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M/s. Essel Propack Ltd., Formerly Essel Packaging Ltd. Versus ACIT, Range - 6 (2) , Mumbai

Addition u/s 14A - assessee has not claimed the dividend income from investments in foreign subsidiary companies as exempt - Held that:- From the computation statement as well as the Balance Sheet as submitted by the assessee we noted that the assessee had made investments in foreign subsidiary companies and from those companies it got the dividend income. The assessee has not claimed the said dividend income as exempt. The dividend income has been shown as income from other sources and due tax .....

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see - Addition made on account of inclusion of cenvat credit in valuation of closing stock - Held that:-the profit computed under the inclusive and the exclusive method of accounting are the same and there would not be any change even if the profit computed by the assessee is adjusted in accordance with the provisions contained u/s 145A of the I.T. Act because to the extent the closing stock will be increased. In respect of raw materials the cost of the purchase and the opening stock will be .....

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the increase in value of opening stock as well as the cost of the purchase due to the inclusion of the excise duty incurred by the assessee at the time of the purchase of the raw materials. In view of the aforesaid discussion the second ground is allowed. - Disallowance of foreign exchange loss on forward contracts related to foreign exchange currency - Held that:- As decided in case of M/s. D. Chetan & Co. [2016 (10) TMI 629 - BOMBAY HIGH COURT] forward contract in foreign exchange when inc .....

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nterest of justice and fair play to both parties set aside the order of the CIT(A) on this issue and restore this issue to the file of the AO with direction that the AO shall verify whether the assessee had made the payment to these parties through an account payee cheque and has duly accounted for the payment after deducting TDS on the bills. In the case the AO is not satisfied he may make and independent inquiry from the concerned parties and taken decision n accordance with law as in our opin .....

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arent that the assessee had duly produced the bills for verification. Therefore, in our opinion, the observation made by the AO that the assessee did not produce the bills does not have any leg to stand. Not only this we also noted that in the preceding assessment year 2007-08 the assessee had incurred expenditure on other repairs and maintenance to the extent of ₹ 89,41,982/- and during the impugned assessment year there is only a minor increase of ₹ 15,20,117/-. If we compare these .....

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re the assessee shall be entitled for depreciation @60% - ITA No.4116 /Mum/2013 - Dated:- 11-9-2017 - Shri P K Bansal, Vice President And Shri Pawan Singh, Judicial Member For The Appellant : Shri Rajesh Chamaria For The Respondent : Shri V. Justin ORDER Per P.K. Bansal, Vice President This appeal has been filed by the Revenue against the order of the CIT(A)-12, Mumbai dated 27.01.2013 for A.Y. 2008-09. 2. Ground No. 1 taken by the assessee relates to the sustenance of the disallowance of ₹ .....

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bsidiaries to the tune of ₹ 15,47,12,858/- which was offered as income from other sources. It was further noted that in the original computation of income the disallowance under section 14A has been mentioned by the assessee as ₹ 73,81,010/- but in the revised computation this disallowance was withdrawn. The Auditors also in Annexure K corresponding to clause 17(1) in Form 3CD computed the disallowance under section 14A at ₹ 73,81,010/-. When asked for the assessee submitted th .....

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gn subsidiary companies amounting to ₹ 15,47,12,858/- and the same has been shown as income from other sources. It is not the case that the dividend earned by the assessee has been claimed as exempt. It was also submitted that the assessee has not earned any dividend from the investments made in Indian companies. Therefore, in view of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT 378 ITR 33 no disallowance under section 14A can be made. Referring t .....

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gh the case law relied upon before us. From the computation statement as well as the Balance Sheet as submitted by the assessee we noted that the assessee had made investments in foreign subsidiary companies and from those companies it got the dividend income. The assessee has not claimed the said dividend income as exempt. The dividend income has been shown as income from other sources and due tax has been computed by the assessee in the computation statement. Therefore no question arises on ma .....

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Ltd. ITA No. 51 of 2016. No contrary decision was brought to our knowledge. We, therefore, delete the disallowance made by the AO and sustained by the CIT(A). Thus ground No. 1 taken by the assessee is allowed. 7. Ground No. 2 relates to the addition made on account of inclusion of cenvat credit in valuation of closing stock. 8. The facts relating to this ground are that the AO noted that the assessee is following the exclusive method of accounting and cenvat has not been included in the invento .....

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ces of the assessee and verify the calculation as made at the time of assessment proceedings by strictly keeping in view the provisions of Section 145A alongwith the directions of the CIT(A) as given in A.Y. 2006-07. Thus allowed this ground statistically. 9. We heard the rival submissions and gone through the orders of the tax authorities below. We noted that provisions of Section 145A were effective from 01.04.1999 and applies from A.Y. 1999-200 onwards. The scope and effect of section 145A ha .....

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point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. The section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring the goods to t .....

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include the Cenvat credit. Had once that included in the purchases ultimately there is no effect on the profit and understatement of the profit would not arise. Similar view has been taken by the Hon'ble Supreme Court in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. 261 ITR 275. Similar view was also taken by the Hon'ble Calcutta High Court in the case of CIT vs. Berger Paints India Ltd. 264 ITR 503. The Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works (P) .....

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either system of accounting the profit computed is a result of operation of an enterprise are identical as is evident from the following illustration: - Assume that in case of an Assesses: Year Item Qty Rate Amount Opening Stock 20 Purchases 150 10 1500 ED on Purchases 150 2 300 Closing Stock 40 Sales 130 15 1950 ED on Sales 130 5 650 Under the Exclusive Method: P & L Account Dr Particulars Rs. Cr. Particulars Rs. Opening Stock 200 Sales 1950 Purchases 1500 Closing Stock 400 Excise Duty 0 G .....

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ordance with the provisions contained u/s 145A of the I.T. Act because to the extent the closing stock will be increased. In respect of raw materials the cost of the purchase and the opening stock will be increased by the component of the excise duty. Since the issue involved related to the valuation of the closing stock in respect of raw material, the question of any disallowance u/s 43 B will also not arise. We have gone through the decision of the Hon'ble Supreme Court in the case of CIT .....

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essee cannot be effected if the assessee followed the inclusive method of accounting or the exclusive method of accounting because in any case the stock is increased to that extent the debit side in the P & L account which will be increased by the increase in value of opening stock as well as the cost of the purchase due to the inclusion of the excise duty incurred by the assessee at the time of the purchase of the raw materials. In view of the aforesaid discussion the second ground is allow .....

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ts. The foreign exchange risks are hedged using forward contracts on the basis of underlying purchases, sale contracts. The definition of speculative transactions under section 43(5) is an exhaustive one and the term does not include currency. The AO was not satisfied with the assessee s explanation. Therefore he treated the loss on cancellation of the forward contract as loss arising from speculation activities and disallowed the same. Assessee went in appeal before the CIT(A). The CIT(A) confi .....

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stive one and the term 'commodity' including shares and stocks but does not include currency. (a) The term 'commodity' is defined neither in the Income-tax Act nor in the General Clauses Act. (b) Dictionary meaning of the term 'commodity' is 'raw material or agricultural product that can be bought and sold - something useful or valuable'. (c) Another definition for the term 'commodity' is 'any product that can be used for commerce or an article of comm .....

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owa Ltd. v. DCIT 94 TTJ 227 has held as under: Foreign currency or any currency is neither commodity nor shares. The Sale of Goods Act specifically excludes cash from the definition of goods. Besides, no person other than authorised dealers and money changers are allowed in India to trade in foreign currency, much less speculate. S. 8 of the Foreign Exchange Regulations Act, 1973, provides that except with prior general or special permission of the RBI, no person other than an authorised dealer .....

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shares and securities should be also considered as commodities as the underlying shares and securities as specifically included within the term commodities. Accordingly, transactions in security derivatives are subject to the provisions of S. 43(5). However, a currency cannot be termed as a commodity so as to attract the provisions of S. 43(5). Jurisdictional Bombay High Court in the case of Badridas Gauridu (P) Ltd. 261 ITR 256 has held that the assessee is not a dealer in foreign exchange but .....

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circumstances of the case and in law, the Tribunal was justified in deleting the addition of Mark to Market Loss of ₹ 78,10,000/- made by the Assessing Officer on account of disallowance of loss on foreign exchange forward contract loss and not appreciating the fact that the said loss was a notional loss and hence cannot be allowed. The Hon'ble High Court after discussing the submissions of both parties held as under: - 7. The impugned order of the Tribunal has, while upholding the fi .....

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e transaction entered into by the Respondent assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the Respondent assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf of the Revenue that the Respondent assessee should be called .....

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disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that th .....

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t to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. 14. Similarly the Hon'ble Bombay High Court in the case CIT vs. M/s. London Star Diamond Co. (India) Pvt. Ltd. in appeal No .....

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D. Chetan & Co. and that ofCIT vs. M/s. Jaimin Jeweller Exports Pvt. Ltd. 15. The learned D.R. before us vehemently relied on the order of the CIT(A) but could not convince us that the facts involved in the case of the assessee are different to the decisions as has been given by the Hon'ble Bombay High Court in the above noted case law. 16. Respectfully following the decisions of the Hon'ble Bombay High Court we set aside the order of the CIT(A) on this issue and delete the disallowa .....

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CIT(A) confirmed the addition. The learned A.R. before us vehemently contended that the assessee has produced the bills before the AO. The amount of ₹ 4,42,822/- relates to the repairs of the plants which were duly accounted and paid after deduction of TDS by the assessee. The learned D.R., on the other hand, relied on the order of the AO. We, therefore, in the interest of justice and fair play to both parties set aside the order of the CIT(A) on this issue and restore this issue to the fi .....

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42,822/- is very small. Non-production of bills relating to this amount should not be considered as these expenses are non-genuine. Thus, this ground is allowed for statistical purposes. 18. Fifth ground relates to repairs and maintenance of other assets amounting to ₹ 18,18,800/-. The facts relating to this ground are that the AO noted that during the year the assessee had incurred a sum of ₹ 90,93,999/- on other repairs and maintenance. The assessee produced the bills during the co .....

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