DCIT,CC-XXV,KOLKATA, Kolkata V. M/s Ambo Agro Products Ltd., Kolkata

ITA 399/KOL/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78301 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2014
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN C ITDR PER SH
• Keywords: Business income; Transfer pricing; Business expenditure; International transaction; Question of law; Speculation loss; Corroborative evidences
• Section: 92C; 43B; 143(3); 43(5); 37; 263; 63; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BEN CH: KOLKATA [BEFORE HONBLE SHRI MAHAVIR SINGH, J.M. & HONBLE SHRI SHAMIM YAHYA, A.M. ] I.T.A. NO.153/KOL/2014 : ASSESSMENT YEAR : 2009-10 AMBO AGRO PRODUCTS LTD.,KOLKATA -VS- DCIT, C.C.-XXV, KOLKATA ( APPELLANT ) PAN : AAECA 5908Q .. ( RESPONDENT ) I.T.A. NO.399/KOL/2014 : ASSESSMENT YEAR : 2009-10 DCIT, C.C.-XXV, KOLKATA -VS- AMBO AGRO PRO DUCTS LTD.,KOLKATA ( APPELLANT ) .. ( RESPONDENT ) DATE OF CONCLUDING THE HEARING : 03.04.2014 DATE OF PRONOUNCING THE ORDER : 08. 05.2014 APPEARANCES: FOR THE ASSESSEE : SHRI SOUMITRA CHOUDHURY, ADVOCATE : FOR THE DEPARTMENT : SHRI RAVI JAIN, C IT,DR O R D E R PER SHRI MAHAVIR SINGH : THESE CROSS APPEALS ARE ARISING OUT OF ASSESSMENT O RDER FRAMED, BY DCIT, CENTRAL CIRCLE-XXV, KOLKATA FOR ASSESSMENT YEAR 2009-2010 U /S 143(3) R.W.S. 144C(5) AND 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) DATED 07.01.2014, IN VIEW OF DIRECTIONS OF DISPUTES RESOLUTION PANEL, KOLKATA DATED 22.11.2013U/S 144C(5) OF THE ACT. 2. THE FIRST COMMON ISSUE IN THESE CROSS APPEAL IS AS REGARDS TO DISALLOWANCE OF DAMAGES FOR BREACH OF CONTRACT (SAUDA CANCELLATION/SAUDA SE TTLEMENT CHARGES). FOR THIS, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: ASSESSEES GROUNDS OF APPEAL : 1. DAMAGES FOR BREACH OF CONTRACT (SAUDA CANCELLATI ON) CONSIDERED AS SPECULATION LOSS 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO ERRED IN TREATING THE DAMAGES OF RS 23,48,59,500/- INCURRED FOR BREACH OF CONTRACT I.E. PRICE DIFFEREN CE ON ACCOUNT OF SAUDA CANCELLATION IN THE COURSE OF ITS BUSINESS AS A 'SPECULATIVE TRANSACTION' U/S 43(5) OF THE ACT AND SUCH LOSS/ EXPENSE AS SPECULATIVE BUSINESS LOSS AND DENIED SET OFF OF SUCH LOSS AGAINST INCOME. THE REASONS GIVEN BY THEM FOR DOING SO ARE WRONG, CONTRARY TO THE 2 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW . 1.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO ERRED IN TREATING DAMAGES INCURRED FOR BREACH OF CONTRACT IN THE COURSE OF ITS BUSINESS AS A 'SPECULATIVE TRANSACTION' U/S 43(5) OF THE ACT SOLELY ON THE BA SIS OF ASSUMPTIONS, PRESUMPTIONS AND SURMISES WITHOUT ANY EVIDENCE OR CONVICTION. 1.3. THE LD. DRP/ AO ERRED IN LAW AND FACTS IN OBS ERVING THAT THE TRANSACTIONS WERE OF ACCOMMODATIVE NATURE WITHOUT ANY EVIDENCE TO PROVE SUCH ALLEGATION. 1.4. THE LD. DRP/ AO FAILED TO APPRECIATE THAT THE DAMAGES FOR BREACH OF CONTRACT I.E. PRICE DIFFERENCE ON ACCOUNT OF CANCELLATION OF PURCHASE C ONTRACT IN THE NORMAL COURSE OF IS BUSINESS EXPENSES WHOLLY INCURRED FOR ITS BUSINESS HENCE ALL OWABLE U/S 37 OF THE ACT. 1.5. WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO ERRED IN TREATING SPECULATION T RANSACTIONS AS SPECULATION BUSINESS. WITHOUT APPRECIATING THE FACT THAT SPECULATIVE TRANSACTION DOES NOT AMOUNT TO SPECULATIVE BUSINESS AND ASSESSEE HAS NEVER BEEN HELD TO BE IN SUCH BUSINESS . 1.6. THE LD. AO OUGHT TO HAVE ALLOWED THE LOSS AS SPECULATION LOSS AS HELD BY HIM IN THE DRAFT ASST. ORDER. REVENUES GROUND IS AS UNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN ISSUING DIRECTIONS NOT TO TREAT SAUDA SETTLEMENT CHARGES AS SPECULATION LOSS BY IGNORING PROVISIONS OF SEE. 43(5) OF THE ACT WHICH CLEARLY INDICATES THAT ANY TRANSACTION NO T SETTLED BY ACTUAL DELIVERY OR TRANSFER IS TO BE TREATED AS SPECULATIVE TRANSACTION WITHOUT EXCLU DING TRADE RELATED TRANSACTION FROM THE TERM TRANSACTION. 3. BRIEFLY STATED FACTS RELATING TO THE ABOVE ISSU E ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED LOSS OF RS.23,48,59,500/- ON A CCOUNT OF SAUDA CANCELLATION CHARGES. THE ASSESSEE CLAIMED THIS LOSS DUE TO THE CANCELLATION OF EIGHT TRANSACTIONS DURING THE YEAR ENTERED THROUGH SAUDA AGREEMENT. THE ASSESSEE ALSO CLAIMED LOSS ON ACCOUNT OF SETTLEMENT OF SAUDA AMOUNTING TO RS.50,91,187/-. THE AO NOTICED THAT TH E LOSS INCURRED ON ACCOUNT OF SAUDA CANCELLATION CHARGES WAS ACTUALLY DERIVED FROM TRAN SACTIONS BETWEEN THE SUPPLIERS OF RAW MATERIALS AND BUYERS ONLY MANUFACTURING UNIT AT HA LDIA. THE DETAILS OF SAUDA CANCELLATION CHARGES ARE APPENDED IN THE DRAFT ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT DATED 31.03.2013 AT PAGE 45 OF ASSESSEE S PAPER BOOK AND INNER PAGE 3 OF THE DRAFT ASSESSMENT ORDER. FOR THE SAKE OF CLARITY OF FACTS, THE SAME IS REPRODUCED HEREUNDER: 3 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 SL. NO. NAME OF THE COMPANY DATE OF DEBIT NOTE SAUDA CANCELLATION CHARGES/LOSS DATE OF CONTRACTS WITH REFERENCE TO DEBIT NOTES EQUAL TO INR/ IN INR 1. M/S. SING GLOBAL OIL PRODUCTS PTE LIMITED OF SINGAPORE 13.10.2008 INCLUDES BANK CHARGES OF RS.1,275 1,41,08,500 CONTRACT DATED: 20.8.2008 JUST 3 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT 13.10.2008 INCLUDES BANK CHARGES OF RS.1,300 1,39,08,400 CONTRACT DATED: 20.8.2008 JUST 3 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT 13.10.2008 INCLUDES BANK CHARGES OF RS.1,300 1,38,59,100 CONTRACT DATED: 20.8.2008 JUST 3 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT 13.10.2008 INCLUDES BANK CHARGES OF RS.1,300 4,32,48,750 CONTRACT DATED: 21.8.2008 JUST 3 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT 11.10.2008 INCLUDES BANK CHARGES OF RS.1,300 4,02,84,750 CONTRACT DATED: 18.8.2008 JUST 3 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT 2. M/S. K.S. OIL LIMITED OF MORENA (M.P.) 12.01.2009 3,39,00,000 CONTRACT DATED: 17.11.2008 2 AND MONTHS LATER OF MOU DATED: 23.08.2008 FOR SLUMP SALE OF UNIT 12.01.2009 1,95,50,000 CONTRACT DATED: 17.11.2008 2 AND MONTHS LATER OF MOU DATED: 23.08.2008 FOR SLUMP SALE OF UNIT 3. M/S.MANTORA OIL PRODUCTS LIMITED OF KANPUR 25.10.2008 5,60,00,000 CONTRACT DATED: 21.08.2008 JUST 2 DAYS BEFORE MOU DATED: 23.08.2008 FOR SLUMP SALE OF HALDIA UNIT THE AO NOTED THAT THE ASSESSEE HAS ACCEPTED ALL THE DEBIT NOTES OF THE ABOVE THREE PARTIES, ACCORDING TO THEIR DEMAND AND DEBIT NOTES WITHOUT A NY ARBITRATION. HE FURTHER NOTED THAT SAUDA CANCELLATION CHARGES ARE ADJUSTED ON ACCOUNT OF KNO WN PARTIES WITHOUT ACTUAL DELIVERY OF GOODS AND ACCORDINGLY HE NOTED FACTS, WHICH ARE SUM MARIZED AS UNDER: (I) S ING GLOBAL OIL PRODUCTS LTD. IS BASED AT SINGAPORE AND ONE OF THE RAW MATERIAL SUPPLIERS (II) MANTORA OIL PRODUCTS LTD. HAD NEITHER SUPPLIED ANY GOODS NOR ANY OTHER KIND OF TRANSACTION DURING THIS YEAR EXCEPT THIS TRANSACTIO N RESULTING IN LOSS TO THE ASSESSEE, WHICH WAS 4 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 ALSO RESULTED WITHOUT DELIVERY OF ANY GOODS TO THE ASSESSEE AND (III) K..S. OIL LTD, WHICH HAS SUPPLIED GOODS TO THE ASSESSEE D URING THIS YEAR. BUT K.S. OILS LTD. HAD ALREADY SIGNED AN MOU ON 23.8.2008TO PURCH ASE THE MANUFACTURING UNIT OF THE ASSESSEE AT HALDIA. (IV) IT IS PERTINENT TO NOTE THAT THE ALL CONTRACTS (EXC EPT WITH K.S. OIL) WITH SAID PARTIES RELATED TO INCUR SAUDA CANCELLATION CHARGES (LOSS) FOR THE SUM OF RS.23,48,59,500.00 AND THEN SUCH LOSS WAS CLAIMED AS BUSINESS EXPENDITURE FOR THE FI RST TIME, ON TRANSACTIONS BETWEEN 17.08.2008 TO 21.08.2008 AND AGAIN ON 17.11.2008 (WITH K.S. OI L LTD). (V) THE MOU FOR THE ABOVE DISCUSSED SLUMP SALE WAS MADE ON 23.08.2008 AND SIGNED BY BOTH ASSESSEE(SELLER) & K.S. OIL LTD (PURCHASER). T HUS ALL THE CONTRACTS PERTAIN TO SAUDA CANCELLATION CHARGES (LOSS) OF RS.23,48,59,500.00 W ERE PREPARED ON THE LETTER HEAD PAD WITH ABOVE MENTIONED THREE(3) PARTIES IN CONNECTION WITH ALLEGED PURCHASES JUST IMMEDIATELY BEFORE THE OFFICIAL AGREEMENT I.E. MOU DATED 23.08.2008 AN D SUBSEQUENTLY TERMINATED WITHOUT ACTUAL DELIVERY OF ANY GOOD AND ULTIMATELY GENERATED HUGE LOSS TO ASSESSSEE COMPANY IN THE LATER PART OF THIS YEAR UNDER CONSIDERATION. THE UNIT AT HALDIA W AS HANDED OVER TO K.S OIL LTD. ,THE PURCHASER ,ON 18/02/2009. FURTHER, THE AO NOTED THE CONSOLIDATED TURNOVER AND NET PROFIT FROM MANUFACTURING AND TRADING BUSINESS OF THE ASSESSEE FOR THE LAST THREE YEARS AND STATED THAT THIS IS A CLINCHING EVIDENCE TO DISTINGUISH SUCH SAUDA CANCELLATION CHA RGES FROM THE NORMAL MANUFACTURING AND TRADING BUSINESS OF THE ASSESSEE. HE RECORDED THE F OLLOWING FACTS: ASSESSMENT YEAR GROSS TURNOVER OF BUSINESS IN RS. NET PROFIT FROM BUSINESS IN RS. % OF NET PROFIT W.R.T. TURNOVER 2007-08 RS.240,27,87,494.10 RS.1,50,27,129.80 PROFI T 0.625% 2008-09 RS.471,37,28,304.82 RS.10,36,21,473.92 PROF IT 2.20% 2009-10 RS.355,20,46,432.37 RS.69,21,96,427.52 (LOSS) LOSS 19.50% FINALLY IN PARA 2.7 OF ASSESSMENT ORDER, BY FOLLOWI NG DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP), AO MADE THE FOLLOWING DISALLOWANCE:- 2.7 ON THE BASIS OF ABOVE FINDING THE SAUDA CANCELL ATION CHARGES OF RS.23,48,59,500/- WAS PROPOSED TO BE DISALLOWED VIDE DRAFT ASSESSMENT OR DER, WHICH WAS COMMUNICATED TO THE ASSESSEE ON 11/02/2013 U/S.144C(1) OF THE INCOME TAX ACT1961. THE ASSESSEE REFERRED THE ISSUE TO THE DISPUTE RESO LUTION PANEL (D.R.P) BY FILING OBJECTION U/S. 144C(2)(B)(I). THE D.R.P ON EXAMINATION OF THE FACT S AND CIRCUMSTANCES OF THE CASE REJECTED THE ASSESSEE'S OBJECTION VIDE IT'S ORDER U/S. 144C(5) D ATED. 22/11/2013 RECEIVED BY THE UNDERSIGNED ON 10/12/2013. THE RELEVANT PART OF PARA OF THE D.R .P'S CONCLUSION IN PAGE.24 IS REPRODUCED AS UNDER, THE PURCHASE TRANSACTIONS SAID TO HAVE BEEN UNDERT AKEN BY THE ASSESSEE WHICH RESULTED IN ' SAUDA CANCELLATION' LOSSES APPEAR TO BE ACCOMMODATI VE NATURE AND CANNOT BE SAID TO BE ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. THE M ETHODOLOGY ADOPTED BY THE ASSESSEE IN OUR CONSIDERED VIEW SEEMS TO BE WITH THE INTENT TO SAVE HIMSELF FROM TAX LIABILITIES ARISING OUT OF 5 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 THE SALE OF BUSINESS ASSETS AS DISCUSSED ABOVE. ACC ORDINGLY THE OBJECTION RAISED BY THE ASSESSEE IS NOT SUSTAINABLE AND THE OBJECTION RAISED ON THIS GROUND IS REJECTED. ' IN VIEW OF THE ABOVE DECISION OF THE DISPUTE RESOLU TION PANEL, THE CLAIM OF LOSS ON ACCOUNT OF SUADA CANCELLATION CHARGES OF RS.23,48,5 9,500/- IS DISALLOWED. AGGRIEVED THE ASSESSEE CAME IN APPEAL BEFORE US AGA INST THE DIRECTIONS OF DRP AS WELL AS AGAINST ASSESSMENT ORDER. 4. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS MA NUFACTURER OF EDIBLE OIL WITH A PRODUCTION CAPACITY OF 500 TPD. THE ASSESSEE NORMAL LY IMPORTS RAW MATERIALS THAT INCLUDE CRUDE PALM OIL AND CRUDE SOYA AND REFINED OIL FOR T HE PLANT. THE ASSESSEE SELLS REFINED PRODUCTS I.E. PALM AND SOYA IN BULK I.E. LOOSE AND PACKED IN TIN, JAR AND POUCH. THE ASSESSEE SELLS THESE PRODUCTS TO MANUFACTURERS OF VANASPATI, BISCUITS AN D BAKERY PRODUCTS AND ALSO TO SMALL TRADERS. THE PURCHASES AND SALES WERE MOSTLY MADE THROUGH BR OKERS. DURING THE RELEVANT ASSESSMENT YEAR, ASSESSEES CASE WAS PICKED UP FOR SCRUTINY AS SESSMENT BY ISSUING NOTICE UNDER SECTION 143(2) BY THE AO AND THEREFORE REFERENCE WAS MADE T O TRANSFER PRICING OFFICER (TPO), WHO PROPOSED ADJUSTMENT OF RS.16,62,25,514/- TO THE RET URNED INCOME OF THE ASSESSEE. THE AO FRAMED DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(II) OF THE ACT DATED 11.02.2013 INCORPORATING ADJUSTMENT DETERMINED BY T HE TPO AS WELL AS OTHER ADDITIONS AND DISALLOWANCES. THE ASSESSEE REFERRED THE MATTER TO DRP AGAINST THE DETERMINATION OF TRANSFER PRICING BY TPO AS WELL AS OTHER ADDITIONS AND DISAL LOWANCES PROPOSED IN THE DRAFT ASSESSMENT ORDER. 5. LD. COUNSEL FOR THE ASSESSEE FIRST OF ALL ARGUED THAT AS PER THE PRACTICES PREVALENT IN THE INTERNATIONAL AND DOMESTIC MARKETS IN THE LINE OF T HIS TRADE, THE GOODS ARE CONTRACTED TO BE SUPPLIED AT THE RATE FOR THE DELIVERY ON AGREED TER MS AND CONDITIONS. LD. COUNSEL OF THE ASSESSEE STATED THAT IN CASE ANY PARTY BREACHES THE CONTRACT BY NOT SUPPLYING OR REFUSING TO TAKE DELIVERY, IT HAS TO PAY DAMAGES TO THE OTHER P ARTY AS PER FOSFA 81 AND THE TERMS SPECIFIED IN THE CONTRACT. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PAID SAUDA CANCELLATION CHARGES/DAMAGES FOR BREACH OF CONTRACT TO EIGHT TRANSACTIONS INVOLVING THREE PARTIES, WHERE A SSESSEE REFUSED TO TAKE DELIVERY TO CONTAIN FURTHER LOSSES IN FALLING MARKET. LD. COUNSEL OF TH E ASSESSEE STATED THAT ASSESSEE ENTERED INTO MOU FOR TRANSFER OF ENTIRE HALDIA UNIT TO K.S. OIL LTD. ON 23.08.2008 AND CONTRACTED THESE 6 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 TRANSACTIONS FROM TWO PARTIES BETWEEN 18.08.2008 TO 21.08.2008. TWO CONTRACTS FOR SUPPLY OF CRUDE PALM OIL WERE ENTERED INTO WITH K.S. OIL LTD. ON 17.11.2008. THE ASSESSEE HANDED OVER ITS HALDIA UNIT ON 18.02.2009 TO K.S. OIL LTD. TO E XECUTE THE SLUMP SALE PROCESS. ACCORDING TO LD. COUNSEL, THE AO, BASED HIS DECISION ON THE ABOV E FACTS THAT THE INTENTION OF BOOKING SUCH HUGE LOSSES WAS ON THE PRETEXT OF PURCHASE AGREEMEN T FOR CRUDE PALM OIL, CRUDE SOYA & REFINED OIL AND THAT ALSO WITHOUT TAKING DELIVERY O F GOODS. ACCORDING TO THE AO, THE INTENTIONS OF ASSESSEE ARE VERY CLEAR. THE LD. COUNSEL FOR THE ASSESSEE MADE ARGUMENT THAT THE AO ERRED IN POINTING OUT THAT CLAUSE 3.4 OF THE BUSINESS TRA NSFER AGREEMENT (BTA) IS ONLY TO CREATE LIABILITY OF SELLING MERCHANDISE BEFORE COMPLETION OF FINANCIAL YEAR BECAUSE IT WAS GOING TO BE CEASED FROM THE HANDS OF THE ASSESSEE DUE TO EXECUT ION OF SLUMP SALE PRICE BUT LEAVING NOT AN IOTA OF SCOPE OF LOSS AS THE INVENTORY OR CLOSING S TOCK ON THE DATE OF TRANSFER OF MANUFACTURING UNIT WOULD BE AT COST ONLY. THUS, THE QUESTION OF F UTURE FLUCTUATION OF PRICE AT THE TIME OF DELIVERY OF FINISHED GOODS TO THE BUYER OF THE ASSE SSEE DOES NOT ARISE AND THEREFORE, EXCEPTIONAL PROVISIONS OF CLAUSES (A), (B), (C) AND (D) OF SECTION 43(5) ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. LD. COUNSEL FOR THE A SSESSEE FURTHER MADE THE FOLLOWING SUBMISSIONS: 1. ALL THESE CONTRACTS ARE VALID CONTRACT DULY ENFO RCEABLE UNDER THE LAW AND EXECUTED IN SIMILAR WAYS AS OTHER CONTRACTS ARE MADE. THESE CON TRACTS ARE ALSO CONFIRMED THROUGH BROKERS OF THE SELLER PARTY. THE PAYMENTS HAVE BEEN SETTLED THROUGH BANKING CHANNELS AS EVIDENCES ARE AVAILABLE IN THE PAPER BOOK. THE PAYM ENT TO SING GLOBAL OIL PRODUCT HAS BEEN REMITTED BY THE UCO BANK AFTER TAKING APPROVAL THEREOF FROM RBI. THE RBI HAS ALLOWED PAYMENT OF COMPENSATION FOR SUCH SAUDA CANC ELLATION. 2.AS PER CLAUSE 6.1.3 REPRODUCED BELOW OF THE SAID BUSINESS TRANSFER AGREEMENT, THE ASSESSEE CONTINUES TO OWN THE BUSINESS UNDERTAKING TILL THE TRANSFER OF BUSINESS (CLOSING DATE). ALL THE PROFITS/LOSSES ARISING OR INCURRED O R LIABILITIES ARISING OR INCURRED OR EXPENSES ARISING OR INCURRED FOR THE PERIOD TILL THE CLOSING DATE SH ALL BE DEEMED TO BE OF THE ASSESSEE'S ONLY. MONTHLY PURCHASE, SALES & STOCK D ETAILS PRODUCED PROVES THAT THE ASSESSEE HAS BEEN PURCHASING AND SELLING DURING THE ENTIRE Y EAR TILL THE REFINERY IS TRANSFERRED. THIS SHOWS THAT THE BUSINESS OF THE ASSESSEE WAS NOT AFF ECTED BY THE MOU/BTA OF SLUMP SALE BUT IT WAS MAINLY AFFECTED DUE TO FALLING MARKET RATES. 3.THE DECISION OF ASSESSEE TO CANCEL CONTRACTS WAS NOT WITH A VIEW TO SUFFER A LOSS BUT TO CONTAIN FURTHER LOSSES. THE EDIBLE OIL MARKET HAS B EEN CONTINUOUSLY RISING IN LAST 3/4 YEARS. HOWEVER, MARKET MOVED IN THE OPPOSITE DIRECTION DUR ING THE YEAR AND THERE WAS A STEEP FALL IN THE PRICES AS IS EVIDENT FROM THE GRAPH ENCLOSED AT PAGE 444 OF THE PAPER BOOK. 4.AS PER THE AGREED TERMS AND CONDITIONS, WHICH ARE INTERNATIONALLY ACCEPTED TERMS IN THE EDIBLE OIL INDUSTRY, IF A CONTRACT IS CANCELLED THE CANCELLING PARTY HAS TO MAKE GOOD THE LOSSES OF THE OTHER PARTY DUE TO BREACH OF CONTRACT . IT IS BASICALLY DAMAGES FOR BREACH OF CONTRACT. 5.SECTION 5 OF THE INDIA CONTRACT ACT, 1872 ALSO SU PPORTS CONTENTION OF THE ASSESSEE THAT 7 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 TRANSACTIONS OF THE ASSESSEE ARE NOT SPECULATIVE IN NATURE. 6. A CONTRACT SETTLED, AS PER SECTION 43(5) MEANS CONTRACT SETTLED BEFORE IT BREACHES. A BREACH PUTS AN END TO THE CONTRACT AND CREATES A LI ABILITY IN DAMAGES. SECTION 43(5) OF THE ACT DOES NOT SAY THAT A SETTLEMENT OF A CLAIM FOR DAMAGES ARISING OUT OF A BREACH OF CONTRACT WILL BE SPECULATIVE TRANSACTION. 7.THE DRP HAS ALSO ALLOWED DAMAGES PAID FOR BREACH OF CONTRACT RELATING TO SALE (SAUDA SETTLEMENT) AS BUSINESS EXPENDITURE U/S 37 OF THE A CT. THIS DAMAGES WERE PAID BY ASSESSEE DUE TO NON-SUPPLY OF MATERIAL ON DUE DATE TO ITS BU YERS. HENCE DAMAGES PAID FOR BREACH OF CONTRACT ON PURCHASE OF CPO & RBD PALMOLEIN SHOULD ALSO BE ALLOWED AS BUSINESS EXPENDITURE U/S 37 OF THE ACT. 6. ON THE OTHER HAND, THE LD. CIT,DR, SHRI RAVI JAI N HEAVILY RELIED ON THE ORDER OF DRP AND THAT OF THE AO. THE LD. CIT,DR MADE ARGUMENT TH AT THE UNIQUE FEATURE IN THE TRANSACTIONS CLAIMING LOSS BY THE ASSESSEE IS THAT THESE TRANSAC TIONS ARE WITHOUT DELIVERY OF GOODS AND IN SUCH CIRCUMSTANCES, THE AO HAS RIGHTLY TREATED THES E TRANSACTIONS AS SPECULATIVE LOSS. THE LD. CIT, DR HEAVILY RELIED ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT V SHANTILAL (P.) LTD. 144 ITR 57 (SC). 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. FIRST OF ALL, WE FIND THAT THE AO TREATED THE DAMAGES INCURRED AND PAID FOR BREACH OF CONTRACT I.E. PRICE DIFFERENCE ON ACCOUNT OF SAUDA CANCELLATION OF PURCHASE IN THE COURSE OF MANUFACTURING BUSINESS AS A SPECULATIVE TRANSACTION UNDER SECTION 43(5) OF THE ACT AND TREATED SUCH LOSS AS SPECULATIVE LOSS INSTEAD OF BUSINESS L OSS. THE AOS MAIN OBJECTION WAS THAT ALL SUCH DEBITS WERE ACCEPTED BY THE ASSESSEE FROM THRE E PARTIES, ACCORDING TO THEIR DEMAND AND DEBIT NOTES WITHOUT ANY ARBITRATION. FURTHER, THE S AID CREDITS UNDER THE HEAD SAUDA CANCELLATION CHARGES WERE DONE WITHOUT ACTUAL DELI VERY OF THE GOODS. IT IS ALSO ADMITTED BY THE REVENUE AUTHORITIES THAT THERE ARE CONTRACTS EN TERED INTO BY THE ASSESSEE WITH (I) SINGAPORE BASED RAW MATERIAL SUPPLIER, NAMELY, SING GLOBAL OI L PRODUCTS LTD., (II) NEITHER SUPPLIER NOR ASSESSEE ENTERED INTO ANY TRANSACTION EXCEPT THESE TRANSACTIONS I.E. MANTRA OIL PRODUCTS LTD. AND (III) ANOTHER SUPPLIER K.S. OIL LTD. BUT REVENU E AUTHORITIES ADMITTED THAT THERE ARE VALID CONTRACTS FOR ENTERING INTO TRANSACTIONS FOR PURCHA SE OF RAW MATERIALS FROM THESE PARTIES WITH THAT OF THE ASSESSEE. IT IS ALSO ADMITTED FACT THAT DURING THE RELEVANT PREVIOUS YEAR, THE INTERNATIONAL PRICE OF CRUDE PALM OIL AS WELL AS RB D PALMOLIENE STARTED DECLINING ON MANY OCCASIONS AND ALSO AFFECTED INDIAN MARKETS. DUE TO FALLING MARKETS, LOCAL DEMAND BECAME POORER AND DUE TO FINANCIAL CRUNCH AND INABILITY TO GET L.C. LIMIT, ASSESSEE REFUSED TO HONOUR 8 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 CONTRACT FOR PROCURING SUPPLIES. BY THIS WAY, THE A SSESSEE WANTED TO GUARD THEIR LOSS AGAINST FUTURE PRICE REDUCTION IN RESPECT OF THOSE CONTRACT S INSTEAD OF ACTUAL DELIVERY OF GOODS ORDERED FOR MANUFACTURE/MERCHANDISE BUSINESS. AS PER THE CO NTRACT, THE ASSESSEE FAILED TO TAKE DELIVERY OF THE ORDERED GOODS AND THE SAME WAS INFORMED TO T HE SUPPLIERS AND AS PER PRACTICE IN INTERNATIONAL TRADE IN RESPECT OF THESE ITEMS DEALT WITH BY THE ASSESSEE, THE CONCERNED PARTIES AGREED TO CANCEL THE CONTRACT ON PAYMENT OF DAMAGES . SUCH DAMAGES WERE AGREED TO BE CALCULATED ON THE BASIS OF DIFFERENCE OF CONTRACT P RICE AND PRICE AS PREVAILING ON THE DATE OF REFUSAL TO ACCEPT THESE SUPPLIES AND CANCELLATION O F CONTRACT. WE FIND THAT THE ASSESSEE HAS DETAILED OUT THE COMPLETE QUANTITY FOR WHICH TOTAL PURCHASE CONTRACT FOR CRUDE PALM OIL AND RBD PALMOLEIN WERE ENTERED. THESE WERE NOT DISPUTED BY THE REVENUE AUTHORITIES AND EVEN NOW BY LD. CIT-DR. THE RELEVANT DETAILS ARE AS UNDE R: (I) QUANTUM OF CRUDE PALM OIL : IT MAY BE NOTED TH AT DURING THE RELEVANT PREVIOUS YEAR, TOTAL PURCHASE CONTRACTS FOR CRUDE PALM OIL WERE F OR ABOUT 60911.60 MT. OUT OF WHICH, THE CONTRACTS WHICH COULD NOT BE EXECUTED AND DAMAGE/ COMPENSATION IN RESPECT OF WHICH HAD TO BE PAID WERE IN RESPECT OF ONLY 12,000 MT. THESE W ERE IN THE COURSE OF REGULAR BUSINESS OF THE ASSESSEE. (II) QUANTUM OF RBD PALM OLEIN: IT MAY BE NOTED THA T DURING THE RELEVANT PREVIOUS YEAR, TOTAL PURCHASE CONTRACTS FOR RBD PALM OLEIN WERE FO R ABOUT 25432.335 MT. OUT OF WHICH, THE CONTRACTS WHICH COULD NOT BE EXECUTED AND DAMAGE/ COMPENSATION IN RESPECT OF WHICH HAD TO BE PAID WERE IN RESPECT OF ONLY 6000 MT. THESE WER E IN THE COURSE OF REGULAR BUSINESS OF THE ASSESSEE. SUCH CONTRACTS ARE THEREFORE NOT SEPARATE OR DISTINCT FROM THE NORMAL BUSINESS OF THE ASSESSEE. PLEASE REFER EXPLANATION 2 TO SECTION 28 . THE ASSESSEE HAS PRODUCED THE DETAILS OF LOSS CAUSE D IN RESPECT OF PURCHASE CONTRACT WHICH WERE CANCELLED. THE SUPPORTING EVIDENCES, LIKE COPY OF PURCHASE CONTRACT, DEBIT NOTES, ETC. WERE ALSO FILED BEFORE LOWER AUTHORITIES. THE ASSES SEE ALSO FILED BANK STATEMENT AND COPY OF PARTY LEDGERS. THE ASSESSEE RECEIVED PROPER PERMISS ION FROM RBI FOR MAKING REMITTANCES TO SUCH PARTIES. THE ABOVE TRANSACTIONS, ACCORDING TO US, WERE IN THE REGULAR COURSE OF BUSINESS AND WERE DONE CONSIDERING THE MARKET CONDITIONS AND BUSINESS EXPEDIENCY. IN VIEW OF THE FALLING PRICES AND WITH A VIEW TO AVERT POSSIBLE LO SSES, THE ASSESSEE DECLINED ACCEPTING SUPPLIES AND THIS RESULTED INTO BREACH OF CONTRACT FOR WHICH IT HAD TO PAY DAMAGES/ COMPENSATION AS PER THE TERMS AND CONDITIONS OF THE CONTRACT. 8. NOW COMING TO THE PROVISIONS OF SECTION 43(5), T HE RELEVANT CLAUSES (A), (B), (C), (D) AND (E) OF SECTION 43(5) READ AS UNDER: 9 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 (5) SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERI ODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODIT Y OR SCRIPS: PROVIDED THAT FOR THE PURPOSE OF THIS CLAUSE (A)A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE 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; OR (B)A CONTRACT IN RESPECT OF STOCKS AND SHARES ENT ERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND S HARES THROUGH PRICE FLUCTUATIONS; OR (C)A CONTRACT ENTERED INTO BY A MEMBER OF A FORWA RD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBI TRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF THE BUSINESS AS SUCH MEMBER; OR (D)AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT,1956 (42 TO 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE; OR THE FOLLOWING CLAUSE (E) SHALL BE INSERTED IN PROVI SO TO CLAUSE (5) OF SECTION 43 BY THE FINANCE ACT, 2013, W.E.F. 1-4-2014: (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION . 9. ON THE ABOVE PROVISION, WE FIND THAT THE ASSESSEE C LAIMED THAT THE ABOVE TRANSACTIONS WERE IN REGULAR COURSE OF BUSINESS AND WERE DONE CO NSIDERING THE MARKET CONDITIONS AND BUSINESS EXPEDIENCY. THE ASSESSEES CLAIM WAS THAT WITH A VIEW TO AVERT FURTHER LOSSES, IN THE CASE OF FALLING PRICES, THEY DECIDED NOT TO ACCEPT CERTAIN SUPPLIES AND ACCORDINGLY, ADVISED THE SUPPLIERS. THIS PROCESS RESULTED INTO BREACH OF CO NTRACT AND IN TURN HAS TO PAY DAMAGES/COMPENSATIONS AS PER THE TERMS OF THE CONTR ACT. THE ASSESSEES COUNSEL ARGUED THAT SETTLEMENT OF SUCH DISPUTES ALLOWING DAMAGES IS TER MED AS WASHED OUT CONTRACTS IN INTERNATIONAL MARKET. THE ASSESSEES CONTENTION WA S THAT THE ORDERS FOR IMPORT WERE PLACE WITH INTENTION TO TAKE DELIVERY AS THE ASSESSEE IS IN REGULAR COURSE OF BUSINESS. THE ABOVE PROVISION OF SECTION 43(5) OF THE ACT CONTEMPLATES A TRANSACTION WHICH A CONTRACT FOR PURCHASE OR SALE OF ANY COMMODITY IS PERIODICALLY OR ULTIMAT ELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY. IN CASE OF SPECULATION BUSINESS, THE INTENTION FROM THE VERY BEGINNING IS NOT TO TAKE DELIVERY BUT ONLY TO SETTLE THE ACCOUNT FOR A PRICE DIFFERENCE. IN THE PRESENT CASE THE FACTS STATES THE INTENTION OF THE ASSESSEE THAT IT WAS TO TAKE DELIVERY AS IS EVIDENT FROM THE CONDUCT OF THE ASSESSEE IN RESPECT OF VARIOUS CONTRACTS WITH THE SAME PARTIES, 10 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 WHICH WERE ALREADY HONOURED WHEN THE MARKET CONDITI ON WAS NOT SO UNFAVOURABLE. WE FIND THAT THE ASSESSEE HAD TO DECLINE SUPPLY OF CERTAIN QUANTITIES IN PURSUANCE OF SOME OF THE CONTRACTS DUE TO BUSINESS EXPEDIENCY AND COMPELLING CIRCUMSTANCES AS A RESULT OF FALLING TREND IN PRICES AND ACCORDINGLY, HAD TO MAKE THE PAYMENT BY WAY OF DAMAGES. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GORA MAL HARI RAM LTD. (2010) 191 TAXMAN 94 (DEL.), FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KAMANI TUBES LTD. (1994) 207 ITR 29 8 (BOM), WHEREIN IT IS HELD AS UNDER: 5. BE THAT AS IT MAY, EVEN IF WE ASSUME FOR THE SAK E OF ARGUMENT THAT THE SAID TRANSACTIONS AMOUNTED TO SPECULATIVE TRANSACTIONS AS DEFINED IN SECTION 43(5), THE SAME WOULD BE OF NO HELP TO THE REVENUE INASMUCH AS SECTION 43(5) IS ME RELY A DEFINITIONAL CLAUSE DEFINING AS TO WHAT A SPECULATIVE TRANSACTION IS FOR THE PURPOSES OF SECTION 28 TO SECTION 41 OF THE SAID ACT. IT IS ONLY WHEN THE SPECULATIVE TRANSACTION, AS DEFINE D IN SECTION 43(5), MATURES INTO A SPECULATIVE BUSINESS AS APPEARING IN EXPLANATION 2 TO SECTION 28 THAT ANY EFFECTS WOULD FLOW FROM THE SAID DEFINITION. IN CASE THE SPECULATIVE T RANSACTION, AS DEFINED IN SECTION 43(5) OF THE SAID ACT, MATURES INTO A SPECULATIVE BUSINESS, THEN THE LOSS IN SUCH A TRANSACTION CAN ONLY BE SET OFF AGAINST THE GAINS OR PROFITS OF A SPECULATI VE BUSINESS IN TERMS OF SECTION 73 OF THE SAID ACT. WE FIND THAT THIS ASPECT OF THE MATTER HAS BEE N DEALT WITH BY THE BOMBAY HIGH COURT IN THE CASE OF CIT V. KAMANI TUBES LIMITED : 207 ITR 298. IN THE SAID DECISION, THE BOMBAY HIG H COURT, INTER ALIA, HELD AS UNDER:- 'ON A CAREFUL READING OF THE PROVISIONS OF SECTIONS 72 AND 73, EXPLANATION 2 TO SECTION 28 OF THE ACT, IT IS ABUNDANTLY CLEAR THAT ALL THESE PROVISIONS ARE APPLICABLE ONLY TO TREATMENT OF PROFITS AND LOSSES FROM A 'SPECULATION BUSINESS'. THERE IS A PERCEPTIBLE DIFFERENCE BETWEEN 'SPECULAT IVE TRANSACTION' AND 'SPECULATION BUSINESS'. AN ISOLATED TRANSACTION OF SETTLEMENT OF A CONTRACT OTHERWISE THAN BY ACTUAL DELIVERY OF THE GOODS MIGH T AMOUNT TO 'SPECULATIVE TRANSACTION' WITHIN THE MEANING OF SECTION 43(5) OF THE ACT BUT IN THE ABSENCE OF SOMETHING MORE TO SHOW THAT THE NATURE OF THE TRANS ACTIONS WAS SUCH AS TO CONSTITUTE A BUSINESS, IT CANNOT BE TERMED AS 'SPEC ULATION BUSINESS' WHICH HAS BEEN TREATED AS DISTINCT AND SEPARATE FROM OTHER BU SINESS.' WE ENTIRELY AGREE WITH THE REASONING AND THE CONCLU SION OF THE BOMBAY HIGH COURT IN THE SAID DECISION. CONSEQUENTLY, EVEN IF IT IS ASSUMED FOR T HE SAKE OF ARGUMENT THAT THE TRANSACTIONS IN QUESTION WERE SPECULATIVE ITA 115/2010 PAGE NO. 3 O F 4 TRANSACTIONS, IT WOULD BE OF NO HELP TO THE REVENUE INASMUCH AS NEITHER THE ASSESSING OFFIC ER NOR THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RETURNED ANY FINDING THAT THE TRANSAC TIONS IN QUESTION CONSTITUTED A SPECULATIVE BUSINESS. AS A RESULT, NO SUBSTANTIAL QUESTION OF L AW ARISES FOR OUR CONSIDERATION. 10. FURTHER HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT V. SRI RAMALINGA CHOODAMBIGAI MILLS LTD. (1999) 239 ITR 120 (MAD) DI SCUSSING THE PROVISION OF SECTION 43(5) READ WITH EXPLANATION (2) TO SECTION 28 OF TH E ACT, IN THE SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: THE CONTRACTS HAD BEEN ENTERED INTO, FOR SECURING SUPPLIES OF COTTON WHICH IS THE RAW MATERIAL FOR TH E MANUFACTURE OF THE YARN THE ASSESSEES BUSINESS BEI NG THE MANUFACTURE OF YARN. THE ASSESSEE WAS NOT CARRYING ON A SEPARATE AND DISTINCT BUSINESS OF SPE CULATING ON TRADING IN COTTON. THE DECISION OF THE 11 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 ASSESSEE TO CANCEL THESE CONTRACTS WAS NOT WITH A V IEW TO SUFFER A LOSS OR MAKE PROFIT, BUT TO MINIMIS E THE LOSS THAT IT WAS LIKELY TO SUFFER AS THE PURCHA SE OF THAT VARIETY COTTON WOULD NOT HAVE BEEN OF UT ILITY TO THE ASSESSEE AFTER THE ASSESSEE HAD CHANGED THE PLAN OF MANUFACTURE WHICH REQUIRED A DIFFERENT VARIETY OF COTTON. LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT THES E TRANSACTIONS MUST BE REGARDED AS SPECULATIVE TRANSACTIONS, IN VIEW OF THE DEFINITION OF SPECULAT IVE TRANSACTION SET OUT IN SECTION 43(5) OF THE ACT . THAT PROVISION DEFINES SPECULATIVE TRANSACTION AS ONE FO R THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, WHICH IS PERIODICALLY OR ULTIMAT ELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY O F THE COMMODITY OR SCRIPS. THE PROVISO TO SECTION 43( 5)(A) PROVIDES THAT A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON I N THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUA L DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E SOLD BY HIM, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THE ASSESSE E HERE HAD ENTERED INTO THE CONTRACTS FOR THE PURCHASE OF COTTON WHICH WAS REQUIRED FOR THE MANUF ACTURE OF THE YARN. AS THOSE CONTRACTS WERE IN THE NATURE OF HEDGING CONTRACTS, THOSE CONTRACTS ARE EX CLUDED BY THE VERY DEFINITION FROM THE CATEGORY OF SPECULATIVE TRANSACTIONS. LEARNED COUNSEL FOR THE REVENUE ALSO SUBMITTED THAT IN VIEW OF THE EXPLANATION 2 TO SECTION 28 OF THE ACT, WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY A N ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS SHALL BE DEEMED TO BE DISTIN CT AND SEPARATE FROM ANY OTHER BUSINESS. THAT EXPLANATION IS NOT ATTRACTED HERE AS THE ASSESSEE W AS NOT CARRYING ON A SPECULATIVE BUSINESS IN THE PURCHASE OR SALE OF COTTON. EVEN ASSUMING THAT THE CONTRACT IN QUESTION CAN BE REGARDED AS CONSTITUTING SPECULATIVE TRANSACTIONS, THAT BY ITSE LF WOULD NOT BE THE SUFFICIENT TO HOLD THAT THE ASS ESSEE WAS CARRYING ON A SPECULATIVE BUSINESS. THE CONTRAC TS WERE ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS OF RUNNING A TEXTILE MILL AND HAD BEEN ENT ERED INTO BONA FIDE TO SECURE THE SUPPLY OF THE RAW MATERIALS REQUIRED BY IT. THE CONTRACTS WERE LATER CANCELLED ONLY BECAUSE THAT RAW MATERIAL WAS NO LONGER FIT FOR THE ASSESSEES USE, HAVING REGARD TO THE FACT THAT A DIFFERENT VARIETY OF COTTON WAS REQUIRED FOR THE MANUFACTURE OF HIGHER COUNT OF YAR N. IF ALL SUCH CONTRACTS ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTION ENTERING INTO SUCH CONTRACTS, AND SETTLING THE SAME BY PAYING DAMAGES DOES NOT AMOUNT TO CARRYING ON SPECULATIVE BUSINESS FOR THE PURPOSE OF EXPLANATION 2 TO SECTION 28 OF THE ACT. COUNSEL FOR THE REVENUE INVITED OUR ATTENTION TO TH E DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. SHANTILAL PRIVATE LIMITED [1983] 144 ITR 57, WHE REIN THE COURT DEALT WITH A CASE OF AN AWARD MADE PURSUANT TO A CLAIM FOR DAMAGES ON ACCOUNT OF BREAC H OF CONTRACT, AND HELD THAT SUCH ARBITRATION AWARD DOES NOT AMOUNT TO SETTLEMENT OF CONTRACT FOR THE PURPOSE OF SECTION 43(5) OF THE ACT. THAT JUDGMENT IS NOT OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. COUNSEL ALSO REFERRED TO A DECISION OF THE BOMBAY H IGH COURT IN THE CASE OF CIT V. KAMANI TUBES LTD. [1994] 207 ITR 298, WHEREIN THE COURT OBSERVED THAT IN DECIDING THE CHARACTER OF THE TRANSACTIONS, WHAT IS IMPORTANT TO CONSIDER IS THE DISTINCTIVE CH ARACTER OF SUCH TRANSACTIONS. IN EACH CASE IT IS TH E TOTAL EFFECT OF ALL THE RELEVANT FACTS AND CIRCUMST ANCES THAT DETERMINES THE CHARACTER OF THE TRANSACT ION. WE ARE ENTIRELY IN AGREEMENT WITH THAT VIEW. 11. EVEN HONBLE DELHI HIGH COURT IN THE CASE CIT V S. HANS MACHOO & CO. (2001) 247 ITR 79 (DEL) HAS TAKEN A SIMILAR VIEW INTERPRETING THE PROVISIONS OF SECTION 43(5) READ WITH EXPLANATION (2) TO SECTION 28 OF THE ACT AS UNDER: THE ASSESSEES STAND WAS THAT FOR CARRYING ON ITS A GENCY BUSINESS IT HAD TO ENTER INTO TRANSACTIONS FOR SALE OF SUGAR WITH V ARIOUS PARTIES ON BEHALF OF ITS PRINCIPAL. THE TRANSACTIONS USED TO BE SUBSE QUENTLY CONFIRMED BY 12 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 THE PRINCIPAL AND THE GOODS WERE ALSO SUPPLIED TO T HE CONCERNED PARTIES. SOME OF THE TRANSACTIONS WERE NOT HONOURED BY THE P RINCIPAL BECAUSE OF PRICE RISE OF SUGAR AND THE ASSESSEE HAD TO HONOUR THEM AND TO SUFFER DAMAGES AS PER CLAUSE 7 OF THE AGREEMENT REPRODUCED ABOVE. SUCH DAMAGES AMOUNTED TO RS. 95,012 AND RS. 43,808 FOR THE TWO ASSESSMENT YE ARS, RESPECTIVELY. THESE WERE CLAIMED AS ALLOWABLE DEDUC TIONS IN THE RESPECTIVE YEARS. THESE WERE ALSO ALLOWED BY THE ASSESSING OFF ICER. FOR THE ASSESSMENT YEAR 1972-73, THE ASSESSEE WENT IN APPEAL BEFORE THE APPELLATE AS SIST- ANT COMMISSIONER (IN SHORT THE AAC), ON CERTAIN O THER GROUNDS. THE SAID AUTHORITY EXAMINED THE ABOVE MATTER AND WAS OF THE VIEW THAT THE ASSESSEE WAS A REGULAR SPECULATOR IN THE PAST AND THE ABOVE TRANSACTIONS WERE SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF SECT ION 43(5) OF THE ACT. THEY CONSTITUTED A SEPARATE AND DISTINCT BUSINESS A S PER EXPLANATION 2 TO SECTION 28 OF THE ACT. THEREFORE, A VIEW WAS TAKEN THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ALLOWING DEDUCTION WHI CH WAS OTHERWISE IN- ADMISSIBLE UNDER SECTION 73(1) OF THE ACT. ENHANCEM ENT TO THE EXTENT OF RS. 95,012 FOR THE ASSESSMENT YEAR 1972-73 WAS MADE . THE CLAIM OF THE ASSESSEE FOR A SUM OF RS. 43,808 WHICH WAS ALLOWED AS A DEDUCTION FOR 1973-74 WAS SET ASIDE BY THE COMMISSIONER OF INCOME -TAX (IN SHORT THE CIT) EXERCISING POWER UNDER SECTION 263 OF THE AC T. THE ORDERS OF THE APPELLATE ASSISTANT COMMISSIONER AND THE COMMISSION ER OF INCOME-TAX WERE ASSAILED BEFORE THE TRIBUNAL BY THE ASSESSEE. THE ASSESSEES STAND WAS THAT THERE WAS NO SPECULATIVE PROFIT OR SPECULATIVE LOSS INVOLVED. THE LOSS THAT HAD BEEN SUFFERED BY THE ASSESSEE IN THE COURS E OF AGENCY BUSINESS, WAS INCIDENTAL TO IT AND SHOULD HAVE BEEN ALLOWED A S A NORMAL BUSINESS LOSS. THE PLEA FOUND ACCEPTANCE BY THE TRIBUNAL. ON BEING MOVED, THE TRIBUNAL HAS REFERRED A COMMON QUESTION FOR THE TWO ASSESSMENT YEARS AS NOTED ABOVE. LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT THE CASE CLEARLY INVOLVED SPECULATIVE TRANSACTIONS AND, THEREFORE, S ECTION 43(5) WAS APPLICABLE AND CONSEQUENTLY SECTION 73(1) ALSO HAD APPLICATION. LE ARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT A FINDING OF FACT HAS BE EN RECORDED BY THE TRIBUNAL THAT DAMAGES WERE PAID FOR BREACH OF CONTRACT AND THERE WAS NO SETTLEMENT OF THE TRANSACTION BEFORE THE BREACH. THAT BEING THE POSITION, IT IS S UBMITTED THAT THE TRIBUNAL WAS JUSTIFIED IN ITS CONCLUSION. SECTION 43(5) AT THE RELEVANT TIME READ: A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODIC ALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS . . . TO BE A SPECULATIVE TRANSACTION. A TRANSACTION CANNOT BE DESCRIBED AS A SPECULATIVE TRANSACTION WITHIN THE MEANING OF SECTION 43(5) OF THE ACT WHERE THERE IS A BREACH OF CONTRACT AND ON A DISPUTE BETWEEN THE PARTIES DAMAGES ARE AW ARDED AS COMPENSATION, E.G., BY AN ARBITRATION AWARD. WHAT IS REALLY SETTLED BY THE AW ARD OF SUCH DAMAGES AND THEIR ACCEPTANCE BY THE AGGRIEVED PARTY IS THE DISPUTE BETWEEN THE PARTIES. SECTION 43(5), HOWEVER, SPEAKS OF A SETTLEMENT OF THE CONTRACT AND A CONTRACT IS SETTLED WHEN IT IS EITHE R PERFORMED OR THE PROMISEE DISPENSES WITH OR REMITS, WHOLLY OR IN PAR T, THE PERFORMANCE OF THE PROMISE MADE TO HIM OR ACCEPTS, INSTEAD OF IT, ANY SATISFACTION WHICH HE THINKS FIT. A CONTRACT CAN BE SAID TO BE SETTLED IF INSTEAD OF EFFECTING THE 13 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 DELIVERY OR TRANSFER OF THE COMMODITY ENVISAGED BY THE CONTRACT THE PROMISEE, IN TERMS OF SECTION 63 OF THE CONTRACT ACT, ACCEPTS, ANY SATISF ACTION WHICH HE THINKS FIT. IT IS QUITE ANOTHER MATTER WHE N INSTEAD OF SUCH ACCEPTANCE THE PARTIES RAISE A DISPUTE AND NO AGREE MENT CAN BE REACHED FOR A DISCHARGE OF THE CONTRACT. THERE IS A BREACH OF THE CONTRACT AND BY VIRTUE OF SECTION 73 OF THE INDIAN CONTRACT ACT, 18 72 (IN SHORT THE CONTRACT ACT), THE PARTY SUFFERING BY SUCH BREACH BECOMES E NTITLED TO RECEIVE FROM THE PARTY WHO BROKE THE CONTRACT COMPENSATION FOR A NY LOSS OR DAMAGE CAUSED TO HIM THEREBY. THE AWARD OF DAMAGES FOR BRE ACH OF A CONTRACT IS NOT THE SAME THING AS A PARTY TO THE CONTRACT ACCEP TING SATISFACTION OF THE CONTRACT OTHERWISE THAN IN ACCORDANCE WITH THE ORIG INAL TERMS THEREOF. WHAT IS REALLY SETTLED BY THE AWARD OF SUCH DAMAGES AND THEIR ACCEPTANCE BY THE AGGRIEVED PARTY IS THE DISPUTE BETWEEN THE P ARTIES. THIS POSITION WAS HIGHLIGHTED BY THE APEX COURT IN CIT V. SHANTIL AL P. LTD. [1983] 144 ITR 57. IN CIT V. BHAGWAN DASS RAMESHWAR DAYAL [1984] 149 ITR 387 (DELHI), THE SCOPE AND AMBIT OF SECTION 43(5) OF THE ACT WAS EXAMINED. IT WAS OBSERVED THAT SECTION 43(5) OF THE ACT ONLY COVERS CASES WHERE A CONTRACT IS SETTLED WITHOUT BREACH AND NOT CASES WHERE THERE IS A BREACH FOLLOWED BY SETTLEMENT OF THE QUANTUM OF DAMAGES. A TRANSACTION IS CONSIDERED TO BE SPECULATIVE IF IT IS SETTLED WITHOUT ACTUAL DELIVER Y BUT IT DOES NOT FOLLOW THAT ALL CONTRACTS WHICH ARE SETTLED OR ADJUSTED WI THOUT DELIVERY ARE SPECULATIVE. THE WORD SETTLED OR SETTLEMENT IN CONNECTION WITH THE CO NTRACT HAS NOT BEEN DEFINED IN THE ACT, OR IN THE CONTRACT ACT OR THE SALE OF GOODS ACT, OR IN ANY OTHER STATUTE. THE FOLLOWING ARE THE SOME OF THE MEANINGS ATTRIBUTED TO THE WORD SETTLED IN THE DICTIONARIES: DETERMINED, DEAL EFFECTIVELY: DISPOSE OF: CONCLUDE MONEY OR OTHER TRANSACTIONS (CONCISE OXFORD DICTIONARY) TO COME TO TERMS OR AGREEMENT WITH A PERSON (SHOR TER OXFORD DICTIONARY) TO ARRANGE MATTERS IN DISPUTE: TO COME TO TERMS WI TH A PERSON (OXFORD DICTIONARY) THE PROPER MEANING TO BE GIVEN TO THE WORDS TO CON TRACT, SETTLED IN THE DEFINITION CLAUSE WOULD BE A CONTRACT DETERMIN ED OR CONCLUDED OR DISPOSED OF. BY USE OF THE EXPRESSION SETTLED, WHAT IS INTENDED TO BE DEALT WITH IS A CASE OF PERFORMANCE OF CONTRACT AND NOT N ON-PERFORMANCE. IN THE CASE AT HAND THE TRIBUNAL HAS RECORDED A FIN DING THAT THERE WAS BREACH OF CONTRACT AND, THEREFORE, DAMAGES HAD TO B E PAID. WHEN A CON- TRACT IS BROKEN THERE CAN BE NO CAUSE OF ACTION FOU NDED ON THE CONTRACT ITSELF WHICH CAN BE SAID TO BE CAPABLE OF SETTLEMEN T. THE ABOVE BEING THE FACTUAL POSITION, THE TRIBUNAL WAS JUSTIFIED IN ITS CONCLUSIONS. ACCORDINGLY, THE QUESTION REFERRED IS ANSWERED IN THE AFFIRMATIV E, IN FAVOUR OF THE ASSES- SEE AND AGAINST THE REVENUE. 12. IN VIEW OF THE ABOVE FACTS AND LEGAL ASPECT OF THE PROVISION OF SECTION 43(5) OF THE ACT EXAMINED BY HONBLE HIGH COURTS (CITED SUPRA), THE AMOUNTS IN QUESTION REPRESENTS DAMAGES FOR BREACH OF CONTRACT WHICH DOES NOT FALL WITHIN T HE PURVIEW OF SECTION 43(5) OF THE ACT AND THE SAID SECTION IS APPLICABLE ONLY IN CASE OF SETT LEMENT OF CONTRACT WHERE THE PAYMENT IS MADE 14 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 WITHOUT DELIVERY OF THE GOODS. THE PROVISION OF SE CTION 43(5) OF THE ACT CONTEMPLATES A TRANSACTION IN WHICH A CONTRACT FOR PURCHASE OF SAL E OF ANY COMMODITY IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY. IT IS NOT ONLY ACTUAL NON-DELIVERY OF GOODS BUT IT MUST BE CO UPLED WITH SETTLEMENT OF CONTRACT IN A TRANSACTION FOR WHICH PAYMENT IS MADE. IF THE PAYM ENT IS BY WAY OF DAMAGES AND NOT BY WAY OF SETTLEMENT OF CONTRACT THEN THE QUESTION OF ACTU ALLY DELIVERY OR TRANSFER OF GOODS WOULD BE IRRELEVANT. THE AMOUNTS PAID IN THE PRESENT CASE H AS BEEN MADE BY WAY OF DAMAGES FOR NON- PERFORMANCE OF A CONTRACT AND THAT NON-PERFORMANCE OF CONTRACT WAS FOR BUSINESS EXPEDIENCY AS WELL AS TO REDUCE FURTHER LOSSES THAT WAS BEYOND THE CONTROL OF THE ASSESSEE. THUS, WE ARE OF THE CONSIDERED VIEW THAT THE LOSSES CLAIMED BY A SSESSEE ARE ALLOWABLE LOSSES. WE DIRECT THE AO ACCORDINGLY. 13. COMING TO THE ISSUE OF REVENUE S APPEAL REGARDING ALLOWANCE OF DAMAGES FOR AN AMOUNT OF RS.50,91,187/-, THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHILE DRAFTING DRAFT ASSESSMENT ORDER, OBSERVED THAT THE PRICE DIFFERENCE ON ACCOUNT OF DELAY OR NON-SUPPLY OF GOODS UNDER SALES CONTRACT IS SPECULA TIVE TRANSACTION U/S. 43(5) OF THE ACT AND SUCH LOSS IS SPECULATION BUSINESS LOSS, WHICH CANNO T BE SET OFF AGAINST BUSINESS INCOME. WE FIND THAT THE DRP DIRECTED THE AO TO ALLOW THE CLAI M OF THE ASSESSEE BY OBSERVING AS UNDER: THE NATURE AND CIRCUMSTANCES OF THE TRANSACTIONS R ESULTING IN PAYMENT OF DAMAGES FOR BREACH OF CONTRACT TO THE TUNE OF RS.50,91,187 WERE CONSIDERE D BY THIS PANEL. THESE PAYMENTS HAVE ARISEN ON ACCOUNT OF DELAYED SUPPLY AGAINST SALES CONTRACT S. THESE PAYMENTS WERE EFFECTED DUE TO BUSINESS EXPEDIENCY OF THE ASSESSEE AND HENCE ALLOW ABLE AS BUSINESS EXPENDITURE U/S. 37 OF THE I. T. ACT. ACCORDINGLY, THE OBJECTION RAISED BY THE A SSESSEE IS ALLOWED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. THE LD. CIT, DR RELIED ON THE DRAFT ASSESSMENT ORDER OF THE AO AND STATED THAT THIS LOS S IS A SPECULATIVE LOSS. 14. WE FIND THAT THE FACTUALLY REVENUE HAS NOT CONTESTE D THAT THIS IS A CASE OF NON-DELIVERY OF GOODS RATHER IT IS THE CASE OF BREACH OF CONTRAC T ON ACCOUNT OF DELAYED SUPPLY AGAINST SALE CONTRACT, ONCE THIS IS THE CASE, THE AMOUNTS ARE FO R DAMAGES ON ACCOUNT OF BREACH OF CONTRACT AND THE SAME IS ALLOWABLE AGAINST THE BUSINESS INCO ME. WE FIND NO INFIRMITY IN THE DIRECTIONS OF DRP. WE CONFIRM THE SAME. THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 15. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINS T THE DIRECTIONS OF DRP, WHICH WAS 15 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 FOLLOWED BY THE AO WHILE FRAMING ASSESSMENT, FOR NO T ALLOWING THE CLAIM OF DISCOUNT ALLOWED TO CUSTOMER ON ACCOUNT OF PRICE DIFFERENCE DUE TO D ELAYED SUPPLY TO THE PARTIES SPECIFIED U/S. 40A(2)(B) OF THE ACT. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUNDS: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. DRP/AO ERRED IN DISALLOWING FOLLOWING BUSINESS CLAIMS ALLOWED IN THE NORMAL COURSE OF BUSINESS TO THE PARTIES SPECIFIED U/S 40A(2)(B) OF THE ACT ON THE ALLEGATI ON THAT REBATE AND DISCOUNTS ARE EXCESSIVELY ALLOWED TO RELATED PARTIES:- A. RS. 1,85,00,000/- DISCOUNT ALLOWED TO CUSTOMERS ON ACCOUNT OF PRICE DIFFERENCE DUE TO DELAYED SUPPLY AFTER CONTRACTED PERIOD DISALLOWE D. B. RS. 1,00,00,000/- DISCOUNT ALLOWED TO CUSTOMERS FOR QUALITY CLAIM ON MATERIAL SUPPLIED IS ALLOWED. 2.2 THE DRP/AO FAILED TO APPRECIATE THAT DISCOUN T/REBATE/CREDITS ARE ALLOWED IN THE NORMAL COURSE OF ITS BUSINESS HENCE ALLOWABLE AS BUSINESS EXPENDITURE U/S 37 OF THE ACT AND NO DISALLOWANCE IS WARRANTED. 2.3 WITHOUT PREJUDICE TO ABOVE, LD. DRP/AO ERRED IN LAW AND FACTS IN MAKING DISALLOWANCE OF RS. 2,68,57,500/- OUT OF DISCOUNT AND REBATE ALLOWED TO PARTIES SPEC IFIED U/S 40A (2) (B) OF THE ACT BEING EXCESSIVE AND UNREASONABLE WHEREAS THE RE BATE/DISCOUNT/CLAIM HAS BEEN ALLOWED ON SALES AND NETTED IN SALES REVENUE HENCE NOT COVERED U/S 4 0A (2) (B) BEING NOT CLAIMED AS EXPENSE. 2.4 THE LD. AO OUGHT TO HAVE DISALLOWED RS. 2,56,50,000/- IN PLACE OF RS. 2,68,57,5001/- AFTER CONSIDERING 5% DEDUCTION ALLOWED BY HIM IN THE DRAF T ASST. ORDER. 16. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS CLAIMED REBATE AND DISCOUNT AT RS.3,24,78,909/-. THE ASSESSEE HAS GIVEN DETAILS O F FOLLOWING THREE PARTIES: I) SREE VEGETABLE OIL (P) LTD. RS.1.85 CR. II) SWASTIK REFINERY LTD. RS. 1.00 CR. ACCORDING TO AO, THE ABOVE TWO PARTIES ARE RELATED PARTIES IN TERM OF SECTION 40A(2)(B) OF THE ACT. THE AO BASED HIS DECISION JUST ON THE BASIS O F ANNEXURE D TO THE TAX AUDIT REPORT WHEREIN BOTH THE PARTIES HAVE BEEN SHOWN AS RELATED PARTIES WITHOUT GIVING ANY NATURE OF THE TRANSACTION OR DETAILS. FURTHER, NO DETAILS HAVE B EEN SHOWN IN RESPECT TO THESE TRANSACTIONS IN THE AUDIT REPORT. THE AO MADE DISALLOWANCE AT RS.2 ,68,57,500/- OUT OF THE ABOVE REBATE FOR THE REASON THAT SALES TO THESE RELATED PARTIES ARE 8% OF THE TOTAL SALES BUT 95% OF THE TOTAL REBATE AND DISCOUNT HAS BEEN ALLOWED TO THESE TWO P ARTIES. ACCORDING TO AO, THIS IS A 16 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 COLOURABLE DEVICE TO REDUCE TAX LIABILITY. HENCE, HE DISALLOWED THE REBATE TO THE EXTENT OF RS.2,68,57,500/-. THE DRP DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: WE HAVE CAREFULLY EXAMINED THE ISSUE WITH RESPECT TO OBJECTIONS AND FIND THAT THE DEBIT NOTE OF RS.15,00,000/- RAISED BY SREE VEGETABLE OIL (P) LTD . IS FOR WRONG CHARGE OF THE RATE AND HENCE APPEARS TO BE A CORRECTION OF MISTAKE. THE AO HAS NOT FOUND ANY DISCREPANCY IN THE SUBMISSIONS MADE BY THE ASSESSEE. IN RESPECT OF RE BATE ALLOWED TO SWASTIK REFINERY (P) LTD. FOR NOT SUPPLYING MATERIAL AS PER THE AGREED SPECIFICAT ION, THE ASSESSEE FAILED TO DEMONSTRATE BEFORE US THAT MATERIAL SUPPLIED TO SWASTIK REFINERY (P) L TD. WAS NOT AS PER THE AGREED SPECIFICATION. SIMILARLY THE ASSESSEE ALSO FAILED TO DEMONSTRATE B EFORE US THAT DELIVERY WAS NOT MADE ON TIME TO SREE VEGETABLE OIL (P) LTD. FURTHER REBATE AND DIS COUNT ALLOWED DURING THE YEAR ARE MUCH HIGHER AS COMPARED TO EARLIER YEAR AS RIGHTLY POINT ED OUT BY THE AO. WE ARE OF THE VIEW THAT IN FACTS OF THE CASE THE AM OUNT OF RS.15,00,000/- BEING CORRECTION OF MISTAKE IN THE INVOICE RAISED DOES NOT REQUIRE ANY DISALLOWANCE U/S. 40A(2)(B) OF THE ACT. HOWEVER, WE CONFIRM THE OTHER DISALLOWANCE MADE BY THE AO FOR THE REASONS MENTIONED IN PRECEDING PARAGRAPH. HENCE, WE DIRECT THE AO ACCOR DINGLY. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 17. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE FIRST AND FOREMOST ARGUMENT OF ASSESSEE IS THAT SWASTK REFINERY PVT. LTD. AS WELL AS SREE VEGETABLE OIL (P) LTD. DO NOT COME WIT HIN THE PURVIEW OF SECTION 40A(2)(B) OF THE ACT. ACCORDING TO ASSESSEE, SWASTIK REFINER Y PVT. LTD. HOLDS ONLY 1.25% OF THE EQUITY SHARES OF THE ASSESSEE COMPANY AND HENCE, TH ERE IS NO SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY. REVERSE ALSO THE ASSESSEE COMPAN Y DOES NOT HOLD ANY EQUITY SHARE IN SWASTIK REFINERY PVT. LTD. ACCORDING TO ASSESSEE, M R. OM PRAKASH AGARWAL WAS THE COMMON DIRECTOR IN THE SWASTIK REFINERY PVT. LTD. A ND THE ASSESSEE COMPANY. IN VIEW OF THESE FACTS ASSESSEE BEFORE US CONTENDED THAT TH EY ARE NOT INTERESTED PARTIES IN TERM OF SECTION 40A(2)(B) OF THE ACT. FOR THIS, LD. COUNSE L FOR THE ASSESSEE REFERRED TO PAGES 801 AND 802 OF THE PAPER BOOK WHEREIN COMPLETE LIST OF SHAREHOLDERS OF ASSESSEE COMPANY I.E. AMBO AGRO PRODUCT LTD. AS ON 31.03.200 9 IS GIVEN. SIMILARLY, HE REFERRED TO PAGES 803 TO 806 OF THE PAPER BOOK WHEREIN COMPL ETE LIST OF SHAREHOLDERS ALONG WITH NO. OF SHARES HELD BY EACH SHAREHOLDERS IS GIVEN IN THE CASE OF SREE VEGETABLE OIL (P) LTD. AND SWASTIK REFINERY PVT. LTD. AND THE LIST OF DIRECTORS OF THESE TWO COMPANIES. WHEN THESE WERE REFERRED TO LD. CIT, DR, HE COULD N OT POINT OUT HOW THESE ARE RELATED PARTIES IN TERM OF SECTION 40A(2)(B) OF THE ACT BEC AUSE IF A RELATED PARTY IN TERM OF SECTION 40A(2)(B) OF THE ACT THE BENEFICIARY OWNERS HIP HAS TO BE TO THE EXTENT OF 20%. 17 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 WE FIND THAT FOR INVOCATION OF PROVISION OF SECTION 40A(2)(B) OF THE ACT, THE REVENUE HAS TO COME OUT, IN VIEW OF THE HOLDING PATTERN OF THES E THREE COMPANIES, HOW THESE ARE RELATED PARTIES IN TERM OF SECTION 40A(2)(B) OF THE ACT. WE FIND THAT NEITHER SREE VEGETABLE OIL (P) LTD. NOR SWASTIK REFINERY PVT. LT D. OR VICE VERSA THE ASSESSEE COMPANY AMBO AGRO PRODUCTS LTD. HOLDS THE BENEFICIA RY OWNERSHIP TO THE EXTENT OF 20% MENTIONED IN EXPLANATION (B) TO SECTION 40A(2)( B) OF THE ACT. UNDER THESE CIRCUMSTANCES, WE FEEL THAT THIS ADDITION CANNOT BE SUSTAINED AND ACCORDINGLY, WE DELETE THE SAME. 18. THE SECOND ISSUE IN THIS APPEAL OF REVENUE IS A S REGARDS TO THE DISALLOWANCE OF DEDUCTION OF PF AND ESI. FOR THIS, REVENUE HAS RAI SED FOLLOWING GROUND NOS. 2 AND 3: 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN ISSUING DIRECTIONS NOT TO ADD DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF AND ESI TREATING SUCH CONTRIBUTIONS COVERED BY SEC. 43B OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE DEPOSIT OF EMPLOYEES CONTRIBUTION TO PF AND ESI AND OTHER STATUTORY FUNDS WERE COVERED BY PROV ISIONS OF SEC. 36(I)(VA) R. W.S. 2(24)(X) AND VIDE SEE. 36(I)(VA) OF THE ACT, DUE DATE MEANS DUE DATE FOR DEPOSIT OF SUCH CONTRIBUTIONS COLLECTED BY THE EMPLOYER AS PRESCRIBED IN THE RESPECTIVE LEGISLATIO NS GOVERNING SUCH STATUTORY FUNDS. 3 IN THE FACTS AND CIRCUMSTANCES AND LAW POINT OF THE ISSUE, THE LD. D.R.P. ERRED IN DIRECTING THE DELETION OF PROPOSED DISALLOWANCE BECAUSE THE PROPO SED DISALLOWANCE WAS NOT SUBJECT MATTER OF THE SEE. 43B OF THE ACT, RATHER IT IS AN ISSUE RELATED TO SEC. 3 6(I)(VA) OF THE ACT. 19. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT IN THE ORDER OF DRP FACTS NOTED ARE TH AT DURING THE YEAR, THERE WAS DELAY IN DEPOSITING EMPLOYEES CONTRIBUTION TOWARDS PROVIDEN T FUND OF RS.1,11,211/- (AUGUST 2008, JANUARY 2009 AND FEBRUARY 2009) AND TOWARDS ESI OF RS.39,166/- (OCTOBER 2008 TO FEBRUARY 2009). THESE CONTRIBUTIONS HAD BEEN DELAY ED DEPOSITED RANGING FROM 1 DAY TO 10 DAYS BUT HAVE BEEN DEPOSITED BEFORE THE DUE DATE OF FILING RETURN OF INCOME. WE FIND THAT THE P& & ESI CONTRIBUTIONS WERE PAID WITHIN THE DUE DAT E OF FILING OF RETURN OF INCOME. AS THE PAYMENTS ARE MADE WITHIN THE DUE DATE OF FILING OF RETURN AS PRESCRIBED U/S. 139(1) OF THE ACT, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. VIJAY SHREE LIMITED VIDE ITAT NO. 245 OF 2011 IN GA NO.2607 OF 2011 DATED 7 TH SEPTEMBER, 2011, WHEREIN IT HAS BEEN HELD AS UNDER: 18 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARI NG ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD., WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE HAS HELD THAT THE AMENDMENT TO THE SECOND PROVISO TO THE SEC. 43(B) O F THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATIVE IN NATURE AND IS RE QUIRED TO BE APPLIED RETROSPECTIVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF THE AMOUNT PAID BY THE EMPLOYEES CONTRIBUTION BEYOND DUE DATE WAS DEDUCTIBLE BY INVOKING THE AFORESAID A MENDED PROVISIONS OF SECTION 43(B) OF THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. 20. ONCE THE ISSUE IS DECIDED BY HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF VIJAYSHREE LTD. SUPRA, WHERE IN IT IS HELD THAT THE PF & ESI ARE PAID ON OR BEFORE THE DUE DATE OF FILING OF RETURN U/S. 139(1) OF THE ACT, DE DUCTION IN RESPECT TO THE AMOUNT ON WHICH PF &ESI IS SO PAID, IS ALLOWABLE. IN THE PRESENT CASE THE ASSESSEE HAS PAID THE PF & ESI BEFORE DUE DATE OF FILING OF RETURN U/S. 139(1) OF THE ACT BY THE ASSESSEE, HENCE, WE DISMISS THIS GROUND OF APPEAL OF REVENUE. 21. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE DIRECTIONS OF DRP TO AO, NOT TO MAKE ADJUSTMENT TO THE INCOME OF THE ASSESSEE AS DE TERMINED BY TPO IN THIS ORDER U/S. 92CA(3) OF THE ACT. FOR THIS, REVENUE HAS RAISED F OLLOWING GROUND NOS. 4 TO 7: 4 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN DIRECTING THE AO NOT TO MAKE THE ADJUSTMENTS TO TOTAL INCOME OF THE ASSESSEE AS DETE RMINED BY THE TPO IN ITS ORDER U/S. 92CA(3) OF THE ACT ON THE BASIS OF BELIEF THAT THE TPO HAS ADO PTED THE PRICE PREVAILING ON THE DATE OF INVOICE AS THE ARM'S LENGTH PRICE UNDER THE CUP METHOD AS AGAI NST THAT ON THE DATE OF CONTRACT IN ALL CASES, WHEREAS THE TPO HAS ONLY CONSIDERED SUCH CASES WHER E THE DATE OF INVOICE IS MORE THAN A MONTH LATER THAN THE CONTRACT DATE SUGGESTING A TIME LAG BEYOND NORMAL IN A FALLING MARKET WHERE PRICES WERE FALLING CONSISTENTLY. 5 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN NOT TAKING INTO ACCOUNT THE PROVISIONS OF RULE 108(2)(C} OF THE I. T. RULES, WH ICH PROVIDED THAT THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRA NSACTION SHALL BE JUDGED WITH REFERENCE TO THE CONTRACTUAL TERMS ( WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING ) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENE FITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS, THEREBY UNE QUIVOCALLY STATING THAT THE CONDUCT OF THE PARTIES HAS TO BE TAKEN INTO ACCOUNT WHICH IS THE MEANING OF THE T ERM 'IMPLICIT' USED THEREIN. 6 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN DIRECTING NOT TO MAKE DISALLOWANCE REGARDING THE PROPOSED DISALLOWANCE BY IGNORING THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH THAT THERE IS BREACH OF CONTRACT AND THERE IS NO ARBITRA TION AWARD. 7 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. D.R.P. ERRED IN DIRECTING NOT TO MAKE DISALLOWANCE OF PROPOSED DISALLOWANCE BY IGNORING THE FACT THAT THE FUND RECEIVED FROM SLUMP SALE OF ASSETS CAN BE UTILIZED FOR REPAYMENT OF LOAN WHICH BEARS RELAT IVELY HIGH RATE OF INTEREST. 19 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 22. BRIEFLY STATED FACTS ARE THAT THE AO VIDE DRAFT ASSESSMENT ORDER U/S. 143(3) R.W.S. 144C OF THE ACT DATED 31.03.2013 MADE ADJUSTMENT TO ASSE SSEES ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH ASSOCIAT E ENTERPRISES TO THE EXTENT OF RS.16,22,25,514/- BY OBSERVING IN PARA 8 AS UNDER: AS THE ASSESSEE HAD TRANSACTIONS WITH ITS ASSOCIAT ED ENTERPRISES (AE), SO THE AUDIT REPORT IN FORM NO. 3CEB WAS FILED AND REFERENCE HAS BEEN MADE TO THE TRANSFER PRICING OFFICER TO ASSESS THE ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH AES. IN VIEW OF THIS THE ADDL. DIT & TPO-II, KOLKATA HAS DETERMINED AN UPWAR D ADJUSTMENT OF RS.16,22,25,514/- (ON ACCOUNT OF HIGHER PAYMENTS THAN THE PREVALENT MARKE T RATE MADE TO ITS AES) AGAINST THE ASSESSEE VIDE ORDER DATED 30.01.2013 U/S. 92CA(3) O F THE I. T. ACT, 1961 COMMUNICATED VIDE M. NO. ADDL. DIT&TPO/II/KOL/92CA(3)/12-13/47. A COPY OF THE SAME IS ENCLOSED FOR READY REFERENCE. THE ASSESSEE CLAIMED THAT DURING THE YEAR IT SOURCE D FOLLOWING MATERIAL FROM THE SAID AE: S. NO. PARTICULARS NO. OF TRANSACTIONS QTY IN MT VALUE (IN RS.) REMARK (I) RAW MATERIAL IMPORTED: CRUDE PALM OIL 7 14019.615 71,55,28,816 ANNEX. (PAGE 437) (II) TRADE/FINISHED GOODS: RBD PALM OLIEN 10 19432.335 91,38,56.873 ANNEX. II (PAGE 438) TOTAL 17 33451.950 1,62,93,85,689 THE ASSESSEE CONTENDED BEFORE THE AO AS WELL AS TPO THAT THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WAS ADOPTED FOR ARRIVING AT THE ARMS L ENGTH PRICE (ALP) IN ALL THE CASES AND THE DIFFERENCE FOUND BETWEEN THE ACTUAL TRANSACTION PRI CE AND ALP WAS WITH THE TOLERABLE LIMIT OF 5% AS PROVIDED U/S 92C OF THE ACT. HE REFERRED TO MALAYSIAN PALM OIL BOARD DATA WITH NECESSARY ADJUSTMENTS ON ACCOUNT OF FOB, FREIGHT AN D INSURANCE TO ARRIVE AT ALP. THE ASSESSEE REFERRED TO TRANSFER PRICING OFFICERS (TP O) FINDINGS/OBSERVATIONS AS UNDER: 1. TPO WORKED OUT DIFFERENCE OF RS.16,22,25,514/- FOR TP ADJUSTMENTS IN 7 TRANSACTIONS OUT OF TOTAL 17 TRANSACTIONS AS PER THE FOLLOWING S UMMARY: MATERIAL IMPORTED TRANSACTION TYPE NO. OF TRANSACTIONS VALUE OF TRANSACTIONS DIFFERENCE AMOUNT (IN RS.) 20 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 CRUDE PALM OIL DIFFERENCE NO DIFFERENCE TOTAL 1 6 7 20,91,96,339 50,63,32,477 71,55,28,816 41,48,654 - 41,48,654 RBD PALM OLEIN DIFFERENCE NO DIFFERENCE TOTAL 6 4 10 58,60,84,027 32,77,82,846 91,38,66,873 15,80,76,860 - 15,80,76,860 THE ASSESSEE CONTENDED THAT THE TPO ACCEPTED THE CU P METHOD TO DETERMINE ALP ON THE BASIS OF MPOB RATES AS PER TP REPORT BUT THE MA JOR DIFFERENCE IS ON ACCOUNT OF TPO ADOPTING THE RATES OF MPOB PREVALENT AS ON THE DATE OF INVOICE RAISED BY THE AE WHEREAS THE TRANSACTIONS ARE CARRIED OUT AND INVOIC ED AT THE RATES PREVALENT ON THE DATE OF CONTRACT. 23. THE TPO NOTED THAT THESE COMMODITIES WERE IN A FALL ING MARKET IS EVIDENT FROM THE MARKET QUOTATIONS ISSUED BY MPOB. FOR RBD PALMO LEIN, THE AVERAGE LOCAL PRICES IN MARCH 08 WERE USD 1322.50 AND THE AVERAGE PRICES IN JUNE 08 WHERE 1245.05 AND FURTHER FELL TO USD 530.50 BY DECEMBER 2008. IT WAS A FULL BLOWN CRISES IN THESE COMMODITIES AND ASSESSEE WAS FULLY AWARE OF THIS. H E FURTHER OBSERVED AS UNDER: THE ABOVE GO ON TO SUGGEST THAT THE ASSESSEE COMPAN Y, WHICH HAS TO IMPORT THERE ITEMS REGULARLY, WOULD HAVE KNOWN ABOUT THE CONTINU OUSLY FALLING MARKET. IN SPITE OF THIS, THE ASSESSEE ENTERED INTO CONTRACTS WHERE THE DELIVERY WAS EXPRESSLY MENTIONED AS TO BE MADE AFTER A SUBSTANTIAL PERIOD OF TIME. THUS , THE ASSESSEE PAID ITS AE FOR SUCH IMPORTS AT A RATE HIGHER THAN THE PREVALENT MARKET RATES AS THE MARKET PRICES FOR THESE COMMODITIES WERE FALLING IN FY 2008-09. CONSIDERING THE CONSIDERABLE TIME GAP IN THE DATE OF CONTRACT AND INVOICE/BILL OF LADING DATE, I T CAN VERY WELL BE GAUGED THAT THE PRICES PAID BY THE ASSESSEE COMPANY CAN NOT BE COMP ARED WITH THE PREVALENT MARKET PRICES AND NEED TO BE COMPARED WITH THE PREVALENT M ARKET PRICES AND NEED TO BE ADJUSTED TO ACCOUNT FOR THE DIFFERENCE IN THE PREVA LENT MARKET RATES. AFTER MAKING VARIOUS OBSERVATIONS TPO CONCLUDED THA T TO COMPUTE THE ARMS LENGTH PRICE UNDER THE CUP METHOD, THE DATE OF THE FOB PRICE ON THE DATE OF THE INVOICE/BILL OF LADING OPENING OF LC IS TAKEN AS THE TRANSACTION PR ICE, SUITABLY ADJUSTED USING THE DETAILS OF FREIGHT AND INSURANCE PROVIDED BY THE AS SESSEE ITSELF IN ITS TP REPORT. THUS, A TP ADJUSTMENT OF RS. 16,22,25,514/- WAS PROPOSED AN D AO INCLUDED THE ADJUSTMENT IN HIS DRAFT ASSESSMENT ORDER. THE ASSESSEE CARRIED T HE MATTER TO DRP. 24. THE DRP DECIDED THE ISSUE THAT THE ADJUSTMENT MADE BY TPO IS WITHOUT ANY BASIS AND THE SAME SHOULD NOT BE ADJUSTED TO THE INTERNAT IONAL TRANSACTIONS. FOR THIS, DRP OBSERVED AS UNDER: 21 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 WE HAVE CAREFULLY EXAMINED THE ISSUE RAISED IN THE OBJECTION NO. 1.1 AND FIND THAT THE TPO HAS ACCEPTED THE CUP METHOD FOLLOWED AS ALSO AC CEPTED THE BASIS OF COMPARISON ADOPTED BY THE ASSESSEE. THE DISPUTE IS IN RELATIO N TO THE PRICE TO BE ADOPTED FOR MAKING COMPARISON FOR DETERMINATION OF ALP I.E. PRICE AS O N CONTRACT DATE OR PRICE AS ON INVOICE DATE. WE ARE OF THE VIEW THAT THERE IS ALWAYS A TIME GAP BETWEEN THE CONTRACT DATE AND THE DATE OF INVOICE. THE GOODS WERE SUPPLIED AT CONTRACTED P RICE, ON WHICH THERE IS NO DISPUTE. INVOICES WERE RAISED ON THE BASIS OF AGREED TERMS I NCLUDING PRICE AS PER THE CONTRACT EXECUTED ON THE BASIS OF STANDARD TERMS OF FOSFA. I T IS ALSO ACCEPTED FACT THAT THE PRICES FLUCTUATE BETWEEN CONTRACT DATE AND INVOICE DATE. I T IS A GENERAL TRADE PRACTICE THAT CONTRACT PRICE AND CONTRACT GOVERNS THE TRANSACTION S INSTEAD OF MARKET PRICE ON THE DATE OF INVOICE. DURING THE COURSE OF HEARING THE ASSESSEE ALSO SUBMITTED A CHART SHOWING SOME INSTANCES WHERE PRICES AS ON DATE OF INVOICES WERE HIGHER AS COMPARED TO PRICES AS ON DATE OF CONTRACT AND THE MATERIAL WAS DELIVERED AT CONTRACTED PRICE I.E. AT LOWER PRICE. HENCE, THE INVOICE PRICES ON THE BASIS OF CONTRACTS ARE MORE ACCEPTABLE THAN PRICES AS ON DATE OF INVOICE ADOPTED BY TPO. THEREFORE, THE ADJU STMENT MADE BY TPO IS NOT SUSTAINABLE AND IS ACCORDINGLY REJECTED. OBJECTION NOS. 1.2.1, 1.2.3 AND 1.2.4 ARE ALREADY R ECTIFIED BY THE TPO VIDE ORDER U/S. 154 OF THE ACT DT. 27.09.2013. HENCE THE SAME DOES NOT REQUIRE ANY ADJUDICATION. SINCE THE TRANSFER PRICING ADJUSTMENT DONE IN THE D RAFT ASST. ORDER IS REJECTED BY US, THE OBJECTION NOS. 1.2.2 AND 1.3 BECOMES INFRUCTUOUS. UNDER THE CIRCUMSTANCES, WE DIRECT THE AO NOT TO MA KE ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH AE AS DETERMINED BY THE TPO. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US AGAINST THE DIRECTIONS OF DRP. 25. BEFORE US LD. CIT, DR SHRI RAVI JAIN RELIED ON THE ORDER OF TPO. 26. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT BOTH ASSESSEE AS WELL AS TPO HA S ADOPTED CUP METHOD FOR DETERMINING ALP AND BASE RATES FOR DETERMINING ALP USED ARE MPOB PUBLISHED RATES. WE FURTHER FIND THAT THE GOODS WERE SUPPLIED AS PER THE CONTRACTS AND AT CONTRACTED PRICE. THE TPO HAS, HOWEVER, TAKEN THE PRICE PREVALENT ON THE INVOICE DATE AS AGAINST THE CONTRACT DATE TO COMPARE IT WITH THE TRANSACTION PR ICE. THIS IS NOT PROPER COMPARISON BECAUSE THERE IS ALWAYS A TIME GAP BETWEEN CONTRACT DATE AND INVOICE DATE AND PRICES FLUCTUATE BETWEEN THESE DATES. INVOICES ARE RAISED ON THE BASIS OF ACCEPTED TERMS INCLUDING RATES AS PER THE CONTRACTS ENTERED EARLIE R WHICH ARE BINDING FOR ALL LEGAL PURPOSES. THE FOLLOWING FACTS NEED TO BE CONSIDERED : 22 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 (I) THE ASSESSEE HAS PLACED THE PRICE LIST PUBLISHED BY MPOB AT PAGE 445 TO 456 OF ASSESSEES PAPER BOOK (FOR CRUDE PALM OIL) A ND PAGE 457 TO 468 (FOR RBD PALM OILEN) WHICH GIVES THE DAILY PRICES OF THE COMMODITIES IN THE INTERNATIONAL MARKET. FACTUALLY, THERE ARE DIFFEREN T RATES FOR EACH DELIVERY DATE UPTO NEXT THREE MONTHS. THIS AFFIRMS THAT THE RATE AS PER THE CONTRACT WITH REFERENCE TO DELIVERY SCHEDULE IS ONLY RELEVAN T AND THE PRICE ON THE DATE OF DISPATCH/INVOICE IS IRRELEVANT EXCEPT FOR B REACH OF CONTRACT. (II) ASSESSEE ALSO PLACED FOSFA 81, WHICH IS A GENERAL FORMAT OF AGREEMENT PUBLISHED BY FEDERATION OF OILS, SEEDS AND FATS ASS OCIATION LTD. (FOSFA INTERNATIONAL) (PAGES 247 TO 255 OF ASSESSEES PAPE R BOOK). THIS FORMAT IS GENERALLY REFERRED IN ALL THE CONTRACTS (E.G. PAGE 560 TO 572 AND PAGES 612 TO 625 CONTAIN SOME TRADE CONFIRMATION FROM BROKERS ET C). IN CLAUSE 29 OF THE SAID FORMAT (PAGE 255) IT IS MENTIONED THAT THE DAM AGES AWARDED AGAINST THE DEFAULTER SHALL BE LIMITED TO THE DIFFERENCE BETWEE N THE CONTRACT PRICE AND THE ACTUAL OR ESTIMATED MARKET PRICE ON DAY OF DEFA ULT SPECIFIC REFERENCE IS MADE TO FOFSA 81 IN THE TERMS IN THE CONTRACTS ENTE RED INTO BY THE ASSESSEE. ACCORDINGLY THIS SUBSTANTIATES THE GENERA L TRADE PRACTICE THAT CONTRACT PRICES AND CONTRACT GOVERNS THE TRANSACTIO NS INSTEAD OF MARKET PRICE ON THE DATE OF INVOICE. WE FIND THAT THE ASSESSEE HAS ALSO PAID CONTRACT CA NCELLATION CHARGES CALCULATED ON THE BASIS OF RATE DIFFERENCE BETWEEN RATES PREVAILING AT THE TIME OF ENTERING INTO CONTRACT AND RATES ON THE DAT E OF CANCELLATION OF THE CONTRACT. (III) THE ASSESSEE HAS ALSO FILED THE DETAILS OF ONE OF T HE CONTRACTS OF THE ASSESSEE CARRIED OUT WITH NON AES (GIANT INTERNATIONAL COMMO DITY TRADERS), WHICH IS AS UNDER: 23 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 SL. NO. PARTY NAME & COMMODITY CONTRACT DETAILS INVOICE DETAILS ACTUAL RATE ON INVOICE DATE 1. WILMAR TRADING PTE LTD. SINGAPORE CRUDE PALM OIL DATE: 06.03.2008 RATE: $1316.50/MT QTY:2000MT(+/- 2%) PB PAGE NO.657 DATE: 23.6.2008 RATE: $ 1316.50/MT QTY:2040MT PB PAGE NO.656 MR 3555.50 (PAGE 505) CON ($) 3.2531 (PAGE 535) EQV. $ 1092.95 PLUS $ 20 FOR FOB CHARGE, $40 FREIGHT & $ 11.53 INSURANCE TOTAL $1164.48 (IV) TRADES TRANSACTED BY 4 DIFFERENT PARTIES WITH CARGI LL INTERNATIONAL TRADING PTE. LTD., SINGAPORE TO PROVE THAT TRANSACTIONS ARE CARR IED OUT AT CONTRACTED PRICE AND AT THE RATE ON THE DATE OF INVOICE IS ALSO PROVIDED AT PAGE 23 OF THE ASSESSEES PAPER BOOK. ALL THE CONTRACTS ARE THROUGH THE BROKERS. SOME TRA DE CONFIRMATIONS FROM BROKER ARE AT PAGES 612 TO 625 OF THE ASSESSEES PAPER BOOK. WHEN FOR ALL THE PURPOSES OF EXECUTION AND CANCELLA TION, THE RATES SPECIFIED BY THE CONTRACT ARE APPLIED WHICH IS IN ACCORDANCE WITH TH E PREVALENT PRACTICE OF THE TRADE ALSO, IT IS WRONG ON THE PART OF TPO TO COMPARE THE MPOB RATES AS ON DATE OF INVOICE WHEN VALID CONTRACTS ARE ON THE RECORD. THE CUP METHOD A S PROVIDED IN RULE 10B(1)(A) SUGGESTS A COMPARISON WITH PRICE CHARGED IN A COMPA RABLE UNCONTROLLED TRANSACTION AND IT NOWHERE ALLOWS AN ASSESSING OFFICER OR TPO TO MA KE CHANGES IN THE TERMS OF CONTRACTS WHICH WERE ENTERED INTO WITH ASSOCIATED ENTERPRIS E (AE). THE TPO IN THE GIVEN CASE HAS NOT CONSIDERED THE FACT THAT TRANSACTIONS WITH NON-AES ARE ALSO CARRIED OUT BY THE ASSESSEE AT CONTRACTED/INVOICED RATES NOTWITHSTANDI NG THE RATES PREVAILING ON THE DATE OF INVOICE. 27. IN THE SIMILAR CIRCUMSTANCES, HONBLE ITAT, CHENNAI BENCH IN THE CASE OF LIBERTY AGRI PRODUCTS P. LTD. VS. ITO (2012) 49 SOT 79 HAS RULED AS UNDER: 7. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE I SSUE. THE TPO HAS NO OBJECTION TO THE METHOD OF PRICE ANALYSIS ADOPTED B Y THE ASSESSEE-COMPANY. THERE IS NO DOUBT THAT THE ASSESSEE-COMPANY HAS ENTER ED INTO CONTRACTS OF SALE WITH ITS AE. AFTER NEGOTIATIONS A CONTRACT PRICE IS A GREED UPON AND THE INVOICE IS RAISED BY THE AE ON THE BASIS OF THAT CONTRACT PRICE. THAT CONTRACT PRICE IS 24 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 COMPARABLE TO THE MARKET RATE AVAILABLE ON THE DAY OF CONTRACT. ONCE THE CONTRACT IS ENTERED INTO, THE GOODS ARE MOVED FROM EX PORT DESTINATION TO KANDLA PORT WHICH IS THE IMPORT DESTINATION. OBVIOUSLY, THE RE IS A TIME GAP BETWEEN THE CONTRACT DATE AND THE DATE OF ENTRY. BECAUSE OF THIS TIME GAP BETWEEN THE CONTRACT DATE AND ENTRY DATE, THERE WOULD BE PRICE FL UCTUATION AND THE TARIFF RATE FURNISHED BY THE CUSTOMS NEED NOT BE COMPARABLE TO T HE PRICE REFLECTED IN THE IMPORT INVOICES. 8. AS RIGHTLY ARGUED BY THE ASSESSEE-COMPANY, INSTE AD OF COMPARING THE PRICE WITH THE CUSTOMS TARIFF RATE ON THE DATE OF ENTRY INTO THE PORT, THE TPO SHOULD HAVE COMPARED THE PRICE DECLARED BY THE ASSESSEE WI TH THE CUSTOMS TARIFF RATE AT KANDLA PORT AS IT IS STOOD ON THE DAY OF CONTRACT OF SALE ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE. THE TPO HAS NOT ADOPTED THIS REA SONABLE METHOD. ON THE OTHER HAND, THE TPO IS GOING FOR CUSTOMS TARIFF RAT E RELEVANT FOR A SUBSEQUENT DATE. THIS METHOD IS NOT A PROPER ONE. 9. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE P RICE ENTERED INTO BETWEEN THE PARTIES ON THE DATE OF CONTRACT WAS NOT COMPARABLE TO SIMILAR TRANSACTIONS ENTERED INTO ON THAT DAY. IT MEANS THAT A PRICE REFLEC TED IN THE SALE CONTRACT ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE IS VERY M UCH COMPARABLE TO THE MARKET RATE PREVAILED ON THAT DAY. THEREFORE, COMPAR ED TO THE ILLOGICAL COMPARISON MADE BY THE TPO, THE PRICE FIXED BY THE P ARTIES ON THE BASIS OF SALE CONTRACT IS MORE AUTHENTIC AND ACCEPTABLE. THE DIFFE RENCE BETWEEN THE ASSESSEE'S INVOICE RATE AND THE AVERAGE CUSTOMS RATE AT KANDLA P ORT IS NOMINAL. THE DIFFERENCE GOES BEYOND THE PERMISSIBLE 5% RANGE ONLY WHEN THE TPO HAS ADOPTED THE AVERAGE OF THE TARIFF PRICES AT KANDLA PORT. IN T HESE TYPES OF BULK PURCHASES AND SALES, IT IS ALWAYS BETTER TO COMPARE THE PRICE OF INDIVIDUAL CONSIGNMENT RATHER THAN ON A COMPROMISE OF AVERAGE PRICE. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY HARD AND FAST REASON TO DISTURB THE PRICE DISCLOSED BY THE ASSESSE E-COMPANY AS THE ALP FOR WHICH THE IMPORTS HAVE BEEN MADE. THEREFORE, WE FIND THAT THE ADDITIONAL ADJUSTMENT OF RS.2,61,32,175/- MADE BY THE TPO IS NO T SUSTAINABLE IN FACTS AS WELL AS IN LAW. THE ADDITION IS ACCORDINGLY DELETED. 28. IN THE PRESENT CASE BEFORE US ALSO THE ASSESSEE COMPANY HAS ENTERED INTO CONTRACT OF SALE WITH ITS AE AND AFTER NEGOTIATIONS A CONTRA CT PRICE IS AGREED UPON AND INVOICE WAS RAISED. THAT CONTRACT PRICE IS COMPARABLE TO THE M ARKET RATE AVAILABLE ON THE DAY OF CONTRACT. ONCE THE CONTRACT IS ENTERED INTO THE GO ODS ARE MOVED FROM EXPORT DESTINATION TO IMPORT DESTINATION. OBVIOUSLY, THERE IS A TIME GAG BETWEEN THE CONTRACT DATE AND THE DATE OF ENTRY AND BECAUSE OF THIS TIME GAP BETWEEN THE CONTRACT DATE AND ENTRY DATE, THERE WOULD BE PRICE FLUCTUATION AND THE RATES OF OTHER E NTITIES CANNOT BE COMPARED TO THE PRICE REFLECTED IN THE IMPORT INVOICES. IN THE PRESENT C ASE ALSO THERE IS NO MATERIAL TO SHOW THAT THE PRICE ENTERED INTO BETWEEN THE PARTIES ON THE DATE OF CONTRACT WAS NOT COMPARABLE TO SIMILAR TRANSACTIONS ENTERED INTO ON THAT DATE. IT MEANS THAT PRICE REFLECTED IN THE SALE CONTRACT ENTERED INTO BETWEEN THE ASSESSEE AND ITS AES IS VERY MUCH 25 I.T.A. NO.153 & 399/KOL/2014 AMBO AGRO PRODUCTS LTD. A.Y. 2009-10 COMPARABLE TO THE MARKET RATE PREVAILING ON THAT DA TE. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS NO BASIS TO DIS TURB THE PRICE DISCLOSED BY ASSESSEE AS THE ALP FOR WHICH THE IMPORTS HAVE BEEN MADE. THE ADJUSTMENT MADE BY TPO IS NOT AT ALL SUSTAINABLE AND DRP HAD RIGHTLY HELD SO. WE CO NFIRM THE DIRECTIONS OF DRP. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS DISM ISSED. 29. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D AND THAT OF REVENUE IS DISMISSED. 30. THIS ORDER IS PRONOUNCED IN THE COURT ON 08 TH MAY, 2014 SD/- SD/- (SHAMIM YAHYA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED : 08TH MAY, 2014 TALUKDAR(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. AMBO AGRO PRODUCTS LTD., CHANDRAKUNJ, 3, PRETORIA STREET, 4 TH FLOOR, KOLKATA- 700 071 2. DCIT, C.C.-XXV, KOLKATA 3. THE CIT(A), 4. CIT, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA