TMI Blog2001 (9) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, in short) noted that during the course of assessment proceedings the assessee produced vouchers of the following parties:- ------------------------------------------------------------------------------ (1) Sri Kashi Viswanath Seva Samity Rs. 25,000.00 (2) Bharat Relief Samity Rs. 10,000.00 (3) Sri Vishudhananda Hospital Rs. 33,000.00 (4) Baba Kali Kamliwalla Rs. 25,000.00 (5) Kashi Bhavan Sabha Rs. 10,000.00 ------------------ Rs. 1,03,000.00 ------------------ ------------------------------------------------------------------------------ The Assessing Officer further discussed that the above payments were made for advertisement in the souvenirs published by these parties and none of the payments were made for advertisement in any newspaper or hoarding etc., and as such motive of payment was not to advertise the product of the assessee-company but to give donation,in the nature of advertisement. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative on the other hand, supported the orders of the authorities below and reiterated the same reasons as given by them. 5. In the case of British Electrical Pumps (P.) Ltd. the Hon'ble Calcutta High Court held as follows:- "that section 37(1) of the Art does not speak of any motive. The Tribunal .was not justified in going into the question of motive of the assessee in view of its finding of fact that there was an element of advertisement in making those insertions in the souvenirs of those organisations. That apart, there was no nexus between the names of those organisations and the motive of the assessee; the Tribunal had not said anything about the nature of those organisations. The amounts paid to those organisations, in view of the documentary evidence in the case, did not prima facie establish the motive imputed to the assessee by the Tribunal. The Tribunal had found that there was an element of advertisement in making those insertions in the souvenirs. Advertisements are a well recognised media through which the traders establish contact with customers. The expression 'commercial expediency' is not a term of art and it means everything that serves to promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any specific or particular item of donation. The assessee's claim seems to be wide half-hearted and vague in nature, and as such, the same is not, entertainable. 7. Ground Nos. 3 4 of the appeal are as follows:- (1) For that the CIT(Appeals) erred in confirming the disallowance of Rs.2,60,540 as speculation loss. The CIT(A) did not appreciate the true scope and character of the said loss which was in the nature of hedging loss and was fully allowable. (2) For that the CIT(A) failed to appreciate that the said loss was incurred in the normal business activities of the assessee and was not in the nature of speculation loss and as such, was allowable. 8. A sum of Rs.2,60,540 was debited to the Profit Loss Account on account of compensation paid on gunny and jute transaction. The assessee entered into different transactions with different parties for supply of gunny bags at a fixed price. Subsequently, on the date of delivery those contracts were settled by paying the difference between the market price on the date of settlement and the contract price without giving actual delivery of goods. The Assessing Officer, therefore, treated the said transaction as a speculative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the sum of Rs.2,60,540 should be allowed as a hedging loss and not to be treated as speculation loss. In support of his contention the learned counsel for the assessee relied on the following decisions:- (1) CIT v. Shantilal (P.) Ltd. [1983] 144 ITR 57 (SC); (2) CIT v. Pioneer Trading Co. (P.) Ltd [1968] 70 ITR 347 (Cal.); (3) CIT v. Ramchandra Shivnarain [1993] 201 ITR 862 (Bom.). 10. The learned departmental representative on the other hand supported the orders of the authorities below. It was strongly contended by the D.R. that the transaction in the instant case cannot be termed as hedging loss as the characteristics of hedging transaction are lacking in the instant case. He further contended that it was the burden of the assessee to prove that hedging transaction was entered into with a view to guard against future loss in respect of the contract for delivery of goods. He further submitted that since this onus remains undischarged by the assessee, the transaction is liable to be treated as speculative transaction within the meaning of section 43(5) of the Act. In support of his contention he relied on the decision of the Hon'ble Calcutta High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a commodity is settled otherwise than by actual delivery or transfer of the commodity has been defined as a speculative transaction. However, certain species of such transactions entered into under specific circumstances have been taken out of the definition by virtue of three provisions thereto. The relevant proviso for our purpose is proviso (a) which clearly states that for the purpose of this clause a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuation in respect of his contracts for :actual delivery of goods manufactured by him or merchandise sold by him shall not be deemed to be a speculative transaction. Thus, forward transactions entered into by the assessee in the course of its manufacturing or merchanting business to guard against loss through future price fluctuations in respect of its contracts for actual delivery of goods manufactured by him or merchandise sold by him are not speculative transactions. On a careful reading of the provision, (a) to section 43(5) of the Act, it is clear that only such transactions can be held, as hedgi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be described as a 'speculative transaction' within the meaning, of sub-section (5) of section 43 of the Act, where there is a breach of the contract and on a dispute between the parties damages are awarded as compensation by an arbitration award. 14. In the instant case, a contract for sale of goods manufactured by the assessee has been ultimately settled on the respective date of delivery by paying the difference between the contract price and market price on the due date of, Supply as submitted by the assessee in its written submissions made to CIT(A), relevant portion of which is found at page No. 2 of the paper book filed by the assessee before the Tribunal. The relevant portion of this written' statement is reproduced as follows: "So our entire production at Mill was geared up for execution of the contract with DGS D which resulted in non-performance of some of the contracts with other parties on due date. On the date of delivery, we had no other option but to settle our contract with those parties. Settlement was made by paying compensation, which was the difference between the contract price and market price on the due date of supply." Thus, it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in price, was to guard against loss through future price fluctuations in respect of those contracts of sale for actual delivery. It is clearly stated by the assessee that with a view to execute another contract with Directorate General of Supplies Disposals (in short, DGS D) within time so as to save himself from damages which might be resulted due to late delivery, the assessee could not perform other contracts which are in question and which were ultimately settled by paying the difference between the contract price and the market price on the due date of delivery. There exists no contract which was entered into to guard against loss through future price fluctuations in respect of those contracts. Thus, the assessee's case also does not fall within the purview of clause (a) of proviso to section 43(5) of the Act so as to take it out from being regarded as 'speculative transactions'. 16. The learned counsel for the assessee has stated that the assessee's case is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Ramchandra Shivnarain. In this aforesaid decision, the Hon'ble Bombay High Court has held that in the light of the concurrent finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an arbitration award. Hence, the present case is a case of settlement of the contract' and not of a 'Breach of Contract'. Admittedly, the assessee's contention given in writing to the effect that 'on the date of delivery, we had no other option but to settle our contract with those parties. Settlement was made by paying compensation which was the difference between the contract price and market price on the due date of supply' goes to establish that the contract was itself settled on the date of delivery. Moreover, the promisee also raised bill for difference of price by showing reverse transaction of re-selling the goods to the assessee on the due date of delivery as evident from respective bills and other documents filed before us. Therefore, the aforesaid decision of the Hon'ble Supreme Court in the case of Shantilal (P.) Ltd and the Hon'ble Calcutta High Court in the case of Pioneer Trading Co. (P.) Ltd. are not applicable in the present case before us. 19. It is crystal clear from the provisions of section 43(5) of the Act that only such transaction can be held as hedging transaction which are entered in the course of merchanting business to guard against loss through fut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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