R.Vijayasekaran, Coimbatore V. JCIT, Coimbatore

ITA 2540/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9240 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND M BHUSARI
• Assessee Lawyers: G RAMASWAMY
• Keywords: Business income; Speculation loss
• Section: 143(3); 43(5); 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2540/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) MR. R.VIJAYASEKARAN, C/O. GANESH TRADING CO. 140, T.K.MARKET RAJA STREET, COIMBATORE-641001. VS THE JOINT COMMISSIONER OF INCOME TAX, RANGE-III, COIMBATORE. PAN:ABRPV7468H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.G.RAMASWAMY, C.A. /RESPONDENT BY : DR. MILIND M.BHUSARI, CIT /DATE OF HEARING : 9 TH MARCH, 2016 /DATE OF PRONOUNCEMENT : 25 TH MAY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- I, COIMBATORE, DATED 13.08.2014 IN ITA NO.245/13-14 PASSED UNDER SECTION 143(3) R.W.S 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF MCX TRADING LOSS OF (-) ` 68,49,390/- MADE BY THE LEARNED ASSESSING OFFICER UNDER SECTION 43(5)(A) OF THE AC T AS SPECULATION LOSS. 2 ITA NO.2540 /MDS/2014 II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED BY CONFIRMING THE DISALLOWANCE OF ` 25,59,510/- MADE BY THE LEARNED ASSESSING OFFICER TOWARDS INTEREST PAYMENT ON BANK LOAN SINCE THE LOA N WAS UTILIZED FOR SPECULATIVE TRADING. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A DEALER IN GOLD BULLION FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 13.10.2010 DECLARING NIL INCOME. TH E CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) WA S ISSUED TO THE ASSESSEE ON 15.09.2011 AND THE ASSESSMENT WAS COMPLETED ON 30.03.2013 UNDER SECTION 143(3) OF THE ACT WHEREIN THE LEARNED A.O., HELD CERTAIN INCOME OF TH E ASSESSEE TO BE SPECULATIVE IN NATURE AND THEREFORE DENIED TO SETT-OFF THE SAME WITH THE REGULAR BUSINESS INCOME OF THE ASSESSEE RESULTING IN ADDITIONS. HE FURTHER DISALLO WED THE INTEREST EXPENDITURE INCURRED IN THE SPECULATION BU SINESS OF THE ASSESSEE. GROUND NO.1: DENIAL TO SET OFF SPECULATION LOSS OF RS.68,49,390/- AGAINST THE BUSINESS INCOME OF THE ASSESSEE: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT THE A SSESSEE HAD SET OFF HIS LOSS ARISING OUT OF MCX TRADING AGA INST HIS 3 ITA NO.2540 /MDS/2014 PROFIT OF ` 83,21,743/- ON REGULAR BULLION TRADING BUSINESS. WHEN THE LEARNED ASSESSING OFFICER ASKED THE ASSES SEE AS TO WHY LOSS ON MCX TRADING SHOULD NOT BE TREATED AS SPECULATIVE TRADING AND ACCORDINGLY BE NOT SET OFF AGAINST NORMAL BUSINESS PROFIT, THE ASSESSEE SUBMITTED AS FOLLOWS:- I) THE PROPRIETARY CONCERN OF THE ASSESSEE M/S. SUK RAA JEWEL MANUFACTURES STARTED GOLD BULLION BUSINESS ON LY DURING THE RELEVANT ASSESSMENT YEAR. II) DURING THE RELEVANT ASSESSMENT YEAR THE PROPRIE TARY CONCERN HAD PURCHASED AND SOLD 276 KG., OF BULLION. III) DURING THE PERIOD APRIL, 2009 TO DECEMBER, 20 09, GOLD RATE FREQUENTLY FLUCTUATED BETWEEN ` 1560/- PER GM TO ` 1932/- PER GM. IV) IN ORDER TO COVER THE RISK IN FLUCTUATION OF GO LD THE ASSESSEE HAD PURCHASED GOLD BY OBTAINING LOAN ON TH E PREVAILING RATE OF INTEREST WHICH WAS REPAID OVER A PERIOD OF THREE MONTHS. V) THE PURCHASE AND SALE OPTION WERE TAKEN ON DAY- TO- DAY BASIS DEPENDING ON STOCK POSITION, PURCHASE PRI CE AND SELLING PRICE. 4 ITA NO.2540 /MDS/2014 CITING THE AFORE STATED REASONS THE ASSESSEE EXPLAI NED BEFORE THE REVENUE THAT THESE TRANSACTIONS WILL NOT BE HIT BY THE PROVISO (A) OF SECTION 43(5) SINCE IT EXCLUDES HEDGING TRANSACTIONS FROM THE PURVIEW OF SPECULATIVE TRANSA CTIONS, AND THEREBY JUSTIFIED HIS STAND FOR SETTING OFF THE LOSS ARISING OUT OF MCX TRADING AGAINST BUSINESS PROFIT. 5. HOWEVER, AFTER ANALYZING THE TRANSACTIONS, THE L EARNED ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E BECAUSE OF THE FOLLOWING REASONS:- I) THE DAILY ACTIVITY REPORT OF THE ASSESSEE REGAR DING FORWARD MARKET TRANSACTIONS SHOWS THAT THE ASSESSEE HAS STARTED ITS MCX TRADING ACTIVITY BETWEEN 9.9.20 09 AND 18.11.2009 WHEREIN HE HAD TRADED 535 KGS OF GOL D AND SETTLED MOST OF HIS POSITIONS ON INTRA-DAY BASI S ITSELF OR WITHIN A SHORT PERIOD RANGING BETWEEN 1 TO 25 DA YS. II) THE ASSESSEE DOES NOT TAKE THE RISK OF HOLDIN G STOCK SINCE HE MAKES PURCHASES ONLY AGAINST READY ORDER FOR SALE. THIS FACT IS ALSO EVIDENT FROM THE NIL CLOSING STOCK OF THE ASSESSEE AS ON 31.03.2010 EVEN THOUGH HE HAD PURCHASED GOLD ON 29.03.2010. 5 ITA NO.2540 /MDS/2014 III) IT WAS ALSO REVEALED THAT THE ASSESSEE HAD E NTERED INTO FORWARD MARKET TRANSACTION FOR A VOLUME OF 535 KGS WHICH FAR EXCEEDS HIS TOTAL TURNOVER IN BULLION BUS INESS OF 276 KGS GOLD. IV) THE ASSESSEE HAD NOT DEMONSTRATED THAT IT HAD STOCK-IN-HAND REGULARLY IN HIS BULLION BUSINESS WHI CH HAD TO BE HEDGED AGAINST LOSSES. V) THE ASSESSEE HAD PURCHASED GOLD OF 20 KGS ON 12.5.2009 AND 3 KGS ON 11.11.2009 UTILIZING THE LOA N RECEIVED FROM CORPORATION BANK, HYDERABAD. THE BALANCE GOLD 223 KGS WERE PURCHASED ON CASH AND CARRY BASIS. THEREFORE, THE CONTENTION OF THE ASSES SEE THAT THE ENTIRE GOLD PURCHASED BY THE ASSESSEE WAS OUT OF LOAN RECEIVED WHICH WAS REPAID IN THREE MONTHS PERIOD IS DEVOID OF MERIT. 5.1. FOR THE AFORESAID REASONS, THE LEARNED ASSESSI NG OFFICER HELD THE FORWARD MARKET TRANSACTION OF THE ASSESSEE TO BE SPECULATIVE TRANSACTION AND THEREFORE DENIED THE BENEFIT OF SETTING-OFF THE LOSS ARISING OUT OF THESE TRANSACT IONS FROM THE PROFIT EARNED IN HIS REGULAR BUSINESS OF BULLION T RADING. 6 ITA NO.2540 /MDS/2014 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARNED A SSESSING OFFICER BY OBSERVING AS FOLLOWS:- 7. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFIC ER. AS SUBMITTED BY THE AUTHORIZED REPRESENTATIVE, THE APP ELLANT IS IN THE BUSINESS OF TRADING IN GOLD BARS. THE AUT HORIZED REPRESENTATIVE IN HIS SUBMISSIONS HAS PORTRAYED THE BUSINESS OF TRADING IN GOLD BARS AS SPECULATIVE BUS INESS. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE HA S A LOAN ACCOUNT WITH CORPORATION BANK, AND HE HAS EFFE CTED PURCHASE OF 23 KGS OF GOLD ON 12.05.2009 AND 20 KGS OF GOLD ON 11.11.2009. THE PAYMENTS FOR THESE PURCHASE S AS PER THE LEDGER SUBMITTED BY THE ASSESSEE HAVE BEEN MADE ON 07.11.2009 AND 12.11.2009. THE REMAINING 23 3 KGS OF GOLD, THE ASSESSEE HAS PURCHASED ON A CASH A ND CARRY BASIS. 8. AS SEEN FROM THE DETAILS SUBMITTED BY THE APPELL ANT, IT CANNOT BE HELD THAT THE ASSESSEE ENTERED INTO A BON AFIDE FORWARD SALE TRANSACTIONS WITH A VIEW OF GUARDING A GAINST THE RISK OF GOLD PRICES, FOR TREATING THE PROFIT OR LOSS AS SPECULATIVE IN NATURE. SECTION 43(5) OF THE ACT DEF INES A 'SPECULATIVE TRANSACTION' TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR PURCHASE OR SALE OF ANY COMMODITY; INC LUDING STOCK AND SHARES IS PERIODICALLY OR ULTIMATELY-SET TLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER O F COMMODITY OR SCRIPS. THE SECTION BYWAY OF PROVISO THERETO PROVIDES FOR THREE EXCEPTIONS. THE FIRST E XCEPTION PROVIDED BY CLAUSE (A) TO THE PROVISO IS RELEVANT T O THE ASSESSEE'S CASE. THE SAID PROVISO READS AS UNDER :- ( A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE 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'. IN THE CASE OF THE APPELLANT, THE ASSESSEE HAS ENTE RED INTO FORWARD MARKET TRANSACTION FOR A VOLUME OF 535 KGS WHICH 7 ITA NO.2540 /MDS/2014 FAR EXCEEDS THE TOTAL TURNOVER OF HIS BULLION BUSIN ESS OF 276 KGS. THE ASSESSEE HAS ALSO NOT PROVED BEFORE TH E ASSESSINQ OFFICER THAT THERE IS A CORRESPONDING FOR WARD CONTRACT FOR ACTUAL DELIVERY. THE ASSESSEE ALSO COU LD NOT ESTABLISH THAT HE HAD UNDERLYING STOCK OF THE COMMO DITY ON THE DAYS OF HIS TRADING IN FUTURES; THE ASSESSIN G OFFICER ELABORATELY DISCUSSED IN THE ORDER REGARDING THE MC X TRADING OF THE APPELLANT AND HELD THAT THE FORWARD MARKET TRANSACTIONS OF THE ASSESSEE ARE SPECULATIVE TRANSA CTIONS AND THE LOSS DURING THESE SPECULATIVE TRANSACTIONS CANNOT BE SET-OFF AGAINST THE BUSINESS PROFIT OF THE ASSES SEE. I CONFIRM THE ACTION OF THE ASSESSING OFFICER. AND TH E GROUNDS OF APPEAL ARE DISMISSED. 7. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED HIS SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES ON THE EARLIER OCCASIONS. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER ARGUED BY STATING THAT THE L EARNED ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNTS UNDER SECTION 145 OF THE I.T. ACT AND ONLY FOR THE REASON THAT THE ASSESSEE HAS PURCHASED GOLD ON LOAN BASIS WHICH IS TO BE REPAID OVER A PERIOD OF THREE MONTHS HAS COME TO A CONCLUSION THAT THE BUSINESS OF THE ASSESSEE HAS TO BE BIFURCATED AND VIEWED AS SPECULATIVE AND NON-SPECUL ATIVE IN NATURE. IT WAS FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS ALSO NOT VERIFIED THE CONTRACT NOTE AND THE RELEVANT DOCUMENTS BEFORE BIFURCATING THE BUSINESS AS SPECUL ATIVE AND NON-SPECULATIVE AND THERE WAS NO LOGIC FOR THE ASSESSING 8 ITA NO.2540 /MDS/2014 OFFICER TO TREAT THE WHOLE TRANSACTION BY BIFURCATI NG INTO SPECULATIVE AND NON-SPECULATIVE IN NATURE. THE LEAR NED ASSESSEES REPRESENTATIVE FURTHER VEHEMENTLY ARGUED BY STATING THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT LOOKING INTO THE ENTIRE TRANSACTI ON HAS SIMPLY FOLLOWED THE ENTIRE ORDER OF THE ASSESSING O FFICER. IT WAS THEREFORE PLEADED THAT THE ORDERS OF THE REVENU E MAY BE REVERSED AND RELIEF BE GRANTED TO THE ASSESSEE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE AUTHORITIES. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT THE ASSESSEE HAS BEEN TRADING IN GOLD / BULLION ON CASH AND CARRY BASIS AND ALSO FORWARD TR ADING WITHOUT OBTAINING DELIVERY OF STOCK. THE ASSESSEE WAS HOLDING STOCK ONLY FOR SHORT PERIOD AND ON VARIOUS OCCASIONS RESALE HAS BEEN DONE INSTANTLY OR ON THE SAME DAY. THE LEARNED ASSESSING OFFICER HAS ALSO MADE A FINDING T HAT THE 9 ITA NO.2540 /MDS/2014 ASSESSEES TRADING WAS IN SHORT DURATION IN THE FOL LOWING MANNER:- INTRA-DAY 100 KGS 1 DAY - 70 KGS 3 DAYS - 146 KGS 4 DAYS - 50 KGS 5 DAYS - 23 KGS 6 DAYS - 23 KGS 10 DAYS - 23 KGS 23 DAYS - 50 KGS 25 DAYS - 50 KGS ------------------------------------------- TOTAL 535 KGS. ======================== PREDOMINANTLY, THE ACTIVITY OF THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR WAS NOT RELATED TO TRADING OF GOLD JEWELLERY. THESE FACTS ARE NOT DISPUTED. FROM THE A BOVE, IT IS OBVIOUS THAT THE ASSESSEE WAS TAKING POSSESSION IN THE COMMODITY MARKET BY HOLDING GOLD / BULLION FOR SHOR T PERIOD EITHER BY PURCHASING THEM ON CASH BASIS OR BY FORWA RD TRANSACTIONS IN ORDER TO TAKE ADVANTAGE OF THE FLUC TUATIONS IN THE PRICE OF GOLD DURING SHORT INTERVALS. THIS CLEA RLY ESTABLISHES THAT THE ENTIRE BUSINESS ACTIVITY OF TH E ASSESSEE WAS SPECULATIVE IN NATURE AND TRANSACTION WITH RESP ECT TO PURCHASES AND SALES MADE ON CASH BASIS CANNOT BE BIFURCATED AS NON-SPECULATIVE. IN THESE CIRCUMSTANC ES, THE 10 ITA NO.2540 /MDS/2014 PROFIT AND LOSS OF THE BUSINESS HAS TO BE COMPUTED IN ITS ENTIRETY AS RESULTING FROM SPECULATIVE BUSINESS. T HEREFORE, THE QUESTION OF DISALLOWING THE AMOUNT OF RS.68,49, 390/- AS LOSS FROM SPECULATIVE BUSINESS WILL NOT ARISE BECAU SE THE SAME HAS TO BE SET OFF AGAINST THE TOTAL PROFIT OF THE ASSESSEE AMOUNTING TO RS.83,21,743/-. PRECISELY BOTH THE LOS S OF RS.68,49,390/- AND THE PROFIT OF RS.83,21,743/- HA S TO BE TREATED AS INCOME/LOSS ARISING OUT OF SPECULATIVE B USINESS OF THE ASSESSEE. HENCE, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON AC COUNT OF RS.68,49,390/-. GROUND NO.2: DISALLOWANCE OF INTEREST OF RS.25,59,510/- TOWARDS BANK LOAN. 10 . THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE INTEREST EXPENSES INCURRED BY THE ASSESSEE AMOUNTIN G TO RS.25,59,510/- FOR THE REASON THAT LOAN HAS BEEN AV AILED FOR SPECULATIVE TRADING. THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARN ED ASSESSING OFFICER BECAUSE THE ASSESSEE COULD NOT PR OVE THAT THE LOAN WAS BORROWED FOR THE PURPOSE OF THE REGULA R BULLION 11 ITA NO.2540 /MDS/2014 TRADING BUSINESS OF THE ASSESSEE. HOWEVER, SINCE W E HAVE DECIDED HEREIN ABOVE THAT THE ENTIRE BUSINESS OF TH E ASSESSEE SHOULD BE TREATED AS SPECULATIVE IN NATURE , THE INTEREST EXPENDITURE OF RS.25,59,510/- INCURRED BY THE ASSESSEE IN THE SPECULATIVE BUSINESS OF THE ASSESSE E HAS ALSO TO BE ALLOWED AS ELIGIBLE DEDUCTION. THEREFORE , WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELE TE THE ADDITION MADE FOR RS.25,59,510/- ON ACCOUNT OF DISA LLOWANCE INTEREST EXPENSES. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH MAY 2016 SD/- SD/- ( .. . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ' /CHENNAI, ' /DATED 25 TH MAY, 2016 SOMU )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /