M/s. Multania Dal and Besan Mill, Solapur V. Deputy Commissioner of Income-tax,

ITA 2228/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1091 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Business income; Speculation loss
• Section: 143(3); 153A; 43(5); 132

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.2228/PN/2013 ASSESSMENT YEAR : 2007-08 M/S MULTANIA DAL AND BESAN MILL, 284/1-A, MAJAREWADI, HOTGI ROAD, SOLAPUR. PAN : AACFM2368K . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2), PUNE. . RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 08.09.2015 / DATE OF PRONOUNCEMENT: 24.09.2015 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE ABOVE CAPTIONED APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-CENTRAL, PUNE DATED 25.09.2013 RELATING TO A SSESSMENT YEAR 2007-08 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 15 3A OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT APPELL ANTS ACTIVITY OF TRADING IN COMMODITY DERIVATIVES IS A SPECULATIVE ACTIVITY FOR THE PURPOSE OF SECTION 73, THOUGH IT IS NOT COVERED BY THE DEFINITION OF SPECULATIVE TRANSACTION IN SECTION 43(5) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE APPELLANTS ACTIVITY OF TRADING IN COMMODITY DERIVATIVES COULD NOT BE CONSI DERED AS A SPECULATION BUSINESS 2 ITA NO.2228/PN/2013 U/S 73 AND THEREFORE, THE LOSS INCURRED BY THE APPE LLANT IN THE COMMODITY DERIVATIVES HAD TO BE SET OFF AGAINST THE BUSINESS INCOME OF TH E APPELLANT. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF SET OFF OF LOSS SUFFERED BY APPLICANT OF RS.31,38,358/- IN TRADING IN COMMODITY DERIVATIVES AGAINST THE APPELLANTS BUSINESS INCOME. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A FIRM AND ENGAGED IN THE BUSINESS OF DAL AND BESAN MILL AND ALL TYPES OF PULSES AND BESAN. THE ASSESSEE FILED ORIGINAL RETURN OF INCOME FOR THE AS SESSMENT YEAR 2007-08 ON 27.10.2007 DECLARING TOTAL INCOME OF RS.24,51,030/- . SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CONDUCTED ON 07.09.2011. THE ASSESSEE DECLARED THE SAME INCOME AS IN THE ORIGINAL RETURN PURSUANT TO P ROCEEDINGS UNDER S. 153A OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT A SUM OF RS.30,84,505/- HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF LOSSES IN AGRO-COMMODIT Y FUTURE AND ANOTHER AMOUNT OF RS.55,853/- ON ACCOUNT OF LOSSES IN SERV ICE ON COMMODITY FUTURE. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT IT WAS CARRYING ON TRANSACTIONS WITH THE GROUP, AGRO COMMODITY PRIVATE LTD. (DAL MILLS) AND AGRO COMMODITY PRIVATE LIMITED, INDORE (DAL MILL) A ND THE AGGREGATE LOSS AS PER THESE TWO ACCOUNTS WERE TRANSFERRED TO THE PROF IT & LOSS ACCOUNT. IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT THE TRANSACT IONS IN THE COMMODITY MARKET ARE RELATED ONLY TO CHANA, URAD AND TUR DAL WHICH W AS THE COMMODITIES IN WHICH THE ASSESSEE WAS DEALING IN THE NORMAL COURSE OF BUSINESS OF DAL AND BESAN MILL. AS SUCH, IT WAS SUBMITTED THAT THE FUT URE TRANSACTIONS DONE BY THE ASSESSEE IN THE COMMODITY SEGMENT WERE SQUARELY COV ERED BY EXCLUSION CLAUSE IN PROVISO (A) TO SECTION 43(5) OF THE ACT AND THUS CANNOT BE DEEMED TO BE SPECULATIVE TRANSACTION. THE ASSESSING OFFICER, HO WEVER, DID NOT FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE. HE NOTED FROM THE C ONTRACT NOTES SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD ENTERED INTO SEV ERAL TRANSACTIONS ON A SINGLE 3 ITA NO.2228/PN/2013 DAY AND HAD ALSO SQUARED THEM OFF IN MANY INSTANCES WITHOUT DELIVERY. HE ALSO NOTED THAT THE MAIN BUSINESS OF THE ASSESSEE WAS OF PRODUCING/PROCESSING VARIOUS TYPES OF PULSES AND BESAN AND NOT TRADING O F COMMODITY DERIVATIVES AND INVESTMENT IN SHARES. THE ASSESSING OFFICER DI SALLOWED THE AFORESAID LOSS CLAIMED AS BUSINESS LOSS BY THE ASSESSEE ON THE G ROUND THAT IT WAS SPECULATION LOSS AS DEFINED BY SECTION 43(5) OF T HE ACT. ACCORDINGLY, HE DISALLOWED THE LOSSES OF RS.31,38,358/- INCURRED IN COMMODITY FUTURES ABOVE HOLDING SAME AS SPECULATION LOSS WHICH WERE ALLOWED TO BE CARRIED FORWARD TO BE SET-OFF AGAINST THE FUTURE SPECULATION PROFITS, IF ANY. 5. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E ASSESSING OFFICER. HE HELD THAT LOSS ARISING FROM DERIVATIVES IN THE F ORM OF COMMODITY FUTURES ARE SPECULATIVE IN NATURE WITHIN THE MEANING OF SECTION 43(5) OF THE ACT AND THEREFORE, NOT PERMISSIBLE TO BE SET-OFF AGAINST TH E BUSINESS INCOME. HE OBSERVED THAT DERIVATIVES ARE NOT A CONTRACT OF PUR CHASE AND SALE OF ANY PHYSICAL COMMODITY PER SE. THE TRANSACTIONS HAVE BE EN ADMITTEDLY SETTLED WITHOUT ACTUAL DELIVERY OF COMMODITIES TRADED AND T HUS SPECULATIVE IN NATURE. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN FURTHER APPEAL BEFORE US. 7. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, MR. NIKHIL PATHAK, AT THE OUTSET, SUBMITTED THAT THAT THE ISSUE WHETHE R COMMODITY FUTURES ARE TO BE TREATED AS SPECULATIVE TRANSACTIONS OR NOT, IS COVE RED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BHARAT R. RUIA 337 ITR 452 (BOM.). HE FAIR LY ADMITTED THAT SUB- CLAUSE (E) TO PROVISO TO SECTION 43(5) OF THE ACT W HICH SEEKS TO EXCLUDE AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMO DITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION FROM THE DEFINITION OF SPECULATIVE TRANSACTION APPLIES ONLY PROSPECTIVELY W.E.F. ASSESSMENT YEAR 2 014-15. THEREFORE, FOR THE 4 ITA NO.2228/PN/2013 RELEVANT ASSESSMENT YEAR UNDER APPEAL THE IMPUGNED ISSUE RUNS COUNTER TO THE PLAIN PROVISION OF THE ACT. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CASE LAWS CITED. THE ONLY RE LEVANT ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE DERIVATIVE TRANSACTIO NS EXECUTED IN CERTAIN COMMODITY ITEMS ARE SPECULATIVE TRANSACTIONS WITH IN THE MEANING OF SECTION 43(5) OF THE ACT OR A NORMAL BUSINESS TRANSACTION I N THE ORDINARY COURSE. IT IS ADMITTED POSITION THAT THE TRANSACTION IN COMMODITY TRADE HAS BEEN SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY AND WITHOUT A NY TRANSFER OF THE COMMODITY. 10. SECTION 43(5) DEFINES SPECULATIVE TRANSACTIONS AS A TRANSACTION IN WHICH A CONTRACT FOR PURCHASE AND SALE OF ANY COMMODITY INC LUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THA N BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS SUBJECT TO CERT AIN EXCLUSION PROVIDED THEREIN. THUS, THE IMPUGNED COMMODITY TRADES GIVIN G RISE TO LOSSES ARE SPECULATIVE IN NATURE IN TERMS OF THE MAIN PROVISIO N OF S. 43(5) OF THE ACT. 11. PROVISO TO S. 43(5) PROVIDES FOR EXCLUSION FROM THE AMBIT OF SPECULATIVE TRANSACTION IN CERTAIN CIRCUMSTANCES PROVIDED THER EIN. TWO EXCLUSIONS RELEVANT IN THE CONTEXT OF THE PRESENT CASE ARE (I) S.43(5) PROVISO (A) THERETO, WHEREBY IF A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING B USINESS, TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F HIS CONTRACTS FOR ACTUAL DELIVERY OR GOODS MANUFACTURING BY HIM OR MERCHANDI SE SOLD BY HIM, WILL NOT BE TREATED AS SPECULATIVE TRANSACTION AND (II) S. 4 3(5) CLAUSE (E) TO PROVISO 5 ITA NO.2228/PN/2013 THERETO, WHEREBY COMMODITY TRADES HAVE BEEN EXCLUDE D FROM THE DEFINITION OF SPECULATIVE TRANSACTION BY AN AMENDMENT W.E.F. 1-4- 2014. 12. THE ASSESSEE HAS NOT SHOWN ANY NEXUS BETWEEN TH E TRANSACTIONS OF MERCHANDISE IN THE ORDINARY COURSE OF MANUFACTURING OR MERCHANTING BUSINESS QUA THE IMPUGNED COMMODITY DERIVATIVE TRANSACTIONS TO SHOW THAT THE TRANSACTION IN COMMODITY DERIVATIVES WERE EXECUTED TO GUARD AGAINST LOSSES, THROUGH FUTURE PRICE FLUCTUATION AND ARE NOT INDEPE NDENT IN NATURE. MERELY BECAUSE THE ASSESSEE IS ENGAGED IN BOTH MANUFACTURI NG/MERCHANDISING BUSINESS AND ALSO SIMULTANEOUSLY TAKES POSITION IN COMMODITY DERIVATIVES, IT CANNOT BE PRESUMED THAT THE COMMODITY DERIVATIVES ARE IN THE NATURE OF HEDGING TRANSACTIONS AS CONTEMPLATED UNDER SECTION PROVISO (A) TO S. 43(5) OF THE ACT. THE BENEFIT OF EXCLUSION UNDER CLAUSE (A) IS THUS N OT AVAILABLE. 13. IN THE LIGHT OF CONCESSIONS GIVEN BY THE LD. AU THORIZED REPRESENTATIVE FOR THE ASSESSEE THAT TRADING IN COMMODITY DERIVATI VES ARE EXCLUDED FROM THE AMBIT OF SPECULATIVE TRANSACTIONS AS PER PROVISO (E ) TO SECTION 43(5) OF THE ACT ONLY PROSPECTIVELY W.E.F. 01.04.2014 I.E. ASSESSMEN T YEAR 2014-15, IT IS NOT EXPEDIENT TO VISIT THE ISSUE. 14. SHORN OF EXCLUSIONS DISCUSSED AFORESAID, IN VIE W OF THE PLAIN PROVISION OF THE ACT, THE IMPUGNED COMMODITY DERIVATIVES TRAN SACTIONS FALLS WITHIN THE AMBIT OF SPECULATIVE TRANSACTIONS, SINCE THE CONTRA CTS FOR PURCHASE AND SALE OF COMMODITY SPECIFIED THEREIN HAVE BEEN ADMITTEDLY SE TTLED OTHERWISE THAN BY THE ACTUAL DELIVERY. CONSEQUENTLY, THE LOSS RELATI NG FROM THE COMMODITY DERIVATIVES ARE SPECULATIVE LOSSES AND CANNOT BE RE GARDED NORMAL BUSINESS LOSS. 15. THE HONBLE BOMBAY HIGH COURT IN SHRI BHARAT R. RUIA (SUPRA) HAS ENUNCIATED THE PROVISIONS OF SECTION 43(5) AND HELD THAT EXCLUSION PROVIDED IN CLAUSE (D) TO THE PROVISO INSERTED BY THE FINANCE A CT, 2005 W.E.F. 01.04.2006 IS PROSPECTIVE AND HENCE ALL FINANCIAL DERIVATIVES TRA NSACTIONS WILL BE DEEMED TO 6 ITA NO.2228/PN/2013 BE SPECULATIVE TRANSACTIONS AS DEFINED UNDER SECTIO N 43(5) OF THE ACT, AS PER EXISTING LAWS PRIOR TO YEAR OF AMENDMENT. THE AFORE SAID RATIO CONCERNING CLAUSE (D) TO THE PROVISO PERTAINING TO FINANCIAL D ERIVATIVES APPLIES MUTATIS- MUTANDIS TO CLAUSE (E) ALSO CONCERNING TRADING IN COMMODITY DERIVATIVES. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A). UPHOLDING THE SAME, THE GROUNDS OF APPEAL OF THE AS SESSEE ARE DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 24 TH SEPTEMBER, 2015. % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-CENTRAL, PUNE; 4) THE CIT-CENTRAL, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE