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2025 (6) TMI 1761
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.... bad in law. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(Appeals) has erred by not appreciating the fact that the special audit has been conducted u/s 142(2A) merely on the basis of Press Report without satisfying about the complexity of this account and that the nature of accounts have remained the same since years. 3. The appellant further states that if the reference u/s. 142(2A) is held to be invalid then the assessment is time barred since it is passed only on 19-11-2015 i.e. after 31-03-2015 being last date for the completion of the A.Y. 2012-13. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(Appeals) erred in confirming the addition made by the Ld. Assessing Officer towards the disallowance of the loss/finance cost of Rs. 1,00,00,000/- since the loss was incurred during the normal course of business and was genuine in nature. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(Appeals) erred in confirming the addition made by the Ld. Assessing Officer towards the disallowance of the hedging loss of Rs. 4,20,57,547/....
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....sake of completeness, the relevant portion of the Assessment Order is reproduced as under: 7.1. Special auditor, M/s Pramodkumar dad & Associates (hereinafter referred to as Special Auditor) in its report submitted to undersigned on 21.09.2015 (hereinafter referred to as special audit report) has reported vide observation 2 on page 6 of its report that from the analysis of purchase and sale transactions, it is noticed that M/s. NKPL has made paper transaction of purchases and sales of Cotton Washed Oil (CWO). In these transactions of purchases and sales, the company NKPL has shown paper losses of Rs. 100,00,000/-, the details of such transactions are as under. Group Concerns Qty (Kg) Amount (Rs) Purchases Parties (Group) Tirupati Proteins Pvt. Ltd 2000000 129400000 Total Purchases = A 2000000 129400000 Sales Parties (Group) Tirupati Proteins Pvt. Ltd 2000000 119400000 Total Sales = B 2000000 119400000 Losses in transaction = A-B -1,00,00,000 Thus, the assessee company has shown losses in fictitious / paper transactions (without delivery) with Group concerns, ....
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....efit to the revenue authorities as in one case there will be disallowance and in other case, credit would be allowed." 7.3. The submission of the assessee has been perused carefully. However it is not tenable for the reasons discussed in the following paras: 7.3.1. During the course of survey proceedings, statement of Shri Nilesh Patel was recorded u/s. 133A of the Act. Shri Nilesh Patel & Shri Nimish Patel are the key persons of the group. Shri Nilesh Patel is the Managing Director of N.K. Proteins Ltd. & N.K. Industries Ltd. & Shri Nimish Patel is the Chairman & Managing Director of N.K. Proteins Ltd & N.K. Industries Ltd. Shri Nilesh K Patel is closely related to the ex-chairman of NSEL. The ex-chairman of NSEL, Shri Shankarlal Guru (since reported to have resigned) happens to be father-in-law of Shri Nilesh Patel. During the course of survey proceedings, statement of Shri Nilesh Patel was recorded u/s. 133A of the Act. In the statement recorded, he explained in detail the trading activities carried out by N.K. Proteins Ltd. as well as its subsidiary concerns on the platform of National Spot Exchange Ltd. He stated that in the year 2008, M/s. N.K. Proteins Ltd.....
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....ing payment as per T+36 contract. The funds receivable from such T+3 contract neutralized the fund outflow needed to settle the initial T+36 contract. In this way. the T+36 contracts are rolled over from one settlement cycle to the next cycle. 7.3.3. For the above purpose, NSEL has maintained a Settlement Account with HDFC Bank in the name of N.K. Proteins Ltd. All the pay-in and pay-out transactions with National Spot Exchange Ltd. have taken place through this account only. This account was controlled by NSEL officials. For the purpose of carrying out transactions with NSEL, they used to keep 3 to 5% of the value of the transaction as margin money in this account which is released only after the transaction is over. Likewise, for each and every transaction, sufficient margin money is required to be maintained in this account. In other words, trading through NSEL is possible only if there is sufficient margin money in the settlement account. In the case of N.K. Proteins Ltd. the settlement account is being maintained at HDFC Bank, Account No. 00990680014847. 7.3.4. Regarding the position of stock as shown by NSEL in its website, Shri Nilesh Patel in his statement....
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....r team are well aware of the entire facts and true nature of transactions since beginning. These are always financing transactions and there is no question of stock verification by any party. All transactions are carried out by our clients". 7.3.7. It is also pertinent to mention here that in answer to question No. 15 in this regard, Shri Nilesh Patel stated that the storage capacity of washed cotton seed oil in the NSEL accredited warehouse is only 2000 MT and the storage capacity of Cotton Seed is 10000 MT. However, NSEL has shown the stock of 90000 MT of washed cotton seed and 97000 MT of cotton oil, which no stretch of imagination is possible. The copy of the Inspection Visit Slip of SGS India Pvt. Ltd. dated 12.08.2013 on the inspection carried out at the factory premises of M/s. N.K. Proteins Ltd. & N.K. 7.3.8. All the above facts clearly establish the fact that N.K. Proteins Ltd. is the registered member of National Spot Exchange Ltd. and the group concerns of N.K. Proteins Ltd. namely, N.K. Industries Ltd. N.K. Corporation, Tirupati Retail (India) P Ltd. and Tirupati Protein P Ltd. had become the clients of M/s. N.K. Proteins Ltd. for carrying out the trading activ....
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....ording the transactions on the platform of NSEL as purchase and sales in their books as per the directions of NSEL. In this regard. Shri Rajesh B Mehta, Power of Attorney Holder of M/s. Swastik Overseas Corporation in his statement recorded u/s. 132(4) of the Act on 18.09.2013 categorically admitted in response to question no. 15, that the transactions used to take place only on paper and there was no physical delivery of goods which strengthens the finding of the undersigned that the loss incurred by the NKPL is fictitious. 7.3.12. As mentioned above, it is clear that entire gamut of transactions were not real transactions and institutionalized shape of the entire transactions was given to obtain funds from the investors on short term basis. These investors were assured for a handsome interest rate. The entire scheme collapsed when there was default on the part of the NSEL with the active connivance of the borrowers like M/s. Ν.Κ. Proteins Ltd. 7.3.13. During the course of assessment proceedings, the assessee also claimed that in substance, the losses represent the interest expenses incurred on finances obtained by using the platform of NSEL. If this con....
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.... Act being Speculative Loss. Therefore Speculative loss created out of these transactions cannot be set off against the normal business income. SUMMARY 7.4 The above arguments are summarized as under: a. The assessee group is closely linked with NSEL. b. Though NKPL claimed to a broker for NSEL in effect all transactions done by it were done for the entities of the NKP group only. Thus the charade of being a broker was created only to mask the true nature of the transactions entered into by the group entities on the NSEL platform. c. These was systemic misuse of the NSEL platform and what was apparent was admittedly as per the assessee group itself not the true form of the transactions. d. Though NSEL was a physical exchange that is all the trades were to be backed with goods and the transactions on paper were to be settled against delivery of goods, delivery never took place and transactions of buy and sell remained on paper only. e. In effect the whole of the stock on paper was non-existent. The assessee group being one of the main warehouses of NSEL was aware of the true nature of NSEL and was in effect an active col....
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.... reasons for purchase and sell of exactly same quantity of goods with TPPL within a gap of 1 day. Though appellant has submitted copies of purchase of 2,00,000 kg of CWO and sale invoices of 2,00,000 kg of CWO relating to transactions with TPPL, same are not supported by delivery challans or proof of transportation of huge quantity of 4,00,000 kg within a short period. The appellant has not provided any details regarding availability of goods with TPPL for supply to appellant or details of corresponding purchase of goods by TPPL from third party. The appellant has not provided details regarding justification of market price of CWO at the time of purchase and sale. Details submitted by appellant inform of purchase and sale nowhere prove that actual delivery of goods have taken place but camouflage to show that real transactions have taken place hence such loss is speculative loss. In absence of any third party contemporary corroborative evidences to prove genuineness of transactions along with the fact that there is only one day gap between purchase and sale of CVVO with TPPL being group concern, such loss is nothing but contrived and non-genuine loss. Considering such fact, disallo....
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....stion, the profit or loss arising out of the same would have the consequent effect. Hence, the addition made by the Assessing Officer solely on the basis that that the transactions are with Tirupati Proteins Pvt Limited and hence the losses cannot be allowed is not an acceptable proposition. The appeal of the assessee on this ground is allowed. Disallowance of the hedging loss of Rs. 4,20,57,547/- 7. For the sake of completeness, the relevant portion of the Assessment Order on this issue is reproduced as under: ` "11.1. During the year the assessee has debited in Other Expenses, Loss of Rs. Rs. 420,57,547/- incurred from Future & Option transactions. Special Auditor has vide observation 17 stated as under: "The assessee company has claimed loss on future & option (commodities) of Rs. 420,57,547/- (loss of Rs. 680,36,603/- and profit of Rs. 259,79,056/-). The company has not provided any working for the same." 11.2. Vide order sheet entry dated 17.11.2015, assessee was requested to show cause as to why the F & O loss debited in P & L be not disallowed it being speculative in nature? 11.3. The assessee has vide its response submitted on 18.11....
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....n is treated as business loss and not speculative loss only when there is contract in respect of raw materials required for manufacturing activity and to safeguard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by assessee which means there has to be correlation between contract for raw material and future & option transaction of finished goods. lt is observed that Appellant has not submitted any existing contract for supply of finished goods for actual delivery as envisaged in Explanation to Section 43(5) of the Act. Once the Appellant is not having existing contract for supply of finished goods, future & option transaction carried out by Appellant for raw material is without any existing liability for actual delivery or to safeguard against any loss as envisaged in the section 43(5). Thus, loss incurred by Appellant is purely speculative in nature as no contract for actual delivery of finished goods is involved or evidence to that effect was produced. 15..2 Considering these facts, transactions of future & option carried out by appellant cannot be considered as hedging transactions as covered by provis....
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.... (c) a contract entered into by a member of a 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 35[(ac)] of section 236 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;] shall not be deemed to be a speculative transaction. The provisions of said Act are squarely applicable to the facts of the instant case, hence the same cannot be treated as speculative transaction. The appeal of the assessee on this ground is allowed. Disallowance of the interest u/s 36(1)(iii) of Rs. 4,88,000/- 8. Depreciation shall be allowed on the capitalization of interest. The appeal on this ground is hereby allowed for statistical purposes. Addition on account of prior period income of Rs. 1,05,89,848/- 9. Apropos this issue, the relevant facts are that the assessee has shown prior period income of Rs. 1,05,89,848/- in Profit & Loss account but such income was reduced from computa....
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....in Form No. 3CD. (PB 68). This amount was considered in earlier year by the appellant by furnishing a revised computation of income and the appellant company has filed challan of Rs. 46,26,868/- on 02.11.2012 which is reflected in Form 26AS (PB 66). The said tax is paid on the basis of revised computation in which prior period income taken into consideration is Rs. 1,19,45,801/-. There was an error in the amount as Rs. 1,19,45,801/- instead of Rs. 1,05,89,948/- which stands corrected. The Assessing Officer shall verify these facts from the record and allow. The appeal of the assessee on this ground is allowed. In the result, appeal of the assessee is allowed. ITA No. 546/Ahd/2022 - Revenue's appeal 10. The Revenue has raised following grounds of appeal:- "1. On the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the addition on account of purchase of cotton wash oil (CWO) and mustard seed amounting to Rs. 73,07,10,220/- and Rs. 7,44,17,851/- respectively, without appreciating the fact that the assessee could not substantiate the payments made towards such purchases, even after sufficient opportunity was given. 2. On the facts and ....
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....pellant to NSEL, but based upon information received from NSEL, AO has accepted that relevant payment was made by Appellant. In the Remand Report dated 31st January, 2018 the AO has not given any single adverse remark against the submission made by Appellant or data received from the Exchange, which support the contention of Appellant that payment against such transaction has already been made by it. 12.6 With this background, the other contentions raised by AO are dealt with in subsequent paras. 12.7 So far as observation of AO that Appellant was not able to give details of payment regarding purchases of Rs. 11.11 crores out of aggregate purchase of Rs. 80.51 crores of CWO/mustard seed, it is observed that NSEL as well as AO in the Remand Report has confirmed entire payment hence this issue has now become inconsequential. 12.8 So far as observation of AO that as per bills of purchases is concerned, late payment interest is required to be charged @ 18% whereas no such interest is charged. In the present case Appellant has already made payment from NSEL Settlement Account and there is no objection from NSEL for not charging interest. Whether to charge inte....
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.... such reconciliation is already reproduced at para - 4.5.1 of Appellant's written submission referred herein above. On perusal of these details contention of Appellant is found to be correct as purchase from third party for mustard seeds if Rs. 56,04,898/- and purchase from NSEL is Rs. 6,81,12,953/-. Considering these facts, argument of AO that purchases are not supported by evidences is not correct. 12.11 So far as observation of AO that as per survey report of October 2013, amount of Rs. 109 crores is mentioned as amount payable for purchase of goods in case of NKPL/NKIL, which proves that payment of Rs. 80.51 crores is not made. However, this contention of AO is incorrect as NSEL in its reply has duly confirmed that Appellant has already made payment towards purchase of Rs. 80.51 crores. This fact is also stated by AO in Remand Report and he has not contravened such fact that payment was made. Further on perusal of bank account being NKPL-NSEL Settlement Account it is observed that payment of Rs. 628.40 crores is made during the period October 2011 to March 2012 and such payment is after the purchases made from NSEL which is presently in dispute. There is no correla....
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.... following grounds:- (a) The purchase invoices are dated 25th August, 2011 as per which NSEL has sold CWO for Rs. 76.68 crores and Rs. 3.77 lacs. The payment details were highlighted by Appellant in HDFC NKPL NSEL settlement account as per which Appellant has made payment of Rs. 69.40 crores during the period 9th August, 2011 to 19th September, 2011. Thus, Appellant is unable to reconcile the payment of Rs. 11.11 crores (80.51 crore LESS 69.40 crores); (b) As per terms & conditions mentioned on the bills, it was stated that payment is to be made within 7 days and in case of late payment, interest would be charged at 18%. On this basis AO concluded that there is no correlation between purchases and payments made by NKPL; (c) The Appellant has claimed that it has made payment in NSEL Settlement Account but it is found that similar or bigger amounts have been withdrawn from settlement account on same day or a day before, smaller or bigger amounts have been withdrawn from settlement account; (d) Both the bills furnished by Appellant are in relation to Cotton Wash Oil and no bills relating to purchase of Mustard Seed at NSEL platform has been furnishe....
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....rmed the transactions of CWO and mustard seeds and payment was made from NKPL-NSEL Settlement Account. * Thus, from the reading of the remand report and the reply of NSEL, it is proved beyond doubt that the payments have been indeed made. * Though in Assessment Order the Assessing Officer has disputed that payment has not been made by Appellant to NSEL, but based upon information received from NSEL, the Assessing Officer has accepted that relevant payment was made by Appellant. Hence, keeping in view the entire facts on record, we decline to interfere in the order of the Ld. CIT(A) on this issue. The appeal of the Revenue on this ground is hereby dismissed. Disallowance of additional depreciation of Rs. 1,27,09,375/- :- 12. The Assessing Officer disallowed additional depreciation for the reason that such assets were put to use in preceding AY for less than 180 days and therefore assessee is eligible for depreciation at only 50% rate in preceding year and balance 50% depreciation have to forego and not allowable in succeeding year following section 32(1)(iia) of the Act. The issue stands covered by the order of the Co-ordinate Bench of the Tribunal in the ....
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.... CIT(A), the Revenue filed an appeal before the Tribunal. (vi) The Tribunal by an order dated 1 June, 2015, dismissed the appeal of the Revenue 5. Having heard Counsel for the Revenue and for the Assessee, we notice that the Assessee's claim of additional depreciation arises out of clause (iia) of sub-section 1 of Section 32 of the Act. Clause (u) of subsection 1 of Section 32 of the Act recognizes the depreciation on block of assets. Clause (iia) grants additional depreciation in case of acquisition and installation of new machinery or plant by an Assessee after 31 March, 2005, the Assessee being engaged in business of manufacture or production of an article or things. 6. We may also notice that the second proviso to clause (u) of sub-section 1 of Section 32 of the Act, would restrict Assessee's claim of depreciation to 50% in case, the assets are acquired by the Assessee during the previous year and put to use for the purposes of business or profession for a period less than 180 days in the said previous year. 7. In the context of such statutory provisions, the Revenue has raised the question whether when 50% of the additional depreciat....
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...., as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a onetime benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. In view of the aforesaid, we do not find that any interference is called for with the order of the Tribunal, or that any question of law arises in this appeal for determination by this court." 8. After the said judgment of the Karnataka High Court in Rittal India P....
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.... 11.1: The relevant part of the memorandum is extracted hereafter. To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50 per cent of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be al-lowed in the immediately succeeding previous year. This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. 11.2:- A perusal of the extract of the memorandum relied upon would show that the legislature recognized the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more 11.3: In our opinion, as indicated above, the amendment is clarificatory in nat....