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TMI Blog2015 (11) TMI 1070X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We, therefore dismiss ground no.(ii) of the revenue.- Decided against revenue. Disallowance on account of forex forward contracts which was treated as speculative loss by the AO as against normal business expenditure/loss claimed by assessee - Held that:- We shall as a test case consider one of the contract for export of contract and the forward contract entered into by the Assessee in connection with such export contract. Page 134 of the Assessee’s paper book contains the list of contract in which forward contract in Euro currency were booked. KS-0000026 is a forward contract dated 17.7.2008 entered into by the Assessee with State Bank of India Trade Finance CPC, Kolkata. The Assessee had an export order for Indian Raw Cotton of 4409200 LBS of the value of 31,74,624 US $ equivalent to 10,00,000 Euros, to supply to one M/S.Nassa Spinning Ltd., Bangladesh. The contract was cancelled by HB Cotton who was agent of M/S.Nassa Spinning Ltd., Bangaldesh on 21.10.2008. The period of the contract for supply of cotton to Bangaldesh was upto 22.1.2009. Since the contract was cancelled by communication dated 24.10.2008, the Bank intimated the Assessee that in view of the adverse fluctuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per Shri N.V.Vasudevan, JM ITA No.267/Kol/2013 is an appeal filed by the revenue against order dated 07.12.2012 of CIT(A)-I, Kolkata relating to A.Y.2009-10. The Assessee has filed a Cross Objection against the very same order of CIT(A). ITA No.267/Kol/2013 (Revenue s appeal) : 2. Ground No.1 raised by the revenue reads as follows :- (i)That on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Kol has erred in deleting the addition of ₹ 1,95,360/- u/s 14A as made by the A.O. in the assessment order. 3. The assessee is a company engaged in the business of manufacture export and trading of goods. The assessee was in receipt of exempt income of ₹ 84,154/-. The Assessee computed the disallowance of expenses incurred in relation to income which does not form part of the total income u/s 14A of the Act r.w. Rule 8D (2)(iii) of the Rules, a sum of ₹ 91,360/-. The AO on perusal of the aforesaid computation noticed that the assessee while working out the average value of investments for the purpose of application of Rule 8D (2)(iii) of the Rules had not considered the share application money to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have given a careful consideration to the rival submissions. We are of the view that order of CIT(A) on this issue has to be upheld. As rightly contended by the ld. counsel for the assessee, share application money is only in the nature of an offer to buy shares made by the assessee. It is only after the offer is accepted by the company resulting in a concluded contract, the Assessee becomes the shareholder in a company. Till this time the Assessee becomes a shareholder, the assessee cannot have any rights to claim any dividend that may be declared by the company. In such circumstances we are of the view that while working out the average value of the investments u/r 8D(2)(iii) of the Rules the share application money should not be included. We hold accordingly and dismiss ground no.(i) raised by the revenue. 8. Ground nos.(ii) to (vi) raised by the revenue read as follows :- (ii) That on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Kol has erred in deleting the addition of ₹ 15,50,779/- as disallowance of commission expenses made by the A.O. in the assessment order. (iii) That on the facts and in the circumstances of the case, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in clauses (a) to (d) of Rule 46A (1) were satisfied in the case of the assessee so as to admit additional evidence. It is pertinent to mention that the AO had not raised any objections with regard to the veracity of the additional evidences filed by the assessee before CIT(A) nor any objections with regard to the relevance of those documents to the various issues raised by the assessee before CIT(A). A copy of the objection of the AO in this letter dated 21.11.2012 is placed at pages 623 and 624 of the assessee s paper book. In the said letter the AO has also not made a request for liberty to file his objections on veracity of the additional evidence and its relevance to the case of the assessee at a later date. 11. The CIT(A) after considering the objections of the AO was of the view that the AO had not asked for any of the evidence that were sought to be filed by the assesee before CIT(A) and that the additional evidence sought to be filed before CIT(A) by the assessee are relevant and essential for adjudicating the issue before CIT(A).The CIT(A) admitted the additional evidence filed by the assessee. 12. The submission of the ld. DR on ground no.(vii) was that the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings and therefore the admissibility of the additional evidence in terms of Rule 46A(1) of the Rules cannot be found fault with. Therefore, we are of the view that there is no merit in ground no.(vii) raised by the revenue. Consequently the same is dismissed. 15. We will now deal with ground nos. (ii) to (vi) raised by the revenue. As far as ground no.(ii) is concerned, the facts are that the assessee claimed to have paid Shri .Laxmikant Joshi a sum of ₹ 15,50,779/- as commission as per the assessee s books of accounts. In response to notice u/s 133(6) of the Act by the AO, Shri Laxmikant Joshi sent a copy of the ledger of the assessee as per his books of accounts which indicated that he had not received any payment from the assessee during the previous year. The AO therefore disallowed commission expenses to the tune of ₹ 15,50,779/. Before CIT(A) the assessee pointed out that Shri Laxmikant Joshi(HUF) vide letter dated 15.12.2011 sent by registered post to the AO informed the AO that they had in fact received commission of ₹ 15,50,779/- from the assessee and that the assesse had also deducted TDS at ₹ 1,69,962/- in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently ground no.(iii)raised by the revenue is dismissed. 19. As far as ground no.(iv) raised by the revenue is concerned the facts are that on perusal of Col.21 of the Tax Audit Report, the AO noticed that the assessee failed to pay import duty of ₹ 31,90,837/- and service tax of ₹ 20,600/- before the due date of furnishing the return of income u/s 139(1) of the Act. Invoking the provision of section 43B of the Act, the AO added a sum of Rs/.32,11,437/- as disallowance u/s 43B of the Act to the total income of the assessee. 20. Before CIT(A) assessee pointed out that no duty of service tax was outstanding. The assessee furnished certificate of the auditors in this regard which is at page 99 of the assessee s paper book-1. The said certificate clarifies that the import duty and service tax were not outstanding as on 31.03.2009. It was also clarified that the whole amount of service tax was paid on 23.04.2009. Similar evidence with regard to import duty was also filed by the assessee. The same are at page nos.100-120 of the assessee s paper book. The CIT(A) on perusal of the aforesaid documents was of the view that the claim made by the assessee was justified an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x forward contracts which was treated as speculative loss by the AO as against normal business expenditure/loss claimed by assessee. As per audited accounts submitted by assessee continued to be in the business of exports of raw-cotton, handicrafts, and other miscellaneous items. The export sales in this financial year were for ₹ 187.88 crores mainly to Bangladesh. As per audited Profit and Loss A/c assessee had debited a business loss of ₹ 23,66,02947/- on account of forward forex contract transactions. This loss figure included loss of ₹ 2,66,32,552/- on account of forex derivatives and a gain of ₹ 1,82,181/- on account of gold as mentioned in page 4 of the assessment order as under :- Euro Booking Rs.4,11,29,143/- Point Booking Rs.4,81,16,647/- JPY (Profit) ₹ 17,19,818/- Swiss Frank ₹ 28,79,030/- Normal Forward Contract-SBI Rs.10,46,38,183/- Normal Forward Contract-Federal Bank Rs.1,51,09,391/- Deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. Assessing Officer, however, passed the assessment order by alleging that the assessee failed to furnish the details or export contracts which were cancelled by the foreign buyers to establish a nexus between export contracts cancelled vis- -vis Forward contracts cancelled. During the course of hearing the authorized representation appeared and explained and produced the details and evidences of export contracts cancelled by the buyers. Such details and evidences were never asked by the Assessing officer to be filed before him. It is only in the assessment order Assessing Officer has alleged that such details were not filed. We enclosed the Xerox copy of the order sheet in respect of assessment proceedings, which would reveal all the aforesaid facts. In these circumstances, we submit that there was reasonable cause for not filing the evidences relating to claim of aforesaid loss as business loss, which have now been filed with a request to accept the same under Rule 46A of the Income Tax Rules, 1962. Sl.No. Paper Book identification No. Nature of documents PB Page nos. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under rule 29. Therefore, the Tribunal had to admit additional evidence produced by the assessee since that was vital and essential for rendering justice and in deciding appeals. However, it was necessary to give the department a reasonable opportunity of rebutting it according to the principle of nature justice and for that purpose the matter was restored to the file of the AO. The AO was confronted with the additional evidences on 07.11.2012 and AO filed written submission vide letter dated 21.11.2012 with a request not to admit the additional evidences as per Rule 46A. The paper book pages 132 to page 621 are relating to forex forward contract with reference to export orders and the relevant bank advices along with the month-wise inventory of stock of cotton. Since AO never asked for these evidences and disallowed the losses claimed in the assessment order, the principle of natural justice requires that these evidences should be admitted as per Rule 46A and moreover these evidences are relevant and essential to the matter under consideration as these evidences go to the root of matter therefore these additional evidences are admitted in terms of Rule 46A. In the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. Aggrieved by the order of CIT(A) the revenue is in appeal before Tribunal. 26. We have heard the rival submissions. The learned DR relied on the order of the AO. According to him it was incumbent on the part of the Assessee to establish correlation between each of the forward contract with export orders and only then can it be said that the loss was incidental to the business of the Assessee. According to him, such correlation has not been established by the Assessee before CIT(A) nor has the CIT(A) given such a finding before deleting the addition made by the AO. He therefore prayed that the addition made by the AO be restored. In the alternative it was prayed that the order of the CIT(A) be set aside and the issue may be remanded to the AO for fresh consideration in the light of the additional evidence filed by the Assessee before the CIT(A). The learned counsel for the Assessee reiterated submissions made before CIT(A) and the order of the CIT(A). It is seen from the evidence on record that in A.Y. 2008-09 gain on account of forex forward contract on cancellation was offered as income by the assessee and the same was brought to tax by the AO which is placed at pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.8.2011 and CIT Vs. Panchmahal Steel Ltd. Tax Appeal No.131 of 2013 dated 28.3.2013 by the Hon ble Gujarat High Court. The conclusions of the CIT(A) on this issue, in our view therefore deserve to be upheld. Accordingly, the ground of appeal raised by the revenue in this regard is rejected. 28. In the result the appeal of the revenue is dismissed. C.O.No.29/Kol/2013 (by the assessee) 29. As far as Cross Objection is concerned ground no.1 raised by the assessee in the Cross Objection reads as follows :- 1. That the Learned Commissioner of Income tax (Appeals) erred in confirming the assessment of Capital gains on sale of land at ₹ 30,08,799 made by the Assessing Officer by adopting the sale consideration of ₹ 61,22,330 relying on the provisions of sec.50C of the Income tax Act, 1961 ignoring the amount of sale consideration of ₹ 60,00,000 actually received by the assessee company. 30. The assessee sold the property on which long term capital gain was declared by the assessee. The actual sale consideration received on transfer was a sum of ₹ 60,00,000/-. The sale consideration adopted by the assessee for the purpose of registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that section 10(38) of the Act used the expression any income and therefore loss on sale of long term capital asset being equity shares should be allowed as deduction. The ld. DR relied on the order of CIT(A). 35. We are of the view that the stand taken by the Assessee is not acceptable. In Commissioner of Income-tax v. Harprasad and Co. P. Ltd. 99 ITR 118 (SC)., the assessee claimed capital loss on sale of shares of ₹ 28,662 during the previous year relevant to assessment year 1955-56. The Income-tax Officer disallowed the loss on the ground that it was a loss of a capital nature. The CIT(A) confirmed the order of the ITO. Before Tribunal the Assessee modified its claim and sought that the loss which had been held to be a capital loss by the authorities below, should be allowed to be carried forward and set off against profits and gains, if any, under the head capital gains earned in future, as laid down in sub-sections (2A) and (2B) of section 24 of the Act. The Tribunal accepted the contention of the assessee and directed that the capital loss of ₹ 28,662 should be carried forward and set off against capital gains , if any, in future. On furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame taxable in the assessment year 1957-58. The position that emerges is that capital gains arising between April 1, 1948, and March 31, 1956, were not taxable. The capital loss in question related to this period. In the above background of law, the Hon ble Supreme Court held as follows: From the charging provisions of the Act, it is discernible that the words income or profits and gains should be understood as including losses also, so that, in one sense profits and gains represent plus income whereas losses represent minus income (1). In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 classifies income under six heads, the main charging provision is section 3 which levies income-tax, as only one tax, on the total income of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section 4( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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