IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No.4468/M/2012
Assessment Year: 2007-08
Asstt. Commissioner of M/s. R.T. Exports Ltd.,
Income-tax, Circle-3(3), 508, Dalamal House,
Room No.609, 6th Floor, J.B. Road,
Aayakar Bhavan, Vs. Nariman Point,
M.K. Road, Mumbai 400 021
Mumbai - 400020 PAN: AAACR3524M
(Appellant) (Respondent)
Present for:
Assessee by : Shri Vijay Mehta & Ashit Mehta, A.R.
Revenue by : Shri Love Kumar, D.R.
Date of Hearing : 29.04.2015
Date of Pronouncement : 15.05.2015
ORDER
Per Vijay Pal Rao, Judicial Member:
This appeal by the Revenue is directed against the order dated
22.02.2012 of the CIT(A) for the assessment year 2007-08. The Revenue has
raised the following grounds of appeal:
"1. On the facts and in the circumstances of the case and in law, the Id. CIT
(A) erred in deleting the addition of 59,095/-, made on account of
disallowance of STT payment, on the basis of revised return filed by
the assessee, without appreciating that the revised return was filed by
the assessee beyond the time limit prescribed u/s. 139(5) as such the
revised return filed is invalid.
2. On the facts and in the circumstances of the case and in law, the Id.
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CIT (A) erred in deleting the addition of 28,500/-, made on account of
disallowance of excess donation paid, on the basis of revised return
filed by the assessee, without appreciating that the revised return
was filed by the assessee beyond the time limit prescribed u/s. 139(5) as
such the revised return filed is invalid.
3. On the facts and in the circumstances of the case and in law, the Id.
CIT (A) erred in deleting the addition of 3,50,481/-, made on account
of disallowance of bad debts claimed, following the decision of
Hon'ble Apex Court in the case of TRF Limited ( Civil Appeal No. 5293
of 2003), without appreciating that the decision relied upon is not
relevant to the facts of the case as on the basis of evidence furnished at
the time of assessment proceedings the loss claimed was capital in
nature. Without prejudice to the above the bad Debt claimed cannot be
allowed as it is approved on 30-04-2007 as such it is premature.
4. On the facts and in the circumstances of the case and in law, the Id.
CIT (A) erred in holding that loss on commodity futures of
13,95,241/- is a speculation loss covered under the provisions of
Sec.43(5)(d) instead of business loss, as held by the AO, without
appreciating that the transactions relating to loss on commodities
derivative trading were not carried out through recognized stock
exchange as envisaged in clause (d) of sec.43(5).
5. On the facts and in the circumstances of the case and in Jaw, the Id. CIT
(A) erred in holding that the AO was not justified in making
adjustments for computing book profit u/s.115JB in respect of bad
debts disallowed of 3,50,481/-.
6. On the facts and in the circumstances of the case and in law, the Id. CIT
(A) erred in deleting the addition of 11,69,603/- made by way of
disallowance of depreciation and boat expenses, Without appreciating
that in the course of assessment proceedings the assessee failed to
furnish any evidence to show that the expenses incurred for the
purpose of business and as such the same is rightly treated as personal
expenses.
7. On the facts and in the circumstances of the case and in law, the Id.
CIT (A) erred in holding that the loss of 1,5064439/- on share trading
3 ITA No.4468/M/2012
M/s. R.T. Exports Ltd.
be treated as business loss instead of speculation loss as held by the
AO without appreciating that the assessee's case does not fall in any
of the exceptions provided in explanation to Sec.73. Therefore, the
decision of Mumbai High Court in the case of Darshan Securities Pvt.
Ltd. [ITA No.2886 of 2009 dated 02.02.2012], relied upon by the Ld CIT
(A), is not relevant to the facts of the assessee's case."
2. Ground No.1 is regarding the disallowance of STT paid by the assessee.
The assessee has filed a revised return and claimed the deduction of correct
amount of STT paid by the assessee in the revised return of income. The
Assessing Officer (AO) has rejected the claim of the assessee on the ground
that the revised return filed by the assessee is beyond the time limit prescribed
under section 139(5). On appeal, the Ld. CIT(A) has accepted the correct
amount of STT as given by the assessee in the revised return of income and
therefore given the relief to the assessee to the tune of Rs.59,095/-.
3. We have heard the Ld. D.R. as well as the Ld. A.R. and considered the
relevant material on record. The AO has disallowed the relief to the assessee
only on the technical ground of delay in filing the revised return. It is pertinent
to note that the AO has to assess the correct income of the assessee on the basis
of the provisions of the Act and in case if the assessee inadvertently has
offered the higher income the same cannot be taxed by taking the excuse of
technicalities. Even otherwise there is no restriction on the jurisdiction and the
power of appellate authority to consider a fresh plea in view of the judgment of
Hon'ble Supreme Court in the case of "National Thermal Power Co. Ltd. vs.
CIT" [1998] 229 ITR 383 (SC). Accordingly, we do not find any error or
illegality in the order of Ld. CIT(A) in allowing the correct amount of STT
claimed by the assessee in the revised return of income.
4 ITA No.4468/M/2012
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4. Ground No.2 is regarding the disallowance of excess donation paid on
the basis of revised return. We have heard the Ld. D.R. as well as the Ld. A.R.
and considered the relevant material on record. The AO has disallowed the
claim of donation paid by the assessee on the ground that the revised return
filed by the assessee is beyond the time limit prescribed under section 139(5).
The Ld. CIT(A) has accepted the claim of the assessee. Since on merits the
AO has not disputed the claim of the assessee, therefore we do not find any
error or illegality in the order of the Ld. CIT(A) in allowing the correct figure
of donation paid by the assessee in view of our finding on ground No.1.
3. Ground No.3 is regarding the disallowance of bad debts. The assessee
claimed as written off the bad debts to the tune of Rs.3,50,481/-. The AO has
disallowed the claim of the assessee on the ground that the amount is capital in
nature and further the Board of Directors of the assessee has approved the bad
debts on 30.04.07 which is subsequent to the closure of the financial year
under consideration. On appeal, the Ld. CIT(A) has held that the bad debts
were on account of Revenue and not capital in nature and further by following
the judgment of Hon'ble Supreme Court in the case of "T.R.F. Ltd. vs. CIT"
[2010] 323 ITR 397 (SC) allowed the claim of the assessee.
4. We have heard the Ld. D.R. as well as the Ld. A.R. and considered the
relevant material on record. The Ld. D.R. has referred the relevant finding of
the AO and submitted that the Board of Directors of the assessee has approved
the bad debts in the meeting held on 30.04.07, therefore the resolution is
subsequent to the financial year closed on 31.03.07. We further note that the
amount of bad debts written off represents the loan in the ordinary course of
business of money lending which is carried on by the assessee, therefore when
the interest on the said amount is offered to tax, then in view of the judgment
5 ITA No.4468/M/2012
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of Hon'ble Jurisdictional High Court in the case of "CIT vs. Shreyas S.
Morakhia" [2012] 342 ITR 285 (Bom) the same is allowable as business loss.
Accordingly, we do not find any merits in the grounds raised by the Revenue
when the bad debts were actually written off by the assessee being
unrecoverable and it is regarding the advance given by the assessee in the
business of money lending.
5. Ground No.4 is regarding the disallowance of loss of commodity futures
by treating as speculation loss. We have heard the Ld. D.R. as well as the Ld.
A.R. and considered the relevant material on record. The Ld. A.R. of the
assessee has fairly conceded that this ground is covered against the assessee by
the decision of this Tribunal dated 17.01.14 in the case of "Varsha Corporation
Ltd. vs. DCIT" in ITA No.6534/M/2012. However, the Ld. A.R. has
submitted that the quantification of the amount of loss is required to be verified
because on the same principle some income of the assessee will also be treated
as speculation income. At the outset, we find that an identical issue has been
considered by the co-ordinate bench of the Tribunal in the case of Varsha
Corporation Ltd. (supra) in para 11 to 13 as under:
"11. We have given our thoughtful consideration to the submissions
advanced at the hands of the learned counsel for the assessee as well as
learned DR for the department. Admittedly, MCX, through which the assessee has
carried out the transactions, is not a recognized stock exchange as required
under the provisions of Section 43(5)(d) of the Act. As it can be seen from
the abovementioned Notification dated 2911-2013, which has been relied
upon by the learned AR, which has also been reproduced in the above part of
this order, the MCX, through which the assessee has carried out the transactions, is
notified as a "recognized association" for the purposes of clause (e) of
proviso to clause 5 of Section 43 of the Act. Clause (e) of proviso to sub-
section (5) of Section 43 has recently been inserted by the Finance Act, 2013
w.e.f. 1st April, 2014, which reads as under :-
"(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."
6 ITA No.4468/M/2012
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Therefore, the exemption to the transactions given by the statute is w.e.f.
1-4-2014 and this is inserted by the Finance Act, 2013. In pursuance of the
amendment, Notification No.51, dated 4-7-2013 has been issued by the
CBDT, vide which Rule 6DDD is inserted in the Income Tax Rules. The said
notification read as under :-
INCOME-TAX (NINTH AMENDMENT) RULES, 2013 -INSERTION
OF RULES 6DDC, 6DDD
AND FORM NO. 3BC
NOTIFICATION NO.51/2013 [F.NO.142114/2013-TPLJ/S0
2017(E), DATED 4-7-2013
In exercise of the powers conferred by clause (e) of the proviso to clause (5) of
section 43 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the
Central Board of Direct Taxes hereby makes the following rules further to amend
the Income-tax Rules, 1962, namely:-
1. (1) These rules may be called the Income-tax (9th Amendment) Rules,
2013. (2) They shall come into force on the date of their publication in the
Official Gazette. 2. In the Income-tax Rules, 1962, in Part II, in sub-part C,
after rule 6DDB, the following rules shall be inserted, namely :- "6DDC.
Conditions that a recognized association is required to fulfill to be notified
as a recognized association for the purposes of clause (e) of the proviso to
clause (5) of section 43. - For the purposes of clause (e) of the proviso to
clause (5) of section 43, a recognized association shall fulfill the following
conditions in respect of trading in derivatives, namely:- (i) the recognized
association shall have the approval of the Forward Markets Commission
established under the Forward Contracts (Regulation) Act, 1952 (74 of 1952)
in respect of trading in derivatives and shall function in accordance with the
guidelines or conditions laid down by the Forward Markets Commission; (ii)
the recognized association shall ensure that the particulars of the client
(including unique client identity number and P AN) are duly recorded and
stored in its databases; (iii) the recognized association shall maintain a
complete audit trail of all transactions (in respect of derivative market) for a
period of seven years on its system; (iv) the recognized association shall
ensure that transactions (in respect of derivative market) once registered in
the system are not erased; (v) the recognized association shall ensure that
the transactions (in respect of derivative market) once registered in the
system are modified only in cases of genuine error and maintain data
regarding all transactions (in respect of derivative market) registered in the
system which have been modified and submit a monthly statement in Form
No. 3BC to the Director General of Income-tax (Intelligence and Criminal
Investigation), New Delhi within fifteen days from the last day of each
month to which such statement relates. 6DDD. Notification of a recognized
association for the purposes of clause (e) of the proviso to clause (5) of
section 43.- (1) An application for notification of a recognized association (as
per clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952)
7 ITA No.4468/M/2012
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as a recognized association for the purposes of clause (e) of the proviso to
clause (5) of section 43 may be made to the Member (Legislation), Central
Board of Direct Taxes, North Block, New Delhi. (2) The application referred
to in sub-rule (1) shall be accompanied with the following documents,
namely :- (i) approval granted by Forward Markets Commission for trading
in derivatives; (ii) up-to-date rules, bye-laws and trading regulations of the
recognized association; (iii) confirmation regarding fulfilling the conditions
referred to in clause (ii) to clause (v) of rule 6DDC; (iv) such other
information as the recognized association may like to place before the
Central Government. (3) The Central Government may call for such other
information from the applicant as it deems necessary for taking a decision
on the application. (4) The Central Government, after examining the
information furnished by the recognized association under sub-rule (2) or
subrule (3), shall notify the recognised1ssociation as a recognized
association for the purposes of clause (e) of the proviso to clause (5) of
section 43 or issue an order rejecting the application before the expiry of
four months from the end of the month in which the application is received.
(5) The notification referred to in sub-rule (4) shall be effective until the
approval granted by the Forward Markets Commission is withdrawn or
expired, or the notification is rescinded by the Central Government." 3. In
the said rules, in Appendix-II, after Form No. 3BB, the following Form shall
be inserted, namely:- "FORM NO. 3BC [See rule 6DDC] Monthly statement
to be furnished by a recognized association in respect of transactions in
which client codes have been modified after registering in the system for
the month of _______________"
In pursuance to the aforementioned Notification, the MCX has been notified as
"recognized association" vide Notification dated 29-11-2013, which is also
reproduced above. If the assessee is seeking benefit of clause (e) of proviso to
Section 43(5), then such benefit can be extended to assessee only in respect of
assessment year 2014-2015 as the provisions of clause (e) of proviso to Section
43(5) are inserted by the Statute w.e.f. 1-4-2014. However, in the present case, the
transactions done by the assessee relate to financial year 2008-09. For these
transactions, there was no provisions in the statute to give the benefit to the
assessee in respect of transactions of commodities, which are ultimately settled
otherwise then by actual delivery or transfer of the commodity as per Section 43(5)
of the Act. 12. The case relied upon by the assessee also do not support the case of
the assessee. In case of ACIT Vs. Arnav Akshay Mehta (supra), the transactions
relate to stock exchange of India, which is MCX stock exchange, which was notified
on 22-5-2009 and the transactions were governed by clause (d) of the proviso to
Section 43(5), which was inserted by the Finance Act, 2005 w.e.f. 1-4-2006.
Therefore, for the transactions, which were under consideration in that case, were
held to be not of speculative nature under the provisions of clause (d) of the
proviso to Section 43(5) of the Act and the said case relates to assessment year
2007-08. The transactions entered into by the assessee after insertion of clause (d)
8 ITA No.4468/M/2012
M/s. R.T. Exports Ltd.
of the proviso to Section 43(5), were held to be of non-speculative nature as there
was a provision on the statute. However, in the present case, when the assessee
carried out these transactions, there was no existing provision in the statute in the
shape of clause (e) of the proviso to Section 43(5). 13. In the case of CIT Vs. Nasa
Finelease Pvt. Ltd. (supra), the case relates to proviso (d) to sub-section 5 of Section
43 of the Act and the said insertion was made by the Finance Act, 2005 and the
National Stock Exchange and Bombay Stock Exchange, through which the assessee
in that case had carried out the transaction were notified on 25th January, 2006. It
was the case of the assessee that the transaction conducted by it from July 2005 to
September, 2005, cannot be rejected for the benefit of proviso (d) to sub-section 5
of Section 43(5) as there was a provision on the statute in the shape of clause (d).
The lapse in the issue of notification etc. was only on account of delay by CBDT. It is
in these circumstances, the Hon'ble High Court has upheld the order of the Tribunal
vide which the relief was given to the assessee. Thus, in that case, there was a
provision on the statute under which the assessee sought the benefit. However, in
the present case, as mentioned earlier, provisions of clause (e) of the proviso to
Section 43(5) did not exist during the period when the assessee carried out the
transactions.
In view of above discussion, we hold that assessee is not entitled to claim
the benefit of clause (e) of the proviso to Section 43(5) of the Act."
6. Accordingly, following the order of the co-ordinate bench of the
Tribunal, we set aside the impugned order of the Ld. CIT(A) qua this issue and
restore the findings of the AO. However, as pointed out by the Ld. A.R. that
the quantification of the speculation loss has to be recomputed by the AO,
therefore for the limited purpose quantification the issue is set aside to the
record of the AO.
7. Ground No.5 is regarding the adjustment made by the AO for computing
book profit under section 115JB on account of bad debt disallowance. We
have heard the Ld. D.R. as well as the Ld. A.R. and considered the relevant
material on record. This ground of the Revenue's appeal is connected with the
ground No.3 in respect of the disallowance of bad debts under normal
provisions of the Act. In view of our findings on the ground No.3, this ground
of the Revenue's appeal is dismissed. Even otherwise when the assessee has
9 ITA No.4468/M/2012
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actually written off the bad debts in the books of account, then no adjustment
can be made while computing the book profit under section 115JB as this
amount does not represent any provision on account of bad debts.
8. Ground No.6 is regarding the disallowance of depreciation and boat
expenses. The AO has disallowed the depreciation and expenses in respect of
luxury boat owned by the assessee on the ground that the same are personal in
nature. On appeal, the Ld. CIT(A) has allowed the claim of the assessee on the
ground that the claim of the assessee was allowed in the earlier years as well as
in the subsequent years and therefore the same are to be allowed as business
expenditure.
9. We have heard the Ld. D.R. as well as the Ld. A.R. and considered the
relevant material on record. At the outset, we note that the claim of the
assessee regarding depreciation and expenses on the boat has been allowed by
the AO in the earlier year i.e. A.Y. 2006-07 while passing the assessment order
under section 143(3). Even in the subsequent assessment year for the A.Y.
2008-09 to 2012-13 the AO has allowed the claim of the assessee. The details
of the status of the claim of the assessee in all the assessment years are as
under:
Sr. Asst. Year Expenses on Depr. On Allowability Assessment
no Boat Boat Completed
u/s
1 2006-07 Claimed Claimed Allowed by 143(3)
AO
2 2007-08 Claimed Claimed Under Appeal Under Appeal
3 2008-09 Claimed Claimed Allowed by 143(1)
AO
4 2009-10 Claimed Claimed Allowed by 143(3)
AO
5 2010-11 Claimed Claimed Allowed by 143(3)
AO
10 ITA No.4468/M/2012
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6 2011-12 Claimed Claimed Allowed by 143(1)
AO
7 2012-13 Claimed Claimed Allowed by 143(3)
AO
Therefore, in view of the fact that except the year under consideration
the AO has accepted the claim of the assessee on account of depreciation and
other expenses on boat. When there is no change in facts and circumstances in
this year under consideration, then the AO has to maintain the rule of
consistency. Accordingly, we do not find any error or illegality in the order of
the Ld. CIT(A) for this issue.
10. Ground No.7 is regarding the disallowance of loss on share trading by
treating the same as speculation loss in view of the explanation to section 73.
The assessee has invested in shares of various companies. The loss on such
trade has been treated as non speculative business loss by the assessee in the
return of income. During the course of assessment proceedings, the AO asked
the assessee as to why the share trading activity should not be treated as
speculation activity and why the set off of loss of speculation business should
not be disallowed. In response, the assessee vide its letter dated 26.10.09
stated that the transaction has been settled by actual delivery and therefore it
does not fall within the ambit of speculation transaction. The AO held that
even in the case of actual delivery based transaction if the company has
indulged in the share trading activity it will be observed as speculation activity
and loss from such activity is speculative loss as per the provisions of
explanation to section 73 and therefore the same cannot be set off against the
non speculative business profit which was disclosed by the assessee of
Rs.2,14,93,920/-.
11 ITA No.4468/M/2012
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11. Before the Ld. CIT(A), the assessee has contended that the assessee falls
under the exception provided under explanation to section 73 because the gross
total income of the assessee is mainly of head of the income from other
sources. The Ld. CIT(A) accepted the claim of the assessee and directed the
AO to treat the applicant's claim as business loss and not as speculative loss.
12. Before us, the Ld. D.R. has referred to the finding of the AO and
submitted that the AO has pointed out that the assessee has declared profit
from business at Rs.2,14,93,920/- as income under the head `Income from
business and profession' whereas the assessee has incurred a loss of
Rs.1,50,64,439/- on share trading, therefore the loss of share trading cannot be
set off in view of the explanation to section 73. He has relied upon the order of
the AO.
13. On the other hand, the Ld. A.R. has submitted that the assessee has
furnished the details showing the income from business as well as the income
from other sources. He has further contended that after setting off of brought
forward business losses of Rs.2,47,76,604/- under section 72 of the Act the
gross income from business comes to nil in comparison to the income from
other sources at Rs.75,26,828/-, therefore the assessee falls under the exception
provided in explanation to section 73. He has further contended that for
computation of gross total income as required under the explanation to section
73 the brought forward business loss as well as unabsorbed depreciation
brought forward has to be given effect and then only the income from business
being gross total income to be computed. In support of his contention, has he
relied upon the judgment of Hon'ble Jurisdictional High Court in the case of
"CIT vs. Darshan Securities Ltd." 341 ITR 556.
12 ITA No.4468/M/2012
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In rejoinder, the Ld. D.R. has submitted that the gross total income has
to be taken into account only for the year under consideration and not the
income of the earlier years for the purpose of explanation to section 73.
14. We have considered the rival submissions as well as relevant material on
record. There is no quarrel as far as the exception carved out in the
explanation to section 73 of the Act that if the company whose gross total
income consists mainly of income which is chargeable under the head inter-
alia `Income from other sources' then the deeming fiction created by the
explanation treating the business of the assessee as speculation business for the
purpose of setting off of the loss arisen from purchase and sale of shares
against the other head of incomes would not be applied. The Hon'ble
Jurisdictional High Court in the case of "CIT vs. Darshan Securities Pvt. Ltd."
(supra) has reiterated the proposition that if the gross income of the assessee
company consists the income which is chargeable under the heads `Interest on
securities', Income from house property', `Capital gain' and `Income from
other sources' is more than the income from `Business or profession', then the
said company will fall in the exceptions carved out under the explanation to
section 73 and deeming fiction will not be applied to such company. The issue
before us is in narrow compass as to whether the gross income of the assessee
for the purpose of comparison with the income from other sources has to be
computed after setting off of brought forward business losses and unabsorbed
depreciation. The gross total income for the purpose of explanation to section
73 of the Act shall be the aggregate income prior to giving the setting off under
chapter VI of the Act. The authorities below have not dealt with this issue to
give an factual finding about the allowable business loss and unabsorbed
depreciation as well as the legal point whether the gross total income under the
13 ITA No.4468/M/2012
M/s. R.T. Exports Ltd.
head `Business and profession' has to be computed after giving effect to the
setting off of brought forward business loss as well as brought forward
unabsorbed depreciation for the purpose of arriving to a decision that the
income from other sources is more than the income from business and
profession. Therefore for the limited purpose this issue is set aside to the
record of the AO to reexamine and reconsider the same by considering the
claim of the assessee and then decide the same as per law.
15. In the result, the appeal of the Revenue is partly allowed for statistical
purposes.
Order pronounced in the open court on 15.05.2015.
Sd/- Sd/-
(R.C. Sharma) (Vijay Pal Rao)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 15.05.2015.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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