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TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1499
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....he Ld. A.O. in respect of Hedging Loss of Rs. 37,88,391/- incurred by the assessee in its business commodities as speculative loss as against business loss as claimed by the assessee without properly appreciating 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 investment in Shares of Narmada Sugar Ltd even when on the facts of the case said disallowance is not maintainable more so when Hon'ble Bench in the 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 respect of investment in Shares of Narmada Sugar Ltd by holding that assessee has himself worked out the said amount of disallowance as per provisions of Sec. 14A read with rule 8D even when the said amount of disallowance was not accepted by the assessee but calculation of disall....
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....s suffered from the contracts wherein no physical delivery of goods was done. Assessee failed to provide satisfactory details which 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 alleged loss of Rs. 37,88,391/- were entered into for guarding against the future price fluctuations in respect of the contracts for actual delivery of goods manufactured by it. Ld.A.O accordingly disallowed claim of liquidated damages of Rs. 37,88,391/-. Disallowance was also made towards interest paid at Rs. 10,56,000/- for the investment made for non business purpose in the equity shares of Girdharilal Sugar & Allied Industries Limited. Minor disallowance of prior period expenses of Rs. 30,856/- was also made and after 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 disallowance for prior period expenses of Rs. 30,856/- and confirmed the disallowance of liquidated damages of Rs. 37,88,391/- claimed as business expenditure and as regards disallowance of interest at Rs. 10,56,000/-, Ld.CIT(A) ....
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..../loss along with relevant supporting papers were also filed before the A.O. 1.7] The assessee had duly filed the Copy of Accounts of all the brokers through whom the above transactions were entered along 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 filed 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 paid 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 the details of Settlement of Contract for the A.Y. 2011-12 is available 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: "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of t....
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....rdharilal 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 addition was made on the basis of addition made in the earlier assessment years. It is worthwhile to mention that the said disallowance was firstly made in the Assessment year 1995-96. 2.5.1] That the Investment of Rs. 88 lacs in the share of Girdharilal Sugar & Allied Industries Limited was made prior to Assessment year 1995-96. That no fresh investment was made after the said period. That the appellate authorities in the following assessment years deleted the said addition in the past years, details of the same is as under-: Disallowance out of Interest paid on account of Investment made in the Shares of Girdharilal Sugars & allied Industries formally known as Narmada Sugar Ltd. Assessment Year Amount Disallowance Appeal filed by the department before ITAT. Hon'ble ITAT dismissing the Appeal made by the A.O. towards said disallowance of interest 2006-07 10,56,000 ITA no 57/Ind/2010 Dated 15.12.2010 ....
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....rt of the total income of the assessee in that case the said expenditure is disallowable 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 Income 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] vide order dt. 05.05.2014 has held that in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. 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 unless and until there is receipt of exempted income, Provisions of Sec 14A 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 computing total incom....
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....d April 11, 1955 had stated that: " Officers of the Department must not take advantage of the 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 relief 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 relief rest with the assessee on whom it is imposed by law, officers should: (a) draw their attention to any refunds or relief 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 refunds and reliefs." 3.3.2] In Maynak Poddar (HUF) vs. Wealth-tax Officer(2003) 262 ITR 633(Cal.) it has been obs....
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....not in accordance with such principle it is open to the assessee to contend the same before the higher authorities to follow the correct application of law to determine the actual taxable income of the assessee. In our considered view, the lower authorities, are not expected, to say that merely because the assessee has returned income which is higher than the income determined in accordance with legal principles such returned income can be treated as lawfully assessed. An assessee is liable to pay tax only upon the taxable income. The law imposed by the Assessing Officer to assess the income according to law and determined the tax payable thereon. In doing so, the Assessing Officer cannot assess the income of the 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 take a plea that the taxable income though shown as income is not taxable 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 reduce the taxable income of the assessee at the appellate stage, whi....
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.... 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, shall 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 assessee without his having to make any claim in that behalf. In appropriate cases therefore it is open to the assessee to bring facts to the notice of the concerned authority on the basis of the return furnished which may have a bearing on the quantum of the refund, such as those the assessee could have urged under section 237 of the Act. The concerned authority, for the limited purpose of calculating the amount to be refunded under section 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed an assessee will not be placed in a 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 th....
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.... forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange. (e) an eligible transaction in respect of trading in 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 covers certain types of contracts which even though are not completed with 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. Before going further let us first examine the nature of transactions entered into by the assessee leading to alleged liquidated damages at Rs. 37,88,391/-. On perusal of the paper book dated ....
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....d price. To honour such contract regular purchase/supply of soya would be needed by the assessee. The prices of such commodities are bound to fluctuations. If the assessee in order to guard against the loss (if any) from price fluctuation against the specific contract for supply of goods, enters into another contract being speculative in nature then the case may fall under proviso (a) of the Section 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 portal 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 the loss from the alleged contracts giving rise to the liquidated damages of Rs. 37,88,391/- do not fall under proviso (a) of Section 43(5)of the Act and therefore no interference is called for in the finding of Ld.CIT(A) confirming the disallowance thereby treating the alleged loss of Rs. 37,88,391/- as speculation loss. However the assessee will be at liberty to set off the alleged speculation loss against the speculation profits if any during the year or in the subsequent years as allowabl....
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....re the alleged investment for non business purposes and application of interest bearing funds for such investments is not in dispute then the disallowance u/s 14A needs to be computed as per Rule 8D of the Income Tax Rules. Part-I of the method deals with the amount of expenditure directly relating to income which does not form part of total income. And Part-II is for the interest expenditure attributable 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 have been applied for non business investment. 22. Now before analyzing that whether the disallowance made u/s 14A is sustainable or not, we notice that the interest bearing funds have been applied to non business purposes of investment and it itself makes the alleged interest expenditure disallowable u/s 36(1)(iii) of the Act which the Assessing Officer has 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 this disallowance sustained it only to the extent of ....
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....y the Hon'ble ITAT. Therefore, in my opinion when there is decision of Hon'ble ITAT in the A.Y. 2006P07, the issue can be considered 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 appellant had suo- moto calculated the disallowance at Rs. 3,69,984/- and requested 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 the course of appeal proceedings also which duly reproduced above. The appellant 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 case under consideration, the disallowance under section 14A to the extent of Rs. 3,69,984/- as suo-moto calculated by the appellant shall be considered as reasonable. Therefore, the disallowance to this extent is confirmed. This ground of appeal is partly allowed." 23. From perusal of the above finding of Ld.CIT(A) while adjudicating the i....