The ACIT, Circle-1, JUNAGADH V. Shri Pragjibhai Gokaldas Nathwani, Mangrol

ITA 475/RJT/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0079 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Speculation loss; Wrong claim; Bad and doubtful debts; Assessment record; Speculative transactions; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 40(a)(ia); 133(6); 43(5); 194C; 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER AND S H RI AMARJIT SINGH , ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] ACIT, CIRCLE - 1, JUNAGADH (APPELLANT) VS SHRI PRAGJIBHAI GOKALDAS NATHWANI, PROP. OF MANGROL OIL MILL, TOWER ROAD , AT MANGROL, DIST. JUNAGADH P AN: AAYPN4310N (RESPONDENT /CROSS OBJECTOR ) REVENUE BY : S H RI AVINASH KUMAR , SR. D . R. ASSESSEE BY: S H RI M.J. RANPURA , A.R. DATE OF HEARING : 17 - 10 - 2 016 DATE OF PRONOUNCEMENT : 30 - 11 - 2 016 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THI S REVENUE S APPEAL AND ASSESSEE S CO FOR A.Y. 2009 - 10 , AR ISE FROM ORDER OF THE CIT(A) - IV, RAJKOT DATED 18 - 09 - 2013 IN APPEAL I T A NO . 475 / RJT /20 13 & CO NO. 04/RJT/2014 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 2 NO. CIT(A) - IV / RJT/0272/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF T HE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.12,83,410/ - ON ACCOUNT OF WRONG CLAIM OF BAD DEBTS. 2. THE LEA RNED CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S. 40(A)(IA) TO RS.30,00,437/ - OUT OF TOTAL DISALLOWANCE OF RS.49,93,206/ - . 3. THE LD. C.I.T.(A) HAS ERRED ON FACTS IN RESTRICTING THE 'KHARAJAT EXPENSES' ON ACCOUNT OF ADVERTISEMENT EXPENDITURE OF RS.10,16,786/ - TO RS.3,05,036/ - . 4. THE LD. C.I.T.(A) HAS ERRED ON FACTS IN DELETING THE DISALLOWANCE OF RS. 10,76, 538/ - ON ACCOUNT OF SHORTAGE OF GROUNDNUT OIL AND RS. 89,05 5/ - ON ACCOUNT OF SHORTAGE OF COCONUT OIL. 3 . IN THIS CASE RETURN OF INCO ME DECLARING INCOME OF RS. 8,67,828/ - WAS FILED ON 30 - 09 - 2009. THE FACTS OF THE CASE ARE DISCUSSED AS PER THE VARIOUS GROUNDS OF APPEAL AS UNDER: - 3.1 BAD DEBT RS. 12,83410/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS DE BITED AN AMOUNT OF RS. 12,83,410/ - IN THE P & L A/C AS BAD DEBT. THE ASSESSING O FFICER ASKED THE ASSESSEE TO FURNISH THE NAME/ADDRESSE S OF THE PERSONS TO WHOM THE GOODS WERE SOLD. THE ASESSEE EXPLAINED THAT THE CREDIT SALES WERE MADE TO VARIOUS PERSONS OVER A PERIOD OF TIME REFLECTED IN THE I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 3 SALES ACCOUT ON WHICH TAX WAS PAID ACCORDINGLY. THE ASSESSING O FFICER HAS REJECTED THE CONTENTION OF THE ASSESSEE FOR WANT OF PROPER EXPLANATION A N D DISALLOWED THE CLAIM OF BAD D EBT OF RS . 12,83,410/ - . AGGRIEVED AGAINST THE IMPUGNED ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). 3.1.1 THE LD. COMMISSIONER OF INCOME TAX(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFF ICER . THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) IS REPRODUCED AS UNDER: - 5.2 I HAVE PERUSED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE AR OF THE APPELLANT. I ALSO FIND FROM THE WRITTEN SUBMISSIONS THAT THE AR HAS HEAVILY RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD VS CIT RANCHI, GIST OF WHICH HAS BEEN PRODUCED IN THE WRITTEN SUBMISSION REPRODUCED SUPRA. FROM THE FACTS OF THE CASE, IT IS MADE OUT THAT, THE AO HAD CALLED FOR THE DETAILS OF BAD DEBTS FROM THE APPELLANT BUT HE FAILED TO FURNISH THE DETAILS OF THE SAME. IT IS ALSO SEEN THAT, FROM THE ADDRESS PROVIDED BY THE APPELLANT, THE AO HAD CALLED FOR INFORMATION U/S. 133(6) FROM SUCH PERSONS, WHOSE DEBTS HAD TURNED BAD. HOWEVER, SUCH LETTERS RETUR NED UNSERVED. THEREFORE, THE AO HAD HELD THAT, THE APPELLANT'S CLAIM OF BAD DEBT IS NOT CORRECT AND HE THEREFORE DISALLOWED THE SAME. 5.3 HOWEVER, THERE IS SUBSTANTIAL FORCE IN THE CONTENTION OF THE AR OF THE APPELLANT THAT, THE DEBTS WERE ONCE RECOGNIZED IN THE BOOKS AS 'SALES', AND ONLY AFTER A SUBSTANTIAL LAPSE OF TIME, WHEN THE DEBTS COULD NOT BE RECOVERED, THE SAME WERE TREATED AS BAD, AND WRITTEN OFF. THIS CONTENTION STANDS SQUARELY IN HARMONY WITH THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD, AS CITED SUPRA. THEREFORE, THE AO WAS NOT CORRECT IN MAKING THE DISALLOWANCE OF BAD DEBTS. ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS AT RS. 12,83,410/ - STANDS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 3.1.2 DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 4 THE LD. A.R. SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(A). 3.1.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. THE ASSESSEE HAS FURNISHED THE DETAILS OF OUTSTANDING DEBT TO THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS. WE OBSERVED THAT THE ASSESSING OFFICER HAD DISALLOWED THE BAD DEBT ON THE GROUND THAT NOTICES U/S. 133(6) ISSUED WERE RE TURNED BACK BECAUSE OF INCOMPLETE ADDRESSES. THE LD. COUNSEL CONTENDED THAT DEBTS WERE DULY REFLECTED IN THE BOOK OF ACCOUNT OF THE ASSESSEE AND IN THE SALES ACCOUNT OF THE ASSESSEE, THE SAME WERE TREATED AS BAD DEBT BECAUSE OF NON - RECOVERY OF DUE AMOUNT OVER A LONG PERIOD OF TIME. WE CONSIDERED THAT THE DEBTS WERE ONCE RECOGNIZED AS SALES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, SUBSEQUENTLY FOR WANT OF NON RECOVERY OVER A PERIOD TIME THE ASSESSEE HAD CLAIMED AS BAD DEBT AND WRITTEN OFF IN THE BOOKS OF ACCOUNT. IN VIEW OF THE ABOVE MENTIONED FACTS AND FINDINGS AND CONSIDERING THE DECISION OF DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. COMMISSIONER OF INCOME TAX, WE UPHOLD THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) ON THIS ISSUE. 3.2 DISALLOWANCE OUT OF SALE S PROMOTION EXPENSES AND ADVERTISEMENT EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS DE BI TED AN AMOUNT OF RS. I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 5 61,87,073/ - UNDER THE HEAD SALES A ND PROMOTION EXPENSES AND ADVERTISEMENT EXPENSES WITHOUT DEDUCTION OF TDS UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. THEREFORE, THE ASSESSING OFFICER HAD DISALLOWED THESE EXPENDITURE OF RS. 49 , 93 , 200/ - U/S. 40(A)(IA) OF THE ACT FOR VIOLATION OF PROV ISION OF SECTION 194 OF THE ACT. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). 3.2.1 THE LD. COMMISSIONER OF INCOME TAX(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) IS REPRODUCED ON THIS ISSUE AS UNDER: - 6.3 I HAVE PERUSED THE SUBMISSIONS OF THE AR OF THE APPELLANT. IN SO FAR AS FIGURES OF EARLIER YEAR BROUGHT FORWARD BALANCES ARE CONCERNED, THE SAME IS EVIDENT FROM THE BALANCE SHEET OF BOTH THE YEARS. HOWEVER, OF THE TWO BROUGHT FORWARD BALANCES OF RS 11,93,827/ - AND RS 3,60,067/ - , THE AO HAD DEDUCTED ONLY BROUGHT FORWARD BALANCE OF RS 11,93,827/ - . THEREFORE, THE AMOUNT OF RS 360,067/ - IS ALSO TO BE REDUCED FROM THE TOTAL ADVERTISEMENT EXPENDITURE, TO BE CONSIDERED FOR DISALLOWANCE U/S. 40(A)(IA). NOW COMING TO THE SECOND PART OF THE APPELLANT'S ARGUMENT THAT THE TOTAL ADVERTISEMENT COST INCLUDES COST OF MATERIALS LIKE BANNERS, FLEX BANNERS, BOXES, WHEEL COVERS F IND THAT THE APPELLANT HAD FURNISHED COPIES OF INVOICES PERTAINING TO SUCH MATERIALS. IN CERTAIN CASES, THE INVOICES INCLUDES MATERIAL COST AND LABOUR CHARGES. SUCH PAYMENTS WERE BIFURCATED. AFTER BIFURCATION, IT IS SEEN THAT THE APPELLANT HAD INCURRED RS 30.00,437/ - TOWARDS LABOUR CHARGES. SINCE THE DISALLOWANCE U/S.40(A)(IA) IS BY WAY OF EXPRESS STATUTE PROVISIONS, THE DISALLOWANCE OF EXPENDITURE TO THE EXTENT OF RS 30,00.4377 - INCURRED TOWARDS LABOUR PAYMENT IS UPHELD. THE DISALLOWANCE OF REMAINING AMOUN T WHICH REPRESENTS COST OF MATERIAL PURCHASED IS NOT IN ACCORDANCE WITH LAW AND THEREFORE CANNOT BE SUSTAINED. THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE ON THIS COUNT TO RS 30,00,437/ - . THIS GROUND OF APPEAL IS PARTLY ALLOWED. I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 6 3.2.2 THE LD. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD.COUNSEL RELIED ON THE DECISION OF LD. COMMISSIONER OF INCOME TAX(A) UPHELD. 3.2.3 WE FIND THAT THE ASSESSING OFFICER HAD MADE DISALLOWANCE U/S. 40(A)(IA) BECAUSE OF NON - DEDUC TION OF TAX STATING THAT THE MOST OF THE PAYMENTS OF ADVERTISEMENT AND SALES PROMOTION EXPENSES PERTAINING TO JOB WORK AND LABOR WORK ON WHICH TAX WAS NOT DEDUCTED. THE LD. COMMISSIONER OF INCOME TAX(A) HELD THAT OUT OF TOTAL DISALLOWANCE OF RS. 49,93,206 / - A SUM OF RS 3,60,067/ - REPRESENTS EARLIER YEAR S BALANCE LIKE BANNERS, FAX BANNERS, ETC. THE LD. COMMISSIONER OF INCOME TAX(A) HAD BIFURCATED THE ADVERTISEMENT AND SALES PROMOTION EXPENSES RELATING TO THE PURCHASE OF ADVERTISEMENT MATERIALS AND OTHE R PART PERTAINING TO PAYMENT MADE FOR JOB WORK WHICH RESULTED IN DISALLOWANCE TO THE EXTENT TO RS. 3,000437/ - REPRESENTS LABOR PAYMENT. IN VIEW OF THE ABOVE STATED FACTS AND FINDINGS ,WE JUSTIFY THE DECISION OF THE LD. CI T(A). 3.3 DISALLOWANCE OUT OF KHARAGAT EXPENSE OF RS. 1,85,10357/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS DEFECTED THE P & L A/C ON ACCOUNT OF KHARAJAT EXPENSES OF RS. 1,85,10357/ - . ON VERIFICATION, THE A SSESSING O FFICER FIND THAT THESE EXPENSES WERE CLAIMED ON THE BASIS OF COPIES OF VOUCHERS SIGNED B Y THE LABORS /DRIVERS ETC. THE V OUCHERS WERE WITHOUT THE SERIAL NUMBER AND OTHER DETAILS LIKE RATE OF PAYMENT ETC. AND FOR WANT OF VERIFICATION THE ASSESSING OFFICER HAS DISALLOWE D I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 7 RS.1,01,678 @ 15% FROM THE TOTAL OF EXPENSES OF RS. 1,01,67,867/ - WHICH WERE INCURRED IN CASH BY THE ASSESSEE. AGAINST THIS ADDITION, THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). 3.3.1 THE LD. COMMISSIONER OF INCOME TAX( A) HAS RESTRICTED THE ADDITION TO THE EXTENT OF RS. 3 , 05 , 036/ - BEING 3% OF THE KHARAJAT EXPENSES INCURRED IN CASH. THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) IS REPRODUCED AS UNDER: - 8.3 THE DISALLOWANCE MADE BY THE AO IS ON A WEAK FOOTING , AS THE SAID DISALLOWANCE IS MADE WITHOUT POINTING OUT ANY SPECIFIC DEFECTS, EXCEPT A GENERAL REMARK THAT THE VOUCHERS ARE NOT MAINTAINED PROPERLY. IN SO FAR AS THE OBSERVATION OF THE AO THAT THE APPELLANT HIMSELF HAD AGREED FOR DISALLOWANCE OF 1% VINDICA TES HIS STAND IS CONCERNED, IT IS TO BE NOTED HERE THAT IT IS ONLY IN RESPONSE TO THE AO'S SHOW CAUSE NOTICE PROPOSING DISALLOWANCE OF 10% OF THE KHARAJAT EXPENSES CLAIMED, DID THE APPELLANT AGREE FOR DISALLOWANCE OF 1%. THEREFORE, IT IS NOT CORRECT TO SAY , JUST BECAUSE THE APPELLANT HAD AGREED FOR DISALLOWANCE OF 1%, THE RECORDS MAINTAINED ARE NOT RELIABLE. CONSIDERING THE NATURE AND VOLUME OF THE APPELLANT'S BUSINESS, IT WOULD BE REASONABLE, IF THE DISALLOWANCE IS RESTRICTED TO RS. 3,05,036/ - BEING 3% OF THE KHARAJAT EXPENSES INCURRED IN CASH, THAT WOULD MEET THE ENDS OF JUSTICE. THIS GROUND IS PARTLY ALLOWED. 3.3.2 THE LD. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. A.R. SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF IN COME TAX(A). 3.3.3 AFTER HEARING BOTH THE SIDES AND PERUSAL OF MATERIAL ON RECORD, WE NOTICED THAT THE ASSESSING OFFICER HAD DISALLOWED 10% OF THE KAHARJAT EXPENSES OF RS.10,16,7,867/ - INCURRED IN CASH ON THE GROUND THAT VOUCHERS ARE NOT PROPERLY MAI NTAINED AND THE ASSESSEE HIMSELF I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 8 AGREED DURING ASSESSMENT PROCEEDINGS FOR 1% DISALLOWANCE OUT OF THESE EXPENSES. WE FIND THAT THE ASSESSING OFFICER HAD NOT POINTED OUT ANY SPECIFIC DEFECTS AND THE DISALLOWANCE WAS MADE ON GENERAL ASSUMPTION FOR WANT OF PR OPER MAINTENANCE OF VOUCHERS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND UPHOLD THE DECISION OF THE LD. CIT(A) TO RESTRICT THE DISALLOWANCE TO RS. 3,05,036 BEING 3% OF THE KHARGAT EXPENSES INCURRED IN CASH. 3.4 SHORTAGE IN LOOSE GROUND NUT OIL AND COTTON SEEDS OIL OF RS. 11,65,593/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THE ASSESSEE HAS CLAIMED SHOR T AG E OF 2173 2 KGS. THE ASSESSING O FFICER FOUND THAT THE SHORTAGE TO BE ON THE HIGHER SIDE STATING THAT THE ASSESSEE IS NOT MANUFACTURING THE OIL , THEREFORE, ALLOWED SHORTAGE TO THE EXTENT OF 1732 KG ONLY AND MADE ADDITION OF RS. 10 , 72,745/ - TO THE TOTAL INCOME OF THE ASSESSEE ON DISALLOWING THE EXCESS CLAIM OF SHORTAGE OF OIL . THE ASSESSEE PREFERRED APPE AL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A) . 3.4.1 THE LD. COMMISSIONER OF INCOME TAX(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER, THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) IS REPRODUCED AS UNDER: - 9.2 IT IS SEEN FROM TH E ASSESSMENT ORDER THAT, THE AO HAD RESTRICTED THE CLAIM OF LOSS ON ACCOUNT OF SHORTAGE FROM 21732 KGS TO 1732 KGS. HOWEVER, THE BASIS OF THE AO'S FINDING IS NOT KNOWN FROM THE ASSESSMENT RECORD. ON THE OTHER HAND, IT IS ALSO SEEN THAT THE AO I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 9 HAD MADE THE SAID DISALLOWANCE, PRIMARILY ON THE GROUND THAT THE NATURE OF APPELLANT'S BUSINESS DOES NOT WARRANT ANY LOSS. THIS FINDING LACKS SUPPORT IN THE FORM OF ANY EMPIRICAL DATA. THE AO'S INFERENCE THAT, SINCE THE APPELLANT IS NOT A - MANUFACTURER, THERE CANNOT BE ANY LOSS, IS AT THE BEST CAN BE TERMED AS A PRESUMPTION. ON THE OTHER HAND, THERE IS SUBSTANTIAL FORCE IN THE CONTENTION OF THE AR IN SAYING THAT THE APPELLANT PROCURES OIL IN CONTAINERS AND TANKERS, WHICH ARE PUT INTO STORAGE TANKS, AND THEN PACKED IN P ACKAGES RANGING FROM 1 KG TO 15 KG IN PLASTIC BOTTLES, JARS, TINS AND PAPER PACKS. AS EXPLAINED BY THE AR IN DETAIL, IN THE WRITTEN SUBMISSIONS MADE, THE ENTIRE PROCESS OF TINNING THE OIL, FROM THE STAGE OF TRANSFERRING THE OIL FROM THE TANKERS TO STORAGE TANKS AND THEREAFTER INTO THE PACKING MATERIAL SUCH AS BOTTLES, JARS, TINS AND POUCHES, THERE WOULD BE CERTAIN AMOUNT OF LOSS ON ACCOUNT OF SHORTAGES. FURTHER AS CONTENDED BY THE AR, THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED AND CERTIFIED BY THE S TATUTORY AUDITORS. HE FURTHER CONTENDED THAT, SUCH LOSS, IN PERCENTAGE TERM IS ONLY 0.02 TO 0.03%, WHICH IS NOT UNUSUAL. WITHOUT BRINGING OUT ANY MATERIAL ON RECORD TO SHOW THAT THE SHORTAGES CLAIMED ARE INCORRECT, THE ACTION OF THE AO APPEARS TO BE ARBITR ARY. THE ADDITION ON THIS COUNT, THEREFORE, CANNOT BE SUSTAINED. THE ADDITIONS MADE AT RS. 10,76,538/ - ON ACCOUNT OF DISALLOWANCE OF CLAIM OF SHORTAGE OF GROUNDNUT OIL AND RS. 89,055/ - ON ACCOUNT OF CLAIM OF SHORTAGE OF COTTON OIL STANDS DELETED. THIS GROU ND OF APPEAL IS ALLOWED. 3.4.2 DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. A.R. RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX(A). 3.4.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT THE ASSESSEE S CLAIM OF SHORTAGE OF OIL IN PERCENTAGE TERM IS ONLY 0.02% TO 0.03% WHICH IS NOT UNUSUAL. WE OBSERVED THAT THE SHORTAGE IN OIL HAS BEEN TAKEN PLACE IN THE PROCESS OF TRANSFORMING THE OIL FROM THE TANKERS TO STORAGE TANKS AND THEREFORE INTO THE PACKING MATERIAL SUCH AS BOTTLES, JARS TINS AND POUCHES. WE I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 10 FIND THAT THE ASSESSING OFFICER HAD DISALLOWED THE SHORTAGE IN OIL WITHOUT ANY SUPPORTING MATERIAL ON THE BASIS OF PRESUMPTION AND GUESS WORK. IN VIEW OF THE ABOVE STATED FACTS AND FINDINGS, WE CONSIDERED THAT THE LD. COMMISSIONER OF INCOME TAX(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 4 . GROUND OF CO NO. 04/RJT/2014 SODA SETTLEMENT CHARGES RS. 35,50,000/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FIND THAT THE ASSESSEE HAS CREDITED THE A CCOUNT OF PARKER OIL ENTERPRISE OF AHMEDABAD ON THE BASIS OF DEBIT NOTE ISSUED AS UNDER : - AND DE BITED TO THE P & L A/C ON SL NO. ISSUE DATE AMOUNT 1 31 - 01 - 2009 575000/ - 2 28 - 02 - 2009 1100000/ - 3 31 - 03 - 2009 625000/ - 4 31 - 03 - 2009 12,50000/ - THE ABOVE REFERRED AMOUNT HAS BEEN DEBITED TO THE P & L A/C. IN THIS CONNECTION, TH E ASSESSING OFFICER ASKED THE ASSSESSEE TO PROVIDE DETAIL OF CONTRACT MADE WITH PARKER OIL ENTERPRISE/SALE BOOK, TOTAL QUANTITY RATE, DATE OF DELIVERY ETC. AND QUANTITY OF GOODS FOR WHICH ACTUAL DELIVERY/PURCHASE HAS BEEN EFFECTED. THE ASSESSEE HAS I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 11 STATED THAT HE HAD TELEPHONIC CONTRACT WITH PARKER OIL ENTERPRISE FOR GROUND NUT OIL A ND COTTON SEE D OIL AT VARIOUS PERIOD AND TO AVOID THE HUGE FINANCIAL LOSS, HE PREFERRED TO PAY OUT RATE DIFFERENCE INSTEAD OF CARRY OUT DELIVERY. THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM OF LOSS OF RS. 35 , 50 , 000/ - FOR WANT OF DETAILS WHICH WERE NOT FURNISHED BY THE ASSESSEE. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). 4 .1 THE LD. COMMISSIONER OF INCOME TAX(A) HAS SUSTAINED THE DISALLOWANCE MADE BY ASSESSING OFF ICER AND THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(A) IS REPRODUCED AS UNDER: - 7.2 I HAVE PERUSED THE ASSESSMENT ORDER AND ALSO GONE THROUGH THE WRITTEN SUBMISSIONS OF THE APPELLANT. THE CRUX OF THE ISSUE IS THAT THE APPELLANT HAS DEBITED / CLAIM ED AN AMOUNT OF RS. 35,50,000/ - ON ACCOUNT OF 'SAUDA SETTLEMENT CHARGES' TO HIS P & 1 ACCOUNT AND IN SUPPORT OF THE SAME HE HAD, DURING THE ASSESSMENT PROCEEDINGS PRODUCED DEBIT NOTES ISSUED BY M/S. PARKER OIL ENTERPRISE, AHMEDABAD. IN THIS REGARD, THE AO CALLED FOR OTHER DETAILS LIKE COPIES OF CONTRACT, SAUDA BOOK, QUANTITY OF GOODS PURCHASED UNDER CONTRACT, RATE AND DATE OF DELIVERY ETC. TO JUSTIFY THE CLAIM. HOWEVER, THE APPELLANT HAS SUBMITTED THAT HE MADE TELEPHONIC CONTRACT FOR GROUND NUT OIL. COTTON SEEDS OIL AT VARIOUS DATES AND AS THE OIL MARKET AT THE RELEVANT POINT OF TIME WAS IN GREAT SLUMP, HE SUFFERED HEAVY FINANCIAL LOSS AND TO AVOID FURTHER LOSS HE PREFERRED TO PAY OUT THE DIFFERENCE BY SETLING THE CONTRACT WITHOUT TAKING DELIVER. AS THE AO W AS NOT SATISFIED WITH THE CLARIFICATION / DETAILS SO FURNISHED, HE ALLEGED THAT THE TRANSACTIONS UNDER CONSIDERATION WERE FICTITIOUS AND OF SPECULATIVE IN NATURE. VIDE SHOW CAUSE NOTICE ISSUED, THE AO PROPOSED TO DISALLOW THE SAUDA SETTLEMENT CHARGES BY OB SERVING THAT THERE WAS NO EVIDENCE FOR EITHER PURCHASE OF SALES AND NO DETAILS AS TO PAYMENT TO PARKER OIL ENTERPRISE WAS MADE AVAILABLE. IN THIS CONNECTION, THE APPELLANT HAD SUBMITTED THAT THESE TRANSACTIONS WERE IN THE NATURE OF HEDGING, WHICH WERE ENTE RED INTO I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 12 FOR SAFEGUARDING THE FUTURE LOSS OF PRICE FLUCTUATION AND FURNISHED DETAILS OF PAYMENT MADE. 7.3 BEFORE ME, THE APPELLANT HAS PRODUCED ALL THE DEBIT NOTES, COPY OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION AS ALSO IMMEDIATE NEXT YEAR AND ALSO THE CONTRA ACCOUNTS. FROM THE COPY OF ACCOUNTS, AS ALSO FROM CONTRA ACCOUNTS IT IS SEEN THAT THE APPELLANT MADE PAYMENT THROUGH BANKING CHANNEL AND THEREFORE IT CANNOT BE SAID THAT THE PAYMENT IS A FICTITIOUS ONE. THE AR OF THE APPELLANT ALSO SUBMITTED THAT T HE ASSESSMENT FOR THE A.Y. 2010 - 11 HAS BEEN FINALIZED BY THE AO WHEREIN HE HAS ACCEPTED THAT PAYMENT MADE TO PARKER BULLION AS GENUINE ONE. THEREFORE, CONSIDERING THE FACTS OF THE CASE AND SUBMISSIONS ON THE RECORD, IT CANNOT BE SAID THAT THE TRANSACTION I S FICTITIOUS IN NATURE. NOW, THE ISSUE TO BE DECIDED IS WHETHER THE TRANSACTION CARRIED OUT BY THE APPELLANT WITH PARKER OIL ENTERPRISE IS A HEDGING TRANSACTION OR OF A SPECULATIVE TRANSACTION. ON GOING THROUGH THE DEBIT NOTES, IT IS CLEAR THAT CONTRACT FO R PURCHASES MADE WERE ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY IN TERMS OF THE PROVISIONS OF SECTION 43(5) OF THE IT ACT, 1961. THEREFORE, CONSIDERING THE VERY NATURE OF TRANSACTIONS AS MENTIONED IN THE DEBIT NOTES, I, ON FACTS HOLD THAT TH E TRANSACTIONS MADE BY THE APPELLANT WITH PARKER OIL ENTERPRISE IS SPECULATIVE IN NATURE AND THE RESULTANT LOSS IS SPECULATIVE LOSS, WHICH CANNOT BE SET OFF AGAINST REGULAR BUSINESS INCOME, BUT CAN BE SET OFF ONLY AGAINST INCOME FROM SPECULATION BUSINESS. THE ADDITION OF RS. 3500,000/ - MADE ON ACCOUNT OF DISALLOWANCE OF SAUDA SETTLEMENT CHARGES STANDS CONFIMRED. THIS GROUND OF APPEAL IS DISMISSED. 4.2 . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL CONTENDED THAT LD. COMMISSIONER OF INCOME TA X(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER CONSIDERING THAT THE SAME AS SPECULATIVE IN NATURE. HE FURTHER CONTENDED THAT THE ASSESSEE HAD CREATED HEDGE IN ORDER TO PROTECT AGAINST UNFAVORABLE PRICE FLUCTUATIONS. THE LD. C OUNSEL ALSO SUBMITTED IN HIS WRITTEN SUBMISSION THAT THE ASSESSEE FULFILLS ALL THE I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 13 CONDITIONS LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE PRONOUNCEMENT MADE IN THE CASE OF PAJKAJ OIL MILLS VS. C.I.T 115 I TR 824 (GUJ) DECIDED BY THE HON BLE HIGH COUR T OF GUJARAT. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A). 4 . 3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT THE LD. COMMISSIONER OF INCOME TAX(A) HAS SUSTAINED THE DISALLOW ANCE AFTER VERIFICATION OF DEBT NOTES, COPY OF ACCOUNTS, CONTRA - ACCOUNTS STATING THAT THE TRANSACTIONS MADE BY THE ASSESSEEE WITH PARKER OIL ENTERPRISE IS SPECULATIVE IN NATURE AND THE RESULTANT LOSS IS SPECULATIVE LOSS WHICH CANNOT BE SET OFF AGAINST REG ULAR BUSINESS INCOME . T HE LD. COUNSEL STATED THAT IN ORDER TO BE OUT OF SPECULATIVE TRANSACTIONS THE ASSESSEE FULFILLED THE CONDITION LAID DOWN BY THE HON BLE GUJARAT HIGH COURT IN CASE OF PANJKAJ OIL MILLS VS. COMMISSIONER OF INCOME TAX 115 ITR 824 (GUJ ) PERTAINING TO HEDGING CONTRACTS. WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX(A) HAS NOT GIVEN HIS FINDINGS WHETHER THE ASSESSEE HAS FULFILLED THE CONDITIONS LAID DOWN IN THE SAID JUDGMENT OF THE HON BLE GUJARAT HIGH COURT IN CASE OF PANJKAJ OIL MI LLS . WE CONSIDERED THAT THE CLAIM OF THE ASSSESSEE IS REQUIRED TO BE VERIFIED FROM THE SUPPORTING MATERIAL TO FIND OUT WHETHER THE ASSESSEE FULFILLED THE CONDITION LAID DOWN IN THE JUDGEMENT OF HON BLE GUJARAT HIGH COURT AS SUPRA BECAUSE THE SAME WERE NO T ELABORATE D IN DETAILS IN THE ORDER OF THE LOWER AUTHORITIES . IN VIEW OF THE ABOVE STATED FACTS AND LEGAL FINDINGS IN THE INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE FILE OF I.T.A NO. 4 7 5 /RJT /20 13 & CO NO.04/RJT/2014 A.Y. 2009 - 10 PAGE NO ACI T VS. SHRI PRAGJIBHAI GOKALDAS NATHWANI 14 THE ASSESSING O FFICER TO DECIDE THIS ISSUE DE NOVO AFRESH AFTER NECES SARY VERIFICATION KEEPING IN VIEW THE DIRECTIONS OF HON BLE GUJARAT HIGH COURT AS STATED SUPRA AND AFTER PROVIDING DUE OPPORTUNITY TO THE ASSESSEE . 5. IN THE RESULT , THE APPEAL OF THE REVENUE IS DISMISSED. 6. THE CROSS - OBJECTION OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES . ORDER PR ONOUNCED IN THE OPEN C OUR T ON 30 - 11 - 201 6 SD/ - SD/ - (RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30 /11 /2016 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT