The ACIT,(OSD) Range-I, Ahmedabad V. M/s. Doshi Polymers Pvt. Ltd., Ahmedabad

ITA 1438/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8365 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 20-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P PATHAK
• Keywords: Business income; Speculation loss
• Section: 143(3); 37(1); 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND MS.MADHUMITA ROY, JUDICIAL MEMBER ./ ITA.NO.1438/AHD/2015 WITH CO NO.100/AHD/2015 / ASSTT. YEAR: 2011-12 ACIT(OSD) - RANGE - 1 AHMEDABAD. VS. DOSHI POLYMERS P.LTD. 1 ST FLOOR, ASHIRWAD PARAS CORPORATE HOUSE-2 CORPORATE ROAD PRAHALADNAGAR AHMEDABAD 380015. PAN : AABCD 3929 R ( APPLICANT ) ( RESPONENT ) REVENUE BY : SHRI O.P. PATHAK, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 01/05/2018 / DATE OF PRONOUNCEMENT: 02/05/2018 +,/ O R D E R PER PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER: CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST ORDER OF THE CIT(A)-6, AHMEDABAD DATED 5.3.2015 ARI SING IN THE ASSESSMENT ORDER DATED 27.2.2014 PASSED BY THE ASSESSING OFFIC ER UNDER SECTION 143(3) OF THE INCOME TAX ACT CONCERNING ASSESSMENT YEAR 20 11-12. ASSESSEE HAS ALSO FILED CROSS-OBJECTION IN THE CAPTIONED APPEAL OF REVENUE. 2. SOLITARY GRIEVANCE OF THE REVENUE IS MAINTAINABI LITY OF ACTION OF THE CIT(A) IN DELETING DISALLOWANCE OF RS.45 LAKHS MADE BY THE AO AS ITA NO.1438/AHD/2015 2 SPECULATION LOSS. IT IS THE CASE OF THE REVENUE TH AT IN VIEW OF THE FACT THAT THE ASSESSEE HAS SETTLED CONTRACT OF PURCHASES BY MAKIN G PAYMENT OF RATE DIFFERENCE WITHOUT OBTAINING DELIVERY OF COMMODITIE S, THE LOSS ARISING ON PAYMENT OF RATE DIFFERENCE TO THE PROPOSED SELLER I S COVERED BY SECTION 43(5) OF THE INCOME TAX ACT. IN ITS CROSS OBJECTION, THE ASSESSEE HAS MERELY SUPPORTED THE ACTION OF THE CIT(A). 3. BRIEFLY STATED, ASSESSEE, A PRIVATE LIMITED COMP ANY FILED ITS RETURN OF INCOME FOR THE ASSTT.YEAR 2011-12 DECLARING TOTAL I NCOME AMOUNTING TO RS.2,06,20,640/-. RETURN FILED BY THE ASSESSEE WAS SUBJECT TO SCRUTINY. IN THE COURSE OF SCRUTINY ASSESSMENT, THE AO ON VERIFICATI ON OF PROFIT & LOSS ACCOUNT, INTERALIA FOUND THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS .45 LAKHS ON ACCOUNT OF COMPENSATION PAID TO SUPPLIER (OSWAL EXT RUSION LTD.), OWING TO FAILURE OF THE ASSESSEE TO LIFT MATERIAL ON CONTRAC TED DATE. THE ASSESSEE CLAIMS TO HAVE PAID RS.45 LAKHS ON ACCOUNT OF DIFFERENCE B ETWEEN PURCHASE RATE AND CURRENT RATE OF SUPPLY OF MATERIAL WHICH WAS WORKED OUT TO RS.45 LAKHS BY THE SUPPLIER AS DETAILED IN THE ASSESSMENT ORDER. THE ASSESSEE CLAIMED AFORESAID LOSS TOWARDS SETTLEMENT OF QUANTUM OF DAMAGES. THE AO HOWEVER DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE AND HELD THAT LOSS ARISING ON ACCOUNT OF SETTLEMENT OF CONTRACT BY MAKING PAYMENT OF DIFFERE NCE OF RATE FALLS WITHIN THE PROVISION OF SECTION 43(5) OF THE ACT HAVING REGARD TO THE FACT THAT TRANSACTION HAS BEEN SETTLED WITHOUT DELIVERY OF COMMODITIES NA MED IN THE PURCHASE CONTRACT. THE AO ACCORDINGLY DECLINED TO ALLOW BUS INESS LOSS OF RS.45 LAKHS CLAIMED TOWARDS PAYMENT OF DAMAGES AGAINST ITS ORDI NARY BUSINESS INCOME. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) REVISITED FACTS NOTED ABOVE AND OBSERVED THAT THE A SSESSEE WHILE HAVING ENTERED INTO THE CONTRACT OF PURCHASE WITH ITS SUPP LIER AND CORRESPONDING CONTRACT WITH ITS CLIENT FOR SUPPLY OF IDENTICAL MA TERIAL ON THE SAME DATE I.E. ITA NO.1438/AHD/2015 3 9.5.2010, IT ULTIMATELY FAILED TO EXECUTE THE PURCH ASE TRANSACTION AND CONSEQUENTLY PAID DAMAGES OF RS.45 LAKHS FOR BREACH OF CONTRACT OF PURCHASE. THE CIT(A) IN THESE FACTS FOUND MERIT IN THE PLEA O F THE ASSESSEE THAT LOSS SO SADDLED ON THE ASSESSEE IS ORDINARY BUSINESS LOSS A RISING IN THE ORDINARY COURSE OF BUSINESS. THE CIT(A) ACCORDINGLY REVERSED ACTIO N OF THE AO AND DELETED THE DISALLOWANCE EARLIER MADE BY THE AO WITH AID OF SECTION 43(5) OF THE ACT. 5. AGGRIEVED REVENUE PREFERRED APPEAL BEFORE THE TR IBUNAL. 6. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE. THE MATTER WAS ACCORDINGLY PROCEEDED EXPARTE IN THE ABSENCE OF ASSESSEE. THE LD.DR FOR THE REVENUE WAS ACCORDINGLY HEARD TO SUPP ORT ITS APPEAL. 7. WE HAVE TAKEN NOTE OF ARGUMENTS PUT FORTH ON BEH ALF OF THE REVENUE AS WELL AS ORDERS OF AUTHORITIES BELOW. SOLE ISSUE IN CONTROVERSY IS WHETHER LOSS ARISING ON ACCOUNT OF CANCELLATION OF CONTRACT DUE TO COMPELLING CIRCUMSTANCES CAN BE TREATED AS BUSINESS LOSS OR FA LLS WITHIN DEEMING FICTION OF SECTION 43(5) OF THE ACT OR NOT. AS NOTED ABOVE , THE LOSS OF RS.45 LAKHS HAS ARISEN TO THE ASSESSEE ON ACCOUNT OF DAMAGES PAID T O THE SUPPLIER DUE TO FAILURE OF THE ASSESSEE TO LIFT THE SUPPLY IN THE C OURSE OF CARRYING ITS BUSINESS. THE ASSESSEE HAS CLAIMED THE LOSS SO ARISEN AS A NO RMAL INCIDENCE OF THE BUSINESS AND THUS CLAIMED AS ORDINARY BUSINESS LOSS . THE AO, ON THE OTHER HAND, IS OF THE VIEW THAT TRANSACTION OF PURCHASE W AS SETTLED WITHOUT DELIVERY, AND THEREFORE IT IS A SPECULATIVE TRANSACTION WITHI N THE MEANING OF SECTION 43(5) OF THE ACT. IT IS THE CASE OF THE REVENUE TH AT LOSS BEING SPECULATIVE IN NATURE IS NOT A PERMISSIBLE DEDUCTION AGAINST ORDIN ARY BUSINESS INCOME. ACCORDINGLY, CLAIM OF LOSS WAS DENIED TO THE ASSESS EE. THUS, SHORT ISSUE FOR OUR CONSIDERATION IS WHETHER PAYMENT TOWARDS DAMAGE S ON ACCOUNT OF BREACH OF CONTRACT IS SPECULATIVE LOSS OR A BUSINESS LOSS. ITA NO.1438/AHD/2015 4 8. WE FIND AT THE FIRST INSTANCE OF THAT ISSUE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHANTILAL P.LTD., 144 ITR 57 (SC) AND ALSO DECI SION OF FULL BENCH IN THE CASE OF JAMNA AUTO INDUSTRIES VS. CIT, (2008) 299 ITR 92 (P&H)(FB). IT IS CLEARLY DISCERNIBLE FROM THESE TWO JUDGMENTS THAT A TRANSACTION CANNOT BE DESCRIBED AS A SPECULATIVE TRANSACTION WITHIN THE M EANING OF SECTION 43(5) OF THE ACT WHERE THE TRANSACTION IS FORECLOSED OWING T O BREACH OF CONTRACT AND DAMAGES WERE PAID AS COMPENSATION FOR CLOSURE OF CO NTRACT. IN LIGHT OF AFORESAID JUDGMENTS, THE ASSESSEE IS ENTITLED TO CL AIM EXPENDITURE INCURRED TOWARDS DAMAGES FOR BREACH OF CONTRACT UNDER SECTIO N 37(1) OF THE ACT. THE CONTRACT IN THE INSTANT CASE IS NOT SETTLED BY A CR OSS CONTRACT, BUT BY A BREACH OF AGREEMENT. SUCH TRANSACTION DOES NOT FALL WITHIN T HE DEFINITION OF SPECULATIVE TRANSACTION AS ENVISAGED UNDER SECTION 43(5) OF THE ACT. THEREFORE, WE DO NOT FIND ANY ERROR IN THE CONCLUSION DRAWN BY THE CIT(A ). THUS, WE DECLINE TO INTERFERE WITH ORDER OF THE CIT(A). 9. ACCORDINGLY, APPEAL OF THE REVENUE IS DISMISSED. 10. ASSESSEE IN ITS CO HAS MERELY SUPPORTED ORDER O F THE CIT(A) AND IS NOT AGGRIEVED PER SE BY THE ORDER OF THE CIT(A). SINCE, THE REVENUES APPEAL STANDS DISMISSED, CO IS RENDERED INFRUCTOUS , AND THUS DISMISSED. 11. IN THE RESULT, APPEAL OF REVENUE IN ITA NO.1438 /AHD/2015 IS DISMISSED AND CO NO.100/AHD/2015 IS DISMISSED EX PARTE AS INFRUCTOUS. ORDER PRONOUNCED IN THE COURT ON 2 ND MAY, 2018 AT AHMEDABAD. SD/- SD/- ( MS. MADHUMITA ROY ) JUDICIAL MEMBER ( PRADIP KUMAR KEDIA ) ACCOUNTANT MEMBER AHMEDABAD; DATED 02/05/2018