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TMI Blog2020 (3) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the transactions were entered into by the assessee with various parties and those were settled without the delivery of goods by making payment of the difference of the price. According to the Assessing Officer, it was nothing but a speculative transaction. In such circumstances, the Assessing Officer took the view that the loss incurred due to the speculative transaction cannot be allowed as the revenue expenditure. Accordingly, the Assessing Officer made addition of Rs. 3,83,12,474/- under Section 43(5) of the Act towards the speculation loss incurred on the purchase and sale of contracts which was claimed by the assessee as a business loss in the return of income and adjusted against the business income under Section 73 of the Act. 2.2 The assessee, being dissatisfied with the assessment order, went in appeal before the CIT (A). The CIT (A) allowed the appeal of the assessee holding that the payment of damages made by the assessee represents monetary loss for the breach of contract and the settlement of the contract would not fall within the purview of Section 43(5) of the Act. 2.3 The Revenue, being dissatisfied with the order passed by the CIT (A) went in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement through monetary consideration. It further mentioned that its contract was settled i.e. consideration for breach of contract at the price lesser than the prevailing market rate as per Solvent Extractor Association (SEA). Appellant also submitted the rates published by SEA reflecting the price at which appellant has settled the contract. Appellant has relied upon various judgments such as decision of Hon'ble Kolkata ITAT in the case of Ambo Agro Products Ltd. v/s. DCIT 46 taxmann.com 105 which in turn has further relied upon the judgment of Hon'ble Delhi High Court in the case of CIT v/s. Gora Mal Han Ram Ltd. 191 taxman 94, decision of Hon'ble Bombay High Court in the case of CIT vs. Kamani Tubres Ltd 207 ITR 298. decision of Hon'ble Madras High Court in the case of CIT v/s Sri Ramalinga Choodambilgai Mills Ltd. 239 [TR 120, decision of Hon'ble Delhi High Court in the case of CIT v/s Hans Machoo & Co. 247 ITR 79 etc. All these decisions have discussed provisions of section 43(5) of the Act that deals with definition of speculation transactions. These decisions have also dwelved upon provisions of section 72 and 73 and explanation 2 to section 28 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts which are settled or adjusted without delivery are speculative. It was seen from the contracts undertaken by the appellant that losses were incurred with two parties namely Amreshwara & Co. and NVP Associates. That too in respect of two contacts only. It was seen from the details submitted by the appellant that only in these two contracts, appellant has tried to minimize the damages by settling contract through monetary compensation. It has entered into many other contracts with the same two persons for more larger amount than the two contracts in which it has resorted to settle by payment in monetary terms. Otherwise in all the rest of the contracts appellant has delivered the goods as per the contract. Considering all these facts in mind, I am of the considered opinion that the payment of damages made by the appellant represents monetary loss for breach of contract and settlement of the contract does not fall within the purview of section 43(5) of the Act. It is not only actual non delivery of the goods but it is coupled with settlement of contract in a transaction for which payment is made as per the standard practice. As these payments were by way of damages, these damages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called upon to express its opinion on the following question of law; "Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Appellate Assistant Commissioner that the loss suffered by the assessee was not a loss incurred in a speculative transaction within the meaning of Sec. 43 (5) of the Income-tax Act, 1961 ?" 7. The dictum as laid down in Shantilal (supra) is that the award of damages for the breach of a contract is not the same thing as a party to the contract except the satisfaction of the contract otherwise than in accordance with the original terms thereof. We may quote the relevant observations made by the Supreme Court; 'There is no doubt that the arbitration award granting compensation to M/s. Medical Service Centre proceeds on the footing that there was a breach of contract. The Tribunal took the view that the award of damages for breach of a contract did not bring the transaction within the definition of "speculative transaction" set forth in sub-s. (5) of s. 43, Income Tax Act, 1961. In this, the Tribunal found support in the view expressed by the Calcutta High Court in Commissioner of Income-Tax, We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, speaks of a settlement of the contract, and a contract is settled when it is either performed or the promisee dispenses with or remits, wholly or in part, the performance of the promise made to him or accepts instead of it any satisfaction which he thinks fit. We are concerned with the sense of the law, and it is 474 that sense which must prevail in- sub-s. (5) of s. 43. Accordingly, we hold that a transaction cannot be described as a "speculative transaction" within the meaning of sub-s. (5) of s. 43, Income Tax Act, 1961 where there is a breach of the contract and on a dispute between the parties damages are awarded as compensation by an arbitration award. We are unable to endorse the view to the contrary taken by the Madras High Court in R. Chinnaswami Chettiar(supra) and approve of the view taken by the Calcutta High Court in Pioneer Trading Company Private Ltd. (supra) and by the Mysore High Court in Bhandari Rajmal Kushalra; (supra). The decisions of the Madras High Court in P. L. K. N. Meenakshi Achi (supra) and A. Muthukumara Pillai (supra) are not apposite and are not concerned with the point before us. Our attention was invited by learned counsel for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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