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TMI Blog2018 (12) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... no interference is called for in the finding of CIT(A) confirming the disallowance thereby treating the alleged loss of ₹ 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 allowable under provisions of Section 73 which provides for set off and carry forward or brought forward loses of speculation business. - Decided against assessee. Disallowance u/s 14A - Held that:- From perusal of the finding of CIT(A) while adjudicating the issue of disallowance of interest expenditure made by the A.O, we find that the alleged amount sustained by CIT(A) is not with regard to disallowance u/s 14A of the Act rather it is the addition sustained u/s 36(1)(iii) of the Act for the amount of interest paid in respect of amount invested in equity shares otherwise than for the purposes of business or profession. Our view get further fortified to the fact that the assessee has itself accepted that interest bearing funds were applied for making interest in the equity shares of ₹ 88,00,000/- of M/s. Girdharilal Sugar & Allied Industries Limited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- 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 disallowance u/s 14A r.w.rule 8D was provided as an alternative argument only. I.T.A. No.611/Ind/2016 Assessment Year 2012-13 1.1] That on the facts and in the circumstances of the case the Ld CIT (A) erred in maintaining addition of ₹ 1,73,382/-- out of Total Disallowance ₹ 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. 1.2]. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in maintaining addition of ₹ 1,73,382/- 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,440/-. 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 ₹ 30,856/- and confirmed the disallowance of liquidated damages of ₹ 37,88,391/- claimed as business expenditure and as regards disallowance of interest at ₹ 10,56,000/-, Ld.CIT(A) following the decision of I.T.A.T. for A.Y. 2006-07 held that no disallowance was called for over and above the amount suo-moto disallowed by the assessee u/s 14A of the Act at ₹ 6,82,287/- while furnishing the income tax return. 8. Aggrieved assessee is now in appeal before the Tribunal. 9. The Ld.Counsel for the assessee made following submissions relating to liquidated damages at ₹ 37,88,391/-. 1.1] That in the said ground of appeal the assessee has challenged the disallowance of Business Loss as claimed by the assessee company under the head Liquidated Damages of ₹ 37,88,391/- and considering the same as Speculative Loss. 1.2] That during the year under consideration the assessee company has claimed Loss under the head Liquidated Damages of ₹ 1,50,13,291/- as per Schedule 0 of the Audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards 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 the commodity or scrips: Provided that for the purposes of this clause (a) ... a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting+ business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or ( b) . ( c) . ( d) shall not be deemed to be a speculative transaction; 1.10] As is clear from the aforesaid provision, that if a contract in commodity is entered for hedging the loss in commodity, dealt in, the same shall not fall under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing 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 2007-08 10,56,000 ITA no 395/Ind/2015 Dated 07.11.2016 2008-09 10,56,000 IT A no 28/Indl20 15 Dated 07.11.2016 2009-10 10,56,000 ITA no 386/Ind/2015 Dated 07.11.2016 2012-13 10,56,000 Pending before ITAT 2.5.2].That in spite of the above facts and past appellate order passed by Ld. CIT(A) which were also confirmed by the Hon'ble IT AT Indore bench, the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 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 income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 observed (page 637 placitum C to G) as under: Even if the assessee had included the same in his return, that would not preclude the assessee from claiming the benefit of law. There cannot be any estoppel against the statute. A property, which is not otherwise taxable, cannot become taxable because of misunderstanding or wrong understanding of law by the assessee or because of his admission or on his misapprehension. If in law an item is not taxable, no amount of admission or misapprehension can make it taxable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, which is not correct. In the case of Charanjit Jawa (supra) relied upon by learned counsel for the assessee supports the views that the interest received as a result of the order of the hon'ble High Court was not a statutory interest and was in the form of damage / compensation and the same was not liable to tax. In view of the above, after considering the totality of the facts and circumstances of the case and also on perusal of the case law relied upon by both the parties we hold that the interest of ₹ 2,53,730 received by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the authorized officer to bring into the notice of the assessee. Since, the closing stock as per books is higher than what was actually found during the course of survey. Hence, no separate addition is justifiable. 11. Per contra Departmental Representative vehemently argued supporting the orders of lower authorities. 12. We have heard the rival contentions perused the material on records and duly considered factual matrix of the case, carefully gone through various judgments and decisions relied by the Ld. Counsel for the assessee. 13. Apropos firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, 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 ₹ 37,88,391/-. On perusal of the paper book dated 6.6.18 pages 31 to 104 and paper book, pages 126 to 140 filed on 24.10.18, it is observed that the assessee has been regularly entering into the transactions of purchases/sale and commodity derivatives with National Commodity Derivative Exchange (NCDEX). Assessee used to enter into such contracts through four brokers namely S.S. Marketing, Suyash Exim Pvt. Ltd, Nikhil Commodities Derivatives Pvt. Ltd Agro Commodities Pvt.Ltd. The alleged hedging loss of ₹ 37,88,391/- inter-alia includes the brokerage of ₹ 26,28,179/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 allowable under provisions of Section 73 of the Act which provides for set off and carry forward or brought forward loses of speculation business. 19. In the result Ground No.1 raised by the assessee for A.Y. 2011-12 stands dismissed. 20. Now we take up the common issue relating to disallowance u/s 14A of the Act. We find that the assessee made investment in the equity shares of Girdharilal Sugar Allied Industries Limited formerly known as Narmada Sugar Ltd for a total sum of ₹ 88 lakhs which were invested up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 10,56,000/-. Ld.CIT(A) while dealing with this disallowance sustained it only to the extent of the disallowance made by the assessee in its computation of income. In our view the amount of ₹ 6,82,287/- and ₹ 1,73,382/- were disallowed by the assessee in the computation of income and above this disallowance Ld.A.O further had made above disallowance of interest expenditure but Ld.CIT(A) while dealing with the grounds raised by the assessee relating to disallowance of interest partly allowed the assessee s ground for A.Y. 2011-12 observing as follows; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 ₹ 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 issue of disallowance of interest expenditure made by the Ld.A.O, we find that the alleged amount sustained by Ld.CIT(A) is not with regard to disallowance u/s 14A of the Act rather it is the addition sustained u/s 36(1)(iii) of the Act for the amount of interest paid in respect of amount invested in equity shares otherwise than for the purposes of business or profession. Our view get further fortified to the fact that the assessee has itself accept ..... X X X X Extracts X X X X X X X X Extracts X X X X
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