TMI Blog2020 (3) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Appellant(s) No. 1 for the Opponent(s) No. 1 ORAL ORDER (PER : MR. J.B.PARDIWALA) 1. This tax appeal under Section 260A of the Income Tax Act, 1961 (for short the Act, 1961 ) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench B , Ahmedabad dated 4th October, 2019 in the ITA No.2241/Ahd/2017 for the A.Y. 2011-12. 2. The facts, giving rise to this appeal, may be summarized as under; 2.1 The respondent-assessee is engaged in the business of refining of edible oil and related products. The assessee filed its return of income declaring total income at Nil. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee had claimed contract settlement loss of ₹ 62,34,974/- and ₹ 3,20,77,500/- respectively. The Assessing Officer took the 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 Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed by the assessee, observed as under; 5.3 During the appellate proceedings appellant has submitted working of contract settlement loss, original contract for which such loss had incurred and contract settlement note. It further submitted that appellant is engaged in manufacturing and trading of edible oils. It regularly enters into sale contract with various persons for refined Palm Kernel oil and Refined Pamoline which are required to be delivered in goods on a specified date as per every contract. In two contracts, it had failed to honor delivery of contracted goods within the stipulated time as market conditions i.e. prevailing market price as on date of delivery were not favourable to the appellant. Thus, in order to minimize the loss, appellant decided not to honor contracts i.e. to deliver the oil but paid differential amount i.e. price at which oil was sold and the market price on the date of 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 publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of damages. Hon ble Supreme Court has observed in the case of CIT v/s. Shantilal Pvt. Ltd. 144 ITR 57 that if there is a breach of contract then party suffering from such breach become entitled to receive compensation for any loss or damages, cost, as per section 73 of Indian Contracts Act. Thus, payment of such damages is nothing as party to the contract accepting satisfaction of the contract otherwise not agreeing in original terms thereof. What is really settled by the award of such damages and their acceptance of aggrieved party is dispute between the parties. According to Hon ble Delhi High Court in the case of CIT v/s. Bhagwan Das Rameshwar Dayal 149 ITR 387, it was held that section 43(5) of the Act only covers cases where there is a breath followed by settlement of the quantum of damage. A transaction is considered to be speculative If It is settled without actual delivery but it does not follow that all contracts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43(5) of the Act where there is a breach of contract and on a dispute between the parties, damages were awarded as compensation by an arbitration award. The award of damages for breach of contract is not the same thing as the party to the contract has intended to settle the contract following a breach or nonperformance of the contract. Such payment towards breach is not akin to the word settled used in Section 43(5) of the Act. In view of the decision of the Hon ble Supreme Court and the decision of various High Courts following the principles laid down by the Hon ble Supreme Court, we do not see any error in the conclusion drawn by the CIT(A). We thus decline to interfere. 6. We take notice of the fact that the Tribunal has relied upon the decision of the Supreme Court in the case of CIT vs. Shantilal (P.) Ltd. (1983) 144 ITR 57 (SC). Shantilal (supra) was a tax reference made under Section 257 of the Act. The Supreme Court was 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 suffer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies raise a dispute an d no agreement can be reached for a discharge of the contract. There is a breach of the contract and by virtue of s. 73 of the Contract Act the party suffering by such breach becomes entitled to receive from the party who broke the contract compensation for any loss or damage caused to him thereby. There is no reason why the sense conveyed by the law relating to contracts should not be imported into the definition of speculative transaction . The award of damages for breach of a contract is not the same thing as a party to the contract accepting satisfaction of the contract otherwise than in accordance with the original terms thereof. It may be that in a general sense the layman would understand that the contract must be regarded as settled when damages are paid by way of compensation for its breach. What is really settled by the award of such damages and their acceptance by the aggrieved party is the dispute between the parties. The law, 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 inste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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