The ACIT,Bharuch Circle, Bharuch V. M/s. Meghdoot Genning & Pressing Industries Pvt.Ltd., Bharuch

ITA 942/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1400 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Speculation loss
• Section: 143(3); 37(1); 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ACIT, BHARUCH CIRCLE, BHARUCH (APPELLANT) VS MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD, BHARUCH PAN: AACCM7577R (RESPONDENT) REVENUE BY : S H RI RAJDEEP SINGH , SR. D . R. ASSESSEE BY : S H RI MILIN MEHTA , A.R. DATE OF HEARING : 11 - 03 - 2 016 DATE OF PRONOUNCEMENT : 09 - 06 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2 009 - 10 , AR I SES FROM ORDER OF THE CIT(A) - VI, BARODA DATED 22 - 01 - 2013 IN APPEAL NO. CAB/V I - 476/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 942 / A HD/20 13 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 942 /AHD/20 13 A.Y. 2009 - 10 PAGE NO ACIT VS. MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD 2 2. THE REVENUE S SOLE SUBSTANTIVE GROUND ASSAILS CORRECTNESS OF THE CI T(A) S ORDER ALLOWING LOSS OF RS. 33,18,790/ - THEREBY REVERSING ASSESSING OFFICER S ACTION IN TREATING THE SAME TO BE SPECULATIVE IN NATURE U/S. 43(5) OF THE ACT. 3. WE COME TO RELEVANT FACTS FIRST. THE ASSESSEE COMPANY DEALS IN GINN ING/PROCESSING OF COTTON BALES. IT DEBITED SETTLEMENT EXPENSES OF RS. 33,18,790/ - IN P & A. THIS COMPRISED OF PAYMENTS OF RS. 12,38,540/ - , RS. 10,47,684/ - AND RS. 10,32,566/ - MADE ON 18 - 01 - 2009, 20 - 01 - 2009 AND 30 - 03 - 2009 IN CASES OF M/S. MARUTI CO TTON INDUSTRIES, CHAMUNDA COTTON PVT. LTD AND M/S ARIHANT TRADING CO.; RESPECTIVELY. IT PLEADED THAT IT HAD ENTERED INTO DIFFERENT CONTRACTS WITH THE TH R EE PAYEES TO PURCHASE COTTON AT FIXED RATE. THE SAME STOOD CANCELLED DUE TO PRICE FLUCTUATIONS . THE ASSESSEE HAS TO ISSUE CRED IT NOTE FOR DIFFERENT AMOUNTS. THE ASSESSING OFFICER SOUGHT TO TREAT IT AS SPECULATIVE TRANSACTIONS U/S. 43(5) R.W.S. 28(2) OF THE ACT SINCE NO ACTUAL DELIVERY OF COTTON COMMODITY. HE REPRODUCED ASSESSEE S PURCHASE CONTRACT AND CREDIT NOTE IN ASSESSMENT ORDER DATED 27 - 12 - 2011 TO INTER ALIA CONCLUDE THAT THESE TRANSACTIONS WERE SPECULATIVE ONCE NOT INVOLVING ANY COTTON DELIVERY WHICH DID NOT FELL IN THE CATEGORY OF HEDGING TRANSACTIONS U/S. 43(5)(A) OF THE ACT THEREBY CONCLUDING THAT THIS WOULD ALSO NOT BE COVER ED U/S. 37(1) OF THE ACT. ALL THIS RESULTED IN ADDITION OF THE IMPUGNED SUM IN ASSESSMENT ORDER. 4 . THE CIT(A) REVERSES ASSESSING OFFICER S ACTION THEREBY ALLOWING THE ABOVE STATED SUM AS A LOSS BY HOLDING AS UNDER: - I.T.A NO. 942 /AHD/20 13 A.Y. 2009 - 10 PAGE NO ACIT VS. MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD 3 4.3 I HAVE CONSIDERED THE F ACTS OF THE CASE, FINDINGS OF AO AND WRITTEN SUBMISSION OF THE APPELLANT. THE UNDISPUTED FACTS ARE THAT THE APPELLANT HAS ENTERED INTO CONTRACTS WITH THREE PARTIES FOR THE PURPOSE OF - 'COTTON TO BE SUPPLIED IN THE MONTH OF DECEMBER 2008. HOWEVER, THESE CONT RACTS WERE SETTLED WITHOUT TAKING DELIVERY AND BY MAKING PAYMENT OF DIFFERENTIAL AMOUNT OF RS.33,18,790/ - (CONTRACT PRICE - SETTLEMENT PRICE) TO THE CONTRACTORS. IT IS ALSO A FACT THAT THE RAW MATERIAL CONSUMED DURING THE YEAR IS VALUED AT RS.36.67 CRORES A S AGAINST THE VALUE OF THE COTTON INVOLVED IN THE ABOVE CONTRACTS IS OF RS.3.35 CRORES. THE APPELLANT HAS NOT ENTERED INTO CONTRACTS OTHER THAN THE ABOVE MENTIONED CONTRACTS. THE AO HAS HELD THAT THESE TRANSACTIONS ARE SPECULATIVE TRANSACTIONS. HE HAS FUR THER HELD THAT THE SPECULATIVE TRANSACTIONS CARRIED ON BY THE APPELLANT ARE OF SUCH NATURE AS TO CONSTITUTE A B USINESS AND THEREFORE, SEPARATE , FROM ANY OTHER BUSINESS. ACCORDINGLY, HE HAS DISALLOWED THE ENTIRE LOSS OF RS.33,18,790/ - . ON THE OTHER HAND, T HE APPELLANT HAS CONTENDED THAT HE HAS ENTERED INTO THE IMPUGNED CONTRACTS IN ORDER TO ENSURE CONTINUOUS SUPPLY OF COTTON HOWEVER, DURING THE INTERVENING PERIOD HUGE PRICE FLUCTUATION HAS TAKEN PLACE AND THE COTTON WAS AVAILABLE AT A MUCH LOWER PRICE THAN THE CONTRACTED PRICE. SO UNDER THE CIRCUMSTANCES, THE CONTRACTS HAD TO BE CANCELLED TO SAVE THE FIRM FROM FURTHER LOSSES. SINCE THE DELIVERY WAS NOT TAKEN THEREFORE, THESE CONTRACTS WERE SETTLED BY MAKING THE PAYMENT OF DIFFERENTIAL AMOUNT TO THE CONTRACTO RS. THERE IS NO DISPUTE WITH REGARD TO THE PRICE AT WHICH THE CON TRACTS WERE SETTLED. ADMITTEDLY, THE COMMODITY WHICH WAS SUBJECT MA TTER OF THE CONTRACTS WAS SETTLED OTHERWISE T HAN BY ACTUAL DELIVERY OF IN ACCORDANCE WITH THE TERMS OF CONTRAC T. THEREFORE, THESE TRANSACTIONS FALL WITHIN THE AMBIT OF SPECULATIVE TRANSACTION AS DEFINED U/S 43(5). AND SINCE THESE SPECULATIVE TRANSACTIONS HAVE RESULTED INTO LOSS OF RS.33,18,790/ - TO THE APPELLANT WHICH THE AO HAS DISALLOWED. HOWEVER, THE QUESTI ON WHICH NEEDS RESOLUTION IS WITH RESPECT TO THE D ISALLOWANCE OF SPECULATION LOSS. WHETHER EVERY SPECULATIVE TRANSACTION RESULTING INTO LOSS SHOULD BE DISALLOWED? THE FACT THAT THE TRANSACTIONS WERE OF SPECULATIVE NATURE WILL NOT BY ITSELF RENDER IT ELIGIB LE FOR I.T.A NO. 942 /AHD/20 13 A.Y. 2009 - 10 PAGE NO ACIT VS. MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD 4 DISALLOWANCE. TO DISALLOW THE LOSS, THE SPECULATIVE TRANSACTIONS SHOULD BE OF SUCH NATURE AS TO CONSTITUTE A BUSINESS. THE AO HAS NOT ESTABLISHED THAT THE IMPUGNED TRANSACTIONS COULD BE TERMED AS TO CONSTITUTE A BUSINESS. THERE ARE ONLY THREE SUCH T RANSACTIONS OUT OF SEVENTY THREE WHICH ACCOUNT FOR MERELY 4% OF TOTAL TRANSACTIONS. THE IMPUGNED CONTRACTS WERE MEANT TO ENSURE UNINTERRUPTED SUPPLY DURING THE MONTH OF DECEMBER 2008 AND THEIR TOTAL VALUE IS AROUND 9.13% OF THE TOTAL PURCHASES MADE BY THE APPELLANT DURING THE YEAR. THESE TRANSACTIONS CAN BE TERMED AS ISOLATED TRANSACTIONS WHICH CANNOT PARTAKE THE NATURE OF BUSINESS. THEREFORE, THOUGH THE IMPUGNED TRANSACTION ARE IN THE NATURE OF SPECULATIVE TRANSACTION AND THE SAME HAVE ALSO RESULTED INTO L OSS BUT HAVING REGARD TO THE MEANING OF THE SPECULATION BUSINESS THE RESULTANT LOSS CANNOT BE TERMED AS LOSS IN A SPECULATION BUSINESS BUT IT IS LOSS IN THE BUSINESS. UNDER THE CIRCUMSTANCES, LOSS INCURRED BY THE APPELLANT IS TO BE CONSIDERED AS BUSINESS L OSS. THEREFORE, THE DISALLOWANCE MADE BY THE AO IS DIRECTED. 5 . BOTH PARTIES REITERATE THEIR RESPECTIVE STANDS AGAINST AND IN SUPPORT OF THE CIT(A) S FINDINGS EXTRACTED HEREINABOVE. THERE IS NO DISPUTE THAT THIS ASSESSEE IS ALREADY IN COTTON GINNING BU S INES S . IT ENTERED INTO COTTON SUPPLY CONTRACTS. THE SAME WOULD BE CANCELLED IN LIEU OF PASSING OF CREDIT NOTES DUE TO PRICE FLUCTUATIONS. THE ASSESSING OFFICER TREATED THESE FIGURES AS SPECULATIVE TRANSACTIONS U/S. 43(5) OF THE ACT NOT ENTITLED AS ALLO WABLE LOSS. LEARNED DEPARTMENTAL R EPRESENTATIVE STRONGLY ARGUES THAT THE LOSS IN QUESTION IS IN SPECULATIVE BUSINESS NOT ALLOWABLE U/S. 73(1) OF THE ACT SINCE THE SAME HAS TO BE SET OFF ONLY AGAINST PROFITS AND GAINS OF ANOTHER SPE CULATIVE BUSINESS AND NO T THOSE OF THE REGULAR BUSINESS. WE ARE NOT IMPRESSED WITH THIS BUSINESS. OUR VIEW IS THAT SECTION 73 OF THE ACT FOR THE PURPOSE OF SETTING OFF OF LOSS IS TO BE JOINTLY READ WITH SECTION 28 DEFINING CATEGORIES PROFITS AND GAINS OF BUSINESS AND I.T.A NO. 942 /AHD/20 13 A.Y. 2009 - 10 PAGE NO ACIT VS. MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD 5 PROFESSION AS WELL AS SECTION 43(5) OF THE AC T STIPULATING SPECULATIVE TRANSACTIONS. SECTION 28 EXPLANATION 2 MAKES IT VERY CLEAR THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE TO CONSTITUTE A BUSINESS, THE SAID BUSINESS IS TO BE TAKEN AS DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. WE REPEAT THAT THIS ASS E SSEE IS ALREADY IN COTTON GINNING BUSINESS. THE REVENUE FAILS TO DISPEL THE CIT(A) S FINDINGS THAT THESE TRANSACTIONS ARE ONLY 4% OF THE TOTAL TRANSACTIONS FORMING PART OF THE REGULAR BUSINESS . WE ARE OF THE OPINION THAT THESE TRANSACTIONS DO NOT CONSTITUTE A SEPARATE BUSINESS BUT PART O F THE MAIN BUSINESS ITSELF. WE HOLD THEREFORE THAT THE ASSESSEE S LOSS IN QUESTION HAS BEEN RIGHTY ALLOWED IN THE LOWER APPELLATE PROCEE DINGS. WE REJECT REVENUE S ARGUMENTS. THE CIT(A) S FINDINGS STAND CONFIRMED. 6. THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 09 - 06 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 09 /06 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 942 /AHD/20 13 A.Y. 2009 - 10 PAGE NO ACIT VS. MEGHDOOT GENNING & PRESSING INDUSTRIES PVT. LTD 6 BY ORDER/ , / ,