INTER GOLD (INDIA) P. LD, MUMBAI V. ACIT (OSD) CIR 8(2), MUMBAI

ITA 9205/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75758 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: P P BHANDARI
• Keywords: Opportunity of being heard; Speculation loss; Commercial expediency
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./I.T.A. NO.3896/M/2010 ( AY: 2005 - 2006 ) INTERGOLD (INDIA) PVT. LTD., PLOT NO.34, SEEPZ , ANDHERI (E), MUMBAI 400 096 . / VS. DCIT 8(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AA ACI 2677 Q ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.3202/M/2010 ( AY: 2005 - 2006 ) DCIT 8(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. INTERGOLD (INDIA) PVT. LTD., PLOT NO.34, SEEPZ, ANDHERI (E), MUMBAI 400 096 . ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.9205/M/2010 ( AY: 2007 - 2008 ) INTERGOLD (INDIA) PVT. LTD., PLOT NO.34, SEEPZ , ANDHERI (E), MUMBAI 400 096. / VS. ACIT (OSD), CIR - 8(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACI 2677 Q ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI P.P. BHANDARI / REVENUE BY : SHRI ASHOK SURI, DR / DATE OF HEARING :20 .2.2014 / DATE OF PRONOUNCEMENT :28 .2.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE THREE APPEALS UNDER CONSIDERATION. OUT OF THREE APPEALS, THERE IS A SET OF CROSS APPEALS FOR THE AY 2005 - 06 AND FOR THE AY 2007 - 2008, ASSESSEE FIELD A SEPARATE APPEAL. SINCE, THE ISSUES RAISED IN ALL THE THREE APPEALS ARE CONNECTED, FOR THE SAKE OF CONVENIENCE , THEY ARE CLUBBED, HEAD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDERS. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2 2. FIRSTLY, WE SHALL TAKE UP THE CROSS APPEALS FOR THE AY 2005 - 2006. IN THESE TWO APPEALS, ITA NO.3896/M/2010 IS FILED BY THE ASSESSEE ON 13.5.2010 AGAINST THE ORDER OF THE CIT (A) - 17, MUMBAI DATED 5.1.2010. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT (A) ERRED IN UPHOLDING THE ORDER OF THE AO TREATING LOSS OF RS. 1,95,04,886/ - ARISING ON CANCELLATION OF FORWARD EXCHANGE CONTRACTS AS SPECULATION LOSS. IT IS SUBMITTED THAT THE APPELLANT IS RECOGNIZED EXPORT HOUSE. IN ORDER TO HEDGE THE CURRENCY FLUCTUATION , THE APPELLANT HAS ENTERED INTO THE FORWARD E XCHANGE CONTRACTS. THE LOSS ARISING ON CANCELLATION OF SUCH FORWARD EXCHANGE CONTRACT IS A PART AND PARCEL OF THE BUSINESS OF THE COMPANY AND AS SUCH CANNOT BE TREATED AS A SPECULATION LOSS. THE CONCLUSION ARRIVED AT BY THE AO AND THE LD CIT (A) IS ERRO NEOUS AND CONTRARY TO THE FACTS AND THE LAW. 2. THE LD CIT (A) ERRED IN NOT ADJUDICATING AND DECIDING THE GROUND 1(C) IN RESPECT OF DISALLOWANCE OF RS. 10,05,815/ - OUT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND, ON THE GROUND THAT THE SAME WERE PAID AFTER THE DUE DATES. IT IS SUBMITTED THAT THE APPELLANT PAID EMPLOYEES CONTRIBUTION TO PROVIDENT FUND TO THE RESPECTIVE AUTHORITIES WITHIN THE PERMISSIBLE TIME AND AS SUCH NO DISALLOWANCE IS CALLED FOR. 3. THE LD CIT (A) ERRED IN NOT ADJUDICATING AND DECI DING THE GROUND NO.1(D) IN RESPECT OF DISALLOWANCE OF RS. 92,424/ - OUT OF EMPLOYEES CONTRIBUTION TO ESIC ON THE GROUND THAT THE SAME WAS PAID AFTER THE DUE DATES. IT IS SUBMITTED THAT THE APPELLANT HAS PAID EMPLOYEES CONTRIBUTIONS TO THE ESIC TO THE RESP ECTIVE AUTHORITIES WITHIN THE PERMISSIBLE TIME AND AS SUCH NO DISALLOWANCE IS CALLED FOR. 3. AT THE OUTSET, REFERRING TO GROUND NO.1 MENTIONED ABOVE, SHRI P.P. BHANDARI, LD COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL VIDE ITA NOS.1900 & 1440/M/ 2004 FOR THE AY 1997 - 98 AND MENTIONED THAT PARA 9 OF THE SAID ORDER OF THE TRIBUNAL DATED 18.11.2008 IS RELEVANT. IN THIS REGARD, LD COUNSEL MENTIONED THAT RELYING ON THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT VS. BADRIDAS GAURIDU (P) LTD VS. CIT , 261 ITR 256 , THE SIMILAR ISSUE REGARDING THE TAXABILITY OF INCOME / LOSS ARISING ON CANCELLATION OF FORWARD EXCHANGE CONTRACTS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. FURTHER, HE MENTIONED TH AT ANOTHER ORDER OF THE ITAT, MUMBAI IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) PVT. LTD. VIDE ITA NO. 6169/M/2012 , DATED 11.10.2013 , THE ASSESSEE HAS A CASE TO WIN IN HIS FAVOUR. FURTHER, LD COUNSEL FAIRLY MENTIONED THAT THIS GROUND MAY BE REMANDED TO THE FILES OF THE AO FOR A DJUDICATING THE SAME IN THE LIGHT OF THE SAID ORDERS OF THE TRIBUNAL AS WELL AS THE BINDING JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF BADRIDAS GAURIDU (P) LTD (SUPRA). 3 4. ON THE OTHER HAND, LD DR HAS NO OBJECTION FOR THE SAID PROPOSAL OF THE LD AR FOR REMANDING THE MATTER TO THE FILES OF THE AO. 5. ON HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED OPINION THAT GROUND NO.1 SHOULD BE REMANDED TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH IN T HE LIGHT OF THE SAID JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BADRIDAS GAURIDU (P) LTD (SUPRA) AND OTHER DECISIONS OF THE TRIBUNAL ON THE ISSUE. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND N O.1 IS ALLOWED FOR STATISTICAL PURPOSES . 6. IN CONNECTION WITH GROUND NOS.2 AND 3, RELATING TO EMPLOYEES CONTRIBUTIONS TO PF AND ESIC , LD COUNSEL MENTIONED THAT THE CIT (A) ALLOWED ALL THESE GROUNDS DURING THE PROCEEDINGS U/S 154 OF THE ACT AND THEREFOR E, THESE GROUNDS BECOME INFRUCTUOUS. FURTHER, HE MENTIONED THAT THE AO HAS NOT GIVEN EFFECT TO THE SAID AMENDED ORDER OF THE CIT (A) AND THEREFORE, HE SEEKS SOME DIRECTIONS OF THE TRIBUNAL FOR TIME BOUND ACTION BY THE AO. 7. WE FIND MERIT IN THE REQUEST OF THE LD COUNSEL AND WHILE DISMISSING THE SAID GROUND NOS.2 & 3 AS INFRUCTUOUS, WE DEEM IT NECESSARY TO DIRECT THE AO TO GIVE EFFECT TO THE ORDER OF THE CIT (A) WITHIN TWO MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER. ACCORDINGLY, GROUND NOS. 2 AND 3 A RE DISMISSED AS INFRUCTUOUS. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NO.3202/M/2010 (AY 2005 - 2006) (BY REVENUE) 9. THIS APPEAL FILED BY THE REVENUE ON 23.4.2010 IS AGAINST THE ORDER OF THE CIT (A) - 17, MUMBAI DATED 5.1.2010 FOR THE ASSESSMENT YEAR 2005 - 2010. 10. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING ADDITION OF RS. 48,99,803/ - ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR PROVIDING INTEREST FREE LOANS TO SUBSIDY COMPANIES , WITHOUT APPRECIATING THE FACTS OF THE CASE. 11. AT THE OUTSET, REFERRING THE GROUND RAISED B Y THE REVENUE, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT IDENTICAL ISSUE WAS DECIDED BY THE CIT (A) IN FAVOUR OF THE 4 ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. VS COMMISSIONER OF INCOME - TAX (APPEALS) (SC) 288 ITR 1 AND PARA 5.5 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD. IN FACT, THE CIT (A) FOLLOWED THE ORDERS OF HIS PREDECESSOR FOR THE EARLIER AYS 2004 - 05 AND 2006 - 2007 WHILE GIVING THE RELIEF TO THE ASSESSEE. IN THIS REGARD, LD COUNSEL FILED A COPIES OF THE ORDERS OF THE TRIBUNAL FOR THE FOR THE AY 2004 - 05 AND 2006 - 07 AND MENTIONED THAT THE ISSUE IS NOW FINALIZED AT THE LEVEL OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND BROUGHT OUR ATTENTION TO PARA 4 OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006 - 07 DATED 21.5.2010 WHICH READS AS UNDER: 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF INTEREST PAID BY THE ASSESSEE ON TH E BORROWED FUNDS PROPORTIONATE TO THE INTEREST FREE FUNDS ADVANCED TO THE SUBSIDIARY COMPANIES . CIT (A) HAS DELETED THE ADDITION FOLLOWING THE DECISION IN THE ASSESSMENT YEAR 2004 - 2005, IN WHICH SIMILAR ADDITION HAS BEEN DELETED AFTER GIVIN G A FINDING THA T INTEREST FREE ADVANCES TO SUBSIDIARY COMPANIES HAVE BEEN GIVEN ON COMMERCIAL EXPEDIENCY AND NO DISALLOWANCE COULD THEREFORE BE MADE FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (288 ITR 1). THE SAID DECISION OF CIT (A) W AS SUBSEQUENTLY UPHELD BY THE TRIBUNAL IN ORDER DATED 12.2.2010 IN ITA NO.961/M/2008. CIT (A) HAS GIVEN A FINDING THAT FACTS THIS YEAR ARE IDENTICAL AND THERE IS NO MATERIAL PLACED BEFORE US TO CONTROVERT THE SAID FINDING. WE, THEREFORE, RESPECTFULLY FOLL OWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 2005 IN ASSESSEES OWN CASE SEE NO INFIRMITY IN THE ORDER OF THE CIT (A) ALLOWING THE CLAIM AND THE SAME IS THEREFORE, UPHELD . 12. FURTHER, HE ALSO MENTIONED THAT ON FACTS, THE FUNDS ADVANCED TO THE SUBSIDIARY COMPANIES ARE ONE AND THE SAME AND THEREFORE, THE JUDGMENTS ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 13. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUS E THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS CITED BY THE LD COUNSEL. ON HEARING BOTH THE PARTIES, WE FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. CONSIDERING THE CONTENTS OF PARA 5 OF THE CIT (A)S ORDER, WHICH IS CEMENTED BY THE OR DERS OF THE TRIBUNAL IN THE AY 2004 - 05 AND 2006 - 07, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED . 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 5 ITA NO.9205/M/2010 (AY 2007 - 2008) (BY ASSESSEE) 16. THIS APPEAL FILED BY THE ASSESSEE ON 31.12.2010 IS AGAINST THE ORDER OF CIT (A) - 17, MUMBAI DATED 29.10.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 17. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT (A) ERRED IN UPHOLDING THAT ADVERTISEMENT EXPENSES AGGREGATING TO RS. 27,12,647/ - ARE LIABLE TO FRINGE BENEFIT TAX . IT IS SUBMITTED THAT THE APPELLANT HAD EXPLAINED IN DETAIL THE NATURE OF EXPENDITURE INCURRED. THE SAID ADVERTISEMENT EXPENDITURES ARE NOT SUBJECTED TO LEVY OF FRINGE BENEFIT TAX . THE CONCLUSION ARRIVE AT BY THE LD CIT (A) IS ERRONEOUS AND CONTRARY TO FAC TS. 2. THE LD CIT (A) ERRED IN UPHOLDING THAT EXPENSES INCURRED ON BUS HIRE TO WORK PLACE IS THE NATURE OF CONVEYANCE LIABLE TO FRINGE BENEFIT TAX. IT IS SUBMITTED THAT EXPENDITURE ON COMMON TRANSPORT FACILITIES IS NOT LIABLE TO LEVY OF FRINGE BENEFIT TA X. THE CONCLUSION ARRIVED BY THE LD CIT (A) IS ERRONEOUS AND CONTRARY TO FACTS. 18. BRIEFLY STATED RELEVANT FACTS OF THIS CASE ARE THAT THE ASSESSEE FIELD THE FRINGE BENEFIT TAX (FBT) RETURN U/S 115WD DECLARING THE VALUE OF FBT AT RS. 54,48,552/ - . AO M ADE ASSESSMENT US 115WE(3) OF THE ACT RELATING TO COMPUTATION OF FBT. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THERE IS COUPLE OF ISSUES RAISED IN THE GROUND AND THE FIRST ISSUE RELATES TO TAXABILITY OF DEVELOPMENT EXPENDITURE AS FB AND T HE SECOND ONE BEING THE BUS HIRE CHARGES INCURRED FOR THE PURPOSE OF TRANSPORTING THE EMPLOYEES TO THE PREMISES OF THE ASSESSEE. HE MENTIONED THAT BOTH THE ISSUES SHOULD BE REMANDED TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUES AFRESH IN THE LIGHT OF THE CBDT CIRCULAR NO.8/2005, DATED 29.8.2005 . IN CONNECTION WITH ADVERTISEMENT / PRODUCT MARKETING RESEARCH EXPENSES BEING THE FIRST ISSUE, LD COUNSEL BROUGHT OUR ATTENTION TO QUESTION NO.62 OF THE SAID CIRCULAR AND MENTIONED THAT THE EXPENDITURE OF THIS KIND INCURRED FOR PRODUCT MARKETING RESEARCH EXPENSES BEING IN THE NATURE OF EXPENDITURE FOR THE PURPOSE OF TESTING THE EFFICACY OF THE PRODUCT, DOES NOT ATTRACT PROVISIONS OF FBT. 19. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER SHOULD BE REMANDED TO THE FILES OF AO TO EXAMINE THE APPLICABILITY OF THE SAID C BDT CIRCULAR (SUPRA) AND DECIDE 6 THE ISSUE AFRESH AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE FIRST ISSUE IS REMANDED TO THE FILES OF THE AO AND RELEVANT GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES . 21. REGA RDING THE INCLUSION OF BUS HIRE EXPENSES IN THE SCOPE OF FBT, RAISED IN GROUND NO.2, LD COUNSEL BROUGHT OUR ATTENTION TO QUESTION NO.104 AND READ OUT THE ANSWER WHICH READS AS UNDER: ANS: THE FREE OR SUBSIDIZED TRANSPORT PROVIDED TO EMPLOYEES FOR JOURNEYS FROM THEIR RESIDENCE TO THE PLACE F WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESIDENCE IS IN LIEU OF CONVEYANCE / TRANSPORTATION ALLOWANCE, WHICH IS NOT LIABLE TO FBT. ACCORDINGLY, THE EXPENDITURE INCURRED BY THE EMPLOYER FOR THE PURPOSES OF PROVIDING FREE OR SUBSIDIZED TRANSPORT FOR JOURNEYS TO EMPLOYEES FROM THEIR RESIDENCE TO THE PLACE OF WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESIDENCE WILL NOT BE LIABLE TO FBT. 22. FROM THE ABOVE, IT IS EVIDENT THAT THE EXPENSES INCURRED BY THE COMPANY ON THE EMPLOYEES FOR TRANSPORTING THEM BETWEEN RESIDENCE AND THE PREMISES OF THE COMPANY DO NOT ATTRACT FBT. THEREFORE, AO IS DIRECTED TO EXAMINE THE FACTS OF THE TRANSPORTATION AND THE PLACES COVERED BY THE BUS EMPLOYED AND DECIDE THE ISSUE AFRESH AFTER GRANTIN G A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOU NCED IN THE OPEN COURT ON 28 TH DAY OF FEBRUARY, 2014. SD/ - SD/ - (VIVEK VARMA) (D. KARUNAKARA RAO) JUD ICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 28 .2 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 7 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI