DCIT, Cir-3(1)(2), Ahmedabad V. M/s Rajshri Packagers Ltd., Ahmedabad

ITA 2241/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9178 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-09-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 06-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SRHI PARIN SHAH A RS
• Keywords: Business income; Speculation loss; Speculative transactions
• Section: 143(3); 43(5); 191

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2241/AHD/2017 ( ASSESSMENT YEAR : 2011-12) DCIT CIRCLE 3(1)(2), AHMEDABAD / VS. M/S. RAJSHRI PACKAGERS LTD. (NOW MERGED WITH ADANI WILMAR LTD.) FORTUNE HOUSE, NR. NAVRANGPURA CROSSING, NAVRANGPURA, AHMEDABAD ./ ./ PAN/GIR NO. : AABCR0519F ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.D.R. / RESPONDENT BY : SHRI BANDISH SOPARKAR & SRHI PARIN SHAH, A.RS. DATE OF HEARING 04/09/2019 !'# / DATE OF PRONOUNCEMENT 04/10/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-9, AHMEDABAD (CIT(A) IN SHORT), DATED 25 .07.2016 ARISING IN THE ASSESSMENT ORDER DATED 05.03.2015 PASSED BY THE ASSESSING ITA NO. 2241/AHD/17 [DCIT VS. M/S. RAJSHRI PACKAGERS LTD.] A.Y. 2011-12 - 2 - OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2011-12. 2. THE SUBSTANTIVE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN ADDING RS.3,83,12,474/- TO THE APP ELLANT'S RETURNED BUSINESS INCOME ON THE GROUND THAT THE SAME REPRESE NTED SPECULATION LOSS WHICH COULD NOT BE SET OFF AGAINST BUSINESS INCOME AND WAS REQUIRED TO BE CARRIED FORWARD AS SPECULATION LOSS. 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, TH E AMOUNT REPRESENTED DAMAGES PAID BY THE APPELLANT FOR ITS FAILURE TO DE LIVER GOODS AT THE APPOINTED LIME AS AGREED IN THE CONCERNED CONTRACTS WITH ITS CUSTOMERS ENTERED IN THE NORMAL COURSE OF ITS BUSINESS AND BE ING SUCH, IT WAS CLEARLY DEDUCTIBLE IN THE COMPUTATION OF BUSINESS INCOME. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR FOR THE ASSESSEE POINTED OUT IN THE REVENUES APPEAL THAT T HE LOSS ARISING TO THE ASSESSEE FOR BREACH OF CONTRACT HAS BEEN HELD B Y THE AO TO BE SPECULATIVE LOSS BY INVOKING SECTION 43(5) OF THE A CT WHICH IS CONTRARY TO LAW AS ENUNCIATED JUDICIALLY BY THE VAR IOUS COURTS. THE LEARNED AR FOR THE ASSESSEE SUBMITTED ON FACTS THAT THE ASSESSEE HAD CLAIMED CONTRACT SETTLEMENT LOSS OF RS.62,34,974/- AND RS.3,20,77,500/- WHICH REPRESENTS DIFFERENCE BETWEE N PURCHASE AND SALE PRICE AT THE TIME OF NOMINATION OF CONTRACT IN FAVOUR OF BUYER AND SELLER AS APPLICABLE. THE ASSESSEE HAS NOT MADE AN Y DELIVERY OF COMMODITY AND SETTLED THE CONTRACT BY MAKING PAYMEN T OF DIFFERENCE OF AMOUNT BETWEEN SALE PRICE AND PURCHASE PRICE. T HE LEARNED AR THUS SUBMITTED THAT THE AMOUNT OF LOSS HAS BEEN INF LICTED ON THE ASSESSEE IS BASICALLY IN THE NATURE OF DAMAGES FOR BREACH OF CONTRACT. IT WAS POINTED OUT THAT THE TRANSACTION OF SALE WAS NOT SETTLED BY THE CROSS CONTRACT OF PURCHASE (VICE VERSA) WITHOUT DEL IVERY. IN THE INSTANT ITA NO. 2241/AHD/17 [DCIT VS. M/S. RAJSHRI PACKAGERS LTD.] A.Y. 2011-12 - 3 - CASE, THE ASSESSEE COMPANY IN ITS COMMERCIAL WISDOM DECIDED NOT TO HONOR CONTRACTS I.E. NOT TO DELIVER THE OIL BUT PAI D THE DIFFERENTIAL AMOUNT IN MONETARY CONSIDERATION AND HENCE, THE ASS ESSEE HAS SETTLED THE CONTRACT AND PAID THE CONSIDERATION FOR BREACH OF CONTRACT AT THE PRICE LESSER THAN PREVAILING MARKET RATE. IN THE C IRCUMSTANCES, THE PROVISIONS OF SECTION 43(5) OF THE ACT ARE NOT ATTR ACTED AND THE LOSS INCURRED BY THE ASSESSEE SHOULD BE REGARDED AS ORDI NARY BUSINESS LOSS. THE FOLLOWING JUDICIAL PRECEDENTS WERE RELIED UPON: I. CIT VS. GORA MAL HARI RAM LTD. (2010) 191 TAXMAN 94 (DELHI) II. CIT VS. JAYDWAR TEXTILES (1993) 202 ITR 569 (BO MBAY) III. CIT VS. AMBO AGRO PRODUCTS (P.) LTD. (2018) 95 TAXMANN.COM 345 (CALCUTTA). 4. THE LEARNED DR FOR THE REVENUE RELIED UPON THE O RDER OF THE AO. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE LIMITED QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER T HE LOSS ARISING ON BREACH OF CONTRACTS WOULD FALL WITHIN THE DEFINITIO N OF SPECULATIVE TRANSACTION AS DEFINED IN SECTION 43(5) OF THE ACT OR SUCH LOSS IS TO BE REGARDED AS ORDINARY BUSINESS LOSS. THE ASSESSEE I N THE INSTANT CASE HAS PAID THE SUM OF RS.3,83,12,474/- TOWARDS COMPEN SATION FOR BREACH OF CONTRACT AND CLAIMED IT AS BUSINESS LOSS. THE A O HELD IT AS SPECULATIVE LOSS BY TREATING THE TRANSACTION AS SPE CULATIVE TRANSACTION WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. TH E CIT(A) HOWEVER HELD THAT THE CONTRACT RESULTING IN PAYMENT OF COMP ENSATION DID NOT AMOUNT TO SPECULATIVE TRANSACTION AND DIRECTED THE AO TO ALLOW THE AMOUNT AS BUSINESS LOSS. WE STRAIGHTWAY NOTICE THA T THE HONBLE SUPREME COURT IN CIT VS. SHANTILAL (P.) LTD. (1983) 144 ITR 57 (SC) HELD THAT THE TRANSACTION CANNOT BE DESCRIBED AS A SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF SECTION 43(5) O F THE ACT WHERE ITA NO. 2241/AHD/17 [DCIT VS. M/S. RAJSHRI PACKAGERS LTD.] A.Y. 2011-12 - 4 - THERE IS A BREACH OF CONTRACT AND ON A DISPUTE BETW EEN THE PARTIES, DAMAGES WERE AWARDED AS COMPENSATION BY AN ARBITRAT ION AWARD. THE AWARD OF DAMAGES FOR BREACH OF CONTRACT IS NOT THE SAME THING AS THE PARTY TO THE CONTRACT HAS INTENDED TO SETTLE THE CO NTRACT FOLLOWING A BREACH OR NONPERFORMANCE OF THE CONTRACT. SUCH PAY MENT TOWARDS BREACH IS NOT AKIN TO THE WORD SETTLED USED IN SE CTION 43(5) OF THE ACT. IN VIEW OF THE DECISION OF THE HONBLE SUPREM E COURT AND THE DECISION OF VARIOUS HIGH COURTS FOLLOWING THE PRINC IPLES LAID DOWN BY THE HONBLE SUPREME COURT, WE DO NOT SEE ANY ERROR IN THE CONCLUSION DRAWN BY THE CIT(A). WE THUS DECLINE TO INTERFERE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 04/10/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 04/10/2019