Itxa/508/2012 Of Commissioner Of Income Tax-16 v. M/S. Vishindas Holara

sas IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.508 OF 2012 Commissioner of Income Tax-16, Mumbai ..Appellant. V/s. M/s.Vishindas Holaram ..Respondent. Mr.A.R.Malhotra with Mr.N.A.Kazi for the appellant. Mr.P.J.Pardiwalla, Senior Advocate with Ms.Aarti Sathe and Mr.Kalpesh Turalkar for the respondent. CORAM : S.C.DHARMADHIKARI AND A.K. MENON, JJ. DATED : 28TH AUGUST, 2014 P.C. :- 1.This appeal by the Revenue challenges the order passed by the Income Tax Appellate Tribunal dated 12[th] August, 2011. The assessment year in question is 2003-04. 2.The revenue submits that there are two substantial questions of law which are formulated in the memo of appeal. Mr. Malhotra, learned counsel appearing on behalf of the revenue in support of this appeal submits that the assessment order passed in the case of the respondent-assessee dealt with the return of income filed by the assessee declaring total income of Rs.44,21,26,090/-. The return of income was accompanied by the tax audit report. After the requisite procedure, what the assessing officer concluded is that the assessee firm is engaged in the business of manufacturing and trading / export of diamonds. The assessee disclosed the source of income, computation of gross profits and claimed deduction under section 80HHC of the Income Tax Act, 1961 ('the I.T. Act' for short). 3.The assessing officer arrived at the conclusion that the transactions which have been undertaken would fall within the purview of a speculative transaction. The assessee ultimately completed the transaction without effecting the delivery of the foreign currency for which it entered into a contract with the forward market. The forward contract was booked and cancelled on the maturity date of the booking. Thus, in these circumstances, when no evidence was adduced to prove that the cancellation of forward contract before the date of delivery was a hedging contract, therefore, it falls within the ambit of the definition of “speculative transaction”, which would attract proviso (a) of section 43(5) of the I.T. Act. 4.Mr.Malhotra therefore, submits that the judgment of this Court in the case of Commissioner of Income-Tax V/s. Badridas Gauridu (P) Ltd. reported in 261 I.T.R. 256 was rightly distinguished. When, the Tribunal confirmed such finding of the Commissioner of Income Tax (Appeals), the first question of law is substantial. 5. In so far as the second question is concerned, Mr.Malhotra would submit that once the assessing officer's order has been upheld by both the Commissioner and the Tribunal to the extent that the rejection of rough diamonds and their re-export is an act not covered by section 80HHC, then, the revenue's case should have been accepted. There was no question of then, relying upon the alternate plea of the assessee and accepting it. For that purpose, reliance placed by the Tribunal on the judgment of this Court in the case of Kantilal Chotalal reported in 246 ITR 439 was misplaced. 6.On the other hand, Mr.Pardiwalla appearing for the assessee submits that the Tribunal has also analysed the transaction and elaborately considered the factual material. The factual detail is that the assessee is not a dealer in foreign exchange. It is a diamond exporter and exports diamond. There was an incidental transaction in foreign exchange. That was not a regular business of the assessee. The foreign exchange was booked against the standing export orders / 6.On the other hand, Mr.Pardiwalla appearing for the assessee submits that the Tribunal has also analysed the transaction and elaborately considered the factual material. The factual detail is that the assessee is not a dealer in foreign exchange. It is a diamond exporter and exports diamond. There was an incidental transaction in foreign exchange. That was not a regular business of the assessee. The foreign exchange was booked against the standing export orders / import liabilities. All this foreign exchange transactions are done with the permission of the Reserve Bank of India. The contracts were booked in the forward market in order to hedge against the possible losses accruing in view of the fluctuations in the currency. The contracts were entered either to reduce the increased costs of imports or decrease in receipt of export proceeds. It is in these circumstances that the Division Bench judgment and the ratio thereof was applied and, therefore, the first question cannot be termed as substantial question of law. 7.With regard to the second question, Mr.Pardiwalla submits that while it is true that the assessee's main contention which was raised before the assessing officer was not accepted and to that extent, the order of the assessing officer was correct and upheld. He states that the alternate argument before the assessing officer and the Tribunal shall be noted by this Court as ordinary commercial parlance also recognizes the fact that when the business is of such nature, namely procuring rough diamonds, cutting and polishing them and thereafter exporting them, there are some rough diamond items which are found to be incapable of being polished or cut. Such rejected rough diamonds are either sold in local or domestic market or exported. This is an attempt to decrease the cost and to maintain the exports turnover. This activity by itself cannot be said to be contrary to law much less to such an extent as would prejudice completely the Assessee's case. Reliance is placed by Mr.Pardiwalla on the judgment of the Hon'ble Supreme court in the case of Commissioner of Income-Tax V/s. Punjab Stainless Steel Industries reported in [2014] 364 ITR 144 (S.C.). 8.As a result of this, Mr.Pardiwalla, then, submits that even the second question is not a substantial question of law and hence the appeal deserves to be dismissed. 9.With the assistance of Mr.Malhotra and Mr.Pardiwalla, we have perused the memo of appeal and all necessary annexures thereto. We have also perused the relevant statutory provisions. In our view, the concurrent findings of the Commissioner and the Tribunal with regard to the nature of the transaction that it not being speculative in character is not perverse or vitiated by an error of law apparent on the face of record. The Division Bench held that once the main business is identified, if some incidental activities or transaction or dealing in foreign exchange is undertaken but that is also related to some extent to the main business activity, then, it could not be said that the assessee is in speculative business or speculative dealings is 9.With the assistance of Mr.Malhotra and Mr.Pardiwalla, we have perused the memo of appeal and all necessary annexures thereto. We have also perused the relevant statutory provisions. In our view, the concurrent findings of the Commissioner and the Tribunal with regard to the nature of the transaction that it not being speculative in character is not perverse or vitiated by an error of law apparent on the face of record. The Division Bench held that once the main business is identified, if some incidental activities or transaction or dealing in foreign exchange is undertaken but that is also related to some extent to the main business activity, then, it could not be said that the assessee is in speculative business or speculative dealings is ordinarily a part of his business. We find that any larger question or controversy need not be addressed in the facts of the case before us. Once it is undisputed that the assessee is in the business of exports of diamonds and he credited the exchange difference which is for the purpose of a transaction which was undertaken in foreign exchange and that transaction fell within the parameters of law as laid down by the Division Bench, then, this is not a fit case for interference in further appellate jurisdiction. In para 17 & 18 of the order under challenge, the Tribunal noted the rival contentions and relied on the Division Bench judgment of this Court. After reverting to the finding of the assessing officer, what the Tribunal held is that the factual position which emerges from the record, satisfies the conditions laid down in the Division Bench judgment. The conclusion, therefore, is based on facts which cannot be said to raising any substantial question of law. 10.With regard to the second question, what the Commissioner as also the Tribunal noted is that the assessing officer was right in rejecting the main stand or contention of the assessee. However, in so far as the alternate plea is concerned, what emerges from the record is that the assessee procures rough diamonds for the purposes of cutting and polishing them and using those diamonds for exports. Some of the exported rough diamonds were not found to be worthy for cutting and polishing. It is in these circumstances that the issue raised before the Commissioner has been considered by him in para 4.1 onwards. He has referred to an order of the Tribunal. He held that the deduction of the value of the export of rough rejected diamonds from the cost of purchase of rough diamonds is held to be correct. Therefore, the alternate plea that apart from reducing the import cost from the total export turnover, it shall also be reduced from the total turnover which exceeds the export income. This is something which the Tribunal upholds and in para 25 it refers to the finding of the assessing officer. We are of the opinion that once again this question has been considered and decided in the peculiar facts and in relation to the present assessee. No general rule has been laid down. The matter has to be decided on case to case basis. When considering the fact that rough diamond constitutes only 0.78% of the total turnover and if those diamonds which are found to be incapable for further processing are sold in unfinished form, that conclusion cannot be termed as perverse or vitiated by any error of law apparent on the face of record. 11.In the light of above, it is not necessary to refer to the judgment of the Hon'ble Supreme Court in Punjab Stainless Steel Industries (supra) which deals with a wider question of law. As the itxa508-12 11.In the light of above, it is not necessary to refer to the judgment of the Hon'ble Supreme Court in Punjab Stainless Steel Industries (supra) which deals with a wider question of law. As the itxa508-12 Hon'ble Supreme Court has held that this question must be approached in the light of turnover undertaken by the assessee and incidental yield of materials like rejected diamonds which are not of any use would not mean that the turnover is from the disposal of the raw materials which are useless to the assessee. The approach of the Tribunal seen in this light can all the more be upheld. The appeal is, therefore, devoid of any merits and hence dismissed. No costs. (A.K. MENON, J.) (S.C.DHARMADHIKARI, J.)