Commissioner Of Income-Tax vs Kishan Chand Maheshwari Dass on 10 September, 1979
8. These three additions were taken in first appeal. The
Commissioner of Income Tax (Appeals) examined Section 40A(3)
and Rule 6DD. He found that the operation of Section 40A(3) is
5 I.T.A. No. 1323/Mds/12
excused where the payment made by way of adjustment against the
amount of any liability incurred by the payee for any goods supplied
or services rendered by the assessee to such payee. This
exclusion is provided in clause (d) to Rule 6DD. The Commissioner
of Income Tax (Appeals), relying on the judgment of the Hon'ble
Punjab and Haryana High Court rendered in the case of CIT v.
Kishan Chand Maheswari Dass (121 ITR 232), held that such
exchange transactions are not hit by provisions of Section 40A(3).
Accordingly, the Commissioner of Income Tax (Appeals) deleted the
said addition of ` 4,35,21,892/-. Regarding the hedging loss of `
99,23,199/-, the Commissioner of Income Tax (Appeals) examined
the issue in a detailed manner, particularly, in the light of the law
stated in Sections 43(5) and 73 of the Income-tax Act, 1961. He
observed that what constitutes speculation has become a matter of
controversy notwithstanding the definition of same provisions in
Section 43(5), being a transaction periodically and ultimately settled
otherwise than by actual delivery. The Commissioner of Income
Tax (Appeals) observed that certain categories of contracts are not
treated as speculative transactions by virtue of the proviso to
Section 43(5) and particularly provided in clauses (a) and (d) of that
proviso. Clause (a) provides that a contract in respect of raw
materials or merchandise entered into by a person in the course of
6 I.T.A. No. 1323/Mds/12
his manufacturing or merchanting 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
should not be deemed to be as speculative transaction. The
Commissioner of Income Tax (Appeals) found that the assessee-
company had entered into the futures contract to guard against the
loss through future price fluctuations in gold. When the assessee is
in the business of manufacturing and merchandising in gold, the
futures contract entered into by him would be covered by the
exception provided in clause (a) of Section 43(5). On the basis of
this principal proposition, the Commissioner of Income Tax
(Appeals) held that the disallowance made by the Assessing Officer
is not justified. Accordingly, the said disallowance was set aside
and the addition of ` 99,23,199/- was deleted. Regarding the cash
credit addition of ` 4,19,97,669/-, the Commissioner of Income Tax
(Appeals) found that those credits related to the journal entries
passed on closing of accounts on 31.3.2009 by appropriating the
debits and credits on the basis of the transactions the Director had
with the assessee-company. The Commissioner of Income Tax
(Appeals) found that the credits reflected in the personal account of
the Director, have been equally debited in various other accounts
relating to the expenses, payments and other obligations.
7 I.T.A. No. 1323/Mds/12
Wherever the Director has spent money for the business of the
assessee-company, the Director has to be given credit thereon and
for that purpose, the assessee-company had passed closing journal
entries and the Assessing Officer has come to the conclusion of
unexplained cash credits without examining the corresponding debit
entries passed by the assessee-company. Accordingly, the said
addition is also deleted. The Revenue is aggrieved and therefore,
the second appeal before the Tribunal.