ANIDHI IMPEX P.LTD, MUMBAI V. DCIT 4(1), MUMBAI

ITA 3998/MUM/2013

AI Insights

Anidhi Impex Pvt. Ltd. appealed against the order of the CIT(A)-8, Mumbai, which confirmed the Assessing Officer's decision treating a loss of Rs. 1,84,26,264 incurred on MCX transactions as speculative under Section 43(5) of the Income Tax Act, 1961. The company argued that these transactions were hedging activities related to their trading in commodities, not speculative trading. The Tribunal examined the nature of the transactions, the documentation provided, and the legal definitions of hedging and speculation. The Tribunal found that the transactions did not meet the criteria for hedging as they lacked correlation between the contracts for purchase and the contracts for sale, and many contracts were cancelled by third parties.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130188 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2013
• Other Referred Cases: Pankaj Royal Mills Ltd. Vs. CIT, SK. AR KAR Somasundaram Chettiar & Co vs CIT, Seksaria Riswan Sugar Factory Ltd vs CIT, CIT vs. Mohanlal Ranchhoddas, C.N.M.P. Investments (P) Ltd. vs Asstt. CIT, CIT vs. Hotz Hotel Ltd, ITO vs. Pali Ram Bhadarmal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMIT PORWAL
• Keywords: Business income; Speculation loss; Procedural lapse; Speculative transactions
• Section: 143(3); 43(5); 143(2); 43; 73; 13; 153

Judgement Text

P a g e | 1 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.3998/Mum/2013 (A.Y. 2009-10) Anidhi Impex Pvt. Ltd. C/o ASJ & Company LLP, 201, Rajshila, 597, JSS Road, Near Marine Lines, Mumbai – 400 002 Vs. Dy. Comm. Of IT-4(1) Room No. 638, Aaykar Bhavan, Churchgate, Mumbai – 400020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAECA7748J Appellant .. Respondent [ Appellant by : Amit Porwal Respondent by : Manoj Kumar Sinha Date of Hearing 18.05.2023 Date of Pronouncement 14.08.2023 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assesse is directed against the order passed by the ld. CIT(A)-8, Mumbai, dated 21.03.2013 for A.Y. 2009- 10. The assessee has raised the following concise ground of appeal vide letter dated 26.03.2019: “1. On the facts and circumstances of the case and in law CIT (A) erred in confirming the action of A.O. of treating the loss of Rs.1,84,26,264/- incurred on MCX transactions as speculative loss u/s 43 (5) of the Income Tax Act. 1961. 2. The CIT (A) erred in not adjudicating the ground relating to disallowance of expenses Rs. 7,851/; and Rs.1,62,819/- incurred on security transaction Tax and other charges of MCX respectively, considered by the A.O. as speculative. 3. CIT (A) erred in not adjudicating the ground relating to the disallowance of expenses of Rs. 10,00,000/- by the A.O. on estimation and ad hoc basis stating as related to the MCX transactions and hence speculative in nature, without even confronting the appellant of this proposed action by issuing show cause. P a g e | 2 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) 4. CIT (A) erred in confirming the action of the A.O. invoking explanation to section 73 and considering the loss of Rs. 24,75,318/- incurred on share trading as speculative loss ignoring the fact that major Income of the appellant was from interest and other sources. The appellant craves leave to add to, alter an amend, modify or withdraw all or any of the foregoing grounds of appeal.” 2. Fact in brief is that return of income declaring total income of Rs.64,84,403/- was filed on 30.09.2009. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 30.08.2010. The assessee company is engaged in the business of trading of non-ferrous metal, gold, silver, previous metals, purchase and sale of stock option and futures and also financing activities. During the course of assessment the assessing officer noticed that assesse has debited loss of Rs.184,26,264/- on MCX trading in profit and loss account. The AO noticed that assesse has carried out trading activities in the MCX capital market through two entities viz. M.F Global Pvt. Ld. and MJP Commodities Pvt. Ltd. After verification the AO noticed that these trading transactions were settled otherwise actual delivery, therefore, these transactions were covered by sub-section (5) of Sec. 43 of the Act Income Tax Act which says that transaction settled otherwise then by actual delivery is of speculative transactions. On query, the assessee explained that it has traded more or less in same commodities as traded by it by way of physical delivery. The assesse further explained that it has entered into various transactions in future market in order to reduce losses due to commitments made to various customers and suppliers. Therefore, the assessee submitted that losses arising on MCX transactions were because of hedging activity and same was not speculative activity. However, the AO has not agreed with the submission of the assessee and referred provisions of Sec. 43(5) of the Act. the extract of the provision is reproduced as under: P a g e | 3 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) “A contract in respect of raw material or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price transaction in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him.’ 3. The AO has also referred the decision of Hon’ble Gujarat High Court in the case of Pankaj Royal Mills Ltd. Vs. CIT (Guj) (1978) 115 ITR 824 (Guj). The assessing officer concluded that the transaction entered through the two entities are not hedging transactions because of following facts: “1. The assessee has incurred the loss of Rs. 4020316/- on the trading in Crude Oil, natural gas, nickel, Ref. soya oil carried out through two entities MF Global P. Ltd., & MJP Commodities p. Ltd. The assessee has traded in gold, silver, copper, zinc & lead items as trader and not in crude oil, natural gas, nicket or ref. soya oil Therefore, the transactions carried out in MCX exchange in respect of items crude oil, natural gas, nickel & ref. soya oil through two entities cannot be called or treated hedging transactions. 2. The details filed by the assessee in respect of goods traded and forward contract of purchase and sale are summarized in the tabular form commodity wise which is part of the assessment order as Annexure-1. As per the chart, in most of the time the assessee entered into only forward contract for purchase of commodity inspite of having sufficient stock on hand. By entering into forward contract of purchase despite of having existing stock the assessee is exposed to more risk. Therefore, the transaction carried out by the assessee in the forward market were not hedging transactions but speculative transactions 3. As per the submission filed on 17.11.2011, the assessee tried to justify their MCX position with the purchase order placed / sale contract of suppliers However, after verifying the details of purchase order and sale contract with the actual purchase / sale of goods in which the assessee traded, it is noticed that except one party M/s. Zinc Metal, no party in whose name is appearing in the list of purchase order / sale contract has purchased or sold the goods to the assessee. Further, most of the category of goods traded order placed for purchase / sale contract is cancelled by the third parties. Therefore, the assessee entire exercise to show their speculative commodity transaction as hedging transaction is after thought.” Therefore, AO treated the aforesaid transaction as speculative transaction within the purview of Sec. 43(5) of the Act and the loss of R.184,26,264/- on MCX trading was treated as speculative loss. P a g e | 4 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) 4. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant operating part of the decision of ld. CIT(A) is reproduced as under: “2.3 I have carefully considered the facts of the case and the arguments and submissions of the appellant. The appellant company is engaged in the business of trading of ferrous and non-ferrous metals. The appellant during the course of this financial year has incurred a loss on MCX trading on being asked by the Assessing Officer as to why these losses be not treated as speculative, the appellant submitted that the said transactions were entered for the purposes of hedging for the commodities held in stock and/ purchase and/or in relation to purchase order placed and/or in relation to order sale. The appellant during the course of appellate proceedings has placed several documentary evidences to substantiate claims. 2.3(a) In order to understand as to what constitute hedging and to distinguish the same from speculative loss, it is imperative to define hedging as it is legally understood. 'Hedging' is defined in Black's Law Dictionary as under: “Hedging: A means by which traders and exporters of grain or other Products, and manufacturers who make contracts in advance for the sale of their goods, secure themselves against the fluctuations of the market by counter-contracts for the purchase or sale of an equal quantity of the product or of the material of manufacture. Whorley vs. Patton- Kjose Co 90 Mont. 461, 5 P. 2d 210, 224. A means by which a party who deals in the purchase of commodities in large quantities for actual delivery at some future time insures itself against unfavourable changes in the price of such commodities by entering into compensatory arrangements or counterbalancing transactions on the other side Ralston Purina Co. vs McFarland, CANC 550 F 2d 967, 970. A transaction where an identified forward exchange contract is locked into an identified agreement to purchase or sell goods in the future. Siegel vs. Titan Indus. Corp. CANY, 779 F.2d 891, 893.” The distinction between a hedger and a speculator can be understood by an example let us say that an option buyer enters into a contract say in April, 2011 for buying say 1,00,000 equity shares of a company, say at Rs. 50 in April, 2012, by paying option premium, to the option writer. If the market price of the share goes up to say Rs. 60 per share in April, 2012, the buyer would make a profit of Rs. 10 per share, as reduced by the amount of premium paid to the option writer, by exercising the option. If the share price goes down to Rs. 45 in April, 2012, the buyer, who would not exercise the option, would incur loss only to the extent of the option premium. Generally, the option buyers do not acquire the shares: Options are bought with the hope of making profits, if the price of the underlying stock goes up. But this point applies to those who are not holding the underlying shares, and who are speculators. But, take the case of a person who is already holding 1,00,000 equity shares of the company, the cost of acquisition being Rs. 45 per share. He is keen to ensure that the price of the share does not fall below Rs. 45, say at end of April, 2012. He can enter into a put option contract at say Rs. 50 for April, 2012. If the market price goes down in April, 2012 to say Rs. 40, the erosion in the value of his holding is offset by the profit made by exercising the options contract. In the case of a hedger, as P a g e | 5 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) distinguished from a speculator, futures trading is thus an offsetting commercial position. 2.3(b) Hedging means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes. Hedging is a two-step process. A gator loss in the cash position due to changes in price levels will be countered by changes ae of a futures position. For instance, a wheat farmer can sell wheat futures to Select the value of his crop prior to harvest If there is a fall in price, the loss in the cash market position will be countered by a gain in futures position. In this type of transaction, the hedger tries to for the price at a certain level with the objective of ensuring certainty in the cost of production or revenue of sale. The futures market also has substantial participation by speculators who take positions based on the price movement and bet upon it. Also, there are arbitrageurs who use this market to pocket profits whenever there are inefficiencies in the prices. However, they ensure that the prices of spot and futures remain correlated. 2.3(c) Under the Income Tax Act, 1961 in section 43 sub section 5 there are three categories of hedging contracts envisaged. Clause (a) deals with the contracts in respect of raw materials or merchandise, cl. (b) refers to contracts in respect of stocks and shares, and cl. (c) refers to contracts entered into by member of forward market or a stock exchange. In the present appeal, we are concerned with the contract in respect of merchandise, i.e. cl. (a) of the proviso. The proviso is to the effect that a contract in respect of merchandise entered into by a person in the course of his merchanting business to guard against loss through price fluctuations in respect of his contracts for actual delivery of merchandise sold by him. It is no doubt true that the definition of hedging' as above in respect of a merchandise implies two contracts. The first contract should be that actual delivery of merchandise sold and it is in respect of this contract for sale there should be another contract to guard against the loss through future price fluctuations 2.3(d) The scope of cl (a) of the proviso to s. 43(5) which is equivalent to proviso to Expln 2 of s. 24 of the IT Act, 1922, was considered by the Hon'ble Supreme Court in the case of SK. AR KAR Somasundaram Chettiar & Co vs CIT(1992) 102CTR(SC) 182 The Hon'ble Supreme Court held that the contracts which are not deemed to be speculative transactions under the latter part of cl. (a) of the third proviso to s 24(1) of the IT Act, 1922, must be contracts for delivery of goods sold by the manufacturer or merchant. The words "for actual delivery of goods" have evidently been put in designedly in that clause. There need not be co- relation between contract and contract, but there ought to be a co-relation between the contract in respect of raw materials or merchandise entered into by the person in the course of his manufacturing or merchanting business and the contract for actual delivery of goods manufactured by him or merchandise sold by him. Unless such co-relation exists between the two contracts, the clause is not attracted. The words "contracts for actual delivery of goods.” occurring in the latter part of the clause do not take in contracts of purchase. On p 5, the Hon'ble Supreme Court has considered the applicability of this clause in regard to a trader and stated that when the first para of cl. (a) speaks of contract in respect of merchandise, it refers undoubtedly to a contract falling within the definition of speculative transaction, but the further requirement of cl. (a) is that such a contract in respect of merchandise must have been entered into by merchant in the course of his business to guard against loss through future fluctuations "in respect of his contracts for actual delivery of goods sold P a g e | 6 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) by him." Clearly the contracts referred to in latter part of cl. (a) must be contracts for actual delivery of goods sold by him it necessarily means contract of sale by him and such contracts must be for actual delivery of goods. 2.3(e) In the case before the Hon'ble Supreme Court, the assessee had entered into a contract of purchase of goods with the mills and a contract of sale with another person. Then the assessee entered into a contract of purchase with the same person in respect of the same goods. The assessee then obtained delivery of the goods from the mills and sold them to third parties and settled the contract with the former person by paying the difference and this resulted in a loss. It was held that the loss incurred by the assessee was a speculative loss since the course of transactions did not fall within the four-corners of cl. (a) of the third proviso to s. 24(1) and could not be deemed not to be speculative transactions 2.3(f) To the same effect is the ratio laid down by the Hon'ble Bombay High Court in Seksaria Riswan Sugar Factory Ltd vs CIT(1979)11 CTR (Bom) 174 In the case before the Hon'ble Bombay High Court, the assessee was a company owning a sugar factory In accounting year relevant to the asst yr 1953-54, the assessee had debited Rs. 1,68,731 to sugar sales account in forward transaction in sugar. These transactions were entered into between 9th June, 1952 and 20th June, 1952, for August 1952 delivery. The ITO observed that as the assessee was not able to fulfil his obligations on the delivery date, the contract was settled by payment of difference between the ruling rate on the settlement date and the rate at which delivery was promised. The aggregate amount carne to Rs.1,68,731 and it was treated by the ITO as speculation loss to be allowed against similar profits in future. The order of the ITO was confirmed on appeals by the AAC and the Tribunal On a reference, the Hon'ble jurisdictional High Court held that the contention of the assessee that these transactions were genuine and bona fide transactions which were occasioned by a glut in the sugar market and the violent fluctuations in price in the market or that the transactions were in the nature of hedging transactions could not be accepted. Nor is it established that the payments made to the parties for cancelling the contracts could be deemed to be damages arising on a breach of contract as the payments were made before the due date for performance of the contracts, The Hon'ble High Court further held that the proper view to be taken is that the assessee got rid of the liability to effect delivery under the contracts by entering into cross-contracts which were entered into at three stages as earlier indicated. As the prices under these cross- contracts for purchase were higher than the prices at which the assessee had agreed earlier to sell the goods to the Bombay parties, the assessee was required to pay the difference and the aggregate amount paid by the assessee came to Rs. 1,68,731-4-0, and the transaction was not saved by reason of proviso (a) to Expln 2 of s. 24(1) as all genuine hedging transactions are not saved by proviso(a) The Hon'ble High Court further held that the proviso would seem to envisage the existence of two contracts, viz, a contract for actual delivery of goods, and another contract which may be called the hedging contract to guard against loss through future price fluctuation in respect of the first transaction. The case of the assessee before us is on all fours with that of the case before the jurisdictional High Court. As has been pointed out by us in para 2(supra) that the assessee had entered into agreements with M/s Manilal Shah & Sons, Koregaon on 5th June, 1989 and 15th June, 1989, for supply of tax paid Sago Super at Koregaon Naka. As per the first agreement (5th June, 1989) 500 bags were to be supplied at the rate of Rs. 675 per bag in November, 1989. As per the second agreement (15th June, 1989), 700 bags were to be supplied at the rate of Rs. 700 per bag in P a g e | 7 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) November, 1989. Later on, on 30th Dec., 1989, the first contract was settled without delivery of goods. The assessee agreed to pay a sum of Rs. 51,000 to M/s Manilal Shah & Sons in respect of this contract. In respect of second contract, on 1st Dec., 1989, a settlement was arrived at in which the assessee agreed to pay Rs. 50,400 without delivery of goods. Thus, the delivery of goods was absent and accordingly, the transactions entered into by the assessee were not hedging transactions within the parameters of the definition of hedging reproduced supra in para 8. 2.3(g) There are several judicial pronouncements, wherein the concept of hedging transaction has been accepted and has been held to be the business loss. In this regard reliance can be placed on the judgments of CIT vs. Mohanlal Ranchhoddas (1993) 203 ITR 304 (Guj), C.N.M.P. Investments (P) Ltd. vs Asstt. CIT (2001) 73 TTJ (Del) 826, CIT vs. Hotz Hotel Ltd (2003) 260 ITR 132 (Del), and ITO vs. Pali Ram Bhadarmal (2005) 95 TTJ (Jd) 1114. 2.3(h) In the instant case the appellant has not been able to demonstrate with evidences that the so called hedging transactions were undertaken to reduce the risk of time fluctuations. A clear details of the transactions reveal that the appellant is speculating in various commodities in order to earn the profits on MCX. There is no co-relation between the transactions for purchases and subsequent transactions undertaken by the appellant to hedge against the future losses Further there is no evidence available on record that the first contract entered into by the appellant is for the actual delivery of the mercantile sold and it is in respect of this contract for sale that the appellant entered into another contract to guard against the loss through future price fluctuations. The transaction entered into by the appellant are completely independent and can be in no way co-related. 2.3(i) The Assessing Officer was also found after verifying the details of the purchase order and sale contract with the actual purchase /sale of goods in which the assessee traded and it is observed that except one party i.e. M/s. Zinc Metal there is no party in whose name there is appearing a purchase order/sale contract. Further, majority of the contract for goods traded, order placed for purchase/sale contract were cancelled by the 3 parties indicating that the entire transactions were entered into for the purpose of earning speculative profit/loss and the appellant tried to give it a colour of hedging transactions to reduce its profitability. The appellant before the Assessing Officer also admitted that the appellant had sufficient stock but however entered into the transactions at MCX in the forward contract market indicating that there is no corelation between the first contract i.e the contract for sale/purchase as well as for future contracts. Therefore, it is evident that the entire transactions entered into by the appellant for the purposes of hedging are in no way hedging transactions. In view of the foregoing the additions made by the Assessing Officer are in order and the same is accordingly upheld. This ground of appeal is dismissed.” 5. During the course of appellate proceeding before us the ld. Counsel submitted that the assessee has traded in the commodities at the recognised stock exchange and the same was hedging transactions, therefore, the same cannot be treated as speculation transactions. He also referred the written submission and referred provision of Sec. P a g e | 8 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) 43(5)(a) of the Act. He also referred page no. 405 & 406 of the paper book pertaining to chart of stock position of physical stock and order position and also copies of sale contract/purchase orders made in support of hedging transactions. He also referred the various pages of his submission made in the paper book and contended that transactions for purchase and sale were undertaken on MCX to reduce the risk of price fluctuation in goods ordered by the assessee. On the other hand, the ld. D.R vehemently contended that assessee could not correlate the transactions entered in the MCX with the purchase or sale order. The ld. D.R also submitted that assesse has also carried out transactions in crude oil and other items in the MCX which was not part of its trading activity. The ld. D.R also submitted that in most of the cases order placed for sale purchase of the contract were cancelled by the third parties which substantiate that assesee has not carried out such transactions to actually cover up the losses due to commitments made to its customers and suppliers. The ld. Counsel has also supported the order of lower authorities. 6. Heard both the sides and perused the material on record. The assessee has debited in the P. & L. a/c an amount of Rs.184,26,264/- being losses of MCX Trading through M.F. Global Pvt. Ltd. and M/s MJP Commodities Pvt. Ltd. The assesse claimed that it entered into such transaction in future markets which were hedging transaction and not speculative. The assesse further submitted that it entered into transaction on sale in future market when either it was having stock in physical or it had placed an order to a supplier. The assesse explained that transactions executed by it in MCX are covered by the 1 st proviso of Sec. 43(5) of the Act. The provisions of Sec. 143(5)(a) of the Act is reproduced as under: P a g e | 9 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) “(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; or” On perusal of the material on record we find that the assessee has traded in gold, silver, copper, zinc & lead item and not traded in crude oil natural gas nickel and refind soya oil. The assessee in his submission before the ld. CIT(A) placed at page no. 4,5 of the order of CIT(A) has accepted this fact and stated that disallowance of loss on account of aforesaid item in which it had not treated should be considered for disallowance. 7. However, we find that even in respect of transactions other than crude oil as above the assessee has failed to make correlation between the transactions for purchases and subsequent transactions undertaken by the assesse for hedging against future losses. We also find that there was no evidence available that first the assesse entered into contract for actual delivery of the merchandise sold and it was in respect of this contract that the assessee entered into another contract to guard against the loss through future price fluctuation. The ld. Counsel has referred the decision of Hon’ble Bombay High Court Bench at Aurangabad vide ITA No. 79 of 2018 dated 06.05.2022 in the case of Souvenir Developer (I) Pvt. Ltd. Vs. ACIT. We find that facts of the case of the assessee are distinguishable from the referred case. In that case it was held by the ld. CIT(A) that assesse would not be entitled to set off loss suffered from transactions in securities because of the provision of Sec. 73 whereas the cases of the assessee is pertained to the issue of not proving the transactions for the purpose of hedging of the commodities held in stock and purchase with the loss incurred on MCX Trading. Similarly, the ld. Counsel has also referred plethora of case laws named in the written submission but could not controvert that the P a g e | 10 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) case laws relied are distinguishable on facts from the case of the assessee. We have also perused the decision of ld. CIT(A) wherein he referred the decision of Hon’ble Supreme Court in the case of SK. AR. K. AR Somasundaram Chettiar & Company Ld. Vs. CIT (1992) (102 CTR (SC) 182) and stated that there ought to be a correlation between contract in respect of merchandise business and contract for actual delivery of goods merchandise sold by him. The ld. CIT(A) also referred the decision of Hon’ble Bombay High Court in Seksaria Riswan Sugar Factory Ld. Vs. CIT (1979) 11 CTR (Bom 174) wherein held that the proviso would seem to envisage the existence of two contracts viz. the contract for actual delivery of goods and other contract which may be called the hedging contract to guard against loss through future price fluctuation in respect of the first proviso. In the case of the assesse it has failed to establish with evidences that it has actually entered into contract for guarding against the risk of loss due to price fluctuation. It is further noticed that majority of the order placed were cancelled by the third parties. In this regard, the stock position of physical stock and order in hand provided by the assesse is reproduced as under: P a g e | 11 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) On perusal of the aforesaid chart it is noticed that assessee has not specified supplier name with whom it had placed purchase order. It is noticed that assesse has shown most of the sale contract from the supplier namely “AL RAS NIETAL TRADING L.L.C as per the copies placed in the paper book. The assessee had further shown that this supplier had cancelled almost all the sale contract and thereby shown shortage of stock in column 4 in a stereotyped manner without establishing the correctness of such irregular nature of transactions. It had shown almost the whole quantity of commodities as shortage stock at column no. 4 because of cancellation of most of the orders by the third parties which demonstrate that assessee has not substantiated the existence of hedging transaction as prescribed in proviso (a) of Sec. 43(5) of the Act. The assessee has not established that there was existence of contract in respect of merchandise in the course of business with a view to guarding against risk of loss due to adverse price fluctuation. We also find that assessee could not establish that it has P a g e | 12 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) entered into hedging contracts against price fluctuation. Considering the above facts and circumstances we don’t find any infirmity in the decision of ld. CIT(A), therefor, the ground of appeal no.1 of the assesse is dismissed. Ground No.2: Disallowance of expenses of Rs.7851/- and Rs.162,819/- incurred on security transaction tax: 9. During the course of assessment the AO has disallowed the security transaction tax of Rs.7851/- and other charges MCX of Rs.162,819/- incurred towards commodities transaction since the same was treated as speculation loss under the provision of Sec. 43(5) After hearing both the sides and perusal of material on record we find the impugned expenses are directly related to the commodity transactions on MCX which we held as speculative activity as supra while adjudicating the ground of appeal no. 1 of the assessee, therefore, we do not find any merit in this ground of appeal of the assesse and this ground of appeal no. 2 is dismissed. Ground No. 3: Disallowance of expenses of Rs.10,00,000/- on estimated basis: 10. The AO had disallowed an amount of Rs.10,00,000/- on estimated basis out of the total expenses by treating the same as incurred for commodities trading. After hearing both the sides and perusal of material on record we find that the AO has not brought on record any material to allocate such expenses towards speculation business. Therefore, action of the AO to make disallowance on general estimation basis is not justified therefore, we direct the AO to delete this addition. Accordingly ground no. 1(3) of the appeal is allowed. Ground No. 4: Disallowance u/s 73 of Rs.24,75,318/-: P a g e | 13 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) 11. At the time of assessment the AO has disallowed the claim of loss of Rs.24,75,318/- from the share trading u/s 73 of the Act by treating the business of purchase and sale of shares as speculation business. The contention of the assessee that it had earned more income from the interest under the head income from other sources therefore it fall within the exception provided in the explanation to section 73 of the Act is not justified since we have adjudicated vide ground no.. 1 as supra that loss of Rs.186,26,264/- on trading in commodities is speculative loss as a result the business income earned by the assessee would be more than its interest income shown under the head income from other sources therefore the case of the assesse is not covered by the exception laid down in the explanation to section 73 of the Act. Accordingly, we do not find any reason to interfere in the findings of ld. CIT(A). Therefore, this ground of appeal of the assessee is dismissed. 12. As per record the assessee has also filed additional grounds of appeal vide letter dated 26.03.2019 as under: “1. On the facts and circumstance of the case and in law CIT(A) erred in not appreciating that the time limit for completion of assessment for AY 2009- 10 expired on 31 st December, 2011 under 1 st proviso to Section 153 whereas the assessment order was received by the assesse company on 16 th January, 2012 thereby implying that assessment order must had been passed between 7 th January to 10 th January, 2012 and was received by the assessee company on 16 th January, 2012. 2. The CIT(A) erred in not appreciating that the AO failed to issue notice u/s 143(2) within the time prescribed in the proviso to 143(2). This omission on the part of the AO is not merely procedural irregularity and the same is not curable. The appellant craves leave to add to, alter amend, modify or withdraw all or any of the foregoing ground of appeal. Additional Ground No. 1: Regarding Time limit for assessment: P a g e | 14 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) 13. During the course of appellate proceedings neither the ld. Counsel pressed this grounds of appeal nor furnished any evidences in support of its contention therefore this additional ground no. 1 is dismissed. Additional Ground No. 2: Issuing of Notice u/s 143(2): 14. During the course of appellate proceeding the ld. Counsel has neither discussed this ground of appeal nor brought any material on record contrary to the fact categorically reported at para 2 of the assessment order u/s 143(3) dated 29.12.2011 that notice u/s 143(2) was issued and duly served on the assessee on 23.09.2010. Therefore, this additional ground no. 2 is also dismissed. 15. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 14.08.2023 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 14.08.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) P a g e | 15 ITA No.3998/Mum/2013 Anidhi Impex Pvt. Ltd. Vs. DCIT-4(1) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.