SHRI MOHAN LAL MUTHA, Jaipur V. ITO, Jaipur

ITA 576/JPR/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82803 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Speculation loss
• Section: 43(5); 154

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 576/JP/2011 ASSTT. YEAR- 2007-08 PAN NO. ABWPM 9882 F SHRI MOHAN LAL MUTHA, THE I.T.O., C-11, RAJA PARK, JAIPUR. VRS. WARD 6(1), JAIPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI SIDDARTH RANKA. DEPARTMENT BY :- SHRI D.C. SHARMA. DATE OF HEARING : 18/09/2014 DATE OF PRONOUNCEMENT : 14/11/2014 O R D E R PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 28/02/2011 OF THE LEARNED CIT(A)-II, JAIPUR FOR THE A.Y. 2007-08. THE SOLE GROUND OF APPEAL IS AGAINST CONFIRMING THE SPE CULATIVE LOSS OF RS. 29,83,516/-IN JEERA ACCOUNT. THE ASSESSEE DEALS IN TRADING AND SPECULATION IN JEERA, GWARGUM, GWAR AND OTHERS. THE AS SESSEE IS PROPRIETOR OF TWO CONCERNS I.E. M/S ACHAL DAS MOHAN LAL, JAIPUR AND M/S ACHAL DAS MOHAL LAL, SURAT. THE LEARNED ASSESSING OF FICER OBSERVED THAT SPECULATIVE LOSS CANNOT BE ADJUSTED FROM BUSINESS P ROFIT. THE ASSESSEE HAD INITIALLY SHOWN LOSS OF RS. 64,88,495/- OF JEERA IN NON-SPECULATION ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 2 TRANSACTION. ON PERUSAL OF SEPARATE TRADING ACCOUNT OF JEERA, IT WAS FOUND BY THE ASSESSING OFFICER THAT NO QUANTITATIVE DETAI LS WERE MENTIONED. THE LEARNED ASSESSING OFFICER GAVE REASONABLE OPPORTUNI TY OF BEING HEARD ON THIS ISSUE TO THE AR OF THE ASSESSEE. IT IS SUBMITT ED THAT THESE ARE SPECULATIVE TRANSACTION. THE ASSESSEE HAD NOT FURNIS HED EVIDENCES OF SALE/PURCHASE AND DELIVERY OF SPECULATIVE TRANSACTI ONS. THE ASSESSEE ACCEPTED ONLY THE DIFFERENCES IN THESE TRANSACTIONS WITHOUT DELIVERING THE GOODS. THUS, THE ASSESSING OFFICER PROPOSED TO DISAL LOWED THIS SPECULATIVE LOSS AGAINST THE BUSINESS PROFIT. THE LE ARNED AR FOR THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER AS UNDER:- WITH REFERENCE TO ABOVE IT IS HEREBY SUBMITTED THA T DURING THE YEAR ASSESSEE DEALED IN COMMODITY AND HE HAS PURCHA SED DIFFERENT COMMODITY IN BULK QUANTITY. BUT DUE TO VERY FLUCTUA TION IN RATE HE FOR HIS SAFEGUARD BOOKED SOME TRANSACTION OF SALES/ PURCHASE IN NCDEX. DUE TO THIS PROCESS HE EARNS SOME PROFIT IN PHYSICAL DELIVERY. IF THIS TYPE OF TRANSACTION WOULD NOT BE D ONE THE PROFIT COULD NOT BE EARNED AND ASSESSEE COULD NOT BE SURVI VED SO THIS TRANSACTION CANNOT BE TREATED AS SPECULATIVE TRANSA CTION AND ALL THE LOSS/PROFIT MUST BE ADJUSTED FROM PROFIT/LOSS OF OT HER TRANSACTION. THE ISSUE HAS DECIDED MANY TIMES THAT THIS TYPE OF T RANSACTION ARE NORMAL BUSINESS TRANSACTION AND PROFIT OR LOSS GENE RATED THROUGH THESE TYPE OF TRANSACTION ARE NORMAL BUSINESS PROFI T OR LOSS NOT SPECULATIVE PROFIT OR LOSS. UNDER SECTION 43(5)(A) OF INCOME TAX ACT, 1961, IT IS CLEARLY MENTIONED THAT WHEN A MERCH ANDISE ENTERED ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 3 INTO A CONTRACT IN THE COURSE OF HIS MERCHANDISING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S, THIS TYPE OF TRANSACTION ARE NOT SPECULATIVE TRANSACTION AND SH OULD BE TREATED AS NORMAL BUSINESS TRANSACTION. ASSESSEE HAS DONE T RANSACTION IN NCDEX FOR HIS SAFEGUARD ONLY, NOT WITH THE INTENTION TO DO SPECULATIVE PROFIT/LOSS. ASSESSEE HAS TREATED THIS LOSS OF NORMAL BUSINESS L OSS. HE HAS TAKEN BUSINESS AS WHOLE, THAT ONE WHO IS DOING BUSIN ESS OF TRADING OF COMMODITY, HAS TO DO ALL THE ACTIVITIES OF THE B USINESS AND LOSS/PROFIT OF THE TRANSACTION AS NORMAL BUSINESS P ROFIT OR LOSS. THE LEARNED ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE HAS HELD THAT IN CASE OF ASSESSEE SECTION 43(5)(A) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IS NOT APPLICABLE AS THERE WAS NO HEDGING TRANSACTION. THE ASSESSEE HAD MADE TRANSACTION OF S PECULATIVE BUSINESS THROUGH M/S TRADE SWIFT I.E. AGENT OF NCDEX. IN TRADI NG OF JEERA AND OTHER SPECULATIVE TRANSACTIONS ONLY DIFFERENCE OF S ALE AND PURCHASE ARE SHOWN. THESE TRANSACTIONS ARE SEPARATE FROM NON-SPECU LATIVE TRANSACTIONS. THE ASSESSEE HAD NOT FILED ANY EVIDENC E IN SUPPORT OF HIS REPLY THAT THESE TRANSACTIONS WERE MADE TO SAFEGUARD THE LOSSES OF NON- SPECULATIVE TRANSACTIONS. IN 3CD REPORT THE LEARNED AUDITOR HAD MENTIONED CATEGORICALLY THAT THE ASSESSEE WAS INDULG ED IN TRADING OF JEERA, GAURGUM AND GAWAR AND SPECULATION IN JEERA, G AURGUM AND GAWAR AND OTHERS. THE ASSESSEE HAD MADE BOTH THE TRAN SACTIONS ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 4 SEPARATELY. THUS, HE HAS NOT ALLOWED SPECULATION LOSS ES AGAINST NON- SPECULATIVE BUSINESS PROFIT. 2. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A), WHO HAD PARTLY CONFIRMED THE ADDITION BY CONSIDERING THE ASSESSEE S SUBMISSION AND ALSO SECTION 43(5) OF THE ACT FOR THE PURPOSE OF SPECULA TIVE TRANSACTION. HE ALSO CONSIDERED THE DECISION OF HONBLE ANDHRA PRAD ESH HIGH COURT DECISION IN THE CASE OF M.G. BROTHERS VS. CIT (154 I TR 695) AND DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILLS (1978) 115 ITR 824 (FB). THE FOLLOWING POSITION EMERGED TO THE SC OPE OF HEDGING CONTRACTS: (1) HEDGING CONTRACTS CAN BE BOTH FOR PURCHASE AND SALE. (2) IN ORDER TO BE GENUINE AND VALID HEDGING CONTR ACT OF SALES, THE TOTAL OF SUCH TRANSACTIONS SHOULD NOT EXCEED TH E TOTAL STOCK OF THE RAW MATERIAL OR MERCHANDISE ON HAND. (3) IN ORDER TO BE GENUINE AND VALID HEDGING CONTR ACT OF PURCHASE, THERE SHOULD BE AN EXISTING FORWARD CONTRA CT OF SALE BY ACTUAL DELIVERY. (4) THE HEDGING CONTRACTS NEED NOT NECESSARILY BE I N THE SAME VARIETY OF THE COMMODITY. THEY COULD BE IN CONNECTED COMMODITIES, E.G. ONE TYPE OF COTTON AGAINST ANOTHER TYPE OF COTTON. ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 5 THE LEARNED CIT(A) ALSO CONSIDERED THE DETAILS OF PH YSICAL STOCK HELD IN RESPECT OF JEERA, CHILLY, TURMERIC, GUAR GUM, GUAR SEED AND MENTHA OIL. THE COUNSEL OF THE APPELLANT HAD CONCEDED BEFORE HIM THAT FOR CHILLY AND TURMERIC, THE ASSESSEE DID NOT HAVE ANY PHYSICAL ST OCK IN HAND THROUGHOUT THE YEAR. THEREFORE, HE HELD THAT LOSS OF RS. 3,33,993/- IN HEDGING OF CHILLY AND LOSS OF RS. 3,25,765/- IN HED GING OF TURMERIC WAS A SPECULATIVE LOSS NOT COVERED BY THE PROVISO (A) OF SECTION 43(5) OF THE ACT. FURTHER IN CASE OF MENTHA OIL, THE APPELLANT WA S HOLDING STOCK OF 19,980 BUT IT HAD BEEN HEDGED QUANTITY OF 21,600. TH E EXCESS QUANTITY WAS 1620 AND PROPORTIONATE LOSS OF RS. 1,41,097/- WAS DISALLOWED AS IT WAS NOT HEDGING LOSS COVERED BY PROVISO (A) TO SECTI ON 43(5) OF THE ACT. FURTHER IN RESPECT OF HEDGING LOSS OF RS. 64,81,995 /- IN JEERA, THE APPELLANT FILED DETAILS OF STOCK IN HAND AND THE QU ANTITY HEDGED IN TERMS OF BAGS. THE LEARNED CIT(A) RAISED A QUERY TO THE AS SESSEE AS TO HOW HE COULD HAVE HEDGED JEERA WITH NCDEX IN TERMS OF BAGS BUT HE HAD NO PLAUSIBLE EXPLANATION. AS PER LEARNED CIT(A), THE HE DGING OF JEERA CAN BE IN QUINTALS, NOT IN BAGS. THE APPELLANT HAD NOT SUBM ITTED THESE DETAILS IN QUINTALS. THE ASSESSEE DID NOT HAVE ANY EVIDENCE OF HEDGING LOSS TO THE TUNE OF RS. 29,83,516/- INFORM OF BILLS OF M/S TRADE SWIFT COMMODITIES PVT. LTD.. THE LEARNED CIT(A) HAS GIVEN THE DETAILS O F HEDGING TRANSACTION ON PAGES 8 TO 18 OF ITS ORDER AND CONCLUDED THAT LO SS OF RS. 29,83,516/- ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 6 IN JEERA IS NOT SUPPORTED BY THE BILLS OF M/S TRADE SWIFT COMMODITIES PVT. LTD. MOREOVER, THE QUANTITY HEDGED IS MORE THAN THE PHYSICAL STOCK HELD BY THE APPELLANT, ACCORDINGLY, HE HELD SPECULATIVE IN NATURE. HE ALSO NOTICED VARIOUS DISCREPANCIES IN THESE TRANSACTIONS , WHICH HAS BEEN NARRATED BY THE LEARNED CIT(A) ON PAGES 18 AND 19 OF ITS ORDER AND FINALLY HELD THAT LOSS OF RS. 37,84,371/- ARE SPECU LATIVE LOSS AND ARE NOT COVERED BY PROVISO (A) TO SECTION 43(5) OF THE ACT. HE DIRECTED TO THE ASSESSING OFFICER THAT LOSS TO THE TUNE OF RS. 37,8 4,371/- AS SPECULATIVE LOSS AND HEDGING LOSS TO THE TUNE OF RS. 31,25,550/ -, ACCORDINGLY HE ALLOWED THE ASSESSEES APPEAL PARTLY. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED A.R. FOR THE ASSESSEE ARGUED THAT THE ASSESSEE HAD FILED AN APPLICATION U/S 154 OF THE ACT BEFORE THE LEARNED CIT(A) AND CLAIMING AS UNDER:- 1. SPECULATION PROFIT EARNED ON THE FOLLOWING COMMOD ITIES TOTALING RS. 654003/- AS PER DETAILS SUBMITTED ALON GWITH OUR LETTER OF 28/02/2011 HAS NOT BEEN SET OFF AGAINST S PECULATION LOSS: - KHAPAS KHALI: 804.00 - GWAR GUM 651015.00 - GWAR SEED: 2184.00 1.1 THUS DIRECTION DESERVES TO BE GIVEN FOR SET OFF . ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 7 2. AT PAGE 8 OF THE APPELLATE ORDER, IT HAS BEEN OB SERVED BY YOUR HONOURS THAT WITH REGARDS TO THE JEERA, THE ASS ESSEE WAS NOT HAVING SUPPORTIVE BILLS FOR TRANSACTIONS DOE AT NCDEX OR THESE WERE DELIBERATELY NOT SUBMITTED. 2.1 IT IS SUBMITTED THAT THE ASSESSEE APPELLANT WAS HAVING ALL THE ORIGINAL BILLS FOR TRANSACTIONS DONE AT NCDEX AND S UCH BILLS WERE ALSO AVAILABLE FOR VERIFICATION DURING THE APPE LLANT PROCEEDINGS. THERE WAS NO SUCH INTENTION OF NON-DISCL OSURE OR OF CONCEALMENT. COPIES OF TRANSACTIONS INVOICES OF ALL THE COMMODITIES WERE SUBMITTED DURING THE COURSE OF APPE LLATE PROCEEDINGS, IT APPEARS TO BE AN OVERSIGHT ONLY, IF ANY, THAT SUCH COPIES OF TRANSACTIONS CARRIED OUT AT NCDEX OF JEERA WERE NOT SUBMITTED. 2.2 WE ARE NOW SUBMITTING AGAIN THE DETAILED CHART O F TRANSACTIONS CARRIED OUT IN QUINTALS OF JEERA DURIN G THE PERIOD FROM APRIL 1, 2006 TO MARCH 31 ST , 2007 FOR YOUR PERUSAL ALONGWITH COPIES OF BILLS FOR TRANSACTIONS D ONE AT NCDEX. IN CASE YOUR HONOUR SO WISES, WE ARE READY AND WILLING TO PRODUCE THEM IN ORIGINAL. 3. AT PAGE 8 TO 17 OF THE APPELLATE ORDER, IT HAS B EEN OBSERVED BY YOUR HONOURS BY REPRODUCING A CHART IN METRIC TON NES OF JEERA OF STOCK IN HAND WHEREIN THE TRANSACTED QUANT ITIES AT NCDEX HAVE ALSO BEEN MENTIONED IN METRIC TONNES, WHER EAS QUANTITIES TRANSACTED AT NCDEX IS IN FACT IN QUINTA LS. 3.1 IT IS SUBMITTED THAT, AT ANY GIVEN TIME OF THE YEAR THE ASSESSEE APPELLANT WAS HAVING SUFFICIENT STOCK IN HA ND AND NO TRANSACTIONS WERE CARRIED OUT AT NCDEX BEYOND THE STOCK IN HAND. ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 8 3.2 WE HAVE DEPICTED THE CORRECTED THE CORRECT CHAR T AS MENTIONED HEREINABOVE AT PARA 2.2 FOR YOUR PERUSAL. 4. AT PAGE 17 TO 18 OF THE APPELLATE ORDER, IT HAS BEEN OBSERVED BY YOUR HONOURS THAT THERE ARE CERTAIN DISCREPANCIE S NOTICED WHILE GOING THROUGH THE BILLS OF THE BROKER AND THE INFORMATION FURNISHED BY THE ASSESSEE. 4.1 WE HAVE PREPARED A CHART FOR YOUR HONOURS PERUS AL WHEREIN THE MISTAKES ARE TRIVIAL, ARE MORE OF TYPING ERRORS AND IN SOME OF THE TRANSACTIONS HIGHLIGHTED IN FACT, NO SU CH MISTAKE ARE THERE AT ALL. SUCH MINOR ERRORS, IN THE MAGNITU DE OF BUSINESS OUGHT TO HAVE BEEN IGNORED. AT PRESENT, THE MATTER IS PENDING BEFORE THE LEARNE D CIT(A), THEREFORE, THE MATTER MAY BE SET ASIDE TO THE LEARNED CIT(A) T O RECALCULATE THE SPECULATIVE LOSS. 5. AT THE OUTSET, THE LEARNED D.R. FAIRLY ACCEPTED THE ASSESSEES SUBMISSION AND AGREED TO SET ASIDE THIS ISSUE TO TH E LEARNED CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE RE CTIFICATION U/S 154 OF THE ACT IS REQUIRED TO PASS BY THE LEARNED CIT(A) AS FILED BY THE APPELLANT BEFORE HIM ON THE BASIS OF MISTAKE ON APPARENT IN F IGURES OF SPECULATIVE LOSS AS WELL AS HEDGING LOSS. THEREFORE, WE DIRECT T HE LEARNED CIT(A) TO CONSIDER THE ASSESSEES 154 APPLICATION AND PASS NE CESSARY ORDER. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CI T(A) TO RECOMPUTE ITA 576/JP/2011 MOHAN LAL MUTHA VS. ITO 9 THE SPECULATIVE LOSS ON THE BASIS OF FACTS AND FIGU RES SUPPLIED BY THE ASSESSEE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 14/11/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 14 TH NOVEMBER, 2014 * RANJAN COPY FORWARDED TO :- 1. SHRI MOHAN LAL MUTHA, JAIPUR. 2. THE ITO, WARD 6(1), JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 576/JP/2011) BY ORDER, AR ITAT JAIPUR.