Income Tax Appellate Tribunal - Mumbai
Nova Trading P. Ld, Mumbai vs Dcit 7(1), Mumbai on 13 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri B.R. Baskaran (AM) & Shri Amarjit Singh(JM)
I.T.A. No. 241/Mum/2011
(Assessment Year 2007-08)
Nova Trading Pvt. Ltd. DCIT 7(1)
51, 7/8 Kapadia Chambers Vs. Mumbai
Bharuch Street
Masjit Bunder
Mumbai-400 009.
(Appellant) (Respondent)
PAN No. AAACN9195J
Assessee by Shri Neelkanth Khandelwal
Department by Shri Suman Kumar
Date of He aring 13.6.2017
Date of Pronouncement 12.7.2017
ORDER
Per B.R. Baskaran (AM) :-
The appeal of the assessee is directed against the order dated 30-08-2010 passed by Ld CIT(A)-13, Mumbai and it relates to the assessment year 2007-08. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the assessment of loss of Rs.84.74 lakhs incurred in forward trading in commodatives done in NBOT/NCDEX as speculation loss as against the claim of the assessee that the same is a business loss.
2. We heard the parties and perused the record. The assessee company is engaged in the business of trading in edible oils. It imports crude oil, gets is processed in refinery on job work basis and sells the edible oil in the market. During the year under consideration, the assessee incurred loss of Rs.84,74,800/- in the forward trading done in Soya Oil in NBOT/NCDEX. It was submitted that the assessee is trading in soya oil regularly. It was submitted that forward contract was entered into to safeguard against the loss that may be 2 N o v a Tr a d i n g P v t. L t d.
incurred through price fluctuations in respect of contract for actual delivery of commodity. The assessee submitted that these transactions are excluded from the definition of Speculation transaction as defined u/s 43(5) of the Act.
3. The AO noticed that the forward contracts were entered into Soyabean oil (degummed), while the assessee was dealing in refined soyabean oil. Accordingly, the AO took the view that the goods traded in forward contract was different from the quality of the goods regularly dealt in by the assessee. Accordingly he took the view that the assessee's claim that these transactions are covered by the exception provided in sec. 43(5) is not acceptable. Further the contract also provided that it can be settled on the date of maturity by settling the differencial amount. Accordingly he treated the loss of Rs.84,74,800/- incurred by the assessee as speculative loss and acccordingly did not allow set off of the same against the business income of the assessee. The Ld CIT(A) also confirmed the order passed by the AO.
4. The Ld A.R submitted that the Hon'ble Bombay High Court has held in the case of CIT Vs. Ramkumar Venugopal and Co. (215 ITR 732) has held that the hedging transaction carried in different quality of same commodity cannot be considered to be speculative transaction. He further submitted that the AAR has also taken an identical view in the case of Sopropha S.A and held that the hedging contracts need not be of identical quality and quantity of goods held in stock. He submitted that the assessee has matched the forward contracts with actual contract for delivery. Accordingly, he submitted that the tax authorities are not correct in law in taking the view against the assessee.
5. The Ld D.R submitted that the Ld CIT(A) has observed that the assessee has not furnished documentary evidence by way of contract note for futures in derivatives. The broker bills are mentioned as "NBOT Trade Bill". He further 3 N o v a Tr a d i n g P v t. L t d.
submitted that the contract entered by the assessee does not provide for delivery of goods. Accordingly he submitted that the Ld CIT(A) was justified in confirming the assessment of loss as speculative loss.
6. We notice that the term "speculative transaction" is defined in sec. 43(5) of the Act as under:-
"speculative transaction means a transaction in which a contract for the purchase or sale of any commodity including stocks and is periodically or ultimtely settled otherwise than by actual delivery or transcer of commodity or scrips.
Provided that for the purpose of this clause--
(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or mechanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) .....
(c) ......
(d) ......
..shall not be deemed to be a speculative transction.
The contention of the assessee is that it is covered by the clause (a) of the proviso, as per which a forward contract entered by the assessee to guard against the loss through future price fluctuations in respect of actual delivery of goods manufactured by him or merchandise sold by him shall not be treated as speculative transaction.
7. The case of the AO is that the assessee was entering into the forward contract in different quality of soya bean oil and accordingly he has taken the view that the assessee would not be covered by clause (a) of proviso to sec. 43(5) of the Act. The Ld A.R has submitted that the reasoning given by the AO 4 N o v a Tr a d i n g P v t. L t d.
was not correct in view of the decision rendered by Hon'ble Bombay High Court in the case of Ramkumar Venugopal and Co. (supra) and by AAR in the case of Sopropha S.A (supra), since the assessee has dealt in different quality of same commodity. We agree with the submission of the assessee in view of the decision rendered by Hon'ble Bombay High Court.
8. The Ld CIT(A) has given one more reason for rejecting the claim of the assessee, i.e., the assessee has submitted only "NBOT Trade Bill" and not contract for futures in derivatives. The Ld A.R submitted that the assessee has dealt with the authorised brokers of NBOT and the contract issued by him is attached in the paper book. He further submitted that the Ld CIT(A) has made the above said observations only on surmises and suspicion, but the AO did not object to the contract notes submitted by the assessee. We notice that the contract notes submitted by the assessee has not been doubted by the AO. The Ld CIT(A) has made the above said observations without seeking explanations from the assessee nor did he bring any material to disprove the claim of the assessee. Hence we are unable to agree with him at this stage.
9. In view of the foregoing discussions, we are of the view that the loss incurred by the assessee cannot be treated as speculation loss as per the provisions of sec. 43(5) of the Act. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO treat the loss as business loss only.
10. In the result, the appeal of the assessee is allowed.
Order has been pronounced in the Court on 12.7.2017.
Sd/- Sd/-
(AMARJIT SINGH) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 12/7/2017
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Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai
6. Guard File.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
PS ITAT, Mumbai