AXIX OVERSEAS LTD,KOLKATA vs. ITO, WARD - 7(1), KOLKATA, KOLKATA

Briefly stated facts are that assessee is a limited company and engaged in trading business of raw jute and derivative export of jute products. The assessee in its balance-sheet as on 31.03.2008 and 3.103.2009 has shown certain figures of loan, share capital and investment etc. as detailed under:- Sl.No. Particulars On 31.3.08 On 31.3.09 1 Secured loan 99,65,040 6,83,24,302 2 Unsecured loan 13,81,06,964 2,13,00,000 3 Share capital reserve -- 15.12 crores 4 Investment in fixed asset 1.30 crores 1.30 crores 5 Investment in shares 14.44 crores 14.47 crores 6 Loan & advance --- 10,06,58,478

The assessee also submitted that the loan of ₹10,06,58,478/- has been given to 28 parties which are group concern of it. The assessee also submitted that the loan has been given to 28 parties in the course of business as well as advance has been given for the purchase of property. But assessee failed to furnish the documentary evidence in support of its claim during the course of assessment proceedings. Thus, AO was of the view that the assessee has diverted its interest bearing fund for non-commercial purpose and therefore the interest expense on such loan cannot be allowed as deduction. 7.1 Besides the above, AO observed that the amount of interest expense was paid by assessee to M/s PEC Ltd. on account of interest on Letter of Credit (LC for short). But the assessee failed to deduct Tax Deducted at Source (TDS) u/s. 194A of the Act on the amount of interest expense paid by it to M/s PEC Ltd. 7.2 The Assessing Officer also found that out of interest expense of ₹81,77,928/- on account of interest on LC to M/s PEC Ltd., a sum of

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted as under:- i) PEC Ltd. is wholly owned company by the Government of India and therefore any payment of interest to such company is exempted from the TDS deduction u/s. 194A of the Act as per the Notification No.S0861(E) dated 01.06.2007. Therefore, assessee was not liable to deduct TDS on the payment of interest to M/s PEC Ltd. ii) Bills form PEC Ltd. for ₹24,48,531/- was received by the assessee during the year under consideration. Therefore, the interest expense for ₹24,48,531/- was recorded during the year. Thus, the allegation of the AO that the impugned expense represents the prior period items does not hold good. iii) The amounts of loan / advance given to 28 parties by the assessee are associated concerns of assessee and all the amount were given in

However, Ld. CIT(A) after considering the submission of assessee has partly granted relief to assessee by observing as under:- “… .. During the appellate proceedings on 05.12.2012, the appellant submitted that the interest on the amount of Rs.10,06,58,478/- may to be disallowed @ 13.5% on which rate the appellant has taken secured loans from the bank. The plea of the appellant is accepted. The interest @ 13.5% on the amount of Rs.10,06,58,478/- calculated at an amount of Rs.1,35,88,895/- is disallowed u/s. 37 out of interest paid of Rs.1,71,36,916/-. 15. Therefore, the disallowance of amount of Rs.24,48,531/- as relating to prior period expenses and an amount of Rs.1,35,88,895/- as interest out of the interest expenses u/s. 37 is as interest on account of giving interest free loans and advances out of the interest bearing secured and unsecured loan taken by the assessee company is disallowed. Therefore, an amount of Rs.1,60,37,426/- is hereby disallowed as deduction and held to be added in the income of the ape. This ground of appeal is partly allowed.” Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.

Ld. AR for the assessee filed written submission along with paper book which is running pages from 1 to 199 and filed the break-up of interest expense as detailed under:- Interest payments: Rs.1,71,36,916/- (A) Disallowance confirmed by CIT(A) (i) Interest attributable to interest free advances to group concerns Rs. 1.35.88,895/- (ii) Interest to PEC Ltd. (prior period: Rs. 24,48,531/- Balance Rs. 57,29,397/-) 24,48,531/- Rs. 81,77,928/- 1,60,37,426/- (B) Disallowance of interest allowed by CIT(A) Rs. (i) Interest to PEC Ltd. (relating to relevant period) 57,29,397/- (ii) Car loan 80,558/- (iii) Interest on TDS 6,315/- 58,16,270/- A+B 2,18,53,696.00

We have heard the rival contentions of both the parties and perused and carefully considered the material on account of record; including the judicial pronouncements cited and placed reliance upon. From the foregoing discussion, we find that the AO made the disallowance of interest expense claimed by assessee on account of the following reasons:- 1) Diversion of interest bearing loan for non-commercial purpose without charging any interest, 2) Interest expense for ₹81,77,928/- was disallowed on the ground of non- deduction of TDS; 3) Out of interest of ₹81,77,928/- a sum of ₹24,38,531/- was disallowed on account of prior period item. Ld. AR before us fairly conceded and agreed not to agitate the disallowance of ₹24,48,531/- on account of prior period expense. Out of total disallowance of interest for ₹1,71,36,916/- has allowed the interest of ₹58,16,270/- as detailed under:-

Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in not adjudicating the ground of appeal raised by assessee for treating the loss of ₹70,07,236/- as bogus loss.

At the outset, Ld. AR for the assessee before us submitted that the issue of loss in future & option and derivative transaction was raised before Ld. CIT(A) but he failed to adjudicate the same. Ld. AR further submitted that an application u/s 154 of the Act was preferred before Ld. CIT(A) against his order dated 13.12.2012 wherein the Ld. CIT(A) rejected the claim of assessee without adducing any reason. In view of above, Ld. AR submitted to restore the matter back to the file of Ld. CIT(A) for fresh adjudication. In rejoinder Ld. DR does not raise any objection if the matter is remitted back to the file of Ld. CIT(A). In view of the above, we are inclined to restore the matter back to the file of Ld. CIT(A) to adjudicate the matter in accordance with law. This ground of assessee’s appeal is allowed for statistical purpose. 15. In the result, assessee’s appeal is partly allowed for statistical purpose.

The AO during the course of assessment proceedings observed that the claim of assessee for interest of Rs.6,315/- on account of late deposit of TDS amount is inadmissible as per the provision of Sec. 40(a)(ii) of the Act. Accordingly, AO disallowed the same of ₹6,315/- and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO. The Revenue, being aggrieved, is in appeal before us.

Before us both the parties relied on the order of Authorities Below as favourable to them.

We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, AO has disallowed the interest levied on account of late deposit of TDS u/s 40(a)(ii) of the Act. The AO was of the view that the interest on TDS is nothing but income tax paid by the assessee on behalf of parties. However, in our considered view, the interest charge was levied on account of delay in making payment of TDS

Further the provision of Section 40(a)(ii) of the Act denies for the deduction of income-tax paid by the assessee but it does not speak about the interest levied on account of late deposit of TDS. In fact, the amount of TDS deducted by the assessee does not represent the income of the assessee rather it represent the income for the party in whose name the TDS was deducted. Thus, in our considered view, the amount of interest expense cannot be disallowed under the provision of Section 40(a)(ii) of the Act. As such, the amount of interest expense is eligible for deduction u/s. 37(1) of the Act, as it was incurred in the course of assessee’s business. In holding so, we draw the principle laid down by Hon'ble Supreme Court in the case of Lachmandas Mathuradas vs. CIT 254 ITR 799 (SC) wherein it was held as under:- “In taking decision the High Court had placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.). The said judgment of the Full Bench had been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732/15 Taxman 452 (All.) (FB), wherein it had been held that interest on arrears of tax is compensatory in nature and not penal. That question had also been considered by the Supreme Court in Saraya Sugar Mills (P.) Ltd. v. CIT [Civil Appeal No. 830 of 1979 dated 29-2-1996]. In that view of the matter, the appeal was to be allowed.” In view of the above, we feel that the above principle laid down by Hon'ble Supreme Court can be applied to the interest expense levied on account of delayed payment of TDS as it relates to the expenses claimed by assessee which are subject to the provision of TDS. The assessee’s argument is that it claims the expense of certain amount in its profit and loss account and out of such expense it deducts certain percentage as specified under the Act as TDS which is paid to the Government Exchequer on behalf of the party. Thus, the amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted and paid to the Government Exchequer and

Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in treating the loss of ₹65,33,582/- as non speculative as per the Explanation to Section 73 of the Act.

The assessee in the year under consideration has claimed loss of ₹65,33,582/- on account of share trading activity. The AO treated the same amount of loss as speculation in nature as per the Explanation to Section 73 of the Act. Accordingly, AO did not allow the set off impugned loss from the business of the assessee. 25. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that the impugned loss was already treated by it as speculative in nature which was claimed to be set off against the speculative income only. Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- “21. The appellant submitted that it had not done any hedging. The transactions were not in the nature to guard against any loss of future fluctuation in price for sale/purchase. Thus the commodity profit should be treated as speculative profit as claimed by the assessee and allowed set off against the share trading business which has been held by the Assessing Officer as speculation business. In the facts and circumstances it is held that the appellant has done commodity trading in jute which is the line of the business of the appellant but the transactions have been done without taking delivery and the gain is a speculation gain. The appellant has shown the profit from the same as speculative profit in the Profit & Loss Account. The Assessing Officer has already held the share loss amounting to Rs.65,33,582/- as speculation loss as per explanation to section 73 of the Income Tax Act, 196. Therefore, the set off of speculation profit with the speculation gain is allowed. Hence, it is held that both the gain from commodity trading and loss from share trading are speculative in nature and are to be set off against each other. The Assessing Officer is directed to allow

Before us both parties relied on the order of Authorities Below as favourable to them. 27. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, it was observed that assessee claimed the loss of ₹65,73,582/- as speculative in nature as per explanation to Section 73 of the Act. Thus, such loss was set off against the speculative income by the assessee. In view of this, we find that the AO has already treated the impugned loss as speculative in nature and the same is also claimed by assessee as speculative in nature. Therefore, we find no infirmity in the order of Ld. CIT(A). We uphold the same. This ground of Revenue’s appeal is dismissed.

Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹1,04,941/- on account of undisclosed income of assessee.

At the outset, Ld. AR fairly conceded that assessee has shown less income in its return filed at ₹1,04,941/- only. Accordingly, Ld. AR requested the Bench to sustain the addition as made by AO.

In view of the above proposition, we reverse the order of Ld. CIT(A) and confirm the order of AO. Hence, this ground of Revenue’s appeal is allowed.

Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in directing the AO to verify the undisclosed investment of ₹14,72,050/- and adjudicate the matter accordingly. The assessee during the year has made transactions with the BSE Ltd. for ₹14,72,050/- which it failed to explain from

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that transactions with the BSE Ltd. is duly recorded in the books of account. The assessee in support of its claim produced the copy of contract note dated 12.08.2008 received from M/s Baljit Securities Pvt. Ltd. Ld. CIT(A) after considering the submission of assessee directed the AO to verify the necessary details from the books of account of assessee and accordingly adjudicate the issue by observing as under:- “24. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The appellant is directed to give a certificate based upon his books of account that such dealings have been entered by the appellant with those parties whose receipt is being asked by the Assessing Officer. On receipt of such a certificate showing such dealings expressly by the appellant, the Assessing Officer will verify such information. The appellant has filed the copy of the contract note received from Balajit Securities Pvt Ltd in which both amounts are reflected totaling to Rs.14,72,050/-. This ground of appeal is accordingly considered to be allowed for statistical purposes.” The Revenue, being aggrieved, is in appeal before us.

Before us both the parties relied on the order of Authorities Below as favourable to them.

We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, the addition made by Assessing Officer on the ground that assessee failed to explain the transactions of ₹14,72,050/- from the books of account. However, Ld. CIT(A) has restored the matter back to the file of AO with a direction to verify the necessary details from the books of account of assessee. From the above proposition, we find that necessary details were submitted by assessee before

In the result, Revenue’s appeal is partly allowed. 36. In combine result, assessee’s appeal is allowed partly for statistical purpose and that of Revenue is also partly allowed. Order pronounced in the open court 31/10/2017 Sd/- Sd/- (�या'यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S )दनांकः- 31/10/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Axis Overseas Ltd., 21, Shakespeare Sarani, Kolkata-17 2. राज�व/Revenue-ITO, Ward-6(2), P-7, Chowringhee Square, 6th Fl, Kolkata-69 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय �'त'न4ध, आयकर अपील�य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ4धकरण, कोलकाता ।