Shri Narendrasingh I. Rathod, Ahmedabad V. The ACIT, Circle-3, Ahmedabad

ITA 1389/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6074 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVAITA
• Keywords: Business income; Opportunity of being heard; Speculation loss
• Section: 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI, MANISH BORAD, ACCOUNTANT MEMBER I.T.A. NO.1389/AHD/2014 ( / ASSESSMENT YEAR : 2008-09) NARENDRASINGH L. RATHOD 166/3, SUNIL BHAVAN, M.G. HAVELI ROAD, MANEKCHOWK, AHMEDABAD. VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3, AHMEDABAD. ! PAN/GIR NO. : ADXPR 1249 L ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI S.N. DIVAITA, A.R. #'%$ / RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R. & '(%)* / DATE OF HEARING 26/04/2017 +,-.%)* / DATE OF PRONOUNCEMENT 27/04/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABAD, DATED 11/12/2012 FOR THE ASSESSMENT YEAR (AY) 2008-09. 2. ASSESSEE HAS BEEN TAKEN FOLLOWING GROUNDS OF APP EALS: (I). THE LEARNED COMMISSIONER OF INCOME TAX, APPEAL S-6, AHMEDABAD HAS ERRED IN FACTS AND ON LAW IN NOT ALLO WING MCX ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 2 - LOSS OF RS.83,61,333/- U/S. 43(5)(A) OF THE ACT AND CONSIDERING IT AS SPECULATIVE BUSINESS LOSS. (II). THE LEARNED COMMISSIONER OF INCOME TAX, APPEA LS-6, AHMEDABAD HAS ERRED IN FACTS AND ON LAW IN NOT DELE TING THE ADDING MADE ON ACCOUNT OF INTEREST INCOME OF RS.11, 13,041/- IN ASSESSMENT YEAR 2008-09 ON WHICH TAX HAS ALREADY BE EN PAID IN ASSESSMENT YEAR 2009-10 AND THEREBY LEADING TO DOUB LE TAXATION ON SAME INCOME. 3. THERE IS DELAY OF 428 DAYS. IN RESPECT OF ITS CO NTENTION ASSESSEE/APPELLANT HAS FILED AN APPLICATION ALONG W ITH AN AFFIDAVIT BUT SAME IS NOT COMPLETELY SATISFACTORY. THEREFORE, A C OST OF RS.5000/- IS IMPOSED ON THE ASSESSEE. COST SHALL BE DEPOSITED IN THE ACCOUNT OF LEGAL ATTENDED ADVISE CELL OF GUJARAT HIGH COURT, AHMEDAB AD. CIT WILL HEAR THIS APPEAL ONLY AFTER VERIFYING THE RECEIPT OF RS. 5000/-. DELAY IS CONDONE SUBJECT TO COST OF RS. 5000/-. 4. ASSESSEE HAS SHOWN GROSS PROFIT OF RS.3,84,58,85 7/- ON THE TOTAL TURNOVER OF RS.1055,19,72,842/- WHICH WORKS OUT TO 0.36% IN TERMS OF PERCENTAGE AS AGAINST THE GROSS PROFIT RATE OF RS.0 .34% ON THE TOTAL TURNOVER OF RS.785.05,58,845/- SHOWN IN THE IMMEDIA TE PRECEDING YEAR. 5. ON VERIFICATION OF TRADING ACCOUNT, IT IS SEEN T HAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.83,61,333/- AS MCX TRADING DIFFERENCE. SINCE THIS TRANSACTION IS OF SPECULATIVE NATURE, A SHOW C AUSE NOTICE DATED 26/10/2010 FOR ISSUE TO THE ASSESSEE REQUIRING IT T O SHOW CAUSE AS TO WHY THE MCX LOSS SHOULD NOT BE TREATED AS SPECULATION L OSS. ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 3 - 6. IN RESPONSE TO THE SAME QUARRY ASSESSEES REPRES ENTATIVE STATED AS UNDER: SECTION 43(5) DEFINES SPECULATION IN WHICH IT IS PR OVIDED THAT SPECULATION TRANSACTION MEANS STOCK AND SHARES IS P ERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVER Y OR TRANSFER OF COMMODITY OR SCRIPT. IT IS LAID DOWN IN PROVISO THAT FOR THE PURPOSE OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHA NTING BUSINESS TO GUARD AGAINST THE LOSS THROUGH FUTURE PRICE FLUCTUA TION IN RESPECT OF HIS CONTRACT FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM SHALL NOT BE DEEMED TO BE S PECULATIVE TRANSACTION. THE INTENTION BEHIND THE PROVISO IS TO PROTECT THE PERSONS WHO ENTERED IN TO TRANSACTION TO PROTECT THE LOSS OR GUARD AGAINST THE LOSS ARISING FROM FUTURE PRICE FLUCTUATIONS. THEREFORE IT WOULD BE NECESSARY TO UNDERSTAND THE H EDGING TRANSACTIONS IN PROPER PROSPECTIVE AS THE VERY NORM SUGGEST HEDG E CONTRACT ARE THOSE CONTRACTS IN WHICH HEDGING IS DONE TO PROTECT AGAIN ST THE PRICE FLUCTUATIONS. IN THE SPECULATION TRANSACTION, PURCH ASE OR SALE, THE MODUS OPERANDI OF THE PERSON INDULGING IN THEM IS THAT ON E ENTERS INTO CONTRACT OF PURCHASE, HE ALSO SIMULTANEOUSLY ENTERS IN TO ON E OR MORE CONTRACT OF SALE AGAINST THE SAME QUANTITY DELIVERABLE AT THE S AME TIME EITHER TO THE ORIGINAL VENDOR OR TO SOMEONE ELSE, SO AS EITHER TO SECURE PROFIT OR TO MINIMIZE THE LOSS. HENCE, IN THE SPECULATIVE TRANSA CTION THE INTENTION IS NOT TO DELIVER THE GOODS BUT TO EARN THE PROFIT OR TO MINIMIZE THE LOSS FROM PRICE FLUCTUATIONS WHEREAS IN THE HEDGING TRAN SACTION NEITHER DELIVERY NOR TRANSFER IS CONTEMPLATED AND YET THEY CANNOT BE TREATED AS SPECULATIVE TRANSACTION. THE HEDGING CONTRACT IS SO CALLED BECAUSE IT ENABLES THE PERSON DEALING WITH THE ACTUAL PRICE SE NSITIVE COMMODITIES TO HEDGE THEMSELVES I.E. INSURE THEMSELVES AGAINST THE ADVERSE PRICE FLUCTUATION. A DEALERS OR MERCHANTS ENTERS IN TO HE DGE CONTRACT WHEN HE SELLS OR PURCHASE A COMMODITY IN THE FORWARD MARKET FOR DELIVERY AT A ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 4 - FUTURE DATE. THE TRANSACTION IN THE FUTURE MARKET M AY CORRESPOND TO PREVIOUS PURCHASE OR SALE IN THE READY MARKET, OR H E MAY PROPOSE TO COVER IT LATER BY CORRESPONDING TRANSACTION IN THE READY MARKET, OR HE MAY OFFSET IT BY A REVERSE TRANSACTION IN THE FORWA RD MARKET ITSELF, THEREFORE IT IS NECESSARY TO PROVE THAT THE TRANSAC TION FOR PURCHASE / SALE HAVE BEEN MADE WITH THE INTENTION TO DELIVER THE GO ODS. THE HEDGING TRANSACTIONS SHOULD BE TREATED AS GENUINE TRANSACTI ON ENTERED INTO FOR THE PURPOSE OF INSURING AGAINST THE ADVERSE PRICE FLUCT UATIONS. IN RESPECT OF STOCK OF HEDGING TRANSACTIONS, THE VI EWS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILL V S. C. 1. T. 115 ITR 824 AND ALSO THE VIEWS OF THE CIRCULAR NO. 23 DATED 15.09.1960 IS VERY RELEVANT. THE PRINCIPAL LAID DOWN BY THE ABOVE DECI SION AS WELL AS CIRCULAR CITED ARE AS UNDER: 1. IN ORDER TO PROVE GENUINE AND VALID HEDGING CONT RACT FOR SALE, THE TOTAL OF SUCH TRANSACTIONS SHOULD NOT EXC EED THE TOTAL STOCK OF RAW MATERIAL OF THE GOODS TO BE MERC HANDISE IN HAND. 2. IN ORDER TO PROVE GENUINE AND VALID HEDGING CONT RACT FOR PURCHASE THERE SHOULD BE AN EXISTING CONTRACT FOR S ALE. IT IS THEREFORE NECESSARY TO PROVE THE GENUINE HEDG ING LOSS, IT IS NECESSARY TO SATISFY THE PRINCIPLE LAID DOWN IN THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILL A S CITED ABOVE. IN RESPECT OF HEDGING TRANSACTION FOR SALE THE SAME IS DONE WITH A VIEW TO DELIVER THE GOODS TO PROTECT FROM THE FUTURE LOS S, WHICH MAY ARISE DUE TO PRICE FLUCTUATION. THEREFORE, IT IS NECESSARY TO PROVE THAT AT THE TIME OF MAKING FORWARD TRANSACTION FOR SALE, THE ASSESSEE S HOULD HAVE THAT MUCH OF STOCK IN HAND. IN RESPECT OF GENUINE AND VALID HEDGING CONTRACT FO R PURCHASE, IT IS NECESSARY TO PROVE THAT THERE WAS EXISTING CONTRACT FOR SALE BY ACTUAL DELIVERY. SIR, IN THE PRESENT CASE, THE ASSESSEE SATISFIED TH E CONDITION LAID DOWN BY THE STATUTE AS WELL AS THE PRINCIPLE LAID DOWN BY T HE HONB;E GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILL CITED ABO VE. ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 5 - THE MODUS OPERANDI OF THE BUSINESS OF YOUR ASSESSEE IS THAT HE PURCHASE THE BULLION FROM BANKS / MMTC / PEC LTD. AS PER THE TERMS OF AGREEMENT ENTERED INTO WITH THE SAID ENTITIES. THEREAFTER ON PAYMENT, THE GOODS IS DELIVERED TO US AND THE SAID GOODS ARE KEPT WITH THE ASSESSEE. THUS THE FIRST CONTRACT FOR PURCHASE IS FOR ACTUAL DELIVERY AND IN FACT THE ASSESSEE HAS RECEIV ED THE ACTUAL DELIVERY OF BULLION. WE ENCLOSE SOME OF THE PURCHASE BILLS F OR YOUR KIND PERUSAL. I SUBSEQUENTLY THEREAFTER ALMOST ALL THE GOODS SO P URCHASED FROM DIFFERENT ENTITIES ARE SOLD IN THE MCX TO GUARD OR PROTECT THE LOSS AGAINST THE PRICE FLUCTUATIONS. SIR, WE ARE MEMBERS OF THE MCX AND ALL THE CONTRACT OF SALE / PURCHASE IS BEING MADE THROUGH M CX TERMINAL. IT PROVES THAT WHEN THE TRANSACTION FOR SALE WAS MADE IN MCX WE HAVE ENOUGH STOCK IN OUR HAND AND TRANSACTION IN MCX HAV E BEEN MADE IN ORDER TO PROTECT OURSELVES FROM LOSS ARISING OUT OF PRICE FLUCTUATIONS. THEREAFTER WHEN WE GET ACTUAL PHYSICAL BUYER WE PUR CHASE THAT MUCH OF STOCK OF BULLION FROM MCX AND DELIVER THE GOODS TO THE BUYERS. FROM THE ABOVE FACTS IT IS CLEAR THAT THE PURCHASE MADE FROM MCX FOLLOWS ACTUAL DELIVERY MADE TO THE BUYERS. THEREFO RE THE WHOLE TRANSACTIONS OF GOODS OR MERCHANDISE EITHER PURCHAS E OR SALE RELATES TO THE ACTUAL DELIVERY. IN THE CASE SALE TO MCX, ACTUA L DELIVERY HAS BEEN RECEIVED FROM DIFFERENT ENTITIES PRIOR TO THE SALE AND IN THE CASE OF PURCHASE MADE FROM MCX IS ALSO FOLLOWS THE ACTUAL D ELIVERY HENCE THE TRANSACTIONS ARE MADE FOR ACTUAL DELIVERY AND FORWA RD CONTACT FOR PURCHASE & SALE MADE IN THE MCX IS ONLY FOR SOLE MO TIVE TO PROTECT OURSELVES FROM FUTURE LOSS ARISING FROM PRICE FLUCT UATIONS. FROM THE ABOVE FACTS & EVIDENCE PRODUCED IT PROVES THAT THE WHOLE TRANSACTIONS MADE WITH MCX WITH SOLE MOTIVE TO PROT ECT OR GUARD AGAINST THE LOSS ARISING FROM PRICE FLUCTUATION. TH EREFORE IT IS PREYED THAT THE LOSS OF RS. 83,61,3337= MAY KINDLY BE ALLOWED.' ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 6 - 7. CONCLUSION: THE SUBMISSION MADE BY THE ASSESSEE HAS BEEN CAREF ULLY GONE THROUGH. HOWEVER, THE SAME WERE NOT ACCEPTABLE TO T HE LEARNED AO. 8. IT IS HELD THAT ASSESSEE FAILED TO PROVE THAT TH E TRANSACTION IS OF HEDGING NATURE AS PER THE PRINCIPLE LAID DOWN BY TH E HONBLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILL. THEREFOR E, THE SAME IS TREATED AS SPECULATION LOSS WITHIN THE MEANING OF SECTION 4 3(5) OF THE IT ACT AS THE PROVISO OF SECTION 43(5)(A) IS NOT APPLICABLE T O THE ASSESSEES CASE AND HENCE THE MCX LOSS OF RS.83,61,333/- IS TO BE TREAT ED AS SPECULATION LOSS AND THE SAME CANNOT BE ALLOWED TO BE SET OF AGAINST THE BUSINESS INCOME. HOWEVER, THE SAID LOSS IS ALLOWED TO BE CARRIED FOR WARD TO BE SET OFF AGAINST THE SPECULATION PROFIT ARISING IN THE SUBSE QUENT YEARS AS PER LAW AND ADDITION OF RS.83,61,333/- WAS MADE AGAINST THE ASSESSEE. 9. AS PER AIR INFORMATION, THE ASSESSEE HAS RECEIVE D THE INTEREST INCOME FROM ICICI BANK LTD. TO THE TUNE OF RS.67,87 6/- AND RS.10,45,165/- TOTAL AMOUNTING TO RS.11,13,041/-. H OWEVER, THE ASSESSEE HAS NOT SHOWN THE ABOVE INCOME IN THE RETURN OF INC OME. IT IS EXPLAINED BY THE ASSESSEE THAT THE SAID INCOME HAS BEEN OFFER ED IN THE A.Y.2009-10. THE ASSESSEE IS MAINTAIN HIS BOOKS OF ACCOUNTS ON M ERCANTILE BASIS, THEREFORE, THE INTEREST RECEIVED FROM ICICI BANK IS REQUIRED TO BE ACCOUNTED FOR IN F.Y. 2007-08 RELEVANT TO A.Y. 2008 -09. THE AR OF THE ASSESSEE AGREED FOR THE ADDITION OF RS.11,13,041/-. HOWEVER, IT IS ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 7 - SUBMITTED THAT THE INCOME OF INTEREST IS TO BE REDU CED FROM THE INCOME OF A.Y. 2009-10 TO THE ABOVE EXTENT. CONSIDERING THE F ACTS OF THE CASE, ADDITION OF RS.11,13,041/- WAS MADE AGAINST THE ASS ESSEE. 10. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LEARNED CIT(A), WHO CONFIRMED THE ADDITI ON MADE BY THE AO. 11. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IM PUGNED ORDER AS NONE APPEARED BEFORE THE LEARNED CIT(A). 12. THEREFORE, IN THE INTEREST OF THE JUSTICE WE RE MIT BACK THIS MATTER TO THE FILE OF THE CIT(A) TO DECIDE AFRESH AFTER GIVIN G AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27/04/2017 SD/- SD/- EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EGKOHJ EGKOHJ EGKOHJ EGKOHJ IZLKN IZLKN IZLKN IZLKN YS[KK LNL; U;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; ( MANISH BORAD ) (MAHAVIR PRASA D) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 27/04/2017 PRITI YADAV, SR.PS ITA NO.1389/AHD /2014 NAREDRASINGH L. RATHOD VS. ACIT ASST.YEAR 2008-09 - 8 - !'#$ %$' COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-VI, AHMEDABAD. 5. 678 )'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 89:( GUARD FILE. & / BY ORDER, #6) ) //TRUE COPY// '/ () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY