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2016 (6) TMI 556 - ITAT AHMEDABAD

2016 (6) TMI 556 - ITAT AHMEDABAD - TMI - Allowance of loss arising on cancellation of contract due to price fluctuation where no actual delivery of cotton commodity - treating a loss to be speculative in nature u/s. 43(5) - Held that:- There is no dispute that this assessee is already in cotton ginning business. It entered into cotton supply contracts. The same would be cancelled in lieu of passing of credit notes due to price fluctuations. The Assessing Officer treated these figures as specula .....

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with section 28 defining categories profits and gains of business and profession as well as section 43(5) of the Act stipulating speculative transactions. Section 28 explanation 2 makes it very clear that where speculative transactions carried on by an assessee are of such a nature to constitute a business, the said business is to be taken as distinct and separate from any other business. We repeat that this assessee is already in cotton ginning business. The Revenue fails to dispel the CIT(A .....

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ber For the Revenue : Shri Rajdeep Singh, Sr. D.R. For the Assessee : Shri Milin Mehta, A.R. ORDER Per S. S. Godara, Judicial Member This Revenue s appeal for A.Y. 2009-10, arises from order of the CIT(A)-VI, Baroda dated 22-01-2013 in appeal no. CAB/VI- 476/11-12, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The Revenue s sole substantive ground assails correctness of the CIT(A) s order allowing loss of ₹ 33,18,790/- thereby reversing Assessing Of .....

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ectively. It pleaded that it had entered into different contracts with the three payees to purchase cotton at fixed rate. The same stood cancelled due to price fluctuations. The assessee has to issue credit note for different amounts. The Assessing Officer sought to treat it as speculative transactions u/s. 43(5) r.w.s. 28(2) of the Act since no actual delivery of cotton commodity. He reproduced assessee s purchase contract and credit note in assessment order dated 27-12-2011 to inter alia concl .....

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written submission of the appellant. The undisputed facts are that the appellant has entered into contracts with three parties for the purpose of-"cotton to be supplied in the month of December 2008. However, these contracts were settled without taking delivery and by making payment of differential amount of ₹ 33,18,790/- (contract price -settlement price) to the contractors. It is also a fact that the raw material consumed during the year is valued at ₹ 36.67 crores as against .....

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her hand, the appellant has contended that he has entered into the impugned contracts in order to ensure continuous supply of cotton however, during the intervening period huge price fluctuation has taken place and the cotton was available at a much lower price than the contracted price. So under the circumstances, the contracts had to be cancelled to save the firm from further losses. Since the delivery was not taken therefore, these contracts were settled by making the payment of differential .....

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d. However, the question which needs resolution is with respect to the disallowance of speculation loss. Whether every speculative transaction resulting into loss should be disallowed? The fact that the transactions were of speculative nature will not by itself render it eligible for disallowance. To disallow the loss, the speculative transactions should be of such nature as to constitute a business. The AO has not established that the impugned transactions could be termed as to constitute a bus .....

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nsaction and the same have also resulted into loss but having regard to the meaning of the speculation business the resultant loss cannot be termed as loss in a speculation business but it is loss in the business. Under the circumstances, loss incurred by the appellant is to be considered as business loss. Therefore, the disallowance made by the AO is directed. 5. Both parties reiterate their respective stands against and in support of the CIT(A) s findings extracted hereinabove. There is no dis .....

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