The ACIT, Circle-3, Ahmedabad V. Girishkumar Ramanlal Chokshi & Brothers, Ahmedabad

ITA 1324/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80376 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Additional evidence; Advance ruling; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 1324 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2008 - 09) ACIT, CIRCLE - 3, INSURANCE BUILDING, 5 TH FLOOR, ASHRAM ROAD, AHMEDABAD V/S GIRISHKUMAR RAMANLAL CHOKSHI & BROTHERS 2335/1/1, CHOK SHI MAHAJAN BLDG. MANEKCHOWK AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAAFG 8187A APPELLANT BY : SHRI M.K. SINGH, D.R. RESPONDENT BY : SHRI SUNIL H. TALATI, A.R. ( )/ ORDER DATE OF HEARING : 15 - 09 - 2014 DATE OF PRONOUNCEMENT : 19 - 09 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - XVI, AHMEDABAD DATED 30.03.2011 FOR A.Y. 2008 - 09. 2. THE FACTS AS CULLED OUT FROM THE MATERIA L ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF GOLD, SILVER, BULLION ON WHO L ESALE BASIS AND D EALER OF MULTI C OMMODITY E XCHANGE (MCX) AND ALSO ENGAGED IN THE TRADING OF JIRU ON N CDEX EXCHANGE. ITA NO 1324/AHD/2011 . A.Y. 2008 - 09 2 ASSE SSEE FIL ED ITS RETURN OF INCOME FOR A.Y. 08 - 09 ON 29.9.08 DECLARING TOTA L INCOME AT RS. 12,17,157/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 29.10.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,18 ,82,830/ - . AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED P ARTIAL RELIEF TO THE ASSESSEE VIDE ORDER DATED 30.03.2011. AGGRIEVED BY THE ORDER OF LD CIT(A), REVENUE I S NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND: - 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION MADE BY THE AO ON ACCOUNT OF HEDGING LOSS TREATED AS SPECULATION LOSS TO RS. 1,01,417/ - INSTEAD OF RS. 1,06,65,670/ - ADMITT ING ADDITIONAL EVIDENCE FURNISHED BEFORE HIM WITHOUT GIVING REASONABLE OPPORTUNITY TO THE AO IN VIOLATION OF RULE 46A(3) OF THE IT RULES, 1962. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE TRADING ACCOUNT, A.O NOTICED THAT ASSES SEE HAS DEBITED RS. 1,06,65,670/ - AS MCX TRADING DIFFERENCE. THE ASSESSEE INTERALIA SUBMITTED THAT IT WAS DEALER IN GOLD AND BULLI ON ON WHOLESALE BASIS AND TO COVER THE F UTURE LOSS OF STOCK IN HAND IT HAD ENTERED INTO A HEDGE CONTRACT TO ENSURE AGAINST TH E FUTURE LOSS AND THEREFORE THE LOSS WAS ONLY TO HEDGE AND NOT FOR THE PURPOSE OF SPECULATION. IT WAS FURTHER SUBMITTED THAT THE HEDGING LOSS ARISING OUT OF FORWARD CONTRACT SHOULD BE SET OFF AGAINST THE INCOME OF THE ASSESSEE . THE SUBMISSION OF THE ASSESS EE WERE NOT FOUND ACCEPTABLE TO THE A.O. A.O WAS OF THE VIEW THAT FOR CLAIMING THE HEDGING LOSS ASSESSEE HAS TO PROVE THAT THE HEDGING TRANSACTION WAS A GENUINE TRANSACTION ENTERED INTO FOR THE PURPOSE OF INSURING AGAINST THE ADVERSE PURCHASE PRICE. HE WAS FURTHER OF THE VIEW THAT ASSESSEE HAS TO SATISFY THE PRINCIPLE LAID DOWN BY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILLS AS WELL AS CIRCULAR NO. 23 DATED 15.09.1960. A.O WAS FURTHER OF THE VIEW THAT IN VIEW OF PROVISIONS OF ITA NO 1324/AHD/2011 . A.Y. 2008 - 09 3 SECTION 43(5) (A) OF THE ACT, THE HEDGING CONTRACTS DEPENDS ON SATISFACTION OF TWO CONDITIONS NAMELY THAT THERE SHOULD BE A CONTRACT OF ACTUAL DELIVERY OF GOODS MAN UFAC T U RED OR MERCANTILE SOLD BY THE ASSESSEE AND THERE SHOULD BE ANOTHER CONTRACT OF RAW MATERIAL OR MERC HANTING TO GUARD AGAINST LOSS THROUGH FUTURE PRICE IN RESPECT OF CONTRACTION OF ACTUAL DELIVERY OF GOODS SOLD BY THE ASSESSEE. A.O WAS OF THE VIEW THAT PROVISO TO SECTION 43(5)(A) WAS NOT APPLICABLE TO THE ASSESEE S CASE AND THEREFORE THE LOSS CANNOT BE AL LOWED TO BE SET OFF AGAINST THE BUSINESS INCOME AND THE TRANSACTION WAS OF SPECULATIVE NATURE AND THEREFORE THE MCX LOSS SHOULD BE TREATED AS SPECULATION LOSS AND NOT A NORMAL BUSINESS LOSS. HE ACCORDINGLY DISALLOWED TH E HEDGING LOSS BY CONSIDERING THE LOS S TO BE SPECULATION LOSS. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - 4.1 I HAVE CONSIDERED THE SUBMISSION M ADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE FACTS ARE NOT DISPUTED BY THE AO OR THE APPELLANT. THE DISPUTE IS REGARDING THE INTERPRETATION OF THE PROVISIONS OF PROVISO (A) OF SECTION 43(5) AS TO WHAT IS A HEDGING TRANSACTION AND WHAT IS A SPECULATI VE TRANSACTION. THE ISSUE OF HEDGING TRANSACTIONS HAS BEEN CLEARLY DISCUSSED THE AUTHORITY FOR ADVANCE RULING IN DETAIL IN THE CASE OF SOPROPHA S. A. IN RE (138 TAXMAN 75 OR 268 ITR 37) WHEREIN IT BEEN HELD AS UNDER: - THERE IS NO DOUBT THAT WITHIN THE MEA NING OF PROVISO (A) TO SECTION 43(5), THE TRANSACTIONS PROPOSED TO BE UNDERTAKEN BY THE APPLICANT CANNOT BE TERMED AS 'HEDGING CONTRACTS' AT ALL. THERE CAN BE NO DOUBT THAT THE BOARD, THROUGH ITS BENEFICIAL CIRCULAR NO. 23D, DATED 15 - 9 - 1960, HAS EXPANDED T HE SCOPE OF 'HEDGING TRANSACTION' BUT IT WOULD BE WRONG TO CONCLUDE THAT ALL THE SPECULATIVE TRANSACTIONS CAN BE TERMED AS 'HEDGING' SIMPLY BECAUSE THEY ARE IN THE COMMODITIES DEALT IN BY AN ASSESSEE. THE BASIC PREMISES OF THE CIRCULAR IS THAT A HEDGING TR ANSACTION IS GENUINE. [PARAS 21 & 23] KEEPING IN VIEW THE AFORESAID CIRCULAR AND THE DECISION OF T HE GUJARAT HI GH' COURT IN PANKAJ OIL MILLS (1978) 115 ITR 824, IN THE CASE OF A TRADER, THE FOLLOWING POSITION EMERGES IN REGARD TO SCOPE OF HEDGING CONTRACT S : (1) HEDGING CONTRACTS CAN BE BOTH FOR PURCHASE AND SALE, (2) IN ORDER TO BE GENUINE AND VALID HEDGING CONTRACT OF SAFE, THE TOTAL OF SUCH TRANSACTIONS SHOULD NOT EXCEED THE TOTAL STOCK OF T HE RAW MATERIAL OR MERCHANDISE IN HAND. (3) IN ORDER TO BE GENUINE AND VA LID HEDGING CONTRACT OF PURCHASE, THERE SHOULD BE AN EXISTING FORWARD CONTRACT OF SALE BY ACTUAL DELIVERY, AND (4) THE HEDGING CONTRACTS NEED NOT NECESSARILY BE IN THE SAME VARIETY OF THE COMMODITY. THEY CAN BE IN CONNECTED COMMODITIES, E.G., ONE TYPE OF COTTO N AGAINST ANOTHER TYPE OF COTTON. [PARA 24] THE APPLICANT IS A TRADER IN GREEN COFFEE. IT HAS TO PURCHASE AND STOCK SUBSTANTIAL QUANTITY OF GREEN COFFEE DURING THE LIMITED PERIOD, SINCE COFFEE IS A SEASONAL CROP. THE SALE OF GREEN COFFEE WILL BE SPREAD OVE R THE WHOLE YEAR AT THE PRICE PREVAILING IN THE INTERNATIONAL MARKET. THE APPLICANT, TO SAFEGUARD ITSELF AGAINST PRICE FLUCTUATIONS, WILL ENTER INTO HEDGING CONTRACTS IN WHICH ITA NO 1324/AHD/2011 . A.Y. 2008 - 09 4 IT WILL INITIALLY SELL GREEN COFFEE IN ICE AND THEREAFTER SETTLE SAID TRANSACTIO N BY ENTERING INTO PURCHASE TRANSACTION. SUCH FORWARD CONTRACT OF SALE OF GREEN COFFEE, TO THE EXTENT OF STOCK, WILL BE COVERED WITHIN THE MEANING OF 'HEDGING CONTRACT' AS EXPLAINED IN THE BOARD CIRCULAR NO. 23D, DATED 12 - 9 - 1960. [PARA 25} ACCORDINGLY, IT IS RULED THAT: THE FORWARD TRANSACTIONS IN RESPECT OF STOCK, WHICH THE APPLICANT DEALT IN, WILL BE IN THE NATURE OF HEDGING CONTRACTS. THOUGH THE EXISTENCE OF CONTRACT OF SALE IS A CONDITION PRECEDENT TO ATTRACT CLAUSE (A) OF PROVISO TO SECTION 43(5), IT S TANDS RELATED TO THE EXTENT ALLOWED BY CIRCULAR NO. 23D, DATED 12 - 9 - 1960. FORWARD SALE TRANSACTIONS, THOUGH NOT COVERED WITHIN THE MEANING OF HEDGING CONTRACTS AS PER PROVISO (A) TO SECTION 43(5), ARE COVERED WITHIN THE EXTENDED MEANING GIVEN IN BOARD'S CI RCULAR NO. 23D, DATED 12 - 9 - 1960. THE HEDGING CONTRACTS NEED NOT BE OF THE IDENTICAL QUALITY/QUANTITY OF THE GOODS HELD IN STOCK. (PARA26) 4.2 THE HON'BLE AAR HAS CONSIDERED BOTH THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILLS AND THE BOARD CIRCULAR NO 23D RELIED UPON BY THE AO. THEREFORE, THE LEGAL ISSUE IS VERY CLEAR AND IT IS AS UNDER AS DECIDED ABOVE BY AAR: - ACCORDINGLY, IT IS RULED THAT: THE FORWARD TRANSACTIONS IN RESPECT OF STOCK, WHICH THE APPLICANT DEALT IN/ WILL BE IN THE NATURE OF HEDGING CONTRACTS. THOUGH T HE EXISTENCE OF CONTRACT OF SALE IS A CONDITION PRECEDENT TO ATTRACT CLAUSE (A) OF PROVISO TO SECTION 43(5], IT STANDS RELATED TO THE EXTENT ALLOWED BY CIRCULAR NO. 23D, DATED 12 - 9 - 1960. FORWARD SALE TRANSACTIONS, THOUGH NOT COV ERED WITHIN THE MEANING OF HEDGING CONTRACTS AS PER PROVISO (A) TO SECTION 43(5), ARE COVERED WITHIN THE EXTENDED MEANING GIVEN IN BOARD'S CIRCULAR NO. 23D, DATED 12 - 9 - 1960. THE HEDGING CONTRACTS NEED NOT BE OF THE IDENTICAL QUALITY/QUANTITY OF THE GOODS HELD IN STOCK. [PARA 26] 4.3 FURTHER, THE HEDGING TRANSACTIONS ARE COVERED BY THE PROVISO (A) OF SECTION 43(5) WHICH IS AS UNDER: - SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND S HARES IS PERIODICALLY OR ULTIMATELY SETTLED OTHE R WISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE ---- (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN TH E COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) OR (C) OR (D) .; SHALL NOT BE DE EMED TO BE A SPECULATIVE TRAN S ACTION. 4.4 IN VIEW OF THE ABOVE DECISION AND THE PROVISIONS OF PROVISO (A) OF SECTION 43(5) IT IS CLEAR THAT HEDGING TRANSACTIONS NEED NOT BE OF IDENTICAL QUANTITY OF GOODS. THEY CAN BE CLASSIFIED AS HEDGING ONLY IF THEY ARE OF EQUAL QUANTITY OR OF LESSER QUANTITY THAN THE ACTUAL STOCK QUANTITY. BUT SPECULATIVE TRANSACTION WILL BE ONLY WHERE THE MCX TRANSACTION/STOCK AT THE END OF A PARTICULAR DAY EXCEEDS THE ACTUAL STOCK IN HAND IN TERMS OF QUANTITY AT THE END OF THE DAY AND IF THE ACTUAL STOCK IS EQUAL OR MORE THAN THE MCX STOCK THEN IT IS FOR HEDGING. THEREFORE, THE ENTIRE STOCK REGISTER WAS ASKED TO BE PUT ON THE EXCEL SHEET AND A LIST ATTACHED AS ANNEXURE A - 1 WAS PREPARED WHICH SHOWED THE TRANSACTIONS WHEN THE MCX TRANSAC TIONS/STOCK AT THE END OF THE DAY EXCEEDED THE ACTUAL STOCK IN HAND AND ONLY THE EXCESS QUANTITY WAS TREATED TOWARDS SPECULATIVE TRANSACTIONS. THE SAME WAS SUMMARIZED IN THE TABLE PREPARED ABOVE IN PARA 3.8 WHEREBY THE NET RESULT OF SPECULATIVE TRANSACTION S IS SPECULATIVE LOSS OF ONLY RS. 1,01,41 7/ - . REST OF THE LOSS IS HEDGING LOSS WHICH IS THEREFORE NOT DEEMED TO BE BUSINESS LOSS IN VIEW OF THE ABOVE MENTIONED DECISION OF AAR READ WITH THE PROVISO(A) OF SECTION 43(5). THEREFORE, THE DISALLOWANCE MADE BY T HE AO IS RESTRICTED TO RS. 1,01,417/ - AS SPECULATION LOSS WHICH CANNOT BE ADJUSTED - BUT IS ALLOWED TO BE CARRIED FORWARD TO BE ADJUSTED AGAINST SPECULATIVE PROFIT IN SUBSEQUENT YEARS AS PER LAW. HOWEVER, WHILE GIVING APPEAL EFFECT THE A.O. MAY VERIFY THE CO RRECTNESS OF THE LIST ITA NO 1324/AHD/2011 . A.Y. 2008 - 09 5 FROM THE BILLS AND MISTAKE, IF ANY, MAY BE CORRECTED WHICH MAY INCREASE OR DECREASE THE FIGURE OF RS. ( - ) 1,01,417/ - . THE GROUNDS OF APPEAL ARE THEREFORE PARTLY ALL O W ED. 5. AGGRIEVED BY THE ORDER OF LD CIT(A) , REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD D.R. TOOK US THROUGH THE ORDER OF A.O AND SUPPORTED HIS ORDER. HE FURTHER SUBMITTED THAT ASSESSEE HAD FURNISHED ADDITIONAL EVIDENCE IN THE FORM OF LIST OF DAY TO DAY TRANSACTIONS BEFORE CIT(A) AND THE SAME WAS NOT SUBMITTED BEFO RE A.O AND THEREFORE THE SUBM ISSIONS BEFORE CIT(A) WAS IN THE NATURE OF ADDITIONAL EVIDENCE AND THEREFORE LD CIT(A) SHOUL D HAVE OBTAINED REMAND REPORT OR COMMENTS OF THE A.O BEFORE DECIDING THE ISSUE. HE THUS SUPPORTED THE ORDER OF A.O. THE LD A.R. ON THE OTHER HAND SUBMITTED THAT COMPLETE BOOKS OF ACCOUNT DAILY STOCK REGISTER AND DAILY TRANSACTIONS OF GOLD, COMMODITY FUTURES MARKET (MCX) WERE PRODUCED AND SCRUTINIZED BY THE A.O. HE SUBMITTED THAT THE AFORESAID SUBMISSION S WERE ALSO M ADE BEFORE CIT(A) AND THE SAME HA S BEEN MENTIONED BY LD CIT(A) AT PARA 3.1 OF HIS ORDER. HE THEREFORE SUBMITTED THAT NO ADDITIONAL EVIDENCE WAS PLAC ED BEFORE CIT(A) AND THE ASSESSEE HAD ONLY PLACED THE DETAILS OF THE SALE IN AN EXCEL SHEET ON THE DIRECTIONS OF CIT(A) AND THUS T HERE WAS NO VIOLATION OF RULE 46A. HE FURTHER REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND THUS SUPPORTED THE ORDER OF LD. CIT(A) . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD CIT(A) AFTER CONSIDERING THE DECISION OF AAR IN THE CASE OF SOPROPHA S. A IN RE 268 ITR 37 WHEREIN THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILLS (SUPRA) AND THE CBDT CIRCULAR NO. 23D DATED 12.09.1960 WAS ALSO CONSIDERED, WHILE DECID ING THE ISSUE IN FAVO UR OF TH E ASSESSEE. CIT(A) FURTHER ON VERIFICATION OF THE ENTIRE STOCK ITA NO 1324/AHD/2011 . A.Y. 2008 - 09 6 REGISTER IN THE FORMAT REQUIRED BY HIM, HAS HELD THAT THE NET RESULT OF SPECULATION TRANSACTIONS RESULTED IN SPECULATIVE LOSS OF ONLY RS. 1,01,417/ - AND REST OF ALL THE LOSS WAS A HEDGING LO SS AND ACCORDINGLY RESTRICTED THE DISALLOWANCE OF SPECULATION LOSS AT RS. 1,01,417/ - . WE FURTHER FIND THAT LD. CIT(A) HAD FURTHER DIRECTED THE A.O TO VERIFY THE CORRECTNESS OF THE LIST FROM THE BILLS AND MISTAKE IF ANY , TO BE CORRECTED. BEFORE US, LD D.R. HA S NOT BROUGHT ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A) AND THEREFORE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 09 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD