JAIHIND OIL MILLS CO., MUMBAI V. ACIT CIR-13(3), MUMBAI

ITA 6939/MUM/2008

• Counselvise Citation: 693919914 RSA 2008
• Duration Of Justice: 2 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 10-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 05-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Business expenditure; Speculation loss
• Section: 271(1)(c); 37(1); 43(5); 250; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.6939/MUM/08(A.Y. 2001-02) M/S.JAIHIND OIL MILLS CO. MAHESH CHAMBERS, 391, NARSI NATHA STREET, MUMBAI 400 009 PAN:AACFI 5169K (APPELLANT) VS. THE ACIT, CIR. 13(3), 4 TH FLOOR, R.NO.426, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI REEPAL TRALSHAWALA RESPONDENT BY : SHRI S.K.SINGH ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 17/9/2008 OF CIT(A) XIII, MUMBAI RELATING TO ASSESSMENT YEAR 2001-02. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) CONFIRMED THE ORDER OF THE AO IMPOSING PENALTY ON T HE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH PENALTY UNDER SECTION 271(1)(C) WAS IMPOSED ON THE ASSESSEE BY THE AO ARE AS FOLLOWS: THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSI NESS OF TRADING IN EDIBLE OILS AND WAREHOUSING. DURING THE PREVIOUS Y EAR THE ASSESSEE HAD SHOWN TOTAL TURNOVER OF RS. 79,26,383/- ON ACCOUNT OF TRADING IN EDIBLE OIL OF ABOUT 59,000MT. DURING THE PREVIOUS YEAR THE ASSES SEE RECEIVED ORDERS FROM TWO PARTIES NAMELY M/S. GOLD CREST EXPORTERS A ND M/S. JAIHIND AGRO MILLS LTD FOR SUPPLY OF 250 MT AND 100 MT RESPECTIV ELY OF RBD PALMOLEIN OIL. THE ASSESSEE GENERALLY MAKES PURCHASES ONLY AFTER I T RECEIVES ORDERS FOR ITA NO.6939/MUM/08(A.Y. 2001-02) 2 SUPPLY FROM THE PARTIES. THE PURCHASE ORDER OF BOT H THE AFORESAID PARTIES WERE PLACED ON 5/2/2001 AND THE DELIVERY WAS TO BE MADE ON 4/3/2001. ON 5/2/2001 THE RATE OF RBD PALMOLEIN OIL IN BOMBAY CO MMODITY EXCHANGE LTD WAS RS. 195. HOWEVER BY 22/2/2001 THE PRICE I NCREASED TO RS. 220/-. SINCE THE PRICE WAS INCREASING DAY BY DAY THE ASSES SEE THOUGHT IT FIT TO CANCEL THE CONTRACT OF SUPPLY OF GOODS. THE ASSESS EE PAID A SUM OF RS. 9.00 LACS TO M/S. GOLD CREST EXPORTERS FOR CANCELLATION OF THE CONTRACT AND A SUM OF RS. 3,40,000/- TO M/S. JAINHIND AGRO MILLS LTD. ACCORDING TO THE AO THE AFORESAID LOSS WAS A SPECULATION LOSS WITHIN THE ME ANING OF SECTION 43(5) OF THE ACT, WHICH PROVIDES THAT A TRANSACTION IN WHICH S CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY IS ULTIMATELY SET TLED OTHERWISE THAN THE ACTUAL DELIVERY OF THE COMMODITY, SHALL BE TREATED AS A SPECULATIVE TRANSACTION. THE AO ACCORDINGLY TREATED THE LOSS A S A SPECULATION LOSS AND DID NOT ALLOW THE SAME TO BE DEDUCTED WHILE COMPUTI NG INCOME FROM BUSINESS. IT IS IN RESPECT OF THE AFORESAID ADDITI ON MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE AO IMPOSED PENALTY ON THE ASSESSEE HOLDING THAT THE ASSESSEE FURNISHED INACCURATE PART ICULARS OF INCOME. 3. IT IS NOT IN DISPUTE THAT THE ADDITION MADE BY T HE AO WAS SUSTAINED BY THE CIT(A) AND THE CIT(A)S ORDER WAS ALSO CONFIRME D BY THE TRIBUNAL. 4. IN THE PENALTY PROCEEDINGS THE ASSESSEE SUBMITTE D THAT IN THE EARLIER YEARS SIMILAR LOSS BY WAY OF CANCELLATION OF CONTRA CT WAS ALLOWED AS A BUSINESS LOSS. IT WAS ALSO SUBMITTED THAT HAD THE ASSESSEE PERFORMED THE CONTRACT THE LOSS INCURRED BY THE ASSESSEE WOULD HA VE BEEN MUCH HIGHER. THE ASSESSEE ALSO POINTED OUT THAT THE AMOUNT IN QU ESTION WAS PAID TO THE PART AS DAMAGES FOR BREACH OF CONTRACT. THE ASSESS EE POINTED OUT THAT IN SECTION 43(5) THE EXPRESSION USED IS SETTLEMENT OF THE CONTRACT FOR SALE OF COMMODITY OTHERWISE THAN THE ACTUAL DELIVERY. THE ASSESSEE POINTED OUT THAT THE EXPRESSION SETTLED CONTEMPLATES A SITUAT ION WHERE THE AGREEMENT BETWEEN THE PARTIES AT THE TIME OF MAKING CONTRACT WAS ITSELF SETTLEMENT BY ITA NO.6939/MUM/08(A.Y. 2001-02) 3 PAYING THE DIFFERENCE IN PRICE AND THAT WOULD AMOUN T TO PERFORMANCE OF THE CONTRACT. THE ASSESSEE PAID THE DAMAGES FOR NON PE RFORMANCE OF THE CONTRACT AND IT WAS NOT A CASE WHERE THE AMOUNT WAS SETTLED AS PART OF THE PERFORMANCE OF THE CONTRACT. THE ASSESSEE RELIED O N SEVERAL JUDICIAL PRONOUNCEMENTS FOR THE PROPOSITION THAT NO PENALTY CAN BE IMPOSED WHERE THE ADDITION IS MADE ON A DEBATABLE ISSUE. BESIDES THE ABOVE, THE ASSESSEE ALSO SUBMITTED THAT IT WAS ONLY A CASE OF CHANGE HE AD UNDER WHICH LOSS WAS TO BE CONSIDERED NAMELY WHETHER BUSINESS LOSS OR SP ECULATION LOSS AND IN RESPECT OF SUCH CHANGE OF HEAD OF INCOME THERE CANN OT BE ANY PENALTY IMPOSED. 5. THE CIT(A), HOWEVER, DID NOT AGREE WITH THE SUB MISSIONS OF THE ASSESSEE. HE WAS OF THE VIEW THAT THE ASSESSEE SUPP RESSED THE TAXABLE INCOME BY RESORTING TO SPECULATIVE TRANSACTION AND CLAIMING THE SAME AS BUSINESS EXPENDITURE. ACCORDING TO THE CIT(A), THE ASSESSE KNEW THAT LOSS WAS ATTRIBUTABLE TO SPECULATIVE ACTIVITY AND STILL CLAIMED THE SAME AS A BUSINESS LOSS AND ALLOWABLE AS A DEDUCTION UNDER SE CTION 37(1) OF THE ACT. HE ALSO HELD THAT UNDER EXPLANATION-1 TO SECTION 27 1(1)(C) MENS REA IS NOT REQUIRED TO BE PROVED BY THE DEPARTMENT BEFORE IMPO SING PENALTY. FOR ALL THE ABOVE REASONS THE CIT(A) CONFIRMED THE ORDER OF AO IMPOSING PENALTY ON THE ASSESSEE. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS AS WERE MADE BEFORE THE REVENUE AUTHORITIES AND RELIED ON CERTAIN JUDICIAL PRONOUNCEMENTS. 7. THE LD. D.R RELIED ON THE ORDER OF THE LD. CIT(A ). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION. AT THE OUTSET WE NOTICE THAT THE ASSESSEE HAD SHOWN IN THE P&L ACCOUNT THE LOSS ON ACCOUNT OF RATE DIFFERENCE AND CLAIMED THE SAME AS DEDUCTION. IN THE COURSE OF ASSESSMENT ITA NO.6939/MUM/08(A.Y. 2001-02) 4 PROCEEDINGS THE ASSESSEE FURNISHED ALL THE DETAILS CALLED FOR BY THE AO. NONE OF THE DETAILS FURNISHED BY THE ASSESSEE WERE FALSE OR INACCURATE. IT IS THE CLAIM OF THE ASSESSEE THAT ACTION OF THE REVENUE IN TREATING THE LOSS AS SPECULATIVE LOSS IS NOT PROPER BECAUSE IT WAS DAMAG ES PAID FOR BREACH OF CONTRACT WHICH IS A NORMAL INCIDENT OF BUSINESS. I N THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HANS MACHOO & CO. (200 0) 247 ITR 79 (DEL), WHEREIN IT WAS THAT THE PROPER MEANING TO BE GIVEN TO THE WORDS CONTRACT SETTLED IN THE DEFINITION OF SECTION 43(5) WOULD B E A CONTRACT DETERMINED 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 NON- PERFORMANCE. 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 QUANTUM OF DAMAGES. A TRANSACTION IS CONSIDERED TO BE SPECULATIVE IF IT IS SETTLED WITHOUT ACTUAL DELIVER Y BUT IS DOES NOT FOLLOW THAT ALL CONTRACTS WHICH ARE SETTLED OR ADJUSTED WITHOUT DELIVERY ARE SPECULATIVE. 9. IT CAN BE SEEN FROM THE AFORESAID DECISION THAT IT IS ONLY CASES IN WHICH AT THE TIME OF FORMATION OF THE CONTRACT WHERE THE PARTIES INTENT TO SETTLE TRANSACTION OF PURCHASE OR SALE OF COMMODITY OTHERW ISE THAN BY DELIVERY THEN THE PROVISIONS OF SECTION 43(5) WOULD BE ATTRACTED. IN THIS CASE IT IS NOT THE CASE OF THE AO THAT SUCH INTENTION EXISTED WHEN THE CONTRACT FOR SALE OR PURCHASE OF COMMODITY WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE PURCHASERS. IN THIS VIEW OF THE MATTER WE ARE OF T HE VIEW THAT THE FACTS MAY JUSTIFY MAKING OF AN ADDITION IN THE QUANTUM PROCEE DINGS BUT WOULD NOT JUSTIFY IMPOSING PENALTY BY HOLDING THAT THE ASSESS EE CONCEALED PARTICULARS OF INCOME. FURTHER THE ASSESSEE HAS CLAIMED SIMILA R LOSS IN THE PAST AS BUSINESS LOSS AND THE SAME HAS BEEN ALLOWED BY THE REVENUE. THUS IT WAS A CASE WHERE THE ISSUE WITH REGARD TO THE ADDITION MA DE IN THE QUANTUM PROCEEDINGS WAS DEBATABLE. IT HAS FURTHER BEEN HEL D IN THE FOLLOWING DECISIONS THAT WHERE THE HEAD OF INCOME UNDER WHICH LOSS IS CLAIMED AS LOSS ITA NO.6939/MUM/08(A.Y. 2001-02) 5 HAS CHANGED IT WOULD NOT BE A CASE OF FURNISHING IN ACCURATE PARTICULARS OF INCOME INVITING IMPOSITION OF PENALTY. (1) CIT VS. BHARTESH JAIN, 323 ITR 358 (2) DCIT VS. JMD ADVISORS PVT. LTD., 310 ITR 280 (AT) ( DEL) (3) IPCL VS. JCIT, 315 ITR 40 (AT) (AHD) (4) GUJARAT CREDIT CORPORATION VS. ACIT, 302 ITR 250 (A T) (AHD). 10. FURTHER AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS, 322 ITR 158, THE MERE MAKING OF A C LAIM WHICH IS NOT SUSTAINED IN AN ASSESSMENT WILL NOT GIVE RISE TO IM POSITION OF PENALTY. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMENTS AND TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR IMPOSITION OF P ENALTY UNDER SECTION 271(1)(C) OF THE ACT. WE, THEREFORE, DIRECT THAT THE PENALTY IMPOSED BE CANCELLED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 18 TH DAY OF MAY, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 18 TH MAY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RJ BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.6939/MUM/08(A.Y. 2001-02) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 10/5/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 11/5/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER