Agarwal Industries Private Limited, Hyderabad V. Dy. Commissioner of Income Tax, Circle-1(1), Hyderabad

ITA 1029/Hyd/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0758 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2002-2003
• Appeal Filed On: 19-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Speculation loss; Assessment record; Speculative transactions
• Section: 43(5); 43; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO S . 1028 & 1029 /H/20 17 ASSESSMENT YEAR S : 20 01 - 2002 & 2002 - 03 AGARWAL INDUSTRIES PVT. LTD., HYDERABAD. PAN AA CCA 0094R VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI Y. RATNAKAR REVENUE BY: SHRI SUNIL KUMAR PANDEY DATE OF HEARING: 2 1 /01/2021 DATE OF PRONOUNCEMENT: 17 /0 2 /2021 O R D E R PER BENCH: BOTH THESE APPEALS FILED BY SAME ASSESSEE ARE DIRECTED AGAINST THE CIT(A) 1, HYDERABADS SEPARATE ORDERS, BOTH DATED 27/02/2017 FOR AYS 2001 - 02 AND 2002 - 03. AS IDENTICAL GROUNDS ARE INVOLVED IN THESE APPEALS, THE SAME WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 2 - : 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FACTS FROM AY 2001 - 02 AND THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE COMMON, EXCEPT THE QUANTUM OF ADDITION, WHICH ARE AS UND ER: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - I, HYDERABAD DT.27.02.2017 TO THE EXTENT TO WHICH IT UPHELD THE TREATMENT OF RS . 41 ,17,700/ - AS SPECULATION LOSS IS CONTRARY TO LAW AND FACTS. IT IS CONTENDED THAT THE ORDER OF THE LEARNED CI T(A) - 1, HYDERABAD IS CONTRARY TO LAW AND FACTS. 2. IT IS CONTENDED THAT THE LOSS OF RS. 41,17,700/ - (NET AMOUNT AFTER DEDUCTING PROFIT) IS AN ALLOWABLE BUSINESS EXPENDITURE. 3. IT IS CONTENDED THAT THE LOSS WAS SUSTAINED IN COURSE OF HEDGING TRANSACT IONS TO PROTECT THE BUSINESS INTEREST WHILE DEALING IN OILS AND THEREFORE CONSTITUTES ALLOWABLE EXPENDITURE. 4. IT IS CONTENDED THAT IN ANY EVENT THE LOSS SUSTAINED FALLS WITHIN THE EXCEPTIONS IN PROVISION A TO SECTION 43(5) OF THE INCOME TAX ACT. THE LE ARNED CIT ERRED IN TREATING THE LOSS SUSTAINED AS SPECULATION LOSS. 5. THE LEARNED COMMISSIONER UPHELD THE TRANSACTIONS AS SPECULATIVE BASED ON FACTORS NOT RELEVANT AND ON ACCOUNT OF MISUNDERSTANDING OF AN HEDGING TRANSACTION. 6. WITHOUT PREJUDICE THE LEARNED COMMISSIONER ERRED IN IGNORING THE CIRCULAR BEARING NO. 23 (XX XIXD) OF 1960 DT. 12.09.1960 WHILE CHARACTERIZING THE TRANSACTION AS SPECULATIVE IN NATU RE. I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 3 - : 7. IN ANY EVENT THE APPELLANT CONTENDS THAT IT IS ENTITLED TO THE DEDUCTION OF RS.41,77,700/ - AS BUSINESS LOSS. THE SAID LOSS DOES NOT CONSTITUTE LOSS FROM SPECULATION. 8. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER ANY OF THE AFORESAID GROUNDS AS THE OCCASION MAY REQUIRE. 9. FOR THESE AND OTHER GROUNDS THAT WILL BE SUBMITTED AT THE TIME OF HEARING OF APPEAL, IT IS PRAYED THAT THE LOSS OF RS. 41,17,700/ - BE ALLOWED AS A BUSINESS LOSS. 2.1 THEREFORE, THE DECISION IN APPEAL FOR AY 2001 - 02 IN I TA NO. 1028/HYD/2017 SHALL APPLY MUTATIS - MUTANDIS FOR AY 2002 - 03 IN ITA NO. 1029/HYD/2017. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF EDIBLE OILS FILED ITS RETU RN OF INCOME FOR THE AY 2001 - 2 ON 29/10/2001 DECLARING A NET LOSS OF RS. 1,88,48,982/ - . THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE. ASSESSEE DEALS IN TRADING OF UNPROCESSED AND PROCESSED EDIBLE OILS APART FROM MAN UFACTURING AND SELLING OF EDIBLE OILS. DURING THE IMPUGNED AY, THE ASSESSEE HAD SHOWN A TURNOVER OF RS. 73,92,12,759/ - . THE ASSESSEE FURNISHED ITS I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 4 - : SALES TAX ASSESSMENT ORDER FOR VERIFICATION, IN WHICH, A GROSS TURNOVER OF RS. 75,26,58,745/ - WAS SHOWN, WHIC H WAS IN EXCESS OF RS. 1,34,45,986/ - COMPARED TO INCOME - TAX RETURN AND AUDITED FINANCIAL STATEMENTS, WHICH WAS RECONCILED BY THE ASSESSEE AFTER ADDITION AND DELETION OF CERTAIN ITEMS ON THE RECONCILIATION STATEMENTS. IT WAS OBSERVED BY THE AO THAT AT SL.N O. 5, ASSESSEE HAD ADDED LOSS IN SETTLEMENT OF CONTRACT TOWARDS SOYABEEN OIL OF RS. 29,69,800/ - AND AT SL.NO. 2, IT HAD REDUCED THE SETTLEMENT DIFFERENCE (PROFITS) UNDER SUNFLOWER OIL OF RS. 15,80,000/ - AND SOYABEEN OIL OF RS. 6,74,300/ - . FURTHER ON A PER USAL OF THE STATEMENT FILED BY THE ASSESSEE PLACED AT PAGE NO. 1 OF PAPER BOOK , THERE IS A LOSS OF RS. 62,72,700/ - AND PROFIT OF RS. 21,55,000/ - RESULTANTLY, THERE WAS A NET LOSS OF RS. 41,17,700/ - , WHICH HAS BEEN CLAIMED BY THE ASSESSEE AS A BUSINESS LOSS . WHEN THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF LOSS IN SETTLEMENT OF CONTRACTS, THE ASSESSEE FURNISHED ITS REPLY, WHICH HAD BEEN INCORPORATED BY THE AO IN HIS ORDER AND THE SAME IS AS UNDER: 'SINCE LAST MORE THAN 50 YEARS, WE ARE DOING THE BUSINES S OF OIL I.E. MANUFACTURING, TRADING, CONTRACT OF I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 5 - : OIL I.E. BUYING AND SELLING, FORWARD CONTRACT OF OIL. THIS I S NOT SALE, THEREFORE IT IS NOT APPEARED. IN SALES TAX ASSESSMENT ORDER. IT IS JUST CONTRACT SALE. SO, WE MAY GET PROFIT OR LOSS UPON MARKET SITUATION.' FURTHER TO THE ABOVE SUBMISSIONS, THE ASSESSEE, VIDE ITS LETTER DATED 5 - 03 - 2004 SUBMITTED A NOTE ON S ETTLEMENT OF CONTRACT ACCOUNT RECONCILIATION AS UNDER: 'THE WORD SETTLEMENT OF CONTRACT MEANS NON - FULFILLMENT OF THE CONTRACT OF P URCHASE OR SALE WHERE GOODS ARE NOT TAKEN DELIVERY. ON THIS TRANSACTION, WE MAY EARN P ROFIT OR LOSS ON SUCH TRANSACTIONS. WE CREDIT / DEBIT. TO SETTLEMENT DIFFERENCE ACCOUNT COMMODITY - WISE RESPECTIVELY. THESE ACCOUNTS INCLUDE PROFIT / LOSS EARNED DUE TO VARIATION OF THE PRICE. THE ABOVE SETTLEMENT CONTRACT, EITHER PROFIT OR LOSS IS TRANSFERRED TO RESPECTIVE COMMODITY SALE OR PURCHASE ACCOUNT AS THE CASE MAY BE.' 3.1 THE ASSESSEE ALSO FILED INVOICES RAISED BY ATUL MUNDRA CORPORATION THAT THE ASSESSEE WAS INDULGING IN FUTURES TRADING OF COMMODITIES. THE LD. AR OF THE ASSESSEE RELIED ON FEW CASE LAW IN SUPPORT OF ASSESSEES CAS E. THE AO AFTER ANALYSING THE ISSUE WITH CASE LAW TREATED THE TRANSACTIONS DONE BY THE ASSESSEE AS SPECULATIVE TRANSACTIONS AS PER SECTION 43(5) OF THE ACT BY HOLDING THAT THE LOSS WAS NOT OCCURRED DURING THE NORMAL COURSE OF BUSINESS AND TREATED THE SAME SPECULATIVE LOSS. HE ALSO OBSERVED THAT THE GOODS I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 6 - : IN QUESTION WERE NEVER ACTUALLY TAKEN DELIVERY NOR THE SAME WERE TAKEN TO THE STOCK REGISTER OF THE COMPANY. ACCORDING TO THE AO, IN THE CASE OF TRADED GOODS PURCHASED AND SOLD HAD NOT BEEN ROUTED THROUG H SALES AND PURCHASE REGISTER, BUT, ONLY ADJUSTMENT ENTRIES WITH REFERENCE T O THE ABOVE SPECULATIVE TRANSACTION HAD BEEN MADE AT THE TIME OF SETTLEMENT OF CONTRACTS. IN VIEW OF THE ABOVE OBSERVATIONS AND AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE, TH E AO DID NOT ALLOW LOSS CLAIMED BY THE ASSESSEE TO THE TUNE OF RS. 41,17,700/ - . 4. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) CALLED FOR REMAND REPORT FROM THE AO, TWICE, AND BOTH THE REMAND REPORTS AR E EXTRACTED AS UNDER FOR THE SAKE OF CLARITY: THE 1 ST REMAND REPORT WAS RECEIVED FROM THE ASSESSING OFFICER IN LETTER DATED 17.01.2005. THE CONTENT OF THE REMAND REPORT IS EXPANDED BELLOW. AN AMOUNT OF RS.4 1 ,17,700/ - WHICH W AS LOSS SUFFERED BY THE ASSESSEE IN RESPECT OF SETTLEMENT... CONTRACTS, WAS SEPARATELY ASSESSED AS SPECULATION LOSS INSTEAD OF BUSINESS LOSS. AS PER INFORMATION AVAILABLE WITH THE ASSESSMENT RECORD THE ASSESSEE DOES NOT USE, SOYABEAN OI L AS RAW MATERIAL IN ITS MANUFACTURING ACTIVITY. I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 7 - : HOWEVER, THE ASSE SSEE S CONTENTION THAT IT COMES UNDER THE PURVIEW OF SECTIO N 43(5)(A) IS NOT TENABLE FOR THE FOLLOWING REASONS MENTIONED HEREUNDE R: . I. AS EVIDENT FROM THE INVOICES, THE ASSESSEE IS PURCHASING AND SELLING THE COMMODITIES, EVEN WITHOUT ACTUAL DELIVER I.E., WITHOUT POSSESSING THE STOCK ON HAND. IN OTHER WORDS, THE ASSESSEE IS INDULGING IN SHORT SELLING OF THE COMMODITIES OR PARTICIPATING IN SPECULATIVE TRADING. SINCE THE NATURE OF THE TRANSACTION IS SPECULA TIVE IN NATURE, THE NET L OSSES FROM SUCH ACTIVITY SHOULD BE ASSESSED AS SPECULATION LOSSES ONLY AND CANNOT BE CLUBBED WITH BUSINESS LOSSES FROM NONSPECULATIVE BUSINESS ACTIVITY. II. . THE ASSESSEE TRIED TO TAKE REFUGE IN PROVIS O (A) TO SECTION 43(5). AC CORDING TO THIS PROVISO, A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF ITS MANUFACTURING OR MERCHANDISE BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION IN RESPECT OF ITS CONTRACT FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. IN ORDER TO SOLD BY HIM SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. IN ORDER TO QUALIFY AS A HEDGING TRANSACTION, THE FOLLOWING C ONDITIONS SHOULD BE FULL FILLED. III. FUTURE CONTRACTS FOR SALES CAN BE TREATED AS HEDGING CONTRACTS ONLY IF SUCH CONTRACTS ARE SUPPORTED BY A PRE - EXISTING CONTRACT FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY THE ASSESSEE OR MERCHANDISE SOLD BY THE ASSE SSEE (CIT VS AJIT SPICES, CIT VS R. VALLABHADAS & SONS) I V. THE ABOVE CONTRACTS MUST HAVE BEEN ENTERED INTO IN THE COURSE OF MANUFACTURING OR MERCHANTING BUSINESS. SINCE, NO SUCH PRE - EXISTING DATED CONTRACTS HAVE BEEN PRODUCED BY THE ASSESSEE, THE QUESTI ON OF IT HAVING BEEN I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 8 - : ENTERED INTO IN THE COURSE OF ITS MANUFACTURING OF MERCHANTING BUSINESS DOES NOT ARISE. THUS, THE ASSESSEE'S CLAIM THAT THE TRANSACTIONS ARE IN THE NATURE OF HEDGING TRANSACTIONS CANNOT BE ACCEPTED ON THE FOLLOWING GROUNDS. I. THE GOODS IN QUESTION WERE NEVER ACTUALLY TAKEN DELIVERY OF II. THE STOCKS IN THE CASE OF RAW MATERIALS WAS NEVER TAKEN TO THE STOCK REGISTER OF THE COMPANY AS PRODUCED BEFORE THE ASSESSING OFFICER. III. IN THE CASE OF TRADED GOODS, THE ITEMS PURCHASED AND SOLD HAVE NOT BEEN ROUTED THROUGH THEIR SALES AND PURCHASES REGISTERS. ONLY ADJUSTMENT ENTRIES WITH REGARD TO THE ABOVE SPECULATIVE TRANSACTIONS' HAVE BEEN MADE AT THE TIME OF SETTLEMENT OF CONTRACTS. IN VIEW OF THE ABOVE, ASSESSEE' S CONTENTION ON THIS GROUND DESERVES TO BE REJECTED. IN 2 ND REMAND REPORT,. ASSESSING OFFICER BY ITS LETTER DATED 17.01.2008 SUBMITTED REMAND REPORT, WHICH IS REPRODUCED BELOW: ASSESSEE' S ARGUMENT ON ACCOUNT OF SETTLEMENT OF LOSS IN FORWARD CONTRACTS AS HEDGING TRA NSACTION IS NOT ACCEPTABLE AND THE SAME HAS TO BE TREATED AS SPECULATIVE LOSS ONLY AS CONCLUDED ANALYTICALLY IN ASSESSMENT ORDERS BASED ON THE FACTS OF THE CASE BY ASSESSING OFFICER. APPARENTLY, ASSESSEE DID NOT HAVE EITHER JUSTIFICATION OR ADDITIONAL INFO RMATION, IF ANY, AS CLAIMED BY THE ASSESSEE. AS THE INFORMATION SUBMITTED BEFORE THE APPELLATE' AUTHORITY IS NO WAY DIFFERENT FROM THE ONE SUBMITTED BEFORE THE APPELLATE AUTHORITY IS NO WAY DIFFERENT FROM THE ONE SUBMITTED BEFORE THE ASSESSING OFFICER INCL UDING THE LEGAL OPINION OF COUNSEL AS DISCUSSED IN ASSESSMENT ORDER. HENCE, ASSESSEE'S I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 9 - : TRANSACTION SQUARELY FALL UNDER SPECULATIVE LOSS AND THE SAME IS RIGHTLY TREATED IN ASSESSMENT ORDER AS PER PROVISIONS OF SECTION 43(5) OF IT ACT. 4.1 AFTER CONSIDERING THE REMAND REPORTS AND SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT THIS LOSS HAS BEEN GENERATED FROM THE SPECULATION TRANSACTIONS AND NOT IN COURSE OF NORMAL BUSINESS AND THE SAME TO BE TR EATED SEPARATELY AND CANNOT BE BROUGHT UNDER HEAD INCOME FROM BUSINESS. 5. STILL AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE INCOME - TAX APPELLATE TRIBUNAL . 6. BEFORE US, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND HE ALSO FILED WRITTEN SYNOPSIS, WHICH IS PLACED ON RECORD. FURTHER, HE SUBMITTED THAT ASSESSEES TURNOVER IS ABOUT APPROXIMATELY RS. 7 4 CRORES AND, THEREFORE, IT IS NECESSARY TO ENTER INTO FORWARD CONTRACTS TO PROTECT FUTURE LOSS AS THE ASSESSEE ALSO ENGAGED IN MANUFACTURING AS WELL AS MERCHANDISE OF GOODS. HE SUBMITTED THAT WHATEVER THE ASSESSEE HAS TRADED I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 10 - : THROUGH FORWARD CONTRACTS HAS BEEN USED BY THE ASSESSEE FOR MANUFACTURING OF GOODS AS WELL AS MERCHANDIZE OF THE GOODS. HE ALSO S UBMITTED THAT PHYSICAL DELIVERY WAS NOT REQUIRED TO PROTECT THE INTERESTS OF THE ASSESSEES BUSINESS. HE SUBMITTED THAT THE GOODS FOR WHICH ASSESSEE ENTERS ARE SQUARELY COVERED U/S 43(5)(A) OF THE I.T. ACT. HE ALSO SUBMITTED THAT SOYABEEN OIL IS USED FOR THE RAW MATERIAL FOR MANUFACTURING OF EDIBLE OILS AND THEREFORE THERE WAS A PURCHASE OF SOYABEEN OIL IS LINKED TO MANUFACTURING IN ADDITION TO CARRYING ON TRADING IN SOYABEEN OIL. HE ALSO SUBMITTED THAT DETAILS WERE FILED BEFORE THE AO IN A TABULAR FORM, IN WHICH, THERE IS CLEARLY MENTIONED THAT DATA OF ORIGINAL CONTRACT OF THE DELIVERY DATE ALSO. SETTLEMENT IS MADE ON THE BASIS OF PRICE DIFFERENCE ON THE SCHEDULED DATE OF DELIVERY. HE SUBMITTED THAT THE OBJECTION OF THE AO IS THAT CONTRACT NOTE ENTERED I NTO ON THE ORIGINAL DATE, HAS NOT BEEN PRODUCED. IT WAS REPRESENTED TO THE AO THAT WHEN THE SETTLEMENT BILLS ARE PREPARED AND AMOUNT IS SETTLED THE CONTRACT PAPERS WHICH SHOWS ORIGINAL DATE, IS SURRENDERED TO DEALER. THIS IS GENERAL PRACTICE MORE SO IN OIL INDUSTRY. I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 11 - : THE AO HAVING TAKEN THE SETTLEMENT BILLS ON RECORD DOES NOT REFER TO THE DETAILS THEREIN. HE FINALLY PRAYED FOR DELETION OF ADDITION AND ALLOW THE ASSESSEES CLAIM OF LOSS AS A BUSINESS LOSS . 7. THE LD. DR, ON THE OTHER HAND, BESIDES RELYING ON THE ORDERS OF REVENUE AUTHORITIES, SUBMITTED THAT THE AUTHORITIES BELOW HA VE EXAMINED THE ISSUE IN DETAIL AND THE ASSESSEE HAD NEVER TAKEN THE POSSESSION OF THE GOODS AND NOT RECORDED IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT THE TRANSACTIONS SHOWN BY TH E ASSESSEE REGARDING CLAIM OF RS. 41,17,700/ - ARE PURELY SPECULATIVE LOSS, WHICH CANNOT BE SET OFF FROM THE REGULAR BUSINESS INCOME. HE, THEREFORE, PRAYED FOR UPHOLDING THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS MADE BY THE LD. AR. WE OBSERVE THAT THE ASSESSEE HAS FILED A CHART IN A TABULAR FORM IN WHICH HE HAS SHOWN PROFIT AND LOSS IN THE LAST COLUMNS AND THE D ETAILS OF THE COMMODITIES TRADED I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 12 - : THROUGH FORWARD CONTRACTS WHICH IS PLACED AT PAGE NO. 1 OF PAPER BOOK . WE ALSO PERUSED THE BILLS RAISED BY ATUL MUNDRA CORPORATION, BUT, THE DATES IN THE BILLS RAISED BY THE SAID CORPORATION ARE NOT MATCHED WITH THE DETAILS FILED BY THE ASSESSEE IN PAPER BOOK AT PAGE 1. FURTHER, ON PERUSAL OF THE FINANCIAL STATEMENT AND AUDIT REPORT, NOWHERE WE FIND THAT THE ASSESSEE HAS UNDERTAKEN THE IMPUGNED TYPE OF ACTIVITIES. THE TURNOVER IS MENTIONED IN THE FINANCIAL STATEMENT AT RS. 7 3,92,12,759/ - . THE ASSESSEE HAS NOT FILED ANY CONTRACT NOTES MADE WITH ATUL MUNDRA CORPORATION , BUT, IT HAS FILED ONLY BILLS RAISED BY THE SAID CORPORATION BEFORE US AND THE SAME ARE NOT RECORDED IN THE BOOKS ACCOUNT OF THE ASSESSEE. THE ASSESSEE IS UNABLE TO ESTABLISH THAT THE RE WAS ANY CONTRACT FOR ACTUAL DELIVERY OF GOODS AND, THEREFORE, THE CONDITION PRECEDENT U/S 43(5)(A) IS NOT SATISFIED. THERE IS ALSO NO PROOF OF PAYMENTS MADE TO ATUL MUNDRA CORPORATION. IN THIS CONNECTION, WE RELY ON THE JUD GMENT OF THE HONBLE HIGH COURT OF ALLAHABAD IN THE CASE OF COMMERCIAL MOTORS LTD. VS. DCIT, [2013] 36 I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 13 - : TAXMANN.COM 528 (ALL.) WHEREIN THE HONBLE COURT HAS HELD AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND ON PERUSAL OF RECORD, IT APPEARS TH AT IN THE INSTANT CASE, THE ASSESSEE HAS MADE NO PAYMENT FOR THE PURCHASE OF THE SHARES THOUGH THE IDENTITY OF THE BROKER WAS ESTABLISHED. THE BROKER HAS NOT SHOWN A SINGLE PROFIT PERTAINING THE ASSESSEE DURING THE RELEVANT PERIOD. AT THE MOST, EVEN IF THE ASSESSEE HAD ACTUALLY ENTERED IN THE PURCHASE AND SALE OF THE SHARES, IT WAS ULTIMATELY SETTLED OTHERWISE WITHOUT TAKING DELIVERY AND, THEREFORE, THE SAID TRANSACTION IS A SPECULATIVE TRANSACTION AS PER SECTION 43(5) OF THE ACT. 9. SECTION 43 (5) OF THE INCOME - TAX ACT, 1961 ON REPRODUCTION READS AS UNDER: - 43(5) 'SPECULATIVE TRANSACTION' TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. 10. HOWEVER, IT ALSO PROVIDES CERTAIN EXCEPTIONS TO THE AFORESAID PROVISION. CLAUSE (B) OF THE PROVISO TO SUBSECTION (5) PROVIDES THAT A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INT O BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THE ONLY CONDITION WHICH SHOULD BE SATISFIED BEFORE AN ASSESSEE CAN CLAIM THAT A C ONTRACT ENTERED INTO BY HIM SHOULD NOT BE CONSIDERED AS A SPECULATIVE TRANSACTION IS THAT HE MUST HAVE ENTERED INTO SUCH A CONTRACT TO GUARD AGAINST THE LOSS DUE TO ADVERSE PRICE FLUCTUATIONS OF SHARES IN RESPECT OF WHICH HE MIGHT HAVE ENTERED INTO CONTRAC TS OF SALE BY ACTUAL DELIVERY. I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 14 - : 11. THUS, SECTION 43(5) OF THE INCOME - TAX ACT, 1961, LAYS DOWN THAT A SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY IS PERIODICALLY SETTLED OTHERWISE THAN BY THE A CTUAL DELIVERY OR TRANSFER OF THE COMMODITY. THE SAID SECTION IS NOT RESTRICTED TO A CONTRACT WHERE THE SETTLEMENT IS ONLY IN RESPECT OF THE ENTIRE CONTRACT. THE WORD 'PERIODICALLY' OR 'ULTIMATELY' MAKES IT CLEAR THAT THE PROVISIONS OF SECTION 43(5) ARE AP PLICABLE WHERE A PART OF THE CONTRACT OR THE ENTIRE CONTRACT HAS BEEN SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OF THE GOODS . 12. . FROM THE RECORD, IT ALSO APPEARS THAT THERE WAS NO ACTUAL DELIVERY TAKEN BY THE ASSESSEE AT ANY POINT OF TIME IN RESPECT O F THE SHARES ON WHICH THE ASSESSEE HAS CLAIMED THE ALLEGED SHORT TERM CAPITAL LOSS. 13. WHEN NEITHER ANY PAYMENT WAS MADE NOR ANY DELIVERY WAS TAKEN, THEN THE TRANSACTION CAN NOT BE HELD GENUINE SPECIALLY WHEN THERE WAS NO DEMAT ACCOUNTING SYSTEM DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF ABOVE, WE FIND NO REASON TO INTERFERE WITH THE IMPUGNED ORDER PASSED BY THE TRIBUNAL AND THE SAME IS HEREBY SUSTAINED ALONG WITH THE REASONS MENTIONED THEREIN. THE ANSWER TO THE SUBSTANTIAL QUESTION S OF LAW IS IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE CASE LAW RELIED UPO N BY THE LD. AR OF THE ASSESSEE ARE DISTINGUISHABLE ON FACTS OF THE PRESENT CASE AND THE SAME ARE NOT OF ANY HELP TO THE CASE OF ASSESSEE. IN VIEW OF OUR DISCUSSION ON THE ISSUE AND FOLLOWING THE SAID DECISION OF I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 15 - : THE HONBLE ALLAHABAD HIGH COURT, WE ARE OF THE VIEW THAT THE LOSS GENERATED FROM SPECULATIVE TRANSACTIONS AND NOT IN THE NORMAL COURSE OF BUSINESS AND, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN UPHOLDING THE ADDITION OF RS. 41,17,700/ - TREATING IT AS SPECULATION LOSS . ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD. IN THE RESULT, THE APPEAL FOR AY 2001 - 02 IN ITA NO. 1028/HYD/2017 IS DISMISSED. 9. AS THE FACTS AND GROUNDS RAISED IN AY 2002 - 03 ARE MATERIALLY IDENTICAL TO THAT OF AY 2001 - 02, FOLLOWING THE DECISION THEREIN, WE DISMISS THE GROUNDS RAISED IN ITA NO. 1029/HYD/2017 FOR AY 2002 - 03 ALSO. 10. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE DISM ISSED IN ABOVE TERMS. PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY , 2021 . SD/ - SD/ - ( S.S. GODARA ) (LAXMI PRASAD SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 17 TH FEBRUARY , 20 2 1 K V I TA NO S . 1028 & 1029 /HYD/1 7 AGARWAL INDUSTRIES PVT. LTD., HYD. : - 16 - : C OPY TO : 1 AGARWAL INDUSTRIES PVT. LTD., 15 - 1 - 52/1, JAGDISH NIVAS, FEELKHANA, HYDERABAD . 2 DC IT, CIRCLE 1(1), HYDERABAD. 3 C I T(A) 1 , HYDERABAD. 4 PR. CIT - 1 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.