DCIT, New Delhi V. M/s Singhal Agro Industries Pvt. Ltd., New Delhi

ITA 99/DEL/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3156 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHAUDHARY
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 99/DEL/2011 (ASSESSMENT YEAR: 2007-08) A A APPELLANT BY : SMT. BEDOBANI CHAUDHARY, SR. DR RESPONDENT BY : SH. RAKESH GUPTA SH. SONAL AGGARWAL, ADVS. DATE OF HEARING : 12.04.2017 DATE OF PRONOUNCEMENT : 11.05.2017 O R D E R PER BEENA A. PILLAI, J.M : 1. THE PRESENT APPEAL HAS BEEN SENT BACK BY HONBLE D ELHI HIGH COURT VIDE ORDER DATED 19.03.2013 TO THIS TRIB UNAL TO DECIDE WHETHER LOSS INCURRED BY ASSESSEE IS SPECULA TIVE IN NATURE OR WAS BY WAY OF DAMAGES FOR BREACH OF CONTR ACT AS CLAIMED BY ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE DURING YEAR UNDER CONSIDERATION WAS TRADIN G IN PULSES FOR WHICH IT HAD ENTERED INTO AGREEMENTS WIT H FOREIGN PARTY VIDE MEMORANDUM OF UNDERSTANDING DATED 10.05. 2006 AND 07.08.2006 WITH JK INTERNATIONAL PVT. LTD. AND AGRO CORP DCIT CIRCLE8(1), ROOM NO. 163, C.R. BUILDING NEW DELHI VS. S INGHAL AGRO INDUSTRIES P. LTD. PLOT NO. 9, 3 RD FLOOR, SAGAR CENTRE, GUJRAWALAN TOWN, NEW DELHI GIR/PAN: AAACS4062M (APPELLANT) (RESPONDENT) 2 ITA NO. 99/DEL/2011 (AY 2007-08) INTERNATIONAL PVT. LTD., RESPECTIVELY. DUE TO UNAVO IDABLE CIRCUMSTANCES ASSESSEE WAS NOT IN A POSITION TO HON OUR CONTRACTUAL OBLIGATION IN RESPECT OF CONTRACT ENTER ED INTO BETWEEN THE PARTIES. ASSESSEE HAD TO PAY TO THE PAR TY FOR BREACH OF CONTRACT. THIS RESULTED IN LOSS OF RS.3,0 8,75,218/-. LD. AO TREATED THE LOSS ON ACCOUNT OF BREACH OF CON TRACT BEING A SPECULATION LOSS. 3. AGGRIEVED BY ORDER OF LD. AO, ASSESSEE PREFERRED A PPEAL BEFORE LD. CIT(A), WHO DELETED THE ADDITION. 4. AGGRIEVED BY ORDER OF LD. CIT(A) REVENUE PREFERRED APPEAL BEFORE THIS TRIBUNAL. THIS TRIBUNAL VIDE ORDER DATE D 28.02.2011 SET ASIDE ISSUE BACK TO FILE OF LD. AO T O EXAMINE CLAIM OF ASSESSEE FOR BREACH OF CONTRACT IN THE LIG HT OF OBSERVATION MADE THEREIN. 5. AGGRIEVED BY ORDER OF THIS TRIBUNAL, REVENUE PREFE RRED AN APPEAL BEFORE HONBLE HIGH COURT, WHO OBSERVED AS U NDER: WE HAVE ALSO HEARD THE LEARNED COUNSEL FOR THE REVENUE WHO WAS PRESENT ON ADVANCE NOTICE. AFTER HAVING HEARD THE COUNSEL ON BOTH SIDES, WE ARE OF THE VIEW THAT THE TRIBUNAL OUGHT NOT TO HAVE REMITTED THE MATTER TO THE ASSESSING OFFICER FOR A CONSIDERATION AFRESH ON THE ISSUE OF THE SAID LOSS CLAIM OF RS. 3,12,90,375/-. THE ONLY ISSUE THAT WAS TO BE DECIDED BY THE TRIBUNAL WAS WHETHER THE SAID LOSS WAS SPECULATIVE OR WAS TOWARDS DAMAGES FOR BREACH OF CONTRACT IN RESPECT OF TWO CONTRACTS. THE FACTUM OF THE LOSS BEING GENUINE WAS NOT IS ISSUE. THEREFORE, NO USEFUL PURPOSE WOULD BE SERVED BY REMITTING THE MATTER TO THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, WE FEEL THAT THE IMPUGNED ORDER TO THE EXTENT THAT IT REMITS THE MATTER TO TH E 3 ITA NO. 99/DEL/2011 (AY 2007-08) ASSESSING OFFICER FOR A CONSIDERATION AFRESH NEEDS TO BE SET ASIDE. IT IS ORDERED ACCORDINGLY. THE MATTER IS RESTORED TO THE TRIBUNAL FOR DECIDIN G THE QUESTION AS TO WHETHER THE LOSS WAS SPECULATIVE IN NATURE OR WHETHER IT WAS TOWARDS DAMAGES FOR BREACH OF CONTRACT AS CLAIMED BY THE ASSESSEE. 6. WE ARE, ACCORDINGLY, CONCERNED ONLY TO DECIDE IF L OSS WAS SPECULATIVE OR TOWARDS DAMAGE OF BREACH. 7. LD. AR SUBMITTED THAT ASSESSEE HAD ENTERED INTO CONTRACTS, WITH FOREIGN PARTY, WHO SEND SHIPMENT BY THE AGREED DUE DATES. HE SUBMITTED THAT ASSESSEE HAD CO MPLETED SEVERAL PURCHASE CONTRACTS DURING YEARS, HOWEVER, IT COULD NOT HONOUR THE CONTRACT WITH ONE OF THE PARTY BY DU E DATE, AND SAID CONTRACTS CAME TO AN END DUE TO NON-PERFOR MANCE. LD. AR REFERRED TO WRITTEN SUBMISSION FILED IN THE PAPER BOOKS WHICH TABULATES PARTICULARS OF CONTRACTS AS UNDER: S. NO. NAME OF PARTY DATE OF CONTRACT DUE DATE OF SHIPMENT DATE OF BREACH OF CONTRACT DATE OF SETTLEMENT 1. J.K INTERNATIONAL PVT . LTD . 10/05/06 30/07/06 30/07/06 05/07 /06 2. AGRO CORP INTERNATIONAL PVT. LTD. 07/08/06 31/08/06 31/08/06 08/09/06 8. HE SUBMITTED THAT AS ASSESSEE COULD NOT HONOUR CON TRACT WITH J. K. INTERNATIONAL DUE TO LOWER DEMAND IN LOC AL MARKET, TO WHICH SUPPLIER DID NOT AGREE. IT HAS BEEN SUBMIT TED THAT ASSESSEE WAS UNDER THE BUSINESS OBLIGATION TO PAY D AMAGES FOR BREACH OF CONTRACT IN ORDER TO AVOID LITIGATION , AND SAVE ITS BUSINESS REPUTATION. LD. AR SUBMITTED THAT IT IS NO RMAL 4 ITA NO. 99/DEL/2011 (AY 2007-08) BUSINESS PRACTICE TO RECEIVE OR TO PAY DAMAGES TO F OREIGN PARTIES UPON BREACH OF CONTRACT. HE FURTHER SUBMITT ED THAT ISSUE RAISED HAS BEEN DECIDED BY A NUMBER OF JUDGME NTS AS PER WHICH, IF A BREACH OCCURS DUE TO NON-PERFORMANC E OF CONTRACT BY ACTUAL DELIVERY SYSTEM AND THEREAFTER, PARTIES TO CONTRACT SETTLE AMOUNT BY BEING DIFFERENCE BETWEEN CONTRACT PRICE AND MARKET PRICE THAT WILL NOT AMOUNT IN LAW TO SETTLING A CONTRACT. WHAT IS SETTLED IN SUCH A CASE IS SETTL ING DAMAGES CONSEQUENT UPON THE BREACH. 9. LD. AR SUBMITTED THAT FACT OF LOSS BEING NOT GENUI NE WAS NOT AN ISSUE BEFORE THE AUTHORITIES BELOW. LD. COUN SEL PLACED RELIANCE UPON DECISION OF THIS TRIBUNAL DATED 29.07 .2015 IN THE CASE OF ACIT VERSUS RAMJI LAL AND SONS (HUF) IN ITA NO. 1672/DEL/2011 FOR ASSESSMENT YEAR 2007-08. 10. ON THE CONTRARY, LD. DR RELIED UPON ORDER OF ASSES SING OFFICER AND REITERATED CONTENTIONS RAISED BY REVENU E AND GROUNDS AND REQUESTED THAT APPEAL OF REVENUE MAY BE ALLOWED. 11. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US AND DECISIONS RELIED UPON BY THEM. 12. IT IS PERTINENT TO NOTE THAT ASSESSING OFFICER HAS RECORDED A FINDING THAT PAYMENT OF RS.3,08,75,218/-, HAS BEE N PAID BY ASSESSEE FOR BREACH OF CONTRACT. FOR THE SAKE OF CO NVENIENCE THE OBSERVATIONS OF LD. AO ARE REPRODUCED HERE: THIS LOSS WAS NOT BY SALE OF SUCH PULSES AT PRICES LOWER THAN WHAT THEY WERE BOUGHT BY INDEMNIFICATION IT HAD TO PAY FOR CANCELLING THE CONTRACT. 5 ITA NO. 99/DEL/2011 (AY 2007-08) 13. THEN LD. AO GOES ON TO SAY THAT CONTRACT WAS CANCE LLED WITH A SPECULATION THAT ASSESSEE MAY INCUR LOSS, AS THE PURCHASE PRICE HAD FALLEN. LD. AO WAS OF THE OPINIO N THAT ASSESSEE IN THE REGULAR COURSE OF BUSINESS SOLD GOO DS WHICH WERE NOT EVEN IN ITS HANDS AND THEREFORE, WE CONSID ERED AS IT WAS A SORT OF LOSS ON TRADING IN FUTURE OPTION. IN OUR VIEW, LD. AO CANNOT BLOW HOT AND COLD AT SAME TIME. ON ONE BR EATH HES ADMITTING THAT ASSESSEE HAD INDEMNIFIED PARTY BY PA YING FOR CANCELLING OF CONTRACT, ON THE OTHER HAND HE HOLDS THAT ASSESSEE SOLD GOODS WHICH WERE NOT IN ITS HANDS. TH ERE IS NOTHING ON RECORD WHICH SUPPORTS THAT ASSESSEE SOLD GOODS WITHOUT TAKING DELIVERY, OR THAT ASSESSEE WAS INTO TRADING IN FUTURE OPTIONS. LD. AR PLACED RELIANCE UPON DECISI ON OF THIS TRIBUNAL IN ACIT VERSUS RAMJI LAL AND SONS (HUF) (SUPRA) . AN IDENTICAL SITUATION HAD ARISEN IN THE SAID CASE AND THIS TRIBUNAL HAD OBSERVED AS UNDER: LD. CIT (APPEALS) HAS TAKEN A STAND, WHICH IS SUPPORTED BY SEVERAL DECISIONS CITED BEFORE IT, INCLUDING THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VERSUS BHAGAVAN DAS RAMESWARAM THE (1984) 149 ITR 387 (DEL.) AND CIT VS. HANS MACHOO & COMPANY (2001) TO 47 ITR 79 (DELHI.) STOP I N THE CASE OF BHAGAVAN DAS RAMESWARAM DYALPUR (SUPRA), HONBLE DELHI HIGH COURT HAS BEEN PLEASED TO HOLD THAT IF THE CONTRACT IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY, IT IS A SPECULATIVE TRANSACTION BUT IF THERE IS A SETTLEME NT AFTER THE BREACH, IT IS A CASE OF SETTLING THE QUAN TUM OF DAMAGES AND THE LOSS IS INCIDENTAL TO BUSINESS ARE ALLOWABLE AS BUSINESS LOSS. AGAIN IN THE CASE OF CIT VS. HANS MACHOO & COMPANY (SUPRA), HONBLE DELHI HIGH COURT HAS BEEN PLEASED TO HOLD THAT THE ITAT 6 ITA NO. 99/DEL/2011 (AY 2007-08) HAVING RECORDED A FINDING THAT THERE WAS A BREACH O F CONTRACTS AND THE ASSESSEE HAD TO PAY DAMAGES IT WAS JUSTIFIED IN ALLOWING DEDUCTION OF AMOUNTS PAID , SUCH A TRANSACTION CANNOT BE DESCRIBED AS A SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF SECT ION 43 (5) OF THE ACT. 14. IT IS OBSERVED FROM THE PAPER BOOK AT PAGE 11 WHERE IN DETAILS OF CLAIM/DAMAGES PAID AGAINST BREACH OF IMP ORT CONTRACTS HAS BEEN PLACED. ACCORDING TO THIS CHART, ASSESSEE HAD PAID DAMAGES AGAINST CANCELLATION OF TWO IMPORT CONTRACTS DATED 15/06/06 AND 10/07/06 PLACED AT PAGES 17-19 A ND 20 22 ALONG WITH CREDIT NOTE AT PAGE 23 AND 24 RESPECT IVELY. FURTHER FROM THE LETTER OF UNDERSTANDING EXECUTED O N 05/04/04 PLACED AT PAGE 12-16 OF PAPER BOOK, BETWEE N THE ASSESSEE AND AGROCORP INTERNATIONAL PTE LTD DEALS W ITH BREACH OF CONTRACT BY BUYER AS UNDER: '3, BREACH OF CONTRACT BY THE BUYER THE TIMELY COMPLIANCE OF THE CONTRACT IS THE ESSENC E OF THIS LETTER OF UNDERSTANDING AND THE BUYER SHALL BE DEEMED TO HAVE BREACHED THE CONTRACT WHEN HE FAILS TO SUBMIT THE REQUIRED DOCUMENTS AND TO ACCEPT THE DELIVERIES OF GOODS WITHIN THE AGREED PERIOD. THE SELLER HAS THE RIGHT TO CLAIM ALL LOSSES AND DAMAGES FROM THE BUYER AT THE PREVAILING MARKET PRICE.' 15. ON REFUSAL TO ACCEPTING THE GOODS IMPORTED BY ASSE SSEE, AGRO CORP ISSUED CLAIM NOTE PLACED AT PAGE 23 -25 O F PAPER BOOK. IN OUR CONSIDERED VIEW THERE IS A THIN LINE T HAT DIVIDES WHAT IS TERMED AS SPECULATIVE TRANSACTION AS ENVISA GED UNDER 7 ITA NO. 99/DEL/2011 (AY 2007-08) SECTION 43 (5) OF THE ACT AND THE PAYMENTS MADE UND ER SETTLEMENT WHICH FALLS OUTSIDE ITS AMBIT. A TRANSAC TION CANNOT BE DESCRIBED AS A SPECULATIVE TRANSACTION WITHIN TH E MEANING OF SECTION 43 (5) OF THE ACT, WHERE THERE IS A BREA CH OF CONTRACT AND ON A DISPUTE BETWEEN THE PARTIES DAMAGES ARE AW ARDED AS COMPENSATION. 16. ON PERUSAL OF THE ABOVE CLAUSE OF CONTRACT IT APPE ARS THAT TIMELY COMPLIANCE WITH THE REQUIRED DOCUMENTS AND ACCEPTANCE OF THE GOODS IS THE ESSENCE OF THE LETTE R OF UNDERSTANDING ENTERED INTO BETWEEN THE BUYER AND TH E SELLER. AS ASSESSEE HAS DEEMED TO HAVE BREACHED THE CONTRAC T BY NOT ACCEPTING THE DELIVERIES OF THE GOODS WITHIN THE AG REED PERIOD, THE SELLER HAS THE RIGHT TO CLAIM ALL LOSSES AND DA MAGES FROM THE BUYER AT THE PREVAILING MARKET PRICE. THERE IS A CATEGORICAL FINDING BY HONBLE HIGH COURT THAT THE FACT OF LOSS BEING GENUINE WAS NOT IN DISPUTE. IN THE FACTS OF THE PRESENT CASE, ASSESSING OFFICER HIMSELF IS RECORDING THAT ASSESSEE MADE PAYMENTS TO THESE P ARTIES FOR INDEMNIFYING DAMAGES CAUSED DUE TO CANCELLATION OF CONTRACT. AS THE SALE HAS NOT TAKEN PLACE AT ALL IT CANNOT BE CONSIDERED AS SPECULATIVE TRANSACTION. 17. WE ARE, THEREFORE, INCLINED TO FOLLOW DECISION OF THIS TRIBUNAL IN THE CASE OF RAMJI LAL & SONS (HUF) (SUPRA) AND UPHOLD THE FINDINGS OF LD. CIT(A) ON THIS ISSUE. AC CORDINGLY, GROUND RAISED BY REVENUE STANDS DISMISSED. 8 ITA NO. 99/DEL/2011 (AY 2007-08) 18. GROUND NO. 2 DOES NOT ARISE OUT OF ORDER OF HONBLE DELHI HIGH COURT AND STANDS SETTLED VIDE ORDER OF THIS TRIBUNAL DAT ED 12.10.10 THEREFORE, IT DO NOT REQUIRE ANY INTERFERE NCE. IN THE RESULT APPEAL FILED BY DEPARTMENT STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2017. SD/- SD/- (R. K.PANDA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 11.05.2017 @M!T