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By Ajay R. Singh, Advocate

1. S. 68: High Seas trading loss – disallowed the losses on the basis that the goods are sold at the price lower than the purchase price – Law cannot oblige or compel a trader to make or maximise its profits – addition not justified

The assessee is closely held company–mainly engaged in the business of trading in edible oil. During the year the AO noted that assessee-company makes a High Seas transaction. The sale price is lower than the purchase price. Thus, the assessee incurs artificial losses & creates artificial profit to other company, Therefore, the A.O. held that total losses to the tune of ₹ 4,93,44,276/- should not be allowed to the assessee and the same was added to the total income of the assessee.

The Tribunal found that during the assessment proceedings the assessee had produced all sales and purchase bills for verification by AO. The books of account of the assessee are duly audited. The ledger accounts as well as bank statements have also been verified by AO. The AO has not found any discrepancies therein. It is also a fact that overall the assessee has made profit on forward trading. The AO has not disputed or doubted those transactions where it resulted in profits. The AO disputed or doubted those transactions where it resulted in losses. Therefore, the learned AO has adopted only onside approach, that is, he picked only those transactions which has resulted into losses. Tribunal noted that profit making transactions and loss making transactions, both have settled through banking channels and no difference at all so that contractual terms are concerned, hence by the same logic, even the transactions resulting in losses should be taken as genuine unless proved otherwise. Parties have submitted confirmation before CIT(A). The confirmation was not available when the assessment proceedings were going on, therefore assessee could not submit before A.O. Hence, there is no sustainable logic for presuming that the forward trading losses were effected to transfer benefit to certain trading partners. The AO has not disproved any of the contentions or explanations of the assessee and the addition is solely on suspicion. That being so, the order of learned C.I.T.(A) deleting the aforesaid addition was upheld . In the result, appeal filed by the Revenue is dismissed.

ITO-12(2)(4) v Inu Exports Pvt. Ltd, ITA No.786/Mum/2016, DOH: 29/06/2018 (Mum.)(Trib.)

Inu Exports Pvt. Ltd

2. S. 36(1)(iii) : Deductions – Advances to purchase of machinery - Interest on borrowed capital – Owned funds – no disallowance.

The assessee is engaged in the business of Offset Printing Press and Typesetter, dealing in Printing Machinery. During the course of assessment, it was noticed that the assessee has paid an amount of ₹ 28.61 lakh to Herzog and Heymanin Gmbh & Co. as advance towards purchase of plant and machinery. The interest upon the said amount is liable to be capitalized.

The AO was of the view that the assessee has paid the advance of ₹ 28.61 lakh from the common funds comprising of borrowed and own funds, therefore, proportionate interest expenses must be calculated and is required to be disallowed having direct nexus with the purchase of plant & machinery. The interest was calculated to the tune of ₹ 2,17,097/-.

Tribunal held that the assessee’s own fund is more than the investment. The assessee was having own fund to the tune of ₹ 2,11,06,831/- which is excess to the impugned advance. ITAT relied on the case of Reliance Utilities & Power Ltd. (2009) 313 ITR 0340 Bombay High Court).

In the case of ACIT vs. Khoday India Ltd. Hon’ble ITAT Bangalore Tribunal has held that in the case where the assessee had made advances to purchase of capital assets or the machinery and other material, the interest paid on such borrowed fund to be allowed u/s. 36(1)(iii) of the Act.

In the present case also the assessee was having own fund more than the investment, therefore, no doubt the interest is not liable to be disallowed in view of the law settled in Reliance Utilities & Power Ltd. (2009) 313 ITR 0340 Bombay High Court), Khoday India Ltd. (2014) 39 CCH 0044 Bang. Trib.) & SRS Ltd. (2016) 47 CCH o121 Del Trib).

Budhraja Packaging P. Ltd. v ACIT(OSD)-10(1), Mumbai, ITA No. 5125/Mum/2015, DOH: 31/10/2018 (Mum)(Trib)

Budhraja Packaging P. Ltd.

3. S. 50 : Capital gains - Depreciable assets - Block of assets - sale of flat - no depreciation was claimed and assets were held for more than 36 months, assets were to be treated as long term capital gains [S. 45]

The assessee sold the flat at Elicid Premises for a sum of ₹ 75,50,000/-. During the year, the assessee computed the long term capital loss of ₹ 1,42,40,336/- on this transaction.

The AO held that the said flat was the part of the schedule of fixed assets of the assessee who claimed the depreciation @ 5% on this flat, therefore, the capital gain on the sale of flat was treated the short term capital gain hence rejected the claim of the assessee of long term capital gain. The contention of the assessee is that the assessee did not claim the depreciation in respect of this flat. Therefore on the sale of the flat, the consideration is liable to be treated as long term capital gain.

ITAT held that on appraisal of the finding of the CIT(A), we noticed that the assessee prepared the return in accordance with companies Act as well as in accordance with normal provision of the Act. The return as per the schedule VI of the Companies Act, the flat Elicid was appearing in the return of income and in the another chart which is under the normal provision of the Act and the working of depreciation u/s. 32 of the I.T. Act, 1961, the assets was not appearing. In the computation of the income, the assessee added back the depreciation computing as per the provision of the Companies Act and the claimed depreciation on this flat though the depreciation on the other properties have been claimed. The CIT(A) while deciding the matter of controversy relied upon both the chart in his order as annexures. According to the said facts, the sale of the flat was not found within the ambit of provision u/s. 50 of the Act hence the CIT(A) has treated the long term capital gain on account of sale of the said flat. The facts are not distinguishable at this stage also. No distinguishable material has been placed on record for deviating the finding of the CIT(A) in question. Accordingly, issue is being decided in favour of the assessee.

DCIT Central Circle-2(3) vs. M/s. N.S. Guzder & Co. Ltd, Mumbai, ITA No. 239/Mum/2017, DOH: 31/10/2018 (Mum.) (Trib.)

M/s. N.S. Guzder & Co. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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