TMI Blog2014 (7) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... see - this part of the disallowance is no way connected to the absence/doubting of manufacturing activity of making of medallions - AO is directed to quantify the proportionate disallowance after granting opportunity of being heard to the assessee – Decided partly in favour of Assessee. Addition u/s 68/69C – Transfer of funds - Held that:- The documents filed are not adequate enough to hold that the assessee has discharged the onus successfully - there is adequate cash balance in the books of the branches and the cash payments are actually made towards the customs duty, the onus is strictly on the assessee to demonstrate the transportation of cash physically by road from all the outstations - the assessee does not have appropriate or convincing answers - it is not only the distance factor that the assessee failed to explain but also the other logical issues relating to mode and method of transportation of cash physically across the interstate borders - the order of the CIT (A) is fair and reasonable and it does not call for any interference – Decided against Assessee. Addition u/s 68 – Amount received from debtors – Held that:- Mr. desai furnished promised information in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said debtor etc. Regarding M/s Bond Gems Pvt. Ltd, the AO's objection is not sustainable legally – Decided in favour of Assessee. Sale of unaccounted stock – Held that:- There are no transactions from 24.10.2008 to 31.10.2008 - there is no discrepancy so far as the quantum of stock is concerned as on 31.3.2009 - AO does not have any incriminating material to suggest that the assessee has sold the material received from the labourers on 24.10.2008 - the arguments of the assessee about the double addition are dismissed by the CIT(A) giving flimsy reasons - the tallying of the stock register is considered and in the absence of the discrepancies, the decision of the CIT (A) is set aside – Decided in favour of Assessee. Loss incurred on diamond trade disallowed – Held that:- The study of the transactions reveals that the real intention of the assessee was to earn the interest arbitrage difference in rates of interest - The moment the export sales are received, assessee deposited the same with the bank and earned the bank interest @ 8 to 9% - no law is violated by the assessee by these arbitrage transactions and the same is a common practice - the special auditors, on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT (A)-38, Mumbai dated 6.9.2013 for the assessment year 2009-2010. The issues involved in both the appeals are inter-connected and therefore, they are clubbed for the sake of convenience, heard combinedly and disposed of in this consolidated order. Appeal wise and ground wise adjudication is given in the following paragraphs. 1. Assessee's appeal ITA No.5811/M/2013 2. Firstly, we shall take up the assessee's appeal ITA No.5811/M/2013 for the assessment year 2009-2010. This is the appeal, where the stay was rejected and early hearing was granted. Accordingly, since the case was transferred to G Bench by the order of the Hon'ble President, the appeal came up for hearing for the first time on 26.11.2013. Considering the large number of grounds in the appeals of both the parties and the voluminous paper books and the requirement of material facts, the case was adjourned at the request of both the parties and heard on 2nd, 3rd, 10th, 30th and 31st of December, 2013 and 4th, 6th, 11th 14th of February, 2014. The case is finally heard on 19th February, 2014. 3. Grounds Dismissed as not pressed, general or repetitive: As seen from the Grounds of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courier expenses 2,12,523/- Subscription expenses 71,226/- 12. The Ld CIT (A) erred in confirming disallowance of ₹ 57,56,233/- u/s 40A(2) out of interest paid to RSBL commodities P. Ltd. 4. Briefly stated, relevant facts of these appeals are that the assessee, who is engaged in the business of imports-exports of bullion and gold jewellery and related trading activities as well as the commodity derivatives, filed the return of income declaring the total income of ₹ 5,92,76,713/-. During the course of assessment, in view of the complex nature of the books of accounts, AO invoked the provisions of section 142(A) of the Act and referred to M/s. Singrodia Goyal Co., Chartered Accountants. The special audit report was submitted to the AO on 21.6.2012 and accordingly, the assessment was completed after considering the remarks of the Special Auditors. AO determined the assessed income at ₹ 230,53,59,040/-. The details of the additions as given in vide page 62 63 the assessment order dated 17.8.2012 are as under: Particulars Amount (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2305359040/- 5. Most of the above additions are confirmed by the CIT(A) and the addition wise discussion restricted to the grounds extracted above is dealt with in the following paragraphs. Ground wise adjudication is given in details as follows. 6. Grounds nos 1 are 2 are not pressed as stated above. 7. Claims of Exemption u/s 10A of the Act: Ground No.3, 4.1 and 4.2 revolve around the single issue of denying exemption of income u/s 10A of the Act. It is claimed that assessee got export orders from Dubai for manufacture and export of the 'medallions'. Accordingly, he manufactured gold medallions from gold bars at Special Economic Zone (SEZ) at Sachin, Surat in Gujarat and exported to various parties at Dubai. Considering certain doubtful circumstances such as the electricity consumption, two days oriented activities in the year, huge exempt income claim u/s 10A of the Act etc, the AO referred this issue to the file of the said Special Auditors. It is the views of the revenue that the assessee could not have manufacture such a big order of exports and proposed to deny the claim of the exempt income claimed u/s 10A of the Act. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the assessee disputed the said denial of exemption and filed appeal before the first appellate authority (paragraphs 12 to 15 of the impugned order is relevant in this regard). 8. Before the CIT(A): During the first appellate proceedings, assessee filed written submissions which are discussed in para 14 of the impugned order. Eventually, CIT (A) came to the conclusion that the (a) ACs are used in all the months; and (b) explanation of the assessee in matters of the discrepancies qua the labour charges invoices of M/s. S.L. Industries were found unacceptable. He also opined that keeping the whole SEZ unit ideal for 365 working days is not prudent. Physical demonstration before the special auditors is only with reference to the current year of auditing and not the relevant Financial Year 2008-2009.Therefore, the explanation is not acceptable. CIT (A) was of the opinion that importer of the gold medallions being M/s. Al Khayal Al Dhahabi Jellery LLC, is owned with a Managing Director. Further, he has also opined that with two days of manufacturing activity, asseessee earned profit of ₹ 6.43 Crs, which is beyond comprehension. Assessee's explanation relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage / loss in the process was also accounted for in the books of accounts (page 1110 of PB 6). On the electricity consumption issue, it was argued that the assessee's total block of assets is worth ₹ 16,13,797/- only and it does not involve very heavy electricity consumption. No high voltage apparatus was necessary for making the said medallions. As per the assessee, on production of 8 hrs shift to manufacture gold medallions, the power consumption required is only 65.60 units @ 8.2 units per hour. On the issue of the under valuation qua the FIFO method, it is the contention of the assessee that the gold was purchased @ ₹ 11,500/- per 10 gms based on the date of the export order and not the date of transfer of the gold to the SEZ. However, Ld Counsel was not very particular against the use of FIFO method to the impugned transfers of Gold bars of 200kgs. 11. Per contra, Ld DR for the Revenue heavily relied on the order of the AO and the CIT (A). In this regard, Ld DR submitted a working paper giving the brief synopsis on the conclusions of the AO and the CIT (A). It is the case of the Ld DR that there is a lot of suspicion in the whole claim of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of 109 Kgs of Medallions by SL Industries, we find that there are some disturbing facts involving M/s. S.L. Industries who commonly rendered the labour services in respect of the total medallions worth 310 kgs gold and proper bill is only available in respect of 201 kgs as against the total claim of 310 kgs. For the difference of 109 kgs, no bills have been raised by M/s. S.L. Industries. Assessee also not claimed any expenditure on this account. Though there are whispers about the incurring of heavy wastage in respect of 109 kgs of gold medallions, the evidence is only in terms of book entries and not otherwise. On these facts, it is difficult to infer that M/s. S.L. Industries rendered services in respect of 109 kgs of gold medallions. When the exemption is claimed by the assessee, the onus is heavily on the assessee to prove the same with evidence. In our opinion, the onus is not fully discharged by the assessee on this limited issue. Therefore, we are of the view that the profits attributable to 109 kgs of gold medallions is required to be quantified and denied for exemption u/s 10A of the Act. AO should make sure that there is no double denial of deduction qua the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry worth of only ₹ 16 lakhs, the extent of the electricity consumption noted in the books of accounts, in the absence of any adverse material in possession of the revenue to conclusively prove about the absence of manufacturing activity of medallions, presence of documents to support of fact of export activity of the medallions, we do not approve the argument of the revenue that the assessee has not manufactured the medallions. Eventually, there is need for denying the exemption to the extent of ₹ 3,12,71,400/-. Regarding the allowing of exemption in respect of the profits attributable to the export of the 109 kgs of the gold medallions, the same needs to be disallowed for want of discharge of onus by the assessee. It is to clarify that this part of the disallowance is no way connected to the alleged absence/doubting of manufacturing activity of making of medallions. AO is directed to quantify the proportionate disallowance after granting opportunity of being heard to the assessee. Accordingly, ground no.3, 4.1 and 4.2 are adjudicated pro-tanto. 16. Ground no.5 of the assessee's appeal relates to confirming of the addition to the extent of ₹ 2.33 crores u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 3500000 0 2/6/2008 Mumbai 2/6/2008 Ahmadabad 500000 0 1/9/2008 Mumbai 1/9/2008 Ahmadabad 2000000 0 2/9/2008 Mumbai 2/9/2008 Ahmadabad 2500000 0 4/9/2008 Mumbai 4/9/2008 Ahmadabad 3000000 0 10/9/2008 Mumbai 10/9/2008 Ahmadabad 1500000 0 12/9/2008 Mumbai 12/8/2008 Ahmadabad 2000000 0 15/9/2008 Mumbai 15/9/2008 Ahmadabad 3000000 0 20/9/2008 Mumbai 20/9/2008 Ahmadabad 1500000 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions which are reproduced in para 17 of the impugned order. Eventually, CIT (A) granted relief in respect of addition of ₹ 4,23,56,727/-. However, he confirmed the addition of ₹ 2.33 Crs made u/s 68 of the Act. Para 18 and 20 of the impugned order are relevant here and for the sake of completeness of this order, the same are reproduced here under: 18. I have carefully examined the facts of the case, the stand taken by the AO in the assessment order, the grounds of appeal and the written submissions filed by the appellant during the appeal proceedings. The addition is made by the AO on the assumption that the cash would not have moved from different branches at Chennai, Coimbatore and Mumbai to Ahmadabad and also from Ahmadabad to Kandla. However, it is pertinent to mention that cash was available to that extent in the books of the appellant at its branch in Ahmadabad and the book cash was reduced to the extent of Customs Duty paid. This fact was also mentioned by the special auditors in their report. Since, the appellant does not have its branch at Kandla the cash had to be moved from some other branch. The Department is required to establish either that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound no.5 of the assessee's appeal. 22. In connection with the confirming of the addition of ₹ 2.33 Crs, the amount claimed to have been received from the branches at Coimbatore, Chennai and Mumbai, Ld Counsel submitted that the assessee has 6 branches and all the branches deal in bullion. They have substantial cash on hand reflected in the books of accounts which is earned out of sales proceeds. As per the assessee, the books of accounts of all branches also are maintained in software at HO. Of course, branches maintain their books in physical form too. The accounting software does not permit transfer of cash entry from one cash account to another cash account and therefore, for transfer of cash from one branch to another or HO, necessarily the entry has to be passed on the receipt of the cash at the recipient. Otherwise, the sending-branch maintain the cash transit account when money is in transit. It is further submitted that as the accounts are maintained at HO and not at branches, entries are passed normally on the same day and therefore, merely on basis of dates in accounts it cannot be presumed that cash has been transferred on same date and there was no time di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash balances and the actual payments to the Customs Department, the DR reasoned that, for the cash of this magnitude to reach the SEZ at Kandla, obviously, there are many logistical barriers that the assessee needs to cross and supply evidences and the assessee failed to demonstrate the same. The said evidences include: who carried the cash, mode of carriage, which are the vehicles, who is the driver, details of the toll bills of the concerned vehicles etc. Referring to the details filed in PB at pages 512-575/PB 3, Ld DR mentioned that are of general nature and not good enough to discharge the onus. Mere naming some body without producing before the AO, does not entitle the assessee to the relief. Thus, he prayed for confirming the gross addition of ₹ 4,23,56,727/-. 24. We have heard both the parties on the issue of addition u/s 68 of the Act. AO made addition of ₹ 4,23,56,727/- in toto, the total cash paid towards customs duty at Kandla u/s 69C of the Act. This cash has two segments namely, (i) the cash of ₹ 2.33 cr emanating from the branches and (ii) the cash said to have been transported from Ahmedabad (HO). CIT (A) deleted the same considering the availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross the states ie Mumbai Ahmedabad-Kandla route. Thus, it is not only the distance factor that the assessee failed to explain but also the other logical issues relating to mode and method of transportation of cash physically across the interstate borders. On examination of the facts and the arguments placed before us, we are of the opinion that the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground no.5 of the assessee's appeal and ground no 1 of the Revenue's appeal are dismissed. 25. Ground no.6 relates to the addition of ₹ 141,24,75,896/- u/s 68 of the Income Tax Act, 1961. Relevant facts in this regard are explained by the AO in para 4 of his order. The summary of the findings of the special auditors' report, details of the show cause notice issued by the AO and the reply thereof from the assessee were also therein. At the end, the AO came to the conclusions that there is a need for making addition of the said amount u/s 68 of the Act considering the explanation offered by the assessee, being not satisfactory. AO is of the opinion, that the sources for the same were remained unexplained. Otherwise, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above referred parties and instruction, if any, given by the said parties to M/s. Joshi Bullion Gems Jewelry P. Ltd in response to the same, the assessee has furnished the undertaking from M/s. Joshi Bullion Gems Jewellery P. Ltd agreeing to make payment on behalf of the said parties except Bonds Gems P. Ltd placed at page no 488 to 489 of Exhibit, the assessee has also submitted that these parties are not related parties and has provided the copy of the assignment deed entered with M/s. Joshi Bullion Gems Jewelry P. ltd. in respect of payments made on behalf of K.A. Malle Pharmaceuticals P. Ltd. and Space Mercantile Co. P. Ltd placed at page No. 490 to 493 of Exhibit. However, there are no agreements entered between these parties in this regard. 28. During the assessment proceedings, AO issued a show cause notice to the assessee proposing to make addition of ₹ 141.25 crores. However, the assessee replied vide its letter dated 4.8.2008 strongly opposing the move of the AO. It is the contention of the assessee that M/s Joshi Bullion Gems and Jewelry Pvt. Ltd - JBGJPL introduced the said 3 parties in connection with scheme of export of the gold jewellery involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when KAMPPL clears their liabilities (of ₹ 27,67,69,687/-) with the assessee. Ideally, the KAMPPL should pay the said arrears to JBGJPL. There was some discussion of assessee filing of suit on KAMPPL. Further, it was submitted that there is no case of cash credits addition u/s 68 of the Act. In this regard, assessee sought from AO an opportunity to cross examine the parties either singly or jointly. AO summed up his inferences in connection with the KAMPPL and they are as under: 1. The party named M/s. K.A. Malle Pharmaceuticals Pvt. Ltd has specifically denied the knowledge and its consent to the said transaction. Also, as on date the reply of M/s. K.A. Malle Pharmaceuticals Pvt. Ltd has already been reproduced above. Also, he has filed the ledger of the assessee in his books of accounts where he is showing the asessee as a creditor with total liability outstanding of ₹ 27,67,69,687/- even as on date. 2. Assessee could not produce any documentary evidence, whatsoever, to establish that there existed any pre trade guarantee undertaken by M/s. Joshi Bullion Gems and Jewelry Pvt Ltd to pay the amounts, in case any of the three parties fail to discharge thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with the other third party named Bond Gems Pvt. Ltd (BGPL) and the confirmation filed by the same, AO rejected by giving the following reasons. a. The office address of both ms/. Joshi Bullion Pvt. Ltd and M/s. Bond Gems Pvt Ltd are exactly the same i.e, suite no.412, 4th Floor, Laxmi Mall, Building No.5, Laxmi Ind Estate, New Link Road, Andheri (W), Mumbai 400 053 and known to each other. Therefore, the said confirmation in absence of the supporting documents is not found to be reliable. b. The said confirmation is not supported by any communication between M/s. Bond Gems and M/s. Bullion as to the settlement of dues of the former by the latter towards the assessee. c. Said confirmation is not supported by the copy of the accounts showing the necessary adjustments in the books of M/s. Bond Gems Pvt Ltd. d. In case of M/s. Bond Gems Pvt. Ltd even the bilateral agreement between M/s. Joshi Bullion Pvt Ltd and the assessee does not exist which may prove the genuineness of the transaction. 32. Finally, AO made addition of ₹ 1,41,24,75,896/- as per the discussion given in his order at page 28 which reads as under: The assessee cannot c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically stated that he has never authorized JBGJPL to make their payment on their behalf. The absence of the tripartite agreement was also discussed. AO did not believe that the JBGJPL with the turnover of ₹ 193.22 Crs is capable of guarantying for liabilities of others worth ₹ 200 Crs. Further, assessee also relied on the judgment in the case of Ashwani Oberoi vs. CIT [2013] 29 Taxmann.com 224 (P H) for the proposition that the transaction was not genuine as the amount was received from the account of the third party and held that assessee routed undisclosed income. AO also commented about the assessee's failure to explain the source of deposits and the validity of making addition u/s 68 of the Act. In response to the copy of the remand report made available to the assessee, a letter dated 4.3.2013 was furnished by the asessee contesting each and every issue raised by the Revenue in the remand report. Para 24 of the impugned order of the CIT (A) is relevant in this regard. Briefly speaking the reply contains details explanation about the sources of the funds and the ability of the JBGJPL to make the payment and the responsibility of the JBGJPL to clear the arrears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose behalf money has been paid) who are signatories to the agreement have accepted such arrangement voluntarily, in other words the said agreement must have been tripartite agreement. The appellant's argument that oral agreement is common in this line of business is not acceptable for the reason that one of the parties to the deal K.M.Malle Pharmaceuticals P. Ltd. denied being part of such kind of agreement. To say an agreement to be a valid one then there has to be a express willingness of two parties to the agreement and if it is merely a proposal of on person to the deal and the other person has no knowledge of the same, then there is nothing which can be called as an agreement between two parties. The alleged oral arrangement for making such huge payment is against the normal conduct of any person or any business. 25.1 The money is paid by cheque through the bank account. The AR of the appellant claims that the bank account through which the money paid on behalf of K.M.Malle Pharmaceuticals P. Ltd. and Space Mercantile Co. P. Ltd. is the same bank account through which the payments for the purchase of gold by M/s Joshi Bullion Gems and Jewellery Pvt. Ltd. were also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated that Shri Jayesh Desai undertook to explain the sources for the huge deposits appearing in the bank account and as promised he never appeared later and furnished evidences in support of the genuineness of the deposits in the bank account. The assessing officer also submits that there is a pattern of deposits coming into the account just before the date of making payment. Though the appellant has stated in his submissions reproduced in pare 24.6 above that a copy of the acknowledgement of the return of income for the assessment year 2009-10 has been filed by M/s Joshi Bullion Jewellery Pvt. Ltd., the independent confirmation obtained from the assessing officer confirms that M/s Joshi Bullion Jewellery Pvt. Ltd. have not filed the return of income for the assessment year 2009-10 till date. 25.3 The appellant also contended that no opportunity was granted to cross exam the parties to whom the summons were issued. It is stated in the assessment order that the assessing did not provide the cross examination on the ground that it would not serve any purpose. In this regard, it may be stated that the Income tax proceedings are civil proceedings and the strict rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses 80% of the invoice value to SMPL, KAMPPL, BGPL and JBGJPL on exporting the same and additionally, the balance of 20% would be realized on completion of export activity on realization of export proceeds thereto. However, what seems to have happened is different and these parties namely SMPL, KAMPPL, BGPL and JBGJPL have not only received 80% of the invoice value from MSTC but also 100% of the export proceeds. In fact, these suppliers were enriched 80% of the export value of the gold jewellery. However, the assessee is the sufferer and the said parties have not cleared the arrears to the assessee. CBI is engaged in investigation involving MSTC and many other entities including SMPL, KAMPPL, BGPL and JBGJPL. Being the co-sufferer, the assessee is out of the scam. These are the brief details of the scheme uncovered by the investigative agency and cases are filed by the CBI in this regard. 38. In this context, ld Counsel mentioned that the assessee is the sufferer in the process and the liabilities were not claimed by the purchasers of the gold jewellery despite the 180% of the sale proceeds earned by them. In this regard, Ld Counsel referred to the attempts of the Department to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only failed to clear the liabilities appearing in the assessee's books of accounts and it is obvious for the assessee to bring pressure on the JBGJPL, who is the guarantor for the sale consideration. JBGJPL is also one of the purchaser of the assessee's goods directed and the connection between the JBGJPL and the rest of the three parties commercially connected to the assessee. In that sense of the matter, there is a commercial sense which is not really appreciated by the Revenue Authorities. Referring to the denial of cross examination of KAMPPL, Ld Counsel mentioned that it is but the principles of natural justice that the statements made by the advisors should be allowed for cross examination. By denying the said opportunity, the assessment proceedings suffer from dents. Regarding the absence of tripartite agreement, Ld Counsel mentioned that the assignment deeds are self-contained and the same are legally valued since they are signed by the transferor and the transferee in writing which is duly registered. It is not the requirement of the law that debtor should also be a party to such assignment deeds. Referring to the provisions of section 130 and 131 of the Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Act, 1882, which is legally incorrect. (3) BGPL: Regarding Bond Gems Pvt Ltd (BGPL), it is the case of the Revenue that despite the confirmation letters furnished by the said party before the AO, Assessing Officer denied the same and proceeded to make addition illegally, merely stating that the address of BGPL shares is common with that of the JBGJPL. In fact, JBGJPL and BGPL are sister concerns, wherein Mr. Jayesh Desai is the common shareholder. Thus, Ld Counsel summed up by stating that the assessee being seller of the gold jewelry collected its dues from JBGJPL, who is a guarantor and whose identity is established beyond doubt and who has creditworthiness to make the payment of the same. So far as assessee and his transactions with JBGJPL and other three parties are concerned, it is a commercial transaction of trade and realization of the proceeds and it is nothing to do with the messy exports made by four parties involving MSTC. The fact that CBI has not booked any case against the assessee confirms the same. In these circumstances, when the conditions of section 68 are made, there is no case for making addition u/s 68 of the Income Tax Act, 1961. Further, he also mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 43 cr from Pen Cooperative Bank Ltd as a security. Answer to Q. no 10 of the statement dated 12.2.2013 is relevant. Referring to the Ld Counsel's argument that all the information explaining the sources of payments and the creditworthiness of the JBGJPL regarding the payment made on behalf of the three parties, Ld DR mentioned that the said details were not fully examined by the AO. He also mentioned that Mr. Jayesh promised to appear but never appeared before the AO. However, there is no dispute on the fact that the requisite information was filed belatedly by Mr. Jayesh. Further, Ld DR mentioned that the oral agreements regarding the guarantee are not to be bonafide. Referring to the invoking of the provisions of section 68 of the Act, Ld DR mentioned that the identity was particularly proved. Creditworthiness and genuineness are not established by the assessee. It is the argument of the CIT-DR that no prudent business men will ever accept third party liabilities to the tune of ₹ 141,24,75,896/- without written agreements. Ld DR has also mentioned that with a turnover of ₹ 168 Crs, JBGJPL, which is non filer of Return, is not in a position to give guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In this case, KAMPPL-BGPL, on the KAMPPL-BGPL, on the aspect of the genuineness of transactions, ld Counsel relied on the Delhi High Court judgment in the case of M/s Oyasis Hospitalities Pvt Ltd and the judgment of Hon'ble Supreme Court in the case of Mohan Kala. 43. Decision of the Tribunal: We have heard both the parties and perused the orders of the Revenue Authorities and the paper books filed before us. Flow Chart showing the sales of jewellery/debts Repayments by JBGJPL 44. The above pictorial representation suggests the transactions of sales by the assessee to four parties namely KAMCPL, SMCPL, BGPL AND JBGJPL. BGPL is the sister concern of the JBGJPL and both are controlled by Jayesh Desai. The said parties needs to pay trade debts to the assessee and figures are mentioned in the picture above. JBGJPL also purchased gold jewellary from the assessee to the tune of ₹ 134,03,14,876/-. Otherwise, assessee had gross sales made to these four parties to the tune ₹ 329.51 cr as per the details here as under: Party name Quantity Sales amount (excl. VAT) Rs. Bond Gems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exist at the given address notice u/s 131 is returned unserved; (iii). Confirmation letter filed by the Bond Gems P Ltd is not acceptable as this company belongs to JBGJPL sharing the same address belongs to JBGJPL. 47. On the other hand, the case of the assessee is that genuineness of the sales to the said parties is not in dispute and therefore, the outstanding liabilities from them are undisputed. This is for the reason that the assessee made sales much higher than the existing liabilities and paid most of the sale consideration leaving only ₹ 141.25 cr all put gather. It is the contention of the assessee form the beginning before the revenue and us that Sri Jayesh Desai is the main person not only as the guarantor for the impugned sales but also for the defaults in payments if any. Further it is the stand of the assessee that JBGJPL is under obligation to clear the outstanding payments from these parties if he has to be in this line of business, where the jewelers' community is very small and otherwise, well-knitted with one another. If JBGJPL were not to pay the said liabilities, the same would not have been in this jewelery industry due to the factors of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 141.25 cr to the assessee JBGJPL is clean and there is suspicious circumstance attached to the said transaction. Considering the above, it is the case of the assessee that the provisions of section 68 of the Act are invalidly invoked for making addition of ₹ 141.25 cr by the AO and confirmed by the CIT(A). 48. With the divergent stands narrated above, we shall now concise the issues to be addressed here and shall take up the same for adjudication. They are: (i) General objections of the Revenue and (ii) Specific Objections. First, we shall deal with the general objections; namely Business sense and validity of the Consignment agreements. Thus, regarding the Business Sense: Whether there is any business sense in JBGJPL paying outstanding arrears of ₹ 141.25 cr to the assessee on behalf of the said three parties. Regarding the deficiency in the assignment Agreements Whether the absence of consent by the debtors and the bipartite nature of the assignment agreements involving only the assessee and the JBGJPL, renders them invalid. We shall take these issue in the succeeding paragraphs. 49. Business Sense: JBGJPL is the company in this industry for many years. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties including Bond Gems P Ltd, who are the alleged beneficiaries of the scam money still standing in their books as well as the books of the assessee as its debtors. In such circumstances, in our opinion, it is the prudence of the assessee, to enter into 'assignment agreement' with the JBGJPL, who is the co-accused by the CBI along with Bond Gems P Ltd and two others. On these reasoning, we need to examine if the addition in the hands of the assessee on the ground of the 'business prudence' and invoking of the provisions of section 68 of the Act are justified. We have already held that the assessee is justified in effecting recoveries even from the third parties ie JBGJPL, the co-accused and cobeneficiary in the MSTC's scam. At the same time, from the other angle, if the JPGJPL is justified in entering into 'assignment agreement' or not, in our opinion, needs to examined in the assessment of JBGJPL, which is under scrutiny u/s 147 r w section 143(2) of the Act. As stated in the statement taken on oath from Jayesh Desai, it is his submission, which is not controverted with the evidence by the AO that it is the commercial decision for JBGJPL-Jayesh Desai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Indian ₹ 111,67,70,622.00 which is outstanding and has become overdue. III. The amount of ₹ 11,67,70,622/- has become over due from space and space has approached the assigned to make the payment to the Assignor on its behalf. Since the Assignee is well known both to assignor and space, it is mutually decided that henceforth the over due amount would be shown as receivable from the Assignor i.e. Joshi Bullion Gems Jewellery Pvt. Ltd. and Space account would be settled by transferring the o/s amount to Assignor through Journal Entry. IV. That the Assignor has obtained confirmation from Space regarding the outstanding payment which is pending as debt/dues against the supply of the said goods. V. As per the books of account/ledger of the Assignor. The said amount is receivable fro space. VI. That the Assignor hereby agrees to assign the Assignee to collect the outstanding dues from space. VII. That the Assignor has already finalized its books of accounts duly passing the necessary entries showing that the payment of ₹ 111,67,622.00. VIII. Interest/fluctuation to be collected from Space from date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narrated the spoiled relationships with the assessee and referred to loss of goodwill, bad image/reputation built up in the Industry about them and, in reply JBGJPL signed the assignment deeds and paid the arrears to the assessee. However, the debtors failed to pay the same to the assignee (page 684 of the PB). Space MCPL confirmed the dues payable to the assignee vide letter dated 31.3.2010 too. Thus, the documents cited above suggest that the existence of the undisputed debts payable by the defaulted debtors on the one side and the undisputed fact of assignment of the actionable claims on the other. Confirmations from all the involved parties are on record. In such circumstances, the AO's decision to reject such valuable evidence and proceed to make addition of the said debts are completely contrary to set procedure of assessment. 52. Legal Provisions upholding the validity of the Assignment Agreements: Now we shall also attend to the assessee's argument touching upon the applicability of the provisions of section 130 of the Transfer of Property Act, 1882 and section 2(d) of the Contract Act, 1872, which are extracted as under:- 130. Transfer of actionable c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find the argument of the assessee is valid. Therefore, we find no mistake in process of assignment of the actionable rights. As regards, the absence of signature of the witness on the assignment deed, it is pertinent to mention that it is the parties in the assignor and the assignee of the deed to dispute the effectiveness of the deed in the absence of the same being witnessed. Once the obligations undertaken under the deed are duly acted upon by the parties it is not the prerogative of the Revenue to dispute the validity of the deed on the basis that the same is not witnessed. It is needless to further emphasis that transfer of actionable claim does not require the consent of the debtor nor the assignment deed requires the debtor also to be party to the said deed. Also, according to the provisions of section 2(d) of the Indian Contract Act, consideration may be paid by any person at the desire of the provision, in the instant case, the assessee in relation to the delivery of goods to the buyers. It is also a relevant fact to mention that one of the defaulted debtor namely Space Marchantile Co P Ltd paid a sum of ₹ 1.72 cr (page 661of the paper book) on 6.3.2009 to the assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monstrate the same, when a cash credit is found in the books of the assessee. Once the preliminary onus is discharged by the assessee, it is for the AO to rebut the same before making addition under these provisions. As such, these are anti tax-evasion oriented provisions and onus is greatly on the AO. We shall now examine the application of the provisions to the facts of present case. a. Identity of the creditor ie JBGJPL JBGJPL, bearing the PAN AACCJ 0316R, is a company engaged in the business of trading of the precious metal, studded diamond and diamond jewellery. The same is incorporated as company in July 2008. Otherwise, the assessee was in existence in different status over decades. Prior to corporatisation, the JBGJPL was a partnership firm in the name of Joshi Bullion Gems and Jewellery from AY 2005-06 onwards. In that AY, the firm registered the sales nearly 304 crores. (page 1321 of the PB), 293.40 cr in AY 2006-07 (page 1322), 436.50 cr in AY 2007-08 (page 1323), 330.41 cr in the AY 2008-09 (page 1324) etc. Technically, the Assessee filed its first return in the status of company for the AY 2009-10 (634) with some problems attached. Assessee reported to the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the deposition of Sri Desai on 12.2.2013 at 3 pm, in response to the questions on the sources of funds to clear the earlier, it was mentioned that he has credit worthiness and filed number of statements/bank extracts to evidence the ability to pay the sum of ₹ 141.25 cr (page 671 to 675 of the PB). These papers were filed before the AO undisputedly and there were no further enquiries conducted or intended to be conducted by the AO. In that sense, the assessee discharged the onus and the onus of rebutting the same shifted to the revenue. Therefore, the conclusions of the CIT(A) on this limb of section 68 of the Act are not based on sound reasoning. c. Genuineness of the transaction of the creditor ie JBGJPL Genuineness of the transaction of impugned cash credit needs to be examined from the angle of the parties involved in the impugned transaction. The sum of ₹ 131.25 cr was paid by the Josh Bullion Gems and Jewellery P Ltd (JBGJPL) and the same was received by the assessee. In the preceding paragraphs, we have discussed how the two parties are genuine and their identity is beyond doubt. We have also analysed and held that m/s JBGJPL has the ability to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard we have examined both the statement of Sri Jayesh R Desai given on behalf of the JBGJPL and also the documents filed by him (page 671 to 675 of the PB) providing the details of funds flow for the year under consideration. The said documents provide for day-to-day deposits and payment made to the assessee by JBGJPL, as guarantor-turned-assignee, amounting to ₹ 141.25 cr. It is undisputed fact they are filed before the AO/CIT(A) before September 2013, the date of the impugned order. Questions no 13, 23 etc of the statement dt 12.2.13, supra and corresponding answers are relevant here. Per contra, it is the case of the assessee's AR that the assessee answered to all the queries on this issue of sources of funds to pay the sum amounting to ₹ 141.25 cr with the documentary evidences. As per LD AR, considering the period prior to corporatization, the high trade turnovers narrated supra of the JBGJPL, its imposing standing in the industry, providing guarantee to the assessee for the trade liabilities of the impugned three parties are justified. So far as the sources of the funds in the books of the JBGJPL to account for the payouts of ₹ 141.25 cr, it is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, investigation and finalizing charge sheet by the CBI on the said debtor etc. Regarding M/s Bond Gems Pvt. Ltd, the AO's objection is not sustainable legally. 58. Therefore, considering the above detailed discussion and analysis, we are of the view that the objections of the AO or CIT(A) are not sustainable. Accordingly, the ground 6 of the assessee's appeal is allowed. 59. Ground no.7 relates to the addition of ₹ 9,43,68,687/- made on account of sale of gold jewellery to K.A. Malle Pharmaceuticals P. Ltd. (KAMPPL). In connection with the transaction, the special auditors commented that the assessee delivered relevant goods on 24.10.2008, whereas the sale took place on 31.10.2008. The stock register of the assessee does not indicate the outward movement of the said jewelry on 24.10.008. AO noted that the date in the books is mentioned as 23.10.2008 wrongly. It is the claim of the assessee that the goods were transferred on 24.10.2008 and the relevant invoice was actually raised on the party on 31.10.2008. AO did not accept the explanation of the assessee that such delivery is possible between the familiar parties. As per the assessee, the delivering the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comments on the bona fides of the said delivery challan and the raising of invoices at later time were justified. Yes, there is some problem with the stock register and the way they are maintained such as corresponding reduction of goods is not reflected. Relying on the page 576 of the paper book no.3, Ld Counsel argued to evidence that the material sold to KAMPPL was received from labour job worker on 24.10.2008. He also relied on the labour charges bill copy, which is placed at 579 to 580 of the PB 3. He also furnished the copy of the security agency delivery note and the copy of invoice dated 31.10.2008. It is the argument of the assessee that the delivery notice is dated 24.10.2008 and the invoice dated 31.10.2008. There is no discrepancy in the stock register so far as the stock quantity is concerned. In such circumstances, without rejecting the books of account no addition can be made validly. 61. On the other hand, Ld DR relied on the order of the AO and the CIT (A). 62. We have heard both the parties and perused the orders of the Revenue Authorities and the relevant papers placed before us. It is the case of the Assessing Officer that the sale invoice is later in tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and made addition of ₹ 1,26,94,987/-. With regard to the commission expenses paid of ₹ 1,80,566/-, incurred for client introduction, assessee submitted that the said amount was paid for clientage in the RSBL Spot i.e., Online trading platform for (i) marketing executive / agents; (ii) brokers for bullion deals and (iii) remissory commission in case of MCX and furnished relevant correspondences. It is the claim of the assessee that this expenditure was incurred wholly and exclusively for the purpose of the assessee's business and therefore, it is an allowable expenditure u/s 37 of the Act. However, AO did not consider the same as a satisfactory explanation and disallowed the same holding that (i) no evidence was furnished establishing the genuineness of expenses and (ii) mere filing of the confirmation letters from the alleged parties does not establish the genuineness of expenses. Accordingly, AO made addition of ₹ 1,80,566/-. Matter travelled to the CIT (A). Para 29 to 31 of the impugned order are relevant here. 64. During the proceedings before the CIT (A), assessee made written submissions which are extracted at para 30 of the impugned order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the issue afresh after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground no. 8 is allowed for statistical purposes. 68. Ground no. 9 relates to the confirming of disallowance of loss of ₹ 49,73,46,618/- incurred in diamond trade. Relevant facts in this regard are given in para 7 of the assessment order and para 32 of the impugned order. As per the assessment order, it is mentioned that assessee made local purchases of diamonds amounting to ₹ 39.24 Crs for export purpose. Assessee exported the same to M/s. Leo Diamonds LLC for ₹ 40.73 Crs. Assessee earned gross trading profit of ₹ 1,48,66,374/-. Further, assessee also imported diamonds from UAE based 5 parties amounting to ₹ 2819.20 Crs and exported the same to another 5 parties for a sum of ₹ 2769.46 Crs. These import and export related activity resulted in earning of gross trading loss of ₹ 49,73,46,618/-. During the special audit proceedings, after hearing the assessee, the special auditors submitted their observations on the allowability of this claim for the assessee. According to the special auditors, it is an undisputed fact that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction. The stock register does not indicate the quality and size of the diamonds when examined by the AO. AO also mentioned that one Mr. Visal Jain supposed to be the employee of the assessee, who is aware of the intricacies of these transactions, to represent before the AO and did not turn up on that day scheduled in the notice u/s 131 of the Act. It was duly certified by him. When further enquiries were conducted by the AO, the assessee submitted that he was unaware of the whereabouts of Mr. Vishal Jain as was not in touch with him since 2009. AO further discussed the necessity of lifting of the corporate veil and relied on various decisions in this regard. At the end, AO took objection to the fact of earning trading loss of ₹ 49,73,46,618/- from export made out of imports when local trading earned profit of ₹ 1,48,66,374/-, mentioning that the said imports and exports are not supported by purchase orders. Considering the non-compliance of Mr. Vishal Jain and relationship of the transactions with Mr Rajesh Kothari, AO came to the conclusion that the entire transactions are entered into only to avail 'buyer credit facility' in India which provides low intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its helps the assessee to avail the 'buyers credit facility' with the banks, which is profitable to the assessee. The transaction as a whole involves purchase and export diamonds, advance or immediate realizations of the export realizations, investment in FDs, availing buyer's credit against FDRs, interest rates and commission rates, Forex gains/losses. It is relevant to state that no law is violated by the assessee by these arbitrage transactions and the same is a common practice. It is also relevant to note that the special auditors, on the issue of diamond trading and profit, have found no infirmity in transaction except that there are no purchase orders for purchases. It is further relevant to mention that the special auditors have analyzed around 50 transactions and has not given any adverse comments. It is noted that the assessee has not availed any export benefit in the business of diamond trading. The manner in which the assessee has carried out the diamond trade is a means of raising finance, which is not illegal. Assessee is aware how to run the business and AO cannot step in the judgment over the same. The said proposition is supported by the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee. In any case, CIT(A) granted relief in respect of the rent paid considering the Board's circular. It is the prayer of the assessee that the assessee made short TDS in respect of the other payments applying the provisions of different sections of the Act and in such case, the provisions of section 40(a) (ia) of the Act have no application. 76. We heard the parties and perused the orders of the revenue in general and the above cited judgments in particular. Para 5 5.1 of the decision of the Tribunal in the case of Highlight Pictures (supra) are relevant in this regard and the same is reproduced here under: 5. We have considered the issue. Without going into the merits whether the provisions of section 194C will apply or 194I or 194J will apply, the issue can be decided under the provisions of section 40(a)(ia)which was invoked by the AO. The said provision is as under :- 40. Amounts not deductible.--Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,-- (a) in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they are distinguishable on facts. In the process, the legal proposition enshrined in those orders are ignored by the CIT(A) and thereby missed the legal point that the making TDS u/s 195 constitutes a vicarious liability. Calcutta High Court in the case of CIT vs. M/s. S.K. Tikeriwal (supra dated 3.12.2012) and the Mumbai Bench decision in the case of m/s Highlight Pictures (India) Pvt. Ltd supra, support the claim of the assessee and in its favour. 78. Considering the above and also the concurrence of both the parties on the issue that the items mentioned in the table given in the ground no.11 are the case of short deduction, we are of the opinion that the said ground is covered in favour of the assessee as per the above extracted portion of the order of the ITAT dated 30.8.2013 (supra). Accordingly, ground no.11 is allowed. 79. Ground no.12 relates to the confirming of the disallowance of ₹ 57,56,233/- u/s 40A(2) out of the interest payments made to RSBL Commodities P. Ltd., which is the sister concern of the assessee. This issue was also referred to the special auditors. Their observations on this issue are extracted in para 14 of the assessment order. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount received from the said party was utilized for the purpose of creating fixed deposits and the rate of interest paid is below the rate of interest earned and since it has direct nexus to the interest income earned on Fixed Deposit, the interest expenses of ₹ 57,56,233/- is reasonable. The assessee has also not furnished any documentary evidence to substantiate the nexus that any fixed deposit was created with the margin money received from M/s. RSBL Commodities P. Ltd. As against this, we have also observed that in similar case, rate of interest paid to other MCX client i.e. M/s. Venkatesh Associates P. Ltd., who is an unrelated party, is only @ 6% p.a. The auditors has further conducted the issue by noting that the, payment of ₹ 57,56,233/- made to M/s. RSBL Commodities P. Ltd. and Is excessive and unreasonable. 80. From the above, on finding that the special auditors quantified excessive and unreasonable payment made to RSBL of ₹ 57,56,233/-, AO issued show cause notice dated 19.7.2012 and proposed to invoke the provisions of section 40A(2) of the Act. In reply, the assessee filed a letter dated 4.8.2012 contesting against the said proposal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no loss to the Revenue. The CIT (A) distinguished the judgment of the Hon'ble Apex Court in the case of Munjal Sales Corporation reported in 168 TAXMAN 43, wherein the issue is regarding claim of deduction u/s 30 to 38 of the Act and no the case of 40A(2)(b) of the Act. Eventually, he confirmed the addition made by the AO. 83. During the proceedings before us, Ld Counsel narrated the above stated facts and mentioned that the sister concern, RSBL, kept the excess margin money with the assessee and the interest was paid by the assessee to the tune of ₹ 57,56,233/-. He fairly submitted that the assessee received such excess margin money from other customers also. But assessee paid interest only to two parties i.e., M/s. Venkatesh Associates P. Ltd and sister concern RSBL. While M/s. Venkatesh Associates P. Ltd paid the interest @ 4%, the sister concern paid the interest at the rate varying from 6% to 7%. AO disallowed the said interest for want of nexus between the excess margin money taken from the sister concern and the fixed deposit made by the assessee in the bank. Before us, Ld Counsel for the assessee argued stating that making disallowance of the entire payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin money given by M/s. Venkatesh Associates P. Ltd has also found reentered FD along with the bank, the argument of the Ld Counsel should fail. No relevant facts are brought to our notice, therefore, we cannot comment on this aspect. This is a commonsensical approach that if the excess margin money of both the parties have found the way into the FDs of the banks, the disallowance to the extent of amount exceeding 4% should be considered as excessive and unreasonable. The explanation given by the assessee that the sister concern is a HNI is not to be considered favourable to the assessee considering the provisions of section 40A(2)(b) of the Act, which does not provide for any exemption, as attempted to be made out by the assessee. Therefore, in our opinion, the AO should calculate the excess interest over and above 4% and that should be treated as unreasonable and excessive. Accordingly, ground no.12 raised by the assessee is partly allowed. 86. Ground nos 13 to 16 are not pressed as stated above. 87. Grounds No.17 and 18 are either general or repetitive in nature. Accordingly, the said grounds are dismissed as general or repetitive. 88. In the result, the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest free loans and advances. Further, assessee claimed the interest expenditure of ₹ 1,50,76,083/-. It is commented by the special auditors that the assessee should have wisely cleared or repaid the interest bearing funds instead of giving interest free loans to the sister concerns. When this issue was put to the assessee vide letter date 19.7.2012, assessee relied vide letter dated 4.8.2012 has accepted the fact that the assessee received interest free loans and advances and has also paid the interest on other loans and advances. In reply, the assessee also mentioned that the assessee is placed with interest free funds of ₹ 38.56 Crs as on 31.3.2009, whereas the interest free loans advanced during the year is 23,36,65,000/- and the interest free loans received during the year above ₹ 2,29,36,08,880/-. By that Ld Counsel argued that the assessee is having excess interest free funds available for giving interest free loans. Therefore, the allegation to excess cost of ₹ 1,50,76,083/- is not a valid one. In this regard, he relied on the binding judgment of the jurisdictional High Court in the case of Reliance Utilities Power (Bom). Assessing Officer at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that the assessee has made profits almost equal to that of losses incurred as explained .. and therefore, the intent of the assessee for entering into the said transactions is not clear . In this connection, AO issued show cause notice seeking the explanation of the assessee in matters of the reasonability and business nexus of the losses incurred on forward contracting parties. In reply, the assessee attempted to explain that the assessee had the intention of delivery and however, due to huge volumes, he could not stand by the same. Consequently, both parties of the forward contracts have decided to cancel the contracts and avoid delivery. However, it is the claim of the assessee that these contracts are linked to the business transactions of the assessee and therefore, the loss earned on cancelling the contracts constitutes business loss. AO analysed the meanings of the expressions ie 'forward contracts' and spot contracts and short positions etc. on the one side and the provisions of section 43(5)(a) of the Act and some judicial pronouncements relating to the 'derivatives' on the other side. Further, the AO applied the guidelines of the AAO in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Dhawan 119 ITR 412 (Delhi) which deals with the definition of 'speculation'. Contents of para 51 is relevant here and the same is reproduced as under: 51.0 I have carefully examined the facts of the case under the definition of (speculation), all that has to be found out is whether the contract was periodically or ultimately settled by actual delivery, transfer or otherwise .. If the contract is settled otherwise than by actual delivery, then it will be a speculative transaction notwithstanding that the nature of the commodity was not one lending itself to possibilities of speculation or that the intention of the parties at the time of entering into the contract .. In this case, the assessee officer failed to establish that there is no physical delivery, therefore, holding the hedging transaction with private parties as speculative transaction while accepting the transactions with the bank is unfounded and not acceptable. Therefore the addition made by the assessing officer is hereby deleted. 96. Before us, Ld DR for the revenue is critical of the finding of the CIT(A) that the AO failed to discharge the onus. It is the submission of the DR that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade transactions. The AO has not brought anything on record to establish that the trading transactions are hedged only selectively. Considering the facts in toto, the case of the assessee is squarely covered by the decisions in the cases of Badridas Gauridu P Ltd 261 ITR 256 (Bom), Sooraj Mull Nagarmull 129 ITR 169 (Cal) etc. and London Star Diamond Company (I) P Ltd (supra) and therefore we are of the considered view that the impugned loss amounts to 'hedging loss' and constitutes 'business loss'. Moreover, the CIT(A) has analysed the issue from the perspective of speculation loss and has rightly held that the impugned loss amounts to hedging loss and a speculation loss. In view of that matter, we do not find any justifiable reason to interfere with the decision of the CIT(A) on this count and hence the same is upheld. Resultantly, the benefits of section 43(5) of the Act are to be granted to the assessee. Accordingly, ground 3 of the revenue's appeal is dismissed. 99. In the result, the appeals of the assessee is partly allowed and that of the revenue is partly allowed for statistical purpose. Order is pronounced in the open court on this 12 th day of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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