TMI Blog2014 (5) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... e of old gold ornaments. For that matter, the assessee has to keep a separate account of old gold purchase supported by purchase invoices. Likewise, sale of new gold ornaments are again subject to sales tax for which the assessee has to maintain separate sales account supported by sales invoices. - Decided in favour of assessee Disallowance being hedging loss treated by the assessing authority as speculative loss - Held that:- In the present case, the assessee has entered into a future contract to guard against the loss through future price fluctuations in gold. The assessee is in the business of manufacturing and merchanting of gold. Therefore, the future contract entered into by the assessee is straightaway covered by the first exception provided in clause (a) of Section 43(5). We find that the Commissioner of Income Tax (Appeals) is right in his decision. Unexplained cash credits - Held that:- The assessee- company has passed journal entries with the concerned amounts, crediting the personal account of the Director and debiting the various expenditure to nominal accounts of the assessee-company. In fact, all the credits reflected in the personal account of the Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new gold ornaments, the assessee-company makes payments only of the differential amount to the customer. Wherever such payments made in cash by the assessee-company, were in excess of the exemption limit of ₹ 20,000/-, the assessee-company themselves have treated those payments hit by Section 40A(3). 5. But, the Assessing Officer held that the purchase of old gold ornaments and the corresponding sale of new gold ornaments are separate and independent transactions as documented by the assessee-company itself. Therefore, the differential amount between the purchase and sale alone cannot be treated as the full purchase and full sale value. The Assessing Officer held that even though the payments are made on differential basis, wherever the assessee-company is making payments to the customers, the entire purchase bill amount has to be taken into consideration and when the differential cash payment is made by the assessee-company, it is necessary to treat the entire purchase bill amount having been made in cash. The Assessing Officer held accordingly that in the majority instances of purchase of old gold, the payments had been made in cash and therefore, violated the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gold ornaments from a person and sells new gold ornaments to the same person. It is in such circumstances, the final settlement of the transactions is made by paying and receiving the amount of differential value. 12. The transaction considered in this case is of same person purchasing new gold ornaments from the assessee against old gold ornaments. In such a case, clause (d) of Rule 6DD clearly applies. The said clause reads that where the payment is 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 is exempted from the operation of Section 40A(3). Therefore, in the present case, as rightly pointed out by the Commissioner of Income Tax (Appeals), the case of the assessee is protected by clause (d) of Rule 6DD. 13. Further, in Section 40A(3), the thrust is on payment of cash for incurring expenditure. Where the payment for purchase exceeded ₹ 20,000/- and the payment is made in cash, such payment shall be disallowed partly under Section 40A(3). The thrust of Section 40A(3) is not dependent on the value of purchase bill and sales bill. It is not concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has entered into a future contract to guard against the loss through future price fluctuations in gold. The assessee is in the business of manufacturing and merchanting of gold. Therefore, the future contract entered into by the assessee is straightaway covered by the first exception provided in clause (a) of Section 43(5). We find that the Commissioner of Income Tax (Appeals) is right in his decision. 19. The third issue is regarding the addition of ₹ 4,19,97,669/- as unexplained cash credits. These credits are reflected in the personal account of the Director of the assessee-company as a result of closing entry passed by the assessee-company at the end of the previous year as on 31.3.2009, by passing journal entries. These journal entries are passed to make adjustments between the personal account of the Director and business account of the assessee-company. As and when exigencies arose, the Director of the assessee-company had made payments towards expenses, towards purchase, towards services, etc. As these payments were made by the Director, he has to be given credit for the outgoings. As those outgoings related to various expenditure incurred by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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