID DISALLOWANCE OF INTEREST 2006-07 10,56,000 ITA NO 57/IND/2010 DATED 15.12. 2010 2007-08 10,56,000 ITA NO 395/IND/2015 DATED 07.11 .2016 2008-09 10,56,000 IT A NO 28/INDL20 15 DATED 07.1 1.2016 2009-10 10,56,000 ITA NO 386/IND/2015 DATED 07.11 .2016 2012-13 10,56,000 PENDING BEFORE ITAT 2.5.2].THAT IN SPITE OF THE ABOVE FACTS AND PAST AP PELLATE ORDER PASSED BY LD. CIT(A) WHICH WERE ALSO CONFIRMED BY THE HON'BLE IT AT INDORE BENCH, THE LD. CIT(A) VIDE ORDER DATED 02.12.09 PASSED FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08 BEING IT NO.246/08-091235 AND I T NO. 148/2009- 10/456 HAS DECIDED THE SAID ISSUE AGAINST THE ASSES SEE BY RELYING ON THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT IN SPITE OF THE VITAL FACT THAT CONSIDERING THE PAST HISTORY OF THE CASE SAME WAS NOT INVOKED BY THE LD. A .0. 2.5.3] THE HON'BLE ITAT HAS DECIDED THE APPEAL AS F ILED BY THE ASSESSEE AGAINST THE ABOVE MENTIONED ORDER OF LD. CIT (A) FO R THE A.Y. 2006-07 VIDE ITS ORDER DT. 15.12.2010. THE HON'BLE ITAT IN ITS ORDER HAS CONSIDERED THE SUBMISSION MADE BEFORE IT AND DELETE D THE ADDITION MADE BY THE LD. A.O. OF RS. 10,56,0001- OUT OF TOTAL INT EREST PAID ON ACCOUNT OF INVESTMENT IN THE SHARES OF GIRDHARILAL SUGAR & ALLIED INDUSTRIES LTD. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 11 2.5.4] THAT RELYING UPON THE SAID ORDER THE HON'BLE ITAT WHILE DECIDING THE APPEAL FOR THE A.Y. 2007-08,2008-09 AND 2009-10 VIDE ITS COMMON ORDER DT. 07.11.2016 HAS DELETED THE SAID ADDITION AS MADE BY THE A.O. AND MAINTAINED BY THE CIT(A). COPY OF THE SAME IS A VAILABLE ON PAGE 116 TO 125 OF THE PAPER BOOK FILED BEFORE YOUR HONOURS. 2.5.5] THUS IN VIEW OF THE ABOVE ORDER AS PASSED BY THE HON'BLE ITAT FOR THE A.Y. 2006-07, 2007-08, 2008-09 AND 2009-10 THE DISALLOWANCE AS MADE BY THE A.O. AND PARTLY MAINTAINED BY THE LD. C IT(A) REQUIRES TO BE DELETED IN FULL. WITHOUT PREJUDICE TO THE ABOVE 2.6.1] THAT THE LANGUAGE OF THE SUB- SECTION (1) OF SECTION 14A OF THE INCOME TAX ACT READS AS UNDER: '(1) FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. ' 2.6.2] THAT AS PER CLEAR LANGUAGE OF SUB- SECTION ( 1) OF SECTION 14A, IF THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF EXPEND ITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE IN THAT CASE THE SAID EXPENDITURE IS DISAL LOWABLE U/S 14A OF THE INCOME TAX ACT. 2.6.3]THAT IN THE PRESENT CASE THE ASSESSEE DID NOT EARN ANY DIVIDEND INCOME WHICH IS NOT CHARGEABLE TO TAX UNDER THE INC OME TAX ACT. FOR THIS REASON ONLY, NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE INCOME TAX ACT. 2.6.4] THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/S M/S SHIVAM MOTORS (P) LTD. [ APPEAL NO. 88 OF 2014] VID E ORDER DT. 05.05.2014 PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 12 HAS HELD THAT IN THE ABSENCE OF ANY TAX FREE INCOME , THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E. 2.6.5] THAT HON'BLE PUNJAB & HIGH COURT IN THE CASE OF CIT VIS LAKHANI MARKETING INCL. VIDE ORDER PASSED ON 02.04.2014 HAS DISMISSED THE APPEAL FILED BY THE DEPARTMENT AND HELD THAT THE UN LESS AND UNTIL THERE IS RECEIPT OF EXEMPTED INCOME, PROVISIONS OF SEC 14 A CANNOT BE INVOKED. 2.6.6] THAT HON'BLE GUJRAT HIGH COURT VERY RECENTLY IN ITS LATEST ORDER PASSED ON 24.03.2014 IN THE CASE OF CORRTECH ENERGY (P.) LTD REPORTED IN 45 TAXMANN.COM 116 [GUJRATL HAS HELD THAT :- SECTION L4A(1) PROVIDES THAT FOR THE PURPOSE OF COM PUTING TOTAL INCOME UNDER CHAPTER IV, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE INSTANT C ASE, THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 1 4A COULD NOT BE MADE. IN THE PROCESS TRIBUNAL RELIED ON THE DECISIO N OF DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT V. WIN SOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204IN WHICH ALSO THE COURT HAD OBSERVED THAT WHERE THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION, SECTION 14A COULD HAVE NO APPLICATION. THUS, NO QUESTION OF LAW AROSE. [PARA 5] 2.6.7] THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF CIT V/S M/S DELITE ENTERPRISES (APPEAL NO. 110 OF 2009) HAS ALSO HELD THAT IF THERE IS NO PROFIT WHICH IS EXEMPT UNDER THE INCOME TAX ACT, NO DISALLOWANCE U/S 14A CAN BE MADE. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 13 2.6.8] THAT IN VIEW OF THE ABOVE IT IS SUBMITTED TH AT THERE WAS NO DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINES S PURPOSES AND MOREOVER THERE WAS NO DIVIDEND INCOME WHICH WAS EAR NED BY THE ASSESSEE. THUS, THERE IS NO JUSTIFICATION FOR MAKIN G ANY DISALLOWANCE VIS 14A OF THE INCOME TAX ACT. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT DISALLOWANCE OF RS.1O,56,000/- AS MADE BY THE A.O. AND RESTRICTED TO RS. 6,82,287/- BY THE CIT(A) BE DELETED IN FULL. 03] GROUND NO 2.2 3.1] THAT IN THE SAID GROUND OF APPEAL THE ASSESSE E HAS CHALLENGED THE DISALLOWANCE OF RS. 6,82,287/- AS MAINTAINED BY THE LD. CIT(A) OUT OF TOTAL DISALLOWANCE MADE BY THE A.O. OF RS. 1056000/ - BY HOLDING THAT ASSESSE ITSELF WORKED OUT THE SAID AMOUNT OF DISALL OWANCE AS PER PROVISION OF SEC. 14A READ WITH RULE 8D OF THE INCO ME TAX ACT. 3.2] THAT WHILE DECIDING THE APPEAL OF ASSESSE COM PANY FOR THE A.Y. 2009-10 THE LD. CIT(A) HAVE NOT PROPERLY CONSIDERED THE ORDER PASSED BY THE HON'BLE ITAT FOR THE A.Y. 2006-07. THAT WHILE P ASSING THE ORDER DT.27.02.2015 FOR THE A.Y. 2009-10 THE LD. CIT(A) H AS OBSERVED THAT SINCE THE APPELLANT HAS SUO-MOTO CALCULATED DISALLO WANCE U/S 14A BEFORE THE A.O. THE DISALLOWANCE UNDER THE SAID SECTION SH OULD BE RESTRICTED THE SAID AMOUNT. 3.3.1] THAT HON'BLE CBDT VIDE CIRCULAR NO 14[XI-35] OF 1955, DATED APRIL 11, 1955 HAD STATED THAT: ' OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAG E OF THE IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DU TIES TO ASSIST A TAXPAYER IN EVERY REASONABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEF AND IN THIS REGARD THE OFFICERS SHO ULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTI CULARS BEFORE THEM PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 14 INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD, IN THE LONG RUN, BENEFIT THE DEPARTMENT, FOR IT WOULD INSPIRE CONFIDENCE IN HIM THAT HE MAY BE SURE OF GETTING A SQUARE DEAL FR OM THE DEPARTMENT. ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMIN G REFUNDS AND RELIEF REST WITH THE ASSESSEE ON WHOM IT IS IMPOSED BY LAW, OFF ICERS SHOULD: (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEF T O WHICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHICH THEY HAVE OMITTED TO CLAIM FOR SOME REASON OR OTHER; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS T O THEIR RIGHTS AND LIABILITIES AND AS TO THE PROCEDURE TO BE ADOPTED F OR CLAIMING REFUNDS AND RELIEFS.' 3.3.2] IN MAYNAK PODDAR (HUF) VS. WEALTH-TAX OFFICE R(2003) 262 ITR 633(CAL.) IT HAS BEEN OBSERVED (PAGE 637 PLACITUM C TO G) AS UNDER: ' EVEN IF THE ASSESSEE HAD INCLUDED THE SAME IN HIS RETURN, THAT WOULD NOT PRECLUDE THE ASSESSEE FROM CLAIMING THE BENEFIT OF LAW. THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATUTE. A PROPERTY, WH ICH IS NOT OTHERWISE TAXABLE, CANNOT BECOME TAXABLE BECAUSE OF MISUNDERS TANDING OR WRONG UNDERSTANDING OF LAW BY THE ASSESSEE OR BECAUSE OF HIS ADMISSION OR ON HIS MISAPPREHENSION. IF IN LAW AN ITEM IS NOT TAXAB LE, NO AMOUNT OF ADMISSION OR MISAPPREHENSION CAN MAKE IT TAXABLE. T HE TAXABILITY OR THE AUTHORITY TO IMPOSE TAX IS INDEPENDENT OF ADMISSION . NEITHER THERE CAN BE ANY WAIVER OF THE RIGHT BY THE ASSESSEE. THE DEP ARTMENT A.Y:05-06 CANNOT RELY UPON ANY SUCH ADMISSION OR MISAPPREHENS ION IF IT IS NOT OTHERWISE TAXABLE. 3.3.3] THIS QUESTION WAS DEALT WITH BY THIS COURT I N BHASKAR MITTER'S CASE [1994] 73 TAXMAN 437, AT PARAGRAPH 8 AT PAGE NO 58. IN THIS DECISION, THIS COURT OBSERVED: PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 15 'AN ASSESSEE IS LIABLE TO PAY TAX ONLY UPON SUCH IN COME AS CAN BE IN LAW INCLUDED IN HIS TOTAL INCOME AND WHICH CAN BE LAWFU LLY ASSESSED UNDER THE ACT. THE LAW EMPOWERS THE INCOME-TAX OFFICER TO ASSESS THE INCOME OF AN ASSESSEE ACCORDING TO LAW AND DETERMINE THE T AX PAYABLE THEREON. IN DOING SO, HE CANNOT ASSESS AN ASSESSEE ON AN AMO UNT, WHICH IS NOT TAXABLE IN LAW, EVEN IF THE SAME IS SHOWN BY AN ASS ESSEE. THERE IS NO ESTOPPEL BY CONDUCT AGAINST LAW NOR IS THERE ANY WA IVER OF THE LEGAL RIGHT AS MUCH AS THE LEGAL LIABILITY TO BE ASSESSED OTHER WISE THAN ACCORDING TO THE MANDATE OF THE LAW (SIC).IT IS ALWAYS OPEN TO A N ASSESSEE TO TAKE THE PLEA THAT THE FIGURE, THOUGH SHOWN IN HIS RETURN OF TOTAL INCOME, IS NOT TAXABLE IN LAW.' 3.3.4] THAT HON'BLE KOLKATA BENCH OF ITAT IN THE CA SE OF SUSHIL KUMAR DAS VS INCOME TAX OFFICER AS REPORTED IN [2011] 15 TAXMANN.COM 52 HAS HELD THAT: 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE MOOT QUESTION ARISING OUT OF THIS APPEAL IS WHETHER THE INCOME DETERMINED BY THE ASSESSING OFFI CER ON THE BASIS OF THE RETURN FILED BY THE ASSESSEE CAN BE A FIGURE LO WER THAN THE INCOME RETURNED BY THE ASSESSEE. IT IS A WELL SETTLED THAT THE PRINCIPLE FOR DETERMINING THE TAXABLE INCOME OF THE ASSESSEE UNDE R THE INCOME-TAX ACT SHOULD BE WITHIN THE PURVIEW OF THE LAW IN FORCE. I F THE TAXABLE INCOME DETERMINED BY THE ASSESSING OFFICER IS NOT IN ACCOR DANCE WITH SUCH PRINCIPLE IT IS OPEN TO THE ASSESSEE TO CONTEND THE SAME BEFORE THE HIGHER AUTHORITIES TO FOLLOW THE CORRECT APPLICATION OF LA W TO DETERMINE THE ACTUAL TAXABLE INCOME OF THE ASSESSEE. IN OUR CONSIDERED V IEW, THE LOWER AUTHORITIES, ARE NOT EXPECTED, TO SAY THAT MERELY B ECAUSE THE ASSESSEE HAS RETURNED INCOME WHICH IS HIGHER THAN THE INCOME DETERMINED IN ACCORDANCE WITH LEGAL PRINCIPLES SUCH RETURNED INCO ME CAN BE TREATED AS LAWFULLY ASSESSED. AN ASSESSEE IS LIABLE TO PAY TAX ONLY UPON THE TAXABLE PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 16 INCOME. THE LAW IMPOSED BY THE ASSESSING OFFICER TO ASSESS THE INCOME ACCORDING TO LAW AND DETERMINED THE TAX PAYABLE THE REON. IN DOING SO, THE ASSESSING OFFICER CANNOT ASSESS THE INCOME OF T HE ASSESSEE AN AMOUNT WHICH IS NOT TAXABLE AS PER LAW THOUGH SHOWN BY THE ASSESSEE IN THE RETURN: IT IS ALWAYS OPEN TO THE ASSESSEE TO TA KE A PLEA THAT THE TAXABLE INCOME THOUGH SHOWN AS INCOME IS NOT TAXABL E UNDER LAW BEFORE THE HIGHER AUTHORITIES. THE COMMISSIONER OF INCOME- TAX (APPEALS) WITHOUT GOING INTO THE MERITS OF THE CASE HELD THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT HAVING ANY POWER TO RED UCE THE TAXABLE INCOME OF THE ASSESSEE AT THE APPELLATE STAGE, WHIC H IS NOT CORRECT. IN THE CASE OF CHARANJIT JAWA (SUPRA) RELIED UPON BY LEARN ED COUNSEL FOR THE ASSESSEE SUPPORTS THE VIEWS THAT THE INTEREST RECEI VED AS A RESULT OF THE ORDER OF THE HON'BLE HIGH COURT WAS NOT A STATUTORY INTEREST AND WAS IN THE FORM OF DAMAGE / COMPENSATION AND THE SAME WAS NOT LIABLE TO TAX. IN VIEW OF THE ABOVE, AFTER CONSIDERING THE TOTALIT Y OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ON PERUSAL OF TH E CASE LAW RELIED UPON BY BOTH THE PARTIES WE HOLD THAT THE INTEREST OF RS. 2,53,730 RECEIVED BY THE ASSESSEE AS PER THE ORDER OF THE HO N'BLE HIGH COURT WAS NOT TAXABLE AND THE SAME IS A CAPITAL RECEIPT. WE A LSO TAKE SUPPORT FROM THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES VIDE CIRCULAR NO. 14 (XL-35), DATED APRIL 11, 1955 WHICH HAS DIRECTED THE OFFICERS NOT TO TAKE ADVANTAGE OF THE IGNORANCE OF THE ASSESSEE. TH E APPELLATE AUTHORITIES HAVE POWERS TO ADMIT POINTS OF LAW AND ADMIT CLAIM FOR EXEMPTION BASED ON MATERIALS ON RECORD AS PER THE J UDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERM AL POWER CO. LTD. V. CIT [1998] 229 ITR 383. IN VIEW OF THE ABOVE, WE DI RECT THE ASSESSING OFFICER TO TREAT THE AFORESAID RECEIPT OF RS. 2,53, 730 AS CAPITAL RECEIPT WHICH WAS RECEIVED BY HIM AS PER THE ORDER OF THE H ON'BLE HIGH COURT. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 17 3.3.5] THAT HON'BLE APEX COURT IN THE CASE OF CIT V S SHELLY PRODUCTS AS REPORTED IN 129 TAXMANN 271 HAS HELD THAT [ REFER P ARA 31 ] HAS HELD THAT:- 31. WE CANNOT LOSE SIGHT OF THE FACT THAT THE FAILU RE OR INABILITY OF THE REVENUE TO FRAME A FRESH ASSESSMENT SHOULD NOT PLAC E THE ASSESSEE IN A MORE DISADVANTAGEOUS POSITION THAN IN WHAT HE WOULD HAVE BEEN IF A FRESH ASSESSMENT WAS MADE. IN A CASE WHERE AN ASSES SEE CHOOSES TO DEPOSIT BY WAY OF ABUNDANT CAUTION ADVANCE TAX OR S ELF-ASSESSMENT TAX WHICH IS IN EXCESS OF HIS LIABILITY ON THE BASIS OF RETURN FURNISHED OR THERE IS ANY ARITHMETICAL ERROR OR INACCURACY, IT IS OPEN TO HIM TO CLAIM REFUND OF THE EXCESS TAX PAID IN THE COURSE OF ASSESSMENT PROCEEDING. HE CAN CERTAINLY MAKE SUCH A CLAIM ALSO BEFORE THE CONCERN ED AUTHORITY CALCULATING THE REFUND. SIMILARLY, IF HE HAS BY MIS TAKE OR INADVERTENCE OR ON ACCOUNT OF IGNORANCE, INCLUDED IN HIS INCOME ANY AMOUNT WHICH IS EXEMPTED FROM PAYMENT OF INCOME-TAX, OR IS NOT INCO ME WITHIN THE CONTEMPLATION OF LAW, HE MAY LIKEWISE BRING THIS TO THE NOTICE OF THE ASSESSING AUTHORITY, WHICH IF SATISFIED, MAY GRANT HIM RELIEF AND REFUND THE TAX PAID IN EXCESS, IF ANY. SUCH MATTERS CAN BE BROUGHT TO THE NOTICE OF THE CONCERNED AUTHORITY IN A CASE WHEN REFUND IS DUE AND PAYABLE, AND THE AUTHORITY CONCERNED, ON BEING SATISFIED, SH ALL GRANT APPROPRIATE RELIEF. IN CASES GOVERNED BY SECTION 240 OF THE ACT , AN OBLIGATION IS CAST UPON THE REVENUE TO REFUND THE AMOUNT TO THE ASSESS EE WITHOUT HIS HAVING TO MAKE ANY CLAIM IN THAT BEHALF. IN APPROPR IATE CASES THEREFORE IT IS OPEN TO THE ASSESSEE TO BRING FACTS TO THE NOTIC E OF THE CONCERNED AUTHORITY ON THE BASIS OF THE RETURN FURNISHED WHIC H MAY HAVE A BEARING ON THE QUANTUM OF THE REFUND, SUCH AS THOSE THE ASS ESSEE COULD HAVE URGED UNDER SECTION 237 OF THE ACT. THE CONCERNED A UTHORITY, FOR THE LIMITED PURPOSE OF CALCULATING THE AMOUNT TO BE REF UNDED UNDER SECTION 240 OF THE ACT, MAY TAKE ALL SUCH FACTS INTO CONSID ERATION AND CALCULATE THE AMOUNT TO BE REFUNDED. SO VIEWED AN ASSESSEE WI LL NOT BE PLACED IN A PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 18 MORE DISADVANTAGES POSITION THAN WHAT HE WOULD HAVE BEEN, HAD AN ASSESSMENT BEEN MADE IN ACCORDANCE WITH LAW. 3.4] THAT IN VIEW OF THE ABOVE BOARD CIRCULAR AND VARIOUS DECISIONS, IT IS THE DUTY OF THE AUTHORIZED OFFICER TO BRING INTO TH E NOTICE OF THE ASSESSEE. SINCE, THE CLOSING STOCK AS PER BOOKS IS HIGHER THA N WHAT WAS ACTUALLY FOUND DURING THE COURSE OF SURVEY. HENCE, NO SEPARA TE ADDITION IS JUSTIFIABLE. 11. PER CONTRA DEPARTMENTAL REPRESENTATIVE VEHEMENT LY ARGUED SUPPORTING THE ORDERS OF LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORDS AND DULY CONSIDERED FACTUAL MATRIX OF THE C ASE, CAREFULLY GONE THROUGH VARIOUS JUDGMENTS AND DECISIONS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE. 13. APROPOS FIRST ISSUE RELATING TO DISALLOWANCE O F HEDGING LOSS OF RS.37,88,391/-, WE FIND THAT THE ASSESSEE HAS ACHI EVED THE GROSS TURNOVER AT RS.112.75 CRORES APPROX. IN THE AUDITED FINANCIAL STATEMENT THE FIGURE OF LIQUIDATED DAMAGES IS SHOWN AT RS.1,50,13,291/- WHICH COMPRISES OF TWO ITEMS NAMEL Y LIQUIDATED DAMAGES AT RS.1,12,24,900/- AND COMMODITY HEDGING L OSS THROUGH COMMODITY EXCHANGES AT RS.37,88,391/-. REVENUE AUT HORITIES HAVE NOT RAISED ANY DOUBT ON THE GENUINENESS OF LIQUIDAT ED DAMAGES AT PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 19 RS.1,12,24,900/- BEING BUSINESS EXPENDITURE. THE I SSUE RELATES TO COMMODITY HEDGING LOSS THROUGH COMMODITY EXCHANGES AT RS.37,88,391/- . THERE IS NO DISPUTES AT THE END OF BOTH THE PARTIES THAT THE ALLEGED HEDGING LOSS IS OUT OF THE CONTRAC T WHICH WERE CONCLUDED WITHOUT MAKING ANY DELIVERY OF GOODS. SO PRIMARILY THE ALLEGED TRANSACTIONS SEEMS TO BE OF SPECULATIVE NAT URE AS DEFINED IN SECTION 43(5) OF THE ACT WHICH READS AS FOLLOWS ALO NG WITH THE EXCEPTIONS:- 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WH ICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERC HANTING+ BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOO DS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDI NGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MA RKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NA TURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 20 COURSE OF HIS BUSINESS AS SUCH MEMBER OR (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DE RIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTR ACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE. (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION 14. THERE ARE 5 PROVISO TO SECTION 43(5) WHICH COVE RS CERTAIN TYPES OF CONTRACTS WHICH EVEN THOUGH ARE NOT COMPLETED WI TH ACTUAL DELIVERY OF GOODS BUT THE RESULTANT PROFIT/LOSS IS NOT TO BE TREATED AS SPECULATIVE LOSS WHILE COMPUTING THE INCOME OF THE ASSESSEE UNDER THE INCOME TAX ACT. 15. PROVISOS (A) & (E) TO SECTION 43(5) OF THE ACT ARE RELEVANT TO DECIDE THE ISSUE RAISED IN THE INSTANT APPEAL. BEF ORE GOING FURTHER LET US FIRST EXAMINE THE NATURE OF TRANSACTIONS ENT ERED INTO BY THE ASSESSEE LEADING TO ALLEGED LIQUIDATED DAMAGES AT R S.37,88,391/-. ON PERUSAL OF THE PAPER BOOK DATED 6.6.18 PAGES 31 TO 104 AND PAPER BOOK, PAGES 126 TO 140 FILED ON 24.10.18, IT IS OBSERVED THAT THE ASSESSEE HAS BEEN REGULARLY ENTERING INTO THE T RANSACTIONS OF PURCHASES/SALE AND COMMODITY DERIVATIVES WITH NATIO NAL COMMODITY DERIVATIVE EXCHANGE (NCDEX). ASSESSEE US ED TO ENTER PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 21 INTO SUCH CONTRACTS THROUGH FOUR BROKERS NAMELY S.S . MARKETING, SUYASH EXIM PVT. LTD, NIKHIL COMMODITIES & DERIVATI VES PVT. LTD & AGRO COMMODITIES PVT.LTD. THE ALLEGED HEDGING LOSS OF RS.37,88,391/- INTER-ALIA INCLUDES THE BROKERAGE O F RS.26,28,179/- PAID TO THE ABOVE REFERRED FOUR BROKERS AGAINST SET TLEMENT OF CONTRACTS. REGULAR AND VOLUMINOUS TRANSACTIONS ON THE NCDEX HAS BEEN CARRIED OUT BY THE ASSESSEE THROUGH ALL TH E FOUR BROKERS THROUGHOUT THE YEAR. 16. NOW THE CASE OF THE ASSESSEE CAN EITHER BE COVE RED IN PROVISO (A) OF SECTION 43(5) OR PROVISO (E) OF SECTION 43(5 ). AS FAR AS PROVISO (E) IS CONCERNED WHICH DEALS WITH THE TRANSACTIONS IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A R ECOGNIZED ASSOCIATION (FOR EXAMPLE NCDEX) WHICH IS CHARGEABLE TO COMMODITY TRANSACTION TAX, IN OUR VIEW THE ASSESSEE SHALL NO T GET ANY RELIEF UNDER THIS PROVISO (E) BECAUSE IT WAS BROUGHT INTO EFFECT FROM 1.4.2014 BY FINANCE ACT 2013. 17. EVENTHOUGH THE NATURE OF TRANSACTIONS ENTERED I NTO BY THE ASSESSEE ARE QUITE SIMILAR TO THOSE MENTIONED IN PR OVISO (E) OF SECTION 43(5) OF THE ACT, BUT STILL BEFORE COMING T O A CONCLUSION WE PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 22 WOULD ALSO LIKE TO TEST THE FACTS OF THE CASE IN TH E LIGHT OF PROVISO (A) OF SECTION 43(5) OF THE ACT WHICH SAYS THAT THE PR OFIT/LOSS FROM ANY CONTRACTS IN RESPECT OF RAW MATERIAL OR MERCHANDISE OR DERIVATIVES ENTERED INTO BY THE PERSONS IN THE COURSE OF MANUFA CTURING OR MERCHANDISE BUSINESS TO GUARD AGAINST THE PRICE FLU CTUATION IN RESPECT OF CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM. THE DETAILS OF T HE ASSESSEE ON RECORD MERELY SPEAKS OUT ABOUT THE REGULAR TRANSACT IONS WERE ENTERED INTO ON THE PORTAL OF NCDEX THROUGH THE BRO KERS. THERE IS NO SPECIFIC DETAILS BROUGHT IN BEFORE THE LOWER AUT HORITIES AS WELL AS BEFORE US WHICH COULD SHOW THAT THE ASSESSEE HAS EN TERED INTO SOME CONTRACT TO GUARD AGAINST LOSS THROUGH PRICE F LUCTUATION WHICH MAY ARISE FROM CONTRACTS FOR DELIVERY OF GOODS. FOR INSTANCE THE ASSESSEE BEING IN THE BUSINESS OF TRADING OF SOYA A GREES TO MAKE SUPPLY TO A CUSTOMER FOR 12 MONTHS AT AN AGREED PRI CE. TO HONOUR SUCH CONTRACT REGULAR PURCHASE/SUPPLY OF SOYA WOULD BE NEEDED BY THE ASSESSEE. THE PRICES OF SUCH COMMODITIES ARE B OUND TO FLUCTUATIONS. IF THE ASSESSEE IN ORDER TO GUARD AG AINST THE LOSS (IF ANY) FROM PRICE FLUCTUATION AGAINST THE SPECIFIC C ONTRACT FOR SUPPLY OF GOODS, ENTERS INTO ANOTHER CONTRACT BEING SPECUL ATIVE IN NATURE PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 23 THEN THE CASE MAY FALL UNDER PROVISO (A) OF THE SEC TION 43(5) OF THE ACT. HOWEVER IN THE INSTANT CASE THERE IS NO SUCH DETAIL AVAILABLE TO SHOW THAT THE ALLEGED TRANSACTIONS ENTERED ON THE P ORTAL OF NCDEX WERE ENTERED TO COUNTER OR HEDGE THE PROBABLE LOSS FROM THE CONTRACT FOR ACTUAL DELIVERY OF GOODS. 18. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT TH E LOSS FROM THE ALLEGED CONTRACTS GIVING RISE TO THE LIQUIDATED DAM AGES OF RS.37,88,391/- DO NOT FALL UNDER PROVISO (A) OF SEC TION 43(5)OF THE ACT AND THEREFORE NO INTERFERENCE IS CALLED FOR IN THE FINDING OF LD.CIT(A) CONFIRMING THE DISALLOWANCE THEREBY TREAT ING THE ALLEGED LOSS OF RS.37,88,391/- AS SPECULATION LOSS. HOWEVE R THE ASSESSEE WILL BE AT LIBERTY TO SET OFF THE ALLEGED SPECULATI ON LOSS AGAINST THE SPECULATION PROFITS IF ANY DURING THE YEAR OR IN TH E SUBSEQUENT YEARS AS ALLOWABLE UNDER PROVISIONS OF SECTION 73 O F THE ACT WHICH PROVIDES FOR SET OFF AND CARRY FORWARD OR BROUGHT F ORWARD LOSES OF SPECULATION BUSINESS. 19. IN THE RESULT GROUND NO.1 RAISED BY THE ASSESS EE FOR A.Y. 2011-12 STANDS DISMISSED. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 24 20. NOW WE TAKE UP THE COMMON ISSUE RELATING TO DIS ALLOWANCE U/S 14A OF THE ACT. WE FIND THAT THE ASSESSEE MADE INVESTMENT IN THE EQUITY SHARES OF GIRDHARILAL SUGAR & ALLIED IND USTRIES LIMITED FORMERLY KNOWN AS NARMADA SUGAR LTD FOR A TOTAL SU M OF RS.88 LAKHS WHICH WERE INVESTED UP TO 31.3.2005 AND WAS S PREAD OVER VARIOUS FINANCIAL YEARS. THERE IS NO DISPUTE TO TH IS FACT THAT THE ALLEGED INVESTMENT MADE IN THE EQUITY SHARES OF GIR DHARILAL SUGAR & ALLIED INDUSTRIES LIMITED IS NOT FOR BUSINESS PURPO SES. FURTHER NOTHING CONTRARY HAS BEEN BROUGHT ON RECORD WHICH C OULD PROVE THE FACT THAT THE INTEREST BEARING FUNDS WERE NOT APPLI ED FOR MAKING THE INVESTMENT IN THE EQUITY SHARES AT RS.88 LAKHS. IN SHORT THE ASSESSEE HAS BEEN CONSISTENTLY CLAIMING THE INTERES T EXPENDITURE ON THE INVESTMENT OF RS.88 LAKHS MADE FOR NON BUSINES S PURPOSES. 21. IN THE COMPUTATION OF INCOME FOR ASSESSMENT YEA R 2011-12 & 2012-13 ASSESSEE HAS SUO-MOTO MADE DISALLOWANCE U/S 14A OF THE ACT AT RS.6,82,287/- AND RS.1,73,382/- RESPECTIVELY . LD.A.O IGNORING THE FACT THAT DISALLOWANCE U/S 14A OF THE ACT HAS BEEN MADE FOR BOTH THE ASSESSMENT YEARS FURTHER MADE A D ISALLOWANCE OF THE INTEREST AMOUNT AT RS.10,56,000/- WHICH WAS THE REAFTER DELETED PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 25 BY THE LD.CIT(A) OBSERVING THAT THE DISALLOWANCE H AS ALREADY BEEN MADE U/S 14A OF THE ACT AT RS.6,82,287/- AND RS.1,7 3,382/-. LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE TRIBU NAL HAS DELETED THE ALLEGED INTEREST DISALLOWANCE OF RS.10,56,000 /- FOR THE ASSESSMENT YEAR 2006-07 TO 2009-10 AND THEREFORE FO R THE INSTANT APPEALS ALSO NO DISALLOWANCE SHOULD BE SUSTAINED. IT IS ALSO PLEADED BY THE LD. COUNSEL FOR THE ASSESSEE THAT TH ERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE AND THEREFORE NO DISA LLOWANCE SHOULD BE MADE. WE HOWEVER OBSERVE THAT THE ASSESS EE CONSCIOUSLY AND IN HIS WISDOM AND KEEPING IN MIND ALL THE RELEV ANT PROVISIONS OF THE ACT SUO-MOTO MADE DISALLOWANCE U/S 14A OF T HE ACT AT RS.6,82,287/- AND RS.1,73,382/-. DISALLOWANCE U/S 14A OF THE ACT FOR A.Y. 2008-09 ONWARDS IS TO BE READ WITH RULE 8D OF THE INCOME TAX RULES WHICH PROVIDES THE METHOD FOR COMPUTATION OF SUCH DISALLOWANCE. IN THE GIVEN FACTS WHERE THE ALLEGED INVESTMENT FOR NON BUSINESS PURPOSES AND APPLICATION OF INTEREST B EARING FUNDS FOR SUCH INVESTMENTS IS NOT IN DISPUTE THEN THE DISALLO WANCE U/S 14A NEEDS TO BE COMPUTED AS PER RULE 8D OF THE INCOME T AX RULES. PART-I OF THE METHOD DEALS WITH THE AMOUNT OF EXPE NDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME. AND PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 26 PART-II IS FOR THE INTEREST EXPENDITURE ATTRIBUTABL E TO THE INVESTMENT MADE FOR EARNING EXEMPT INCOME. THE ASSESSEE MADE THE DISALLOWANCE U/S 14A OF THE ACT IN THE COMPUTATION OF INCOME CONSCIOUSLY KNOWING THAT INTEREST BEARING FUNDS HAV E BEEN APPLIED FOR NON BUSINESS INVESTMENT. 22. NOW BEFORE ANALYZING THAT WHETHER THE DISALLOW ANCE MADE U/S 14A IS SUSTAINABLE OR NOT, WE NOTICE THAT THE INTE REST BEARING FUNDS HAVE BEEN APPLIED TO NON BUSINESS PURPOSES OF INVES TMENT AND IT ITSELF MAKES THE ALLEGED INTEREST EXPENDITURE DISAL LOWABLE U/S 36(1)(III) OF THE ACT WHICH THE ASSESSING OFFICER H AS ACTUALLY INVOKED WHILE DRAFTING THE ASSESSMENT. IT IS CRYSTAL CLEAR FROM THE ASSESSMENT ORDER THAT THE INTEREST EXPENDITURE HAS BEEN DISALLOWED AT RS.10,56,000/-. LD.CIT(A) WHILE DEALING WITH TH IS DISALLOWANCE SUSTAINED IT ONLY TO THE EXTENT OF THE DISALLOWANCE MADE BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. IN OUR VIEW THE AMOUNT OF RS.6,82,287/- AND RS.1,73,382/- WERE DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME AND ABOVE THIS DISALLO WANCE LD.A.O FURTHER HAD MADE ABOVE DISALLOWANCE OF INTEREST EXP ENDITURE BUT LD.CIT(A) WHILE DEALING WITH THE GROUNDS RAISED BY THE ASSESSEE PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 27 RELATING TO DISALLOWANCE OF INTEREST PARTLY ALLOWED THE ASSESSEES GROUND FOR A.Y. 2011-12 OBSERVING AS FOLLOWS; GROUND NO.3 5. THIS GROUND OF APPEAL HAS BEEN RAISED AGAINST TH E DISALLOWANCE OF RS.10.561ACS ON ACCOUNT OF INTEREST PAID TO M/ S NA RMADA SUGAR LTD. I HAVE DECIDED THE ISSUE WITH IDENTICAL FACTS IN THE ASSESSEE'S OWN CASE IN APPEAL NO.IT-600/ 14-15/422 DATED 27.02.2015 FOR TH E A.Y.09- 10. THE RELEVANT PART OF DECISION IS REPRODUCED HEREUNDER: 'I HAVE GONE THROUGH THE ASSESSMENT ORDER FOR RELEV ANT ASSESSMENT YEAR, THE ORDER OF CIT(A) ON THIS ISSUE FOR THE A. Y. 200 708. I HAVE ALSO GONE THROUGH THE RELEVANT PART OF ORDER OF CIT(A) IN THE A. Y. 200607 WHICH IN FACT HAVE BEEN TAKEN AS BASIS FOR DISMISSING THE AP PEAL OF THE APPELLANT IN THE A. Y. 200708. I HAVE ALSO GONE THROUGH THE ORDER OF HON'BLE ITAT IN THE A.Y. 200607 WHEREBY THE APPELLANT WAS GIVEN RELIEF ON THE RELEVANT ISSUE. IT IS EVIDENT THAT THE AO DURING TH E RELEVANT ASSESSMENT YEAR HAS REPEATED THE ADDITION ON ACCOUNT OF HISTOR Y OF THE CASE I.E. ADDITIONS MADE IN THE A. Y. 200607 AND 200708 WHI CH WERE DULY CONFIRMED BY THE CIT(A). BUT IT APPEARS THAT THE AO WHILE FINALIZING THE ORDER FOR THE RELEVANT ASSESSMENT YEAR I.E. 200910 HAS NOT TAKEN NOTE OF DECISION OF HON'BLE ITAT DATED 15.12.2010 IN THE CA SE OF APPELLANT FOR A.Y. 200607 IN A ITA NO. 57/IND/2010. THE HON'BLE ITAT INDORE BENCH, AFTER DETAILED DISCUSSION MADE IN THE AFORESAID ORD ER HAD DECIDED THE IMPUGNED ISSUE IN FAVOR OF THE APPELLANT. IN THE A. Y. 200708, THEN CIT(A), BASED ON THE JUDGMENT OF CIT(A) TAKEN IN A. Y. 200607 HAD CONFIRMED THE ADDITION MADE BY THE AO. BUT IT HAS B EEN BROUGHT TO MY NOTICE THROUGH ABOVE SUBMISSIONS THAT THOUGH THE AP PEAL HAS ALREADY BEEN DECIDED BY HON'BLE ITAT IN THE A.Y. 200708, Y ET THE GROUND PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 28 RELEVANT TO THE IMPUGNED ADDITION HAS BEEN LEFT TO BE ADJUDICATED. I HAVE GONE THROUGH THE RELEVANT APPEAL ORDER FOR THE A. Y . 200708 AND IT HAS BEEN OBSERVED THE RELEVANT ISSUE HAS NOT BEEN ADJUD ICATED BY THE HON'BLE ITAT. THEREFORE, IN MY OPINION WHEN THERE I S DECISION OF HON'BLE ITAT IN THE A.Y. 200607, THE ISSUE CAN BE CONSIDER ED AS COVERED IN FAVOR OF THE APPELLANT 'THROUGH THE ORDER OF HON'BLE ITAT . HOWEVER, FROM THE ASSESSMENT ORDER, IT HAS BEEN OBSERVED THAT THE APP ELLANT HAD SUO- MOTO CALCULATED THE DISALLOWANCE AT RS. 3,69,984/- AND R EQUESTED THE AO TO ADOPT THIS ADDITION AS AGAINST AN AMOUNT OF RS. 10, 56,000/-. THE SIMILAR SUBMISSION HAS BEEN MADE BY THE APPELLANT DURING TH E COURSE OF APPEAL PROCEEDINGS ALSO WHICH DULY REPRODUCED ABOVE. THE A PPELLANT DURING THE COURSE OF APP PROCEEDINGS HAS NOT CONTROVERTED THE FACT THAT THE ENTIRE INVESTMENT NARMADA SUGARS LTD. WAS OUT OF BORROWED FUNDS. IT WAS ALSO NO CONTROVERTED THAT THE TRANSACTION IS NOT COVERED BY SECTION 14A R. W. RULE 8D. THEREFORE, IT IS CONCLUDED THAT IN THE CAS E UNDER CONSIDERATION, THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS. 3,69,984/- AS SUO-MOTO CALCULATED BY THE APPELLANT SHALL BE CONSI DERED AS REASONABLE. THEREFORE, THE DISALLOWANCE TO THIS EXTENT IS CONFI RMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED.' 23. FROM PERUSAL OF THE ABOVE FINDING OF LD.CIT(A) WHILE ADJUDICATING THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE LD.A.O, WE FIND THAT THE ALLEGED AMOUNT SUST AINED BY LD.CIT(A) IS NOT WITH REGARD TO DISALLOWANCE U/S 1 4A OF THE ACT RATHER IT IS THE ADDITION SUSTAINED U/S 36(1)(III) OF THE ACT FOR THE AMOUNT OF INTEREST PAID IN RESPECT OF AMOUNT INVEST ED IN EQUITY SHARES OTHERWISE THAN FOR THE PURPOSES OF BUSINESS OR PROFESSION. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 29 OUR VIEW GET FURTHER FORTIFIED TO THE FACT THAT THE ASSESSEE HAS ITSELF ACCEPTED THAT INTEREST BEARING FUNDS WERE APPLIED F OR MAKING INTEREST IN THE EQUITY SHARES OF RS.88,00,000/- OF M/S. GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED. 24. ASSESSEE HAS PLACED RELIANCE ON PLETHORA OF JUD GMENTS BUT AFTER EXAMINING THE FACTS OF THE ASSESSEES CASE WE FIND THAT NONE OF THE JUDGMENTS AND THE DECISIONS ARE APPLICABLE ON T HE FACTS OF THE ASSESSEE. WE IN VIEW OF OUR ABOVE DISCUSSIONS FIND NO REASON TO INTERFERE IN THE FINDINGS OF LD.CIT(A) AND THEREFOR E CONFIRM THE DISALLOWANCE OF RS.6,82,287/- AND RS.1,73,382/- WHI CH THE ASSESSEE HAS ITSELF ACCEPTED WHILE PREPARING THE IN COME TAX RETURN. 25. IN THE RESULT GROUND NO.2.1, 2.2 FOR THE ASSESS MENT YEAR 2011-12 AND GROUND NO.1.2 FOR ASSESSMENT YEAR 2012- 13 OF THE ASSESSEES APPEAL ARE DISMISSED. 26. THE OTHER GROUNDS ARE GENERAL IN NATURE WHICH N EEDS NO ADJUDICATION. PREMIER INDUSTRIES (INDIA) LTD ITA NO.610/IND/2016, 611/IND/2016 30 27. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2018. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 19 NOVEMBER, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER ASSTT. REGISTRAR