M/s. Cot Industries, Mehsana V. ACIT, Mehsana Circle, Mehsana

ITA 759/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3819 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-04-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Speculation loss; Speculative transactions
• Section: 143(3); 37(1); 43(5); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. COT INDUSTRIES, S. NO. 1625, DETROJ ROAD, AT: MEHSANA, PAN: AABFC9466D (APPELLANT) VS THE ACIT, MEHSANA CIRCLE, MEHSANA (RESPONDENT) REVENUE BY: SHRI VIRENDRA SINGH, SR. D.R. ASSESSEE BY: SMT. ARTI N. SHAH, A.R . DATE OF HEARING : 07-09-2020 DATE OF PRONOUNCEMENT : 23-10-2020 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS ASSESSEES APPEAL FOR A.Y. 2013-14, ARISES FRO M ORDER OF THE CIT(A), GANDHINAGAR, AHMEDABAD DATED 14-02-2018, IN PROCEED INGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ), GANDHINAGAR AS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF RS. 30,60,000/- MADE BY THE ASSESSING OFFICER OUT OF RENT EXPENDITURE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , GANDHINAGAR HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER CONSIDERING THE ITA NO. 759/AHD/2018 ASSESSMENT YEAR 2013-14 I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 2 SAME AS SPECULATIVE LOSS; WHEREAS, IN FACT, THE SPE CULATION LOSS OF RS. 1,86,087/- HAS BEEN DULY DISALLOWED WHILE COMPUTING THE INCOME BY THE APPELL ANT. 3. THE FACT IN BRIEF IS THAT THE RETURN OF INCOME D ECLARING TOTAL INCOME OF RS. 19,28,770/- WAS FILED ON 6 TH SEPTEMBER, 2013. THE CASE WAS SUBJECT TO SCRUTIN Y ASSESSMENT AND ASSESSMENT U/S. 143(3) OF THE ACT W AS FINALIZED ON 15 TH MARCH, 2016. THE REMAINING FACTS OF THE CASE ARE DISCUSSE D AS UNDER ACCORDING TO THE ISSUES ON WHICH THE INSTANT APPEAL HAS BEEN FILED. GROUND NO. 1 (DISALLOWANCE OF RS. 30,60,000/- OUT OF RENT EXPENSES) 4. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER NOTICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 30,60,000/- U NDER THE HEAD RENT PAID TO THE ASSOCIATED RELATED COMPANY M/S. COT ENTERPRISES PVT . LTD. ON VERIFICATION OF THE DETAIL FILED, THE ASSESSING OFFICER OBSERVED THAT M /S. COT ENTERPRISES PVT. LTD. HAS FILED NIL RETURN OF INCOME FOR THE F.Y. 2012-13 REL EVANT TO A.Y. 2013-14. IT WAS ALSO NOTICED THAT THE MAIN WORKING PARTNER OF THE A SSESSEE COMPANY WAS ALSO A DIRECTOR OF THE AFORESAID COMPANY. THE APPROXIMATE GROSS VALUE OF PLANT AND MACHINERY OF THE COMPANY WAS RS. 1.10 CRORE AND WRI TTEN DOWN VALUE WAS OF RS. 75 LACS ONLY FOR WHICH THE ASSESSEE HAD PAID HUGE R ENT OF RS. 30.60 LACS. THE SAID COMPANY, COT ENTERPRISES PVT. LTD. HAS BEEN SHOWING BUSINESS LOSES USED TO BE SET OFF AGAINST THE RENTAL INCOME RECEIVED FROM THE ASS ESSEE. THE ASSESSING OFFICER HAD ALSO NOTICED THAT THERE WAS NO SUBSTANTIAL ACTI VITY CARRIED OUT BY M/S. COT ENTERPRISE PVT. LTD. AND SURPRISINGLY THIS COMPANY WAS SHOWING PURCHASES OF RS. 80,01.032/- FROM THE ASSESSEE. THE ACCOUNTANT OF T HE SAID COMPANY IN HIS STATEMENT HAS ALSO ACCEPTED THAT THERE WAS NO SEPAR ATE OFFICE OF M/S. COT ENTERPRISES PVT. LTD. AND IT WAS OPERATED FROM THE BUSINESS PREMISES OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS ALSO C ORROBORATED ALL THESE FACTS FROM THE FIELD INQUIRY CARRIED OUT BY THE INSPECTOR OF HIS OFFICE. THE ASSESSING OFFICER HAS ALSO NOTICED THAT AFTER 31 ST MARCH, 2007, THE ASSOCIATED COMPANY, M/S. I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 3 COT ENTERPRISES PVT. LTD HAS NEVER FILED ITS ANNUAL ACCOUNT IN THE MINISTRY OF CORPORATE AFFAIRS WEBSITE. CONSIDERING THE FACTS A ND CIRCUMSTANCES, THE ASSESSING OFFICER HAS CONSIDERED THAT THE PAYMENT OF RENT RS. 30.60 LACS WAS NOT GENUINE AND THE SAME WAS DISALLOWED U/S. 37 OF THE ACT. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. THE RELE VANT PART OF THE DECISION OF LD. CIT(A) IS AS UNDER:- 4.2 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMI SSION MADE BY THE APPELLANT AND THE ORDER OF THE AO. THE AO HAS MADE THE DISALLOWANCE OF RS,30,60,00 0/- ON ACCOUNT OF RENT PAID TO M/S COT INDUSTRIES PVT LTD (CEPL) HOLDING THAT THE SAME WAS NON-GENUINE, THE ISSUE HAS BEEN DISCUSSED AT LENGTH FROM PAGE-2 TO PAGE 7 OF THE ASSESSMENT O RDER WHICH HAS BEEN REPRODUCED IN PARA.4, ABOVE. THE APPELLANT ON THE OTHER HAD HAS SUBMITTED THAT THE PAYMENT OF RENT MADE TO ITS SISTER CONCERN WAS GENUINE AND SHOULD HAVE BEEN ALLOWED. A FTER GOING THROUGH THE EVIDENCES FILED BY THE APPELLANT AND SUBMISSIONS MADE AS WELL AS THE ASSES SMENT ORDER, FOLLOWING OBSERVATIONS ARE MADE:- I) CEPL WHICH HAS RECEIVED THE AMOU NT OF RS.30,60,000/- AS RENTAL INCOME DURING THE YEAR UNDER CONSIDERATION HAS FILED RETURN OF INCOME AT RS. NIL. II) THE MAIN WORKING PARTNER OF THE APPELLANT FIR M IS ALSO THE DIRECTOR OF CEPL III) THE AUDIT REPORT OF CEPL SHOWS THAT IT HAS PUR CHASED GOODS FROM THE APPELLANT FIRM OF APPROXIMATELY RS.80 LAKHS. HOWEVER, THERE IS NO REC ORD OF TRADING QUANTITY MAINTAINED BY CEPL IV) ONE OF THE DIRECTORS OF CEPL WHO IS ALSO A PART NER IN THE APPELLANT FIRM HAS GIVEN A STATEMENT ON OATH STATING THAT OTHER THAN GIVING AND TAKING O F LOANS, NO OTHER ACTIVITY WAS CARRIED OUT BY CEPL. V) CEPL DOES NOT HAVE A SEPARATE OFFICE AND THE W ORK OF THIS 'COMPANY' IS CARRIED OUT FROM THE OFFICE OF THE APPELLANT FIRM. VI) DURING ENQUIRIES CARRIED OUT BY THE AO DURING T HE ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THERE WAS NO OFFICE OF CEPL AT THE GIVEN ADDRESS AN D MULTI-SPECIALTY HOSPITAL WAS FUNCTIONAL FROM THAT PREMISES. VII) THE LAST AGM OF CEPL WAS HELD ON 29-09-2007 AN D NO FURTHER AGMS HAVE TAKEN PLACE. IN FACT CEPL HAS NOT UPLOADED ITS RETURN ON THE WEBSIT E OF MINISTRY OF CORPORATE AFFAIRS, SINCE THEN. THE APPELLANTS THAT IT HAD DONE SO SUBSEQUENTLY I S AN AFTERTHOUGHT AFTER THE AO HAS STARTED MAKING ENQUIRIES INTO THE ISSUE. CONSIDERING THE ABOVE FACTS, IT IS EVIDENT THAT TH E AMOUNT OF RS. 30,60,000/- PAID AS RENT TO CEPL WAS CORRECTLY HELD AS NON-GENUINE BY THE AO AND THE ADDITION MADE ON THIS ACCOUNT IS CONFIRMED. GROUND OF APPEAL NO. 1 IS DISMISSED. 6. DURING THE COURSE OF APPELLATE PROCEEDING BEFORE US, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK COMPRISING DETAIL AND INFORMAT ION FURNISHED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL HAS CONTENDED T HAT LD. CIT(A) IS NOT RIGHT IN SUSTAINING THE DISALLOWANCE OF RS. 30,60,000/- MADE BY THE ASSESSING OFFICER OUT OF RENT EXPENDITURE WITHOUT CONSIDERING THE SUPPORT ING DETAIL FURNISHED BY THE I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 4 ASSESSEE. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF PAYMENT OF RENT TO THE AMOUNT OF RS. 30,60,000/- TO ASSOCIATE CONCERN M/S. COT ENTERPRISES PVT. LTD. FOR USING ITS PLANT AND MACH INERY. ON VERIFICATION, THE ASSESSING OFFICER OBSERVED THAT COT ENTERPRISES IND IA PVT. LTD. WAS ACTUALLY NOT EXISTED COMPANY AND IT HAD JUST SHOWN PAPER TRANSA CTION TO DIVERT ITS TAX LIABILITY AND REDUCE THE PAYMENT OF TAX BY CLAIMING NON GENUI NE PAYMENT OF RENT TO THE AMOUNT OF RS. 30,60,000/-. THE ASSESSING OFFICER H AS ALSO STATED THAT ASSESSEE COULD NOT SUBSTANTIATE WITH RELEVANT SUPPORTING MAT ERIAL THE GENUINENESS OF PAYMENT OF RENT TO ITS ASSOCIATED CONCERN COT ENTER PRISES INDIA PVT. LTD.. THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE REITERATING T HE FACTS AND FINDING OBSERVED BY THE ASSESSING OFFICER THAT M/S. COT ENTERPRISE P VT. LTD. WAS NOT EXISTED AT THE GIVEN ADDRESS. IN RESPONSE TO THE FACTS REPORTED IN THE REPORT OF THE INSPECTOR THE ASSESSEE HAS SUBMITTED DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE CIT(A) THAT AFTER SURVEY NO. 1605 AT THE DISTANCE OF ABOUT 800 MTRS O N SURVEY NO. 1625, COT GINNING INDUSTRIES IS SITUATED AND ON VACANT LAND THEREIN, COT ENTERPRISE PVT. LTD. STARTED OIL MILL UNIT. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE IT IS OBSERVED THAT ASSESSEE HAS SIMPLY ILLUMINATED IN THE SUBMISS ION MADE BEFORE THE LD. CIT(A) THAT COT ENTERPRISE PVT. LTD. WAS EXISTED ON THE VACANT LAND. EVEN WITHOUT TAKING INTO CONSIDERATION THE REPORT OF THE INSPECT OR IT IS DISCERNED FROM THE MATERIAL THAT ASSESSEE HAS NOT FURNISHED ANY CREDIB LE EVIDENCE I.E. COPY OF BILL FOR POWER CONSUMPTION OF PLANT AND MACHINERY, COPY OF A NY DOCUMENT OF THE RELEVANT AUTHORITY DEMONSTRATING EXISTENCE OF THE SAID INDUS TRIAL UNIT EITHER BEFORE THE LOWER I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 5 AUTHORITIES OR BEFORE US DURING THE COURSE OF APPEL LATE PROCEEDINGS. THE SUBMISSION OF THE ASSESSEE WAS CONTRARY AS NO RELEV ANT CREDIBLE SUPPORTING DOCUMENTS/EVIDENCES WAS SUBMITTED TO POSTULATE THE CLAIM OF INCURRING OF RENT EXPENDITURE OF RS. 30,60,000/- FOR USING PLANT AND MACHINERY OWNED BY ASSOCIATE CONCERN M/S. COT INDUSTRIES PVT. LTD. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) THAT THE SAID ASSOCIATE CONCERN WAS DIRECTLY UNDER INFLU ENCE OF ASSESSEE AND BOTH WERE SITUATED IN SAME PREMISES AND EVEN DIRECTOR/PARTNER WERE ALSO SAME AND THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS OF RENT PAYMENT WITH RELEVANT CREDIBLE EVIDENCES. THEREFORE, THIS GROUND OF APPE AL OF THE ASSESSEE IS DISMISSED. GROUND NO. 2 (DISALLOWANCE OF RS. 1,86,087/- ON SPE CULATION LOSS) 8. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER NOTICED THAT ASSESSEE HAS DEBITED EXPENSES OF RS. 2,50,075/- RE LATED TO SPECULATION TRANSACTION IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFF ICER STATED THAT THESE EXPENSES WERE INCURRED IN RESPECT OF SPECULATION BUSINESS AN D NO ACTUAL DELIVERY OF GOODS INVOLVED IN THESE TRANSACTIONS AND THESE TRANSACTIO NS FALL IN THE CATEGORY OF SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF SECT ION 43(5) OF THE ACT. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THESE EXPENSES TREATING THE SAME AS SPECULATIVE TRANSACTIONS. 9. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE. 10. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE LD. COUNSEL HAS FURNISHED COPIES OF RECEIPTS ALONG WITH LEDGER COPI ES OF ACCOUNT OF MCX NCDX MEMBERSHIP FEES ALONG WITH RECEIPT BILL ETC. SHE H AS FURTHER SUBMITTED THAT THESE EXPENSES WERE PERTAINED TO THE ACTUAL MEMBERSHIP FE ES, PENALTY CHARGES, USER I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 6 CHARGES, ANNUAL SUBSCRIPTION CHARGES, TRANSACTION C HARGES AND SAME WERE RIGHTLY BOOKED IN THE PROFIT AND LOSS ACCOUNT. ON THE OTHE R HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANCE ON THE DECISION OF LD. CIT(A). 11. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. BEFORE THE LD. CIT(A), THE ASSESSEE HAS EXPLAINED THAT SPECULATION LOSS INCURRED ON TRADING ON THE COMMODITY EXCHANGE AMOUNTING TO RS. 186087/- HAS AL READY BEEN OFFERED AS SPECULATION LOSS AND SAME WAS NOT CLAIMED AGAINST B USINESS INCOME. THE ASSESSEE HAS FURNISHED RELEVANT DOCUMENT AND DETAILS BEFORE THE LD. CIT(A) STATING THAT THE NATURE OF EXPENSES DISALLOWED BY THE ASSESSING OFFI CER AS SPECULATION TRANSACTIONS ACTUALLY PERTAINED TO ANNUAL MEMBERSHIP FEES, PENAL TY CHARGES, USAGE CHARGES/FEES TRANSACTION CHARGES ETC. HOWEVER, THE CIT(A) HAS S USTAINED THE DISALLOWANCE WITHOUT CONTROVERTING THE SUPPORTING DETAIL/EVIDENC ES FURNISHED BY THE ASSESSEE. AFTER PERUSAL OF MATERIAL ON RECORD PLACED IN THE P APER BOOK, IT IS NOTICED THAT ASSESSEE HAS INCURRED MEMBERSHIP EXPENSES IN RESPEC T OF MCX AND NCDX AND MOST OF THE EXPENSES PERTAINED THE ANNUAL MEMBERSHI P EXPENSES AND USER CHARGES ETC. WE HAVE ALSO GONE THROUGH THE JUDICIAL PRONOU NCEMENTS REFERRED BY THE LD. COUNSEL IN THE CASE OF ITO VS. VRM SHAH PVT. LTD. ( 2009) 27 SOT 469 (BOMBAY) WHEREIN IT IS HELD THAT PENALTY PAID BY ASSESSEE AS A SHARE BROKER FOR EXCESS UTILIZATION LIMIT WAS ALLOWABLE U/S. 37(1) OF THE A CT AND IN THE CASE OF ITO VS. SHANTI COMMODITIES (2015) 63 TAXMAN. COM 350, PUNE WHEREIN IT IS HELD THAT LOSS INCURRED BY ASSESSEE TOWARDS TRANSACTIONS IN NATION AL BOARD OF TRADING WAS TO BE TREATED AS NON-SPECULATIVE LOSS. IN THE CASE OF MA STER CAPITAL SERVICES LTD. VS. DCIT (2008) 23 SOT 60, CHANDIGARD WHEREIN IT IS HEL D THAT FINE AND PENALTY ON ACCOUNT OF INCREASE IN TRADE VOLUME WAS PENAL IN NA TURE AND SAME WERE ALLOWABLE AS BUSINESS EXPENDITURE. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONSIDER THAT LOWER AUTHORITIES HAVE NOT ESTABLISHE D THAT NATURE OF EXPENSES DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT IN R ESPECT OF ANNUAL MEMBERSHIP I.T.A NO. 759/AHD/2018 A.Y. 2013-14 PAGE NO M/S. COT INDUSTRIES VS. ACIT 7 FEES, TRANSACTION CHARGES, PENALTY CHARGES WAS OF S PECULATIVE NATURE. THEREFORE, CONSIDERING THE ABOVE FACTS AND JUDICIAL FINDING, T HE CLAIM OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-10-2020 SD/- SD/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD : DATED 23/10/2020 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,