Income Tax Appellate Tribunal - Indore
M/S Premier Industries (Indai) Ltd., ... vs The Acit 4(1), Range-4, Indore on 19 November, 2018
Premier Industries (India) Ltd
ITA No.610/Ind/2016, 611/Ind/2016
आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.610/Ind/2016 & 611/Ind/2016
Assessment Years 2011-12 & 2012-13
M/s. Premier Industries JCIT,
(India) Ltd, Vs. Range-1,
C/o M. Mehta & Co, Indore
11/5, South Tukoganj,
Indore
(Appellant) (Respondent )
PAN No.AABCP1890P
Revenue by Shri B.J. Boricha, Sr.DR
Assessee by S/Shri S.N. Agrawal & Pankaj
Mogra,CAs
Date of Hearing 24.10.2018
Date of Pronouncement 19.11.2018
ORDER
PER MANISH BORAD, AM.
The above captioned two appeals are filed at the instance of same assessee. ITA No.610/Ind/2016 & ITA No.611/Ind/2016 pertaining to Assessment Years 2011-12 and 2012-13 respectively are directed against the orders of Ld. Commissioner of Income Tax (Appeals)-II (in short 'Ld.CIT(A)'], Indore dated 29.02.2016 which are 1 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the 'Act') dated 29.02.2016 framed by JCIT-Range-1, Indore.
2. The relevant grounds in these two appeals reads as follows;
I.T.A. No.610/Ind/2016 for A.Y. 2011-12 01]. That on the facts and in the circumstances of the case the Learned ClT(A) erred in maintaining the Disallowance as made by the 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 disallowance u/s 14A r.w.rule 8D was provided as an alternative argument only. 2 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 Rs 1,73,382/-- 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.
1.2]. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in maintaining addition of Rs.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 said amount of disallowance as per provisions of Sec. 14A read with rule 80 even when the said amount of disallowance was not accepted by the assessee but calculation of disallowance u/s 14A r.w.rule 80 was provided as an alternative argument only."
3. Perusal of the grounds raised by the assessee for Assessment Year 2011-12 and 2012-13 shows that only two issues needs to be adjudicated.
(1) Disallowance of hedging loss of Rs.37,88,391/- against the business loss claimed in Assessment Year 2011-12.
(2) Disallowance u/s 14A of the Act Rs.6,82,287/- and Rs.1,73,382/- for Assessment Year 2011-12 and 2012-13 respectively.3
Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016
4. As the issues raised are common and relates to the same assessee, these appeals were heard together and are being disposed off by this common order for sake of convenience and brevity.
5. For adjudication of the issues raised by the assessee, we will take up the facts of Assessment Year 2011-12.
6. Brief facts of the case are that the assessee is a limited company engaged in the business of manufacturing and trading of soya premier nutrition and diary products. Loss of Rs.5,71,57,685/- declared in the income tax return e-filed on 20.9.2011. Case selected for scrutiny through CASS. Necessary notices u/s 143(2) and 142(1) of the Act were duly served upon the assessee. While examining the details and financial statements, Ld.A.O observed that the assessee has claimed liquidated damages of Rs.37,88,391/- as business expenditure being the loss 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 4 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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) 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 Rs.6,82,287/- while furnishing the income tax return.
8. Aggrieved assessee is now in appeal before the Tribunal. 5 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016
9. The Ld.Counsel for the assessee made following submissions relating to liquidated damages at Rs.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 Rs. 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 Rs.1,50,13,291/- as per Schedule 0 of the Audited Balance Sheet. That Liquidated damages of Rs. 1,50,13,291/- consisted of following two items:-
S.No. Particulars Amount (Rs.)
Liquidated
01. 1,12,24,900
Damages
Commodity Loss Through
02. 37,88,391
Hedging Commodity
Exchange
Total 1,50,13,291
1.3] That entire details related to the Liquidated Damages was filed before the Ld. A.O. which is also mentioned in the Assessment Order. Details of the same are available on pages 31 to 46 of the paper book filed before your honour.
1.4] The Ld. A.O. has allowed the claim of Liquidated Damages of Rs. 1,12,24,900/- as claimed by the assessee however he has disallowed the claim of Rs. 37,88,391/- as claimed towards Commodity Hedging Loss through Commodity Exchange.
6 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 1.5] In this respect it is submitted that the assessee company is mainly carrying on the business of manufacturing and Trading business of Soya Oil and D Oil Cake. That this being the Agro based and highly volatile product and the rates of raw material and finished product change frequently. Thus to give stability, strength and support to the business the assessee company has been carrying on the Forward Trading of Soya commodity in the Commodity Exchange like NCDEX which is approved by the Government for this purpose.
1.6] It is pertinent to note that the assessee was carrying the business only in Soya Commodity. That in support of above contention all bills were produced before the Ld. A.O. for verification. Party wise details of NCDX Settlement income/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: 7
Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 "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 the definition of Speculation meaning thereby that the same will be Business Loss.
1.11] That the present case is squarely covered under the provisions of section 43(5) proviso (a) and it does not come under the purview of speculative transaction. In view of the above the loss as incurred by the assessee company of Rs.37,88,391/- towards settlement of Contract through Forward contract of Sale/Purchase be kindly be treated as normal business. The disallowance as made by the Ld. A.O. and maintained by the Ld. CIT(A) by considering the same as speculative loss may kindly be deleted in full.
8 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016
10. Ld. Counsel for the assessee further made following submissions relating disallowance made u/s 14A of the Act suo- moto made by the assessee and duly confirmed by Ld.CIT(A) for A.Y. 2011-12 and 2012-13 along with relying on various judgments;
Ground No.2.1 2.1] That in the said ground of appeal the assessee has challenged the disallowance of Interest of Rs.6,82,287/- maintained by the Ld. CIT(A) out of Total disallowance of Rs. 10,56,000/- made by the Ld. A.O. towards interest paid.
2.2] That the assessee has invested an amount of Rs.88,00,000/- in the share capital of Narmada Sugar Limited prior to Asst. Year 1995-96 . The assessing officer was of the opinion that the assessee has diverted its interest bearing funds for investment in the shares of Narmada Sugar Limited and thereby he has disallowed, an amount of Rs.10,56,000/- out of interest paid on the basis of earlier year. The Ld CIT[A] maintained the disallowance of Rs 6,82,287/- as per provision of section 14A of the Act. 2.3] The assessee claimed that on the basis of Investment made in the shares of M/s Girdharilal 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. 9 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 Amount Appeal filed by the department before ITAT. Hon'ble Year Disallowance 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) vide order dated 02.12.09 passed for the Assessment year 2006-07 and 2007-08 being IT No.246/08-091235 and IT No. 148/2009-
10/456 has decided the said issue against the assessee by relying on the provisions of section 14A of the Income Tax Act in spite of the vital fact that considering the past history of the case same was not invoked by the Ld. A .0.
2.5.3] The Hon'ble ITAT has decided the appeal as filed by the assessee against the above mentioned order of Ld. CIT (A) for the A.Y. 2006-07 vide its order dt. 15.12.2010. The Hon'ble ITAT in its order has considered the submission made before it and deleted the addition made by the Ld. A.O. of Rs. 10,56,0001- out of Total Interest paid on account of Investment in the Shares of Girdharilal Sugar & Allied Industries Ltd. 10 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 2.5.4] That relying upon the said order the Hon'ble ITAT while deciding the Appeal for the A.Y. 2007-08,2008-09 and 2009-10 vide its common order dt. 07.11.2016 has deleted the said addition as made by the A.O. and maintained by the CIT(A). Copy of the same is available on page 116 to 125 of the paper book filed before your honours. 2.5.5] Thus in view of the above order as passed by the Hon'ble ITAT for the A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 the disallowance as made by the A.O. and partly maintained by the Ld. CIT(A) requires to be deleted in full.
WITHOUT PREJUDICE TO THE ABOVE 2.6.1] That the language of the sub- section (1) of section 14A of the Income Tax act reads as under:
"(1) For the purpose of computing the total income under this chapter, 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 this Act. "
2.6.2] That as per clear language of sub- section (1) of section 14A, if the assessee had claimed deduction in respect of expenditure incurred in relation to the income which does not form part 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 11 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.
Thus, no question of law arose. [Para 5] 2.6.7] The Hon'ble Mumbai High Court in the case of CIT V/s M/s Delite Enterprises (Appeal No. 110 of 2009) has also held that if there is no profit which is exempt under the income tax act, no disallowance u/s 14A can be made.12
Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 2.6.8] That in view of the above it is submitted that there was no diversion of interest bearing funds for non-business purposes and moreover there was no dividend income which was earned by the assessee. Thus, there is no justification for making any disallowance Vis 14A of the Income Tax Act. In view of the above it is submitted that disallowance of Rs.1O,56,000/- as made by the A.O. and restricted to Rs. 6,82,287/- by the CIT(A) be deleted in full.
03] GROUND No 2.2 3.1] That in the said ground of appeal the assessee has challenged the disallowance of Rs. 6,82,287/- as maintained by the Ld. CIT(A) out of total Disallowance made by the A.O. of Rs. 1056000/- by holding that assesse itself worked out the said amount of disallowance as per provision of Sec. 14A read with rule 8D of the Income Tax Act. 3.2] That while deciding the appeal of assesse company for the A.Y. 2009-10 the Ld. CIT(A) have not properly considered the order passed by the Hon'ble ITAT for the A.Y. 2006-07. That while passing the Order dt.27.02.2015 for the A.Y. 2009-10 the Ld. CIT(A) has observed that since the appellant has suo-moto calculated disallowance u/s 14A before the A.O. the disallowance under the said section should be restricted the said amount.
3.3.1] That Hon'ble CBDT vide Circular No 14[XI-35] of 1955, dated 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 13 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 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 taxability or the authority to impose tax is independent of admission. Neither there can be any waiver of the right by the assessee. The Department A.Y:05-06 cannot rely upon any such admission or misapprehension if it is not otherwise taxable.
3.3.3] This question was dealt with by this court in Bhaskar Mitter's case [1994] 73 Taxman 437, at paragraph 8 at page No 58. In this decision, this court observed:14
Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 "An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can be lawfully assessed under the Act. The law empowers the Income-tax Officer to assess the income of an assessee according to law and determine the tax payable thereon. In doing so, he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic).It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law."
3.3.4] That Hon'ble Kolkata Bench of ITAT in the case of Sushil Kumar Das vs Income Tax Officer as reported in [2011] 15 taxmann.com 52 has held that:
9. We have heard the rival submissions and perused the materials available on record. The moot question arising out of this appeal is whether the income determined by the Assessing Officer on the basis of the return filed by the assessee can be a figure lower than the income returned by the assessee. It is a well settled that the principle for determining the taxable income of the assessee under the Income-tax Act should be within the purview of the law in force. If the taxable income determined by the Assessing Officer is 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 15 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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, 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 Rs. 2,53,730 received by the assessee as per the order of the hon'ble High Court was not taxable and the same is a capital receipt. We also take support from the circular issued by the Central Board of Direct Taxes vide Circular No. 14 (XL-35), dated April 11, 1955 which has directed the officers not to take advantage of the ignorance of the assessee. The appellate authorities have powers to admit points of law and admit claim for exemption based on materials on record as per the judgment of the hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. In view of the above, we direct the Assessing Officer to treat the aforesaid receipt of Rs. 2,53,730 as capital receipt which was received by him as per the order of the hon'ble High Court. 16 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 3.3.5] That Hon'ble Apex Court in the case of CIT vs Shelly Products as reported in 129 Taxmann 271 has held that [ refer para 31 ] has held that:-
31. We cannot lose sight of the fact that the failure or inability of the revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing 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 17 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 first issue relating to disallowance of hedging loss of Rs.37,88,391/-, we find that the assessee has achieved the gross turnover at Rs.112.75 crores approx. In the audited financial statement the figure of liquidated damages is shown at Rs.1,50,13,291/- which comprises of two items namely liquidated damages at Rs.1,12,24,900/- and commodity hedging loss through commodity exchanges at Rs.37,88,391/-. Revenue authorities have not raised any doubt on the genuineness of liquidated damages at 18 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 Rs.1,12,24,900/- being business expenditure. The issue relates to commodity hedging loss through commodity exchanges at Rs.37,88,391/- . There is no disputes at the end of both the parties that the alleged hedging loss is out of the contract which were concluded without making any delivery of goods. So primarily the alleged transactions seems to be of speculative nature as defined in Section 43(5) of the Act which reads as follows along with the exceptions:-
"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) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(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 19 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 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 20 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 Rs.37,88,391/- inter-alia includes the brokerage of Rs.26,28,179/- paid to the above referred four brokers against settlement of contracts. Regular and voluminous transactions on the NCDEX has been carried out by the assessee through all the four brokers throughout the year.
16. Now the case of the assessee can either be covered in proviso
(a) of Section 43(5) or proviso (e) of Section 43(5). As far as proviso
(e) is concerned which deals with the transactions in respect of trading in commodity derivatives carried out in a recognized association (for example NCDEX) which is chargeable to commodity transaction tax, in our view the assessee shall not get any relief under this proviso (e) because it was brought into effect from 1.4.2014 by Finance Act 2013.
17. Eventhough the nature of transactions entered into by the assessee are quite similar to those mentioned in proviso (e) of Section 43(5) of the Act, but still before coming to a conclusion we 21 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 would also like to test the facts of the case in the light of proviso (a) of Section 43(5) of the Act which says that the "profit/loss from any contracts in respect of raw material or merchandise or derivatives entered into by the persons in the course of manufacturing or merchandise business to guard against the price fluctuation in respect of contracts for actual delivery of goods manufactured by him or merchandise sold by him". The details of the assessee on record merely speaks out about the regular transactions were entered into on the portal of NCDEX through the brokers. There is no specific details brought in before the lower authorities as well as before us which could show that the assessee has entered into some contract to guard against loss through price fluctuation which may arise from contracts for delivery of goods. For instance the assessee being in the business of trading of soya agrees to make supply to a customer for 12 months at an agreed 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 22 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 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.
23 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016
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 Rs.88 lakhs which were invested up to 31.3.2005 and was spread over various financial years. There is no dispute to this fact that the alleged investment made in the equity shares of Girdharilal Sugar & Allied Industries Limited is not for business purposes. Further nothing contrary has been brought on record which could prove the fact that the interest bearing funds were not applied for making the investment in the equity shares at Rs.88 lakhs. In short the assessee has been consistently claiming the interest expenditure on the investment of Rs.88 lakhs made for non business purposes.
21. In the computation of income for Assessment Year 2011-12 & 2012-13 assessee has suo-moto made disallowance u/s 14A of the Act at Rs.6,82,287/- and Rs.1,73,382/- respectively. Ld.A.O ignoring the fact that disallowance u/s 14A of the Act has been made for both the assessment years further made a disallowance of the interest amount at Rs.10,56,000/- which was thereafter deleted 24 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 by the Ld.CIT(A) observing that the disallowance has already been made u/s 14A of the Act at Rs.6,82,287/- and Rs.1,73,382/-. Ld. Counsel for the assessee has pleaded that the Tribunal has deleted the alleged interest disallowance of Rs.10,56,000/- for the Assessment Year 2006-07 to 2009-10 and therefore for the instant appeals also no disallowance should be sustained. It is also pleaded by the Ld. Counsel for the assessee that there is no exempt income earned by the assessee and therefore no disallowance should be made. We however observe that the assessee consciously and in his wisdom and keeping in mind all the relevant provisions of the Act suo-moto made disallowance u/s 14A of the Act at Rs.6,82,287/- and Rs.1,73,382/-. Disallowance u/s 14A of the Act for A.Y. 2008-09 onwards is to be read with rule 8D of the Income Tax Rules which provides the method for computation of such disallowance. In the given facts where 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 25 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 the disallowance made by the assessee in its computation of income. In our view the amount of Rs.6,82,287/- and Rs.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 26 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 relating to disallowance of interest partly allowed the assessee's ground for A.Y. 2011-12 observing as follows;
"Ground no.3
5. This ground of appeal has been raised against the disallowance of Rs.10.561acs on account of interest paid to M/ s Narmada Sugar Ltd. I have decided the issue with identical facts in the assessee's own case in appeal no.IT-600/ 14-15/422 dated 27.02.2015 for the A.Y.09- 10. The relevant part of decision is reproduced hereunder:
"I have gone through the assessment order for relevant assessment year, the order of CIT(A) on this issue for the A. Y. 2007·08. I have also gone through the relevant part of order of CIT(A) in the A. Y. 2006·07 which in fact have been taken as basis for dismissing the appeal of the appellant in the A. Y. 2007·08. I have also gone through the order of Hon'ble ITAT in the A.Y. 2006·07 whereby the appellant was given relief on the relevant issue. It is evident that the AO during the relevant assessment year has repeated the addition on account of history of the case i.e. additions made in the A. Y. 2006·07 and 2007·08 which were duly confirmed by the CIT(A). But it appears that the AO while finalizing the order for the relevant assessment year i.e. 2009·10 has not taken note of decision of Hon'ble ITAT dated 15.12.2010 in the case of appellant for A.Y. 2006·07 in a ITA No. 57/Ind/2010. The Hon'ble ITAT Indore bench, after detailed discussion made in the aforesaid order had decided the impugned issue in favor of the appellant. In the A. Y. 2007·08, then CIT(A), based on the judgment of CIT(A) taken in A. Y. 2006·07 had confirmed the addition made by the AO. But it has been brought to my notice through above submissions that though the appeal has already been decided by Hon'ble ITAT in the A.Y. 2007·08, yet the ground 27 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 relevant to the impugned addition has been left to be adjudicated. I have gone through the relevant appeal order for the A. Y. 2007·08 and it has been observed the relevant issue has not been adjudicated by the Hon'ble ITAT. Therefore, in my opinion when there is decision of Hon'ble ITAT in the A.Y. 2006·07, 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 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. 28 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016 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 Rs.88,00,000/- of M/s. Girdharilal Sugar & Allied Industries Limited.
24. Assessee has placed reliance on plethora of judgments but after examining the facts of the assessee's case we find that none of the judgments and the decisions are applicable on the facts of the assessee. We in view of our above discussions find no reason to interfere in the findings of Ld.CIT(A) and therefore confirm the disallowance of Rs.6,82,287/- and Rs.1,73,382/- which the assessee has itself accepted while preparing the income tax return.
25. In the result Ground No.2.1, 2.2 for the Assessment Year 2011-12 and Ground No.1.2 for Assessment Year 2012-13 of the assessee's appeal are dismissed.
26. The other grounds are general in nature which needs no adjudication.
29 Premier Industries (India) Ltd ITA No.610/Ind/2016, 611/Ind/2016
27. In the result both the appeals of the assessee are dismissed.
Order pronounced in the open Court on 19.11.2018.
Sd/- Sd/-
( KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
दनांक /Dated : 19 November, 2018
/Dev
Copy to: The Appellant/Respondent/CIT concerned/CIT(A)
concerned/ DR, ITAT, Indore/Guard file.
By order
Asstt. Registrar
30