TaxTMI 
TaxTMI 
2016 (1) TMI 445
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, Assessing Officer further noted that a sum of Rs. 1.85 Cr had been given to M/s Vikas House Building Company Pvt. Ltd. for purchase of property. No interest was charged on this amount. The Assessing Officer asked the assessee to explain why proportionate interest on this amount may not be disallowed. The assessee submitted that advance was given for purchase of property, however, subsequently there was a change of plan and the funds given were received back. The assessee contended that advance was given in the normal course of business. The Assessing Officer was not satisfied with the explanation of the assessee and disallowed Rs. 59,013/- under section 36(1)(iii) of the Act. 4. The assessee reiterated the same submissions before ld. CIT(Appeals), however, ld. CIT(Appeals) was not satisfied with the explanation of the assessee and dismissed this ground of appeal of the assessee. The ld. CIT(Appeals) noted that the assessee had given an amount of Rs. 1.85 Cr to M/s Vikas House Building Company Pvt. Ltd. on which no interest was charged and the amount was received back in subsequent year. The nature of transaction involved was merely interest free advances given to this party. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Rs. 5.34 Cr on 31.03.2011 therefore, addition was also unjustified and the matter could be verified by the Assessing Officer. 6. On the other hand, ld. DR relied upon orders of the authorities below. 7. On consideration of the rival submissions, we do not find any justification to sustain the addition. The Assessing Officer found that assessee had given loans and advances to the extent of Rs. 6.74 Cr. The assessee furnished details of such loans and advances and out of the same, it was observed that a sum of Rs. 1.85 Cr has been given to M/s Vikas House Building Company Pvt. Ltd. for purchase of property. On one hand, the Assessing Officer noted that interest is to be capitalized as per proviso to Section 36(1)(iii) of the Act but on the other hand, made disallowance under section 36(1)(iii) of the Act. The assessee has filed copy of the legal notice issued on behalf of the assessee dated 30.03.2012 (PB-206) to M/s Vikas House Building Company Pvt. Ltd. in which it was stated that this company approached the assessee and offered for the purchase of land in the shapes of plots in South City at Ludhiana. The assessee has paid Rs. 2.50 Cr and the company has assured to execute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jab & Haryana High Court reproduced the order of the Tribunal in which the Tribunal noted that Assessing Officer charged interest of Rs. 2,60,000/- on notional basis on the ground that the loan advanced to Nalanda Spinners Ltd. was without any commercial exigency. There is no dispute that loan was advanced by assessee on 27.03.2006 i.e. during assessment year. It was also apparent from record that the principle amount of the said loan was recovered after filing recovery suit in Civil Court. It is also apparent from record that assessee managed to get part amount vide cheques of different dates leaving the balance to the tune of Rs. 7.5 lacs. The Tribunal, considering these facts found that since the principal amount was at stake, there was no occasion for assessee to charge interest on the advanced amount. The departmental appeal was, thus, dismissed by the Tribunal. 8. The Hon'ble Punjab & Haryana High Court confirmed the findings of the Tribunal and observed that, "The assessee had not charged any interest on the amount advanced to M/s Nalanda Spinners Ltd. as the amount advanced to M/s Nalanda Spinners Ltd. was not returned for which a civil suit was filed and with the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder consideration against which speculative loss of any earlier year could be set off. The Assessing Officer, accordingly, disallowed the claim of set off of loss of Rs. 1,42,93,116/- pertaining to the earlier years. 11. The assessee filed written submissions before ld. CIT(Appeals) in which it was submitted that at the time of filing of the on-line return, the speculative loss was not shown under the specific column in Schedule-BP but same was shown at point No. 22 of Schedule-BP. The assessee submitted that there was only a clerical mistake in filing the return of income and that claim of carry forward of speculative loss was justified. The ld. CIT(Appeals) noted that the return for preceding assessment year 2010-11 has been processed under section 143(1) and there were no carry forward of speculative loss allowed in the year. Accordingly, claim of assessee was dismissed. 12. We have heard ld. Representatives of both the parties and perused the material available on record. The ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that it was a genuine speculative loss which was mentioned in internal column of return of income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and computation of income clearly shows that assessee has suffered speculative loss of Rs. 1,67,12,762/- in assessment year 2010-11 which was also disclosed in the e-return as well as computation of income. The findings of the authorities below are, therefore, factually incorrect in this regard. Further, it is noted in the impugned order that Assessing Officer pointed out that assessee had not shown any speculative gain for the year under consideration against which the speculative loss for any earlier year can be set off. These findings of the authorities below are also factually incorrect. The speculative income in assessment year under appeal i.e. 2011-12 has been duly disclosed in the consolidated Profit & Loss Account filed at page 25 of the Paper Book as under: (i) Profit from trading in commodity Rs. 33,01,109.63 (ii) MTF Gain Rs. 1,09,92,006.08 Total: Rs. 1,42,93,115.71 14. The computation of income for assessment year under appeal was filed before the authorities below, copy of which is filed at page 1 of the Paper Book wherein the profit of Rs. 1,42,93,116/- (round figure) on account of speculative business has been set off ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and before Assessing Officer. The ld. counsel for the assessee referred to Circular No. 14 dated 11.04.1955 issued by the CBDT in which para 3 reads as under: "3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them 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 from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should:- (a) draw their attention to any refunds or reliefs to 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 to their rights and liabilities and as to the procedure to be adopted for claiming....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee should not suffer. However, same are not relevant to the matter in issue. 20. Considering the above discussion, we are of the view that authorities below were not justified in not allowing the claim of set off of brought forward speculative loss of Rs. 1,42,93,116/-. The orders of authorities below are therefore, set aside and we direct the Assessing Officer to allow set off of brought forward speculative loss for assessment year 2010-11 in assessment year under appeal of the amount in question. 21. In the result, ground nos. 4, 5 and 6 of the appeal of the assessee are allowed. 22. The ground of appeal Nos. 7 and 8 are general and need no adjudication. 23. In the result, appeal of the assessee is allowed. ITA No. 1123/2014 (Departmental Appeal) 24. In the departmental appeal, revenue challenged the order of ld. CIT(Appeals) in deleting the disallowance of Rs. 48,18,153/- claimed by assessee under section 10B of the Act. 25. The brief facts are that return declaring net taxable income of Rs. 82,85,690/-was filed on 24.09.2011. The assessee is in the business of manufacturing and sale of gold jewellery and trading of bullion. During the course of assessment p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l as purchased by the assessee from local market. The same is converted into jewellery or ornaments which are thereafter exported. The assessee submitted that since both the exports and imports are made from Dubai, for making import payments and realizing export proceedings the assessee had been following the practice of realizing the net foreign earning. For this purpose in order to avoid unnecessary hassles and extra expenditure in process of making payment the appellant had entered into an arrangement with the supplier i.e. M/s Siroya Jewellers and the buyer i.e. M/s Al Salam Jewellers. As per this arrangement, the goods imported were provided free of cost by the supplier to the appellant and the net export proceedings after making adjustment of import payment were made to the assessee. The assessee submitted that it was bringing in net foreign exchange into India. The assessee also relied on the case of CIT v. Lovlesh Jain (2012) 204 :TAXMAN 134(Del). The assessee further submitted that in the preceding years also the assessment was completed u/s 143(3) and the issue of claim of deduction u/s 10B was examined by the AO and was allowed. The assessee also referred to the bill of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee submitted that to avoid unnecessary hassles and extra expenditure in process of making payment the assessee had entered into an agreement with the supplier i.e. M/s Siroya Jewellers and the buyer M/s Al-Salam Jewellers that the goods imported will be provided free of cost by the supplier to the assessee and the net export proceeds after making adjustment of import payments will be paid to the assessee. Accordingly gold was imported free of cost. The assessee further submitted that it fulfilled all the requirements mentioned in Section 1OB and also complied with the stipulation for 100% EOU as required by the Noida Export Processing Zone and accordingly claimed deduction u/s 10B. The assessee submitted that it was involved in the activity of converting gold biscuits or bars into Jewellery and the same amounts to production or manufacture of a new article. In this regard the assessee referred to the decision of the Hon'ble Supreme Court in the case of ASPINWALL & Co. Ltd. Vs. CIT (2001) 251 ITR 323. The assessee also referred to the following case laws: i. Commissioner of Income Tax vs. Sophisticated Marbles & Granite Industries (2011) 331 ITR 96. ii. Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pointed out during the course of assessment proceeding. All the sales and purchases were supported with the complete bills and the same bills were also produced before the AO. The assessee submitted that the AO had not rejected the books of account u/s 145(3). In these circumstances the AO was not justified in holding that the assessee had carried out only job work and was not involved in export and import. The assessee also referred to the RBI guidelines which provided for netting of exports. 28. During the course of appellate proceedings another issue was discussed with the assessee. This issue was with regard to the computation of deduction under section 10B. The provision of Section 10B were discussed with the AR of the assessee and it was brought to the notice of the AR of the assessee that the deduction u/s 10B had to be computed on the basis of foreign exchange realized within the prescribed time and not with respect to the total export turnover. The assessee was asked to justify the claim of deduction u/s 10B in accordance with these provisions. 29. The AR of the assessee vide written submissions dated 21.10.2014 submitted that the assessee had brought the net export ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITD 351 (see para 6.3 and 6.4 of AOs order for the A.Y. 2009-10). The assessee has placed reliance on various case laws in regard to the definition of the word manufacture. The AO in its order has held that the assessee has done only the job work. The AO has discussed in detail all the points in Para 3.5 of its order wherein reference was made to Sale of Goods Act also. It is requested to dispose the appeal based on the arguments made by AO in the order for the A. Y. 2011-12 & 2009-10. It may be pointed out that the AO has placed on record new material while passing order for the A. Y. 2009-10. " Further, vide his report dated 21.10.2014 the AO submitted as under:- "I have gone through the submissions of the assessee. The assessee has relied upon the decision of the Hon'ble ITAT, Mumbai bench in the case of Core Jewellery p. Ltd In IT A No, 715/Mum/2010 dated 13.04.2011 It has been submitted that the Hon'ble ITAT has followed the decision of the Hon'ble Supreme Court in the case of J.B. Boda & Co. Pvt. Ltd., 223 ITR 271 (SC) dated 30.10.1996. Your attention is invited to Para 6 of the order of Hon'ble ITAT in the case of Core Jewellery P. Ltd. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccount of services rendered which was eligible u/s 80-O. There are no such facts in the case of M/s Nikka Mal Jewellers." 31. The copy of the report of the Assessing Officer was supplied to the assessee and the assessee vide written submissions dated 31.10.2014 submitted as under : "1.1 From the comments of the AO as given above it is evident that the Assessing Officer passed the assessment order for assessment year 2011-12 on 05.03.2014. In this assessment order, the Ld. AO disallowed in full, exemption claimed by the assessee u/s 10B of the Act amounting to Rs. 48,18,153/-. After passing this order, based on the material gathered during this assessment, the Ld. AO reopened the assessment of the assessee u/s 148 for the assessment year 2009-10 and after discussing the same issue of deduction us/ 10B again, passed order dated 28.08.2014. 1.2 In para 2.1 (i) of the order for assessment year 2009-10, in reply to the objections raised by the assessee on the reopening of assessment u/s 148, the Ld. AO held as under: "The objection raised by the assessee is incorrect in law as well as on the facts. The notice u/s 148 has not been issued on the conjunctures ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'ble High Court has held that there is no pre condition of ownership for allowing deduction u/s 10A/10B. The Hon'ble High Court held that the activity undertaken i.e. export/import, is important and the person involved and associated with the said activity is important/relevant, mere ownership is not the sole criteria to determine whether a person is an importer or exporter. " Para No. 6.2: "In other words the main emphasis is that the government gave incentive for those persons who brought into India convertible foreign exchange. Similar provision has been provided in section 10B of the Act. " Para No. 6.3: "As per these provisions the deduction is to be given -with reference to amount of convertible foreign exchange received in India by the assessee. " Para No. 6.5: "Based on these principles i.e. definition as given in section 1OB (3) of the I.T. Act and the definition of export turnover, the working of deduction is calculated as below : Deduction u/s 10B of the I.T. Act = Profits of the business * Export turnover Total Turnover of the business Para No. 6.5.1: "The assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the decision. It held as under: "It would not be just for insisting the two way traffic of the same amount first bring the entire export proceedings in foreign exchange and then again make the payment for imports. Therefore, the payment made for imports against the export realization is deemed to be brought to India. As there is no requirement of two way traffic of the same amount as held by Hon, Supreme Court in the case of J.B. Boda and Company Private Limited vs. CBDT (SO reported in 223 ITR 271 (SC)." Both these judgments have already been quoted by the assessee in its reply dated 21.10.2014. 1.9 Thus, the contention taken by the Ld. AO in her reply dated 21.10.2014 vide F. No.: ACIT/C-VII/Ldh/13-14/932 dated 21.10.2014 that these judgments are not applicable to the case of the assessee is not correct and the assessee should be allowed full exemption u/s 10B based on the principles of these judgments.' 32. The ld. counsel for the assessee also filed written submissions dated 20.10.2014 and relevant part of the written submission is reproduced in the appellate order as under: "It is submitted very humbly that the assessing officer is on....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... actually paid or payable for the goods. 2.3 Thus, from the provisions of the Customs Act, 1962, it is clear that customs duty is payable only when the importer has to pay a price for the goods imported. If the imported goods have no value i.e. they are free of cost, no customs duty is payable. In the present case, as the assessee has to pay customs duty as mentioned on every bill of entry, it means that he has to pay for the goods. 2.4 That the assessee has not made payment for imported goods only due to the arrangement of net foreign exchange followed by him. In fact, he has to make payment for the goods imported by him. He has adjusted the import payment against export payment to bring in net foreign exchange into India. 2.5 Your goodself 's attention is also invited to the sample copies of the bills placed in the paper book at pages 151 to 160 wherein, it is very much evident that the purchase value has been adjusted against the sale value and, thus, the contention of the Assessing Officer that the goods are free of cost is totally incorrect. 2.6 The Assessing Officer's contention in the remand report that in the case of M/s Core Jewe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent proceedings of both the years, the appellant had relied on the judgment of Hon'ble High Court of Delhi in the case of CIT v. Lovlesh Jain 204 Taxman 134 (Del) (2012). (c) In para No. 3.5(vii) at page No. 17 of assessment order for assessment year 2011-12 the Ld. AO has mentioned as under: "The facts of the case, relied upon by the assessee are entirely different. In the case relied upon, the assessee had possession of the gold and had a right, dominance and dominion over it. In the said case the assessee had imported gold and it had become the owner. He was in a position to dispose off in any way the way he liked. In the instant case, the assessee had never become the owner of the gold received by it but the other party whose gold was received always remained the owner. The assessee had to return he gold after job work." (d) Considering the same judgment of Hon'ble Delhi High Court, the Ld. AO in para No. 6(i) at page no. 20 of assessment order for assessment year 2009-10 mentioned as under :-There is no decision of the Hon'ble Jurisdictional High Court, yet respectfully following the decision of the Hon''ble Delhi High Court it is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d be a futile exercise, only the net amount receivable after adjusting the payables and receivables was brought into India, The appellant has contended that the payments made for imports against the export realization are deemed to be brought into India. I agree with the appellant on this issue. This issue is squarely covered by the decision of the Hon'ble Mumbai Bench of ITAT in the case of Core Jewellery (P.) Ltd. (supra). In this case pertaining to computation of deduction/s 10A, the Hon'ble Mumbai ITAT held as under:- "When the import expenditure is allowable, it would not be just for insisting the two way traffic of the same amount first being the entire export proceedings in foreign exchange and then again make the payment for imports. Therefore, the payment made for imports against the export realization is deemed to be brought to India. As there is no requirement of two way traffic of the same amount as held by the Hon'ble Supreme Court in the case of J.B. Boda & Company (P.) Ltd. v. CBDT (SC) reported in 223 ITR 271 (SC)." 4.16 Respectfully following the decision of the Hon'ble Mumbai ITAT in the case of Core Jewellery (P.) Ltd., (supra) a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal i.e. 2011-12. Same claim was made in preceding assessment years 2004-05 to 2010-11 and the claim of assessee has been allowed by Assessing Officer under section 143(3) of the Income Tax Act after scrutiny assessments. In assessment year 2010-11, it was allowed under section 143(1). In assessment year 2009-10, the Assessing Officer after passing the assessment order under appeal, re-opened under section 148, however by following the judgement of the Delhi High Court in the case of Lovlesh Jain (supra), allowed the claim of assessee under section 10B of the Act. In the case of Lovlesh Jain (supra), Hon'ble Delhi High Court held that "When the assessee imported standard gold into India and then converted it into jewellery or ornaments and exported the ornaments, it amounts to exporting articles or things, conversion of standard assessee amounts to manufacture/production which qualifies for deduction under section 10A/10B of the Act". In the case of Core Jewellery (P.) Ltd. (supra) the Mumbai Bench following the decision of the Hon'ble Supreme Court in the case of J.B. Boda & Co. (P.) Ltd. (supra) decided the issue in favour of the assessee. Findings are already reproduce....