Inter Jewel P.Ltd, Mumbai vs Assessee

सव ौी नरे ि कुमार ब लै या, लेखा सदःय एवं अिमत शु'ला, याियक सदःय के सम(

BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER &

SHRI AMIT SHUKLA, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No. 7013/Mum/2012 िनधा रण वष / Assessment Year : 2008-09 (िनधा

M/s.Inter Jewel Private बनाम The Addl. CIT-5(2), बनाम/ Limited, Aaykar Bhavan, Vs. 211, Prasad Chambers, MK Road, Opera House, Mumbai 400 020 Mumbai 400004 ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AACCD 5877B (अपीलाथ- /Appellant) .. (ू/यथ- / Respondent)

अपीलाथ- ओर से/ Appellant by: Shri K.A.Vaidyaligan ू/यथ- क1 ओर से/Respondent by: Shri Sachchidanand Dubey

सुनवाई क1 तार2ख / Date of Hearing :09.02.2015 घोषणा क1 तार2ख /Date of Pronouncement :13.02.2015

आदे श / O R D E R

PER N.K. BILLAIYA, AM:

This appeal by the assessee is directed against the order of the Ld.CIT(A)-9, Mumbai dated 24/09/2012 pertaining to assessment year 2008-09. The asessee has raised two substantive grounds of appeal. Ground No.1 relates to the disallowance of interest of Rs.19,95,375/- made by the AO and confirmed by Ld. CIT(A) under section 36(1)(iii) of the Income Tax Act, 1961 (the Act).

2 आयकर अपील सं./I. T . A . N o . 7 0 1 3 / M u m / 2 0 1 2 ( िनधा रण वष / A s s e s s m e n t Y e a r : 2 0 0 8 -0 9

2. The assessee is in the business of import and export of diamonds. The return of income was filed on 25/09/2008. The return was selected for scrutiny assessment and statutory notices were accordingly issued and served upon the assessee. During the course of scrutiny assessment the AO noticed that the assessee has paid interest on loans obtained from banks to the tune of Rs.14.52 crores. The AO further observed that the assessee has given advances for purchase of business premises in Bharat Diamond Bourse. The total advances comes to Rs.7.70 crores. Since the advances were for the purchase of fixed assets, which are not put to use the AO was of the opinion that there should be proportionate disallowance of interest. The assessee was asked to substantiate its claim. The assessee explained that there is no specific borrowing for making advances to Bharat Diamond Bourse. Further the assessee is having own funds at Rs.73.12 crores. It was also explained that the unsecured interest free loan of Rs.106.93 crores was also there in the balance sheet. In so far as interest expenses are concerned, it was explained that they have been paid in respect of packing credit, post shipment credit and the interest has not been paid for funding the payments made for the purchase of the premises. The explanation of the assessee did not find any favour with the AO, who proceeded by computing proportionate disallowance on advance given to Bharat Diamond Bourse. The disallowance was computed at Rs.19,95,375/-. The assessee carried the matter before Ld. CIT(A) but without any success.

3. Before us Ld. Counsel for the assessee submitted a detailed chart explaining its own source of fund. It is the say of the Ld. Counsel that the advances given for the purchase of Bharat Diamond Bourse at Rs.7.70 3 आयकर अपील सं./I. T . A . N o . 7 0 1 3 / M u m / 2 0 1 2 ( िनधा रण वष / A s s e s s m e n t Y e a r : 2 0 0 8 -0 9

crores is spread over for many years and during the year under consideration the assessee has paid only Rs.29.18 lacs. Ld. Counsel for the assessee further stated that assessee's current year's net profit is Rs.13.12 crores, which is sufficient to cover the advance of Rs.29.18 lacs. Ld. Counsel further stated that on identical set of facts the Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd.,313 ITR 340(Mum) has laid down the principle that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the assessee.

4. Per contra, Ld. DR strongly supported the findings of the Revenue Authorities.

5. We have carefully perused the orders of the authorities below and the judicial decision brought to our notice in the light of the balance sheet figures filed before us. It is an undisputed fact that assessee was having own funds at Rs.219.86 crores at the beginning of the year and Rs.180.05 crores at the end of the year. It is also an undisputed fact that assessee advanced Rs.29.18 lacs only during the year under consideration. Since the assessee is having sufficient own funds to meet out the advances we do not find any reasons for disallowance of the proportionate interest. On the facts of the case we set aside the findings of Ld. CIT(A) and direct the AO to delete the addition of Rs.19,95,375/-. Ground No.1 is allowed.

4 आयकर अपील सं./I. T . A . N o . 7 0 1 3 / M u m / 2 0 1 2 ( िनधा रण वष / A s s e s s m e n t Y e a r : 2 0 0 8 -0 9

6. Ground No.2 relates to the confirmation of the addition made at Rs.2,59,623/- being mark to market losses treating it as only notional and contingent.

7. While scrutinizing the return of income, the AO noticed that there are 65 unmatured export forward contracts as on 31/3/2008, out of which only 17 contracts show gain on account of M to M computation. All other contracts show loss. The net result comes to Rs.2,59,623/-. The assessee was asked to explain its stand. It was explained that following the Accounting Standard AS-11, the assessee has recognized net gain in respect to mark to market treatment and loss is at the end of the year and is an allowable loss in the light of the decision in the case of Woodward Governor India Pvt. Ltd. 294 ITR 451 294 ITR (Del). Reliance was further placed on the decision of Special Bench of the Mumbai Tribunal in the case of Bank of Bahrain & Kuwait in ITA No.4404 & 1883/Mum/04. It was further explained that the assessee has earned net gain on account of mark to market treatment at Rs.3,04,35,109/-, which has been shown separately. The net gain comes to Rs.3,01,75,486/-. In effect, the assessee has shown substantial gain from the mark to market treatment. The explanation of the assessee was dismissed by the AO, who was of the firm belief that the loss or gain is only notional and contingent. Drawing support from the CBDT Instruction No.3 of 2010 the AO disallowed Rs.2,59,623/-. The assessee carried the matter before Ld. CIT(A), but without any success.

8. Before us, the Ld. Counsel for the assessee reiterated what has been stated before lower authorities. Ld. Counsel for the assessee pointed out that the Revenue Authorities have proceeded on a mistaken fact that 5 आयकर अपील सं./I. T . A . N o . 7 0 1 3 / M u m / 2 0 1 2 ( िनधा रण वष / A s s e s s m e n t Y e a r : 2 0 0 8 -0 9

the assessee has cancelled the forward contracts and, therefore, the contracts are speculative in nature, whereas the loss is on account of restatement of outstanding forward contract at the end of the year. Ld. Counsel for the assessee relied upon the decision of Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC) and the Mumbai Tribunal's Special Bench decision in the case of Bank of Bahrain & Kuwait 5 ITR (Trib.)

301. Ld. Counsel also relied upon number of decisions of the Tribunal which have followed the decision of the Hon'ble Supreme Court and Special Bench of the Tribunal.

9. Per contra, Ld. DR strongly supported the findings of the Revenue Authorities.

10. We have carefully perused the order of Ld. CIT(A) and the decisions brought to our notice. In our considered opinion and the understanding of the facts we find that the Revenue Authorities have proceeded on a wrong assumption of facts. We find that the decision of the Tribunal's Special Bench in the case of Bank of Bahrain & Kuwait (supra) squarely apply on the facts of the case and also by the various judicial pronouncements like Kumbh Gems in ITA NO. 6600/Mum/2012, H. Dipak & Co. in ITA No. 7629/Mum/2011, Bhavani Gems in ITA NO.2855/Mum/2010 and M/s. Sutariya Gems Pvt. Ltd. in 3361/Mum/2013. Therefore, we have no hesitation in setting aside the order of Ld. CIT(A) and in directing the AO to delete the addition of Rs.2,59,623/-. Ground No.2 is allowed.

6 आयकर अपील सं./I. T . A . N o . 7 0 1 3 / M u m / 2 0 1 2 ( िनधा रण वष / A s s e s s m e n t Y e a r : 2 0 0 8 -0 9

11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court at the time of hearing on 13th of Feb. 2015.

Sd/- Sd/- (AMIT SHUKLA ) (N.K. BILLAIYA) याियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; 5दनांक Dated : 13. 02.2015 व.िन.स./ VM , Sr. PS आदे श क1 ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ- / The Appellant 2. ू/यथ- / The Respondent. 3. आयकर आयु7(अपील) / The CIT(A)- 4. आयकर आयु7 / CIT 5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुब ं ई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदे शानुसार/ ार BY ORDER, स/या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai