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Income Tax Appellate Tribunal, KOLKATA BENCH “B”, KOLKATA
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B”, KOLKATA BEFORE SH. J.SUDHAKAR REDDY, ACCOUNTANT MEMBER & SH.S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA No.1983/KOL/2017 (ASSESSMENT YEAR-2014-15) vs ACIT, M/s. Greenex Chemicals Central Circle-2(4), Pvt.Ltd., 4/1, Middleton Aayakar Bhawan, Street, 5th Floor, Poorva, 110, Shantipally, Kolkata-700071. Kolkata-700107. PAN-AAACG8396G (Appellant) (Respondent) Appellant by Sh. A.K.Singh, CIT DR Respondent by Sh. M.D.Shah, AR Date of Hearing 13.02.2019 Date of Pronouncement 20.03.2019 ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER This appeal filed by the Revenue against the order dated 18.04.2016 passed by CIT(A)-20, Kolkata for AY 2014-15 u/s 143(3) of the Income Tax Act, 1961 (in short “Act”).
Ground No.1 is relating to deletion of addition made on account of disallowance of loss of derivative trading in the facts and circumstances of the case.
Heard both parties and perused the material available on record. It is noted that the AO accepted positive gains and rejected the loss as business loss. The CIT(A) rejected the said view of the AO by holding the AO should have either accepted the derivative business in its totality or he should have rejected in its totality. Therefore, it is clear that the AO cannot resort to accept only gains and reject the loss incurred therein. Ld.AR brought to our notice and placed on record the decision of this Tribunal
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wherein it held the view supporting the finding of CIT(A) in the impugned order. The relevant portion in the case of M/s. Asian Capital Market Ltd, dated 12.12.2018 at para 3 to 5 is reproduced herein below:-
“Ground No.1, is against the deletion of disallowance of loss made by the assessee on account of derivative trading. The Assessing Officer has dealt with the issue at para 2.2. of his order. The basis of disallowance was that the assessee was not a regular trader in derivatives market and that he only engaged in such trades on 16 occasions during the current year and except on one occasion had incurred huge loss. The transactions on which profit was derived was accepted as genuine by the Assessing Officer. He further held that the margins of gain and loss in the derivative market is very small and the brokerage charges would be very high. The sum and substance of his finding was that the transactions were pre-meditated trading. The ld. CIT(A) at pages 8 to 14 had considered the issue. After considering all the submissions of the assessee to the various objections raised by the Assessing Officer, he held as follows:-
“I have considered findings of the AO and the written submission, case laws and point-wise rebuttal filed by the AR on this issue, I think the AO's action of accepting only the positive gains by the assessee from derivative business and not accepting the losses incurred in some transactions in the same business is not justified. The AO should either accept the derivative business in its totality or he should have rejected it in totality. He cannot resort to accept only gains from it and reject losses incurred therein. Accordingly, assessee's appeal on grounds no 2 and 3 are allowed.”
We find no infirmity in this order as admittedly all the details of the profit as well as loss along with supporting documents such as contract notes, bank statements etc. have been filed by the assessee. The disallowance was made on presumptions and surmises. The Hon’ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:-
“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled.
There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO land PAN of
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the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities.
4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." [quoted verbatim]
This is essentially a finding of the Tribunal on fact. No material has been shown to us which would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analysed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed.
There shall be no order as to costs.”
4.1. The Jurisdictional Tribunal in the case of Kamla Prasad Kajaria (HUF) vs. ITO; ITA No. 1760/Kol/2017; order dt. 24/05/2018, under similar circumstances held as follows:-
“4. I have heard the arguments of both the sides and also perused the relevant material on record. It is observed that Page | 3
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the claim of the assessee for the impugned loss incurred in trading in derivatives was disallowed by the authorities below mainly on the ground that the assessee had not given any margin money to the broker before the relevant transactions and in his statement, the Director of the broker company had admitted that his company was indulging in providing bogus loss in currency derivatives as per the requirement of the clients. At the time of hearing before the Tribunal, the learned DR has laid emphasis on these two aspects in support of the revenue's case. However, as contended by the learned counsel for the assessee by relying on the decision of Hon'ble Bombay High Court in the case of Bonanja Commodities Brokers Pvt. Ltd. vs Mrs. Roshanara Bhinder (arbitration petition 195 of 2015 dated 16.04.2015), the collection of margin money as per the by- laws of MCX Stock Exchange Ltd. is only discretionary in nature and the transactions entered into by the clients without payment of margin money cannot be considered as illegal. As further contended by the learned counsel for the assessee, there is nothing in the statement of Shri Sachit Saraf, Director of the broker company nor anything has been brought on record by the A.O. to show that the transactions entered into by the assessee company through the said broker were bogus. As matter of fact, a perusal of the order of the A.O. shows that enquiry was directly made by him from MCX Stock Exchange Ltd. by issuing the notice u/s 133(6) of the Act in order to verify the transactions entered into by the assessee through M/s. Marigold Vanijya Pvt. Ltd. and in reply to the said notice, MCX Stock Exchange Ltd. had not only confirmed the transactions but had also furnished the required information along with a CD containing details of all transactions made by the assessee during the year under consideration through broker Marigold Vanijya Pvt. Ltd. As found by the A.O. on verification of the said details, total transactions involving sales of Rs. 15,19,22,392/- and purchases of Rs. 15,19,23,880/- were made by the assessee resulting into a loss of Rs. 1,488/-. This relevant evidence confirming the genuineness of the transactions made by the assessee on MCX Stock Exchange Ltd. was brushed aside by the A.O. on the ground that loss shown therein was Rs. 1,488/- whereas the assessee had claimed a loss of Rs. 5,17,141/-. As submitted on behalf of the assessee before the Assessing Officer as well as before us, expenditure was incurred by the assessee relating to the said transactions on account of brokerage, service tax and other charges levied by the broker aggregating to Rs. 5,15,653/- and accordingly the total loss as claimed by the assessee was to the tune of Rs. 5,17,141/-. As pointed out by the learned counsel for the assessee, this additional expenditure incurred by the assessee on account of brokerage, service tax and other charges was duly supported by the documentary evidence in the form of relevant bills issued by the broker and there was no reason whatsoever given by the A.O. for not accepting this explanation of the assessee. Keeping in view all these facts Page | 4
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and circumstances of the case, I am of the view that the genuineness of the transactions made by the assessee on MCX Stock Exchange Ltd. through broker Marigold Vanijya Pvt. Ltd. was duly established and the action of the authorities below in disallowing the claim of the assessee for the resultant loss in dealing in currency derivatives is not tenable. I, therefore, delete the said disallowance and allow the appeal of the assessee.” 5. Consistent with the view taken therein, we uphold the order of the ld. CIT(A) and dismiss the Ground No. 1 of the revenue.” 4. In view of the same, we find no infirmity in the order of CIT(A) and it is justified. Thus, Ground No.1 raised by the Revenue is dismissed.
Ground Nos. 2 & 3 relating to disallowance made u/s 14A r.w.Rule 8D in the facts of the circumstances of the case.
Heard both parties and perused the material available on record. It is noted from the record that the assessee did not earn exempt income and the CIT(A) placing reliance on the decision of this Tribunal in the case of M/s. Compact Windstock Pvt.Ltd., deleted the said addition by holding that no disallowance is maintainable when there is no exempt income. The relevant portion is reproduced herein below for ready-reference:-
“I have considered the finding of the AO on this issue in the assessment order and the written submission filed by the AR. In the assessment order the AO has made addition on the basis of circular 5 of 2014 issued by the CBDT. Although the assessee has not earned any dividend/exempted income but the AO has made addition under rule 8D on investments for being capable of earning dividend. During the appellate proceedings the AR has submitted different case laws in the support of his argument that no disallowance under rule BD read with section 14A of the I T Act, 1961 can be made in case there is no exempted income earned during the year by the assessee. The AR has relied upon the jurisdictional Kolkata bench of ITAT in the case of ITO vs M/s Compact Finstock Pvt Ltd (ITA No.1141/Kol/2015) dt.17-12-2015). The relevant portion of this order is as under: "I have heard the arguments of the both sides and also perused the relevant material available on record. Although the ld. D.R. has relied on the same CBDT's Circular, which was relied upon by the Assessing Officer to make a disallowance under section 14A, it is observed that the position of law as settled in the various judicial pronouncements is that no disallowance under section 14A can be made in the year where the assessee has not earned any exempt income. In one of such decisions rendered in the case of Cheminvest Limited -vs. - CIT (ITA No. 749 of
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2014 dated 02.09.2015), Hon'ble Delhi High Court has held that section 14A envisages that there should be an actual receipt of income which is not includible in total income and the said section will not apply where no exempt income is received or receivable during the relevant year. It is also 'well settled that the Circulars issued by the CBDT are binding on the revenue authorities and not on the Courts. I, therefore, uphold the impugned order of the id. CIT (Appeals) deleting the disallowance made by the Assessing Officer under section 14A and dismiss this appeal of the Revenue." Further the AR also quoted the case of jurisdictional Mumbai bench of ITAT in the case of ACIT vs M/s Uma Polymers Ltd (ITA No.5366/Mum/2012 dt.30.9.2015). In this case it was held that the assessee has sufficient funds to make investments and the assessee company has demonstrated that interest bearing funds are bank loans raised for specific purpose and utilized for the specific purposes and hence disallowance of interest expenditure under Rule 8D 2(ii) by the revenue is hereby deleted.@ I have considered the finding of the AO and the written submission and case laws filed by the AR on this issue. I think the ratio decided by the Kolkata Bench of ITAT in the case of REI Agro (supra) which was confirmed/upheld by the Hon'ble Kolkata High Court also is very clear on this issue. In its order the Kolkata Tribunal has clearly held that In the case of the assessee, out of the total investment in shares, no investments have yielded any dividend income. As such, the average value of investments that yielded the exempted income is nil. Hence, the disallowance under Rule 8D(2)(iii) @ 0.5% average of the value of the investment would also be zero. I think the ratio decided by the Jurisdictional Kolkata Bench of ITAT in the case of M/s Compact Finstock Pvt .Ltd (supra) also is relevant and appropriate in this case. Respectfully, following the ratio decided by the Jurisdictional Bench of Tribunal (which has held that no disallowance under rule 80 read with section 14A of the I T Act, 1961 is to be made in a case where the assessee has not earned any exempted income during the year). Accordingly, assessee's appeal on this ground is allowed.” 7. In view of the same, we find no infirmity in the order of CIT(A) and it is justified. Thus, Ground Nos. 2 & 3 raised by the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 20.03.2019.
Sd/- Sd/- (J.SUDHAKAR REDDY) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 20.03.2019 *Amit Kumar* Page | 6
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