TMI Blog1984 (7) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaring the income as above, the assessee claimed that it suffered a loss of Rs. 1,60,946 in respect of certain transactions which it entered into in cotton seed oil and neem oil. It is not disputed that this loss was suffered by paying differences pursuant to settlement of contracts otherwise than by delivery of goods. The assessee did not dispute that these transactions fell within the meaning of the expression speculative transactions " under s. 43(5) of the I.T. Act, 1961 (for short" the Act "), but claimed that the transactions in question fell within the scope of clause (a) of the proviso to sub-s. (5) of s. 43 and should not, therefore, be treated as " speculative transactions ". The assessee accordingly claimed that the loss of Rs. 1,60,946 should be held to have been incurred during the course of its business and set off accordingly against the income under the head " Business ". In other words, the assessee's claim was that the loss in transactions relating to cotton seed oil and neem oil pertained to contracts in respect of raw materials or merchandise entered into by it in the course of its manufacturing or merchanting business to guard against loss through future pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee relating to cotton seed oil and neem oil were hedge contracts. The ITO held that the assessee does not manufacture and sell either cotton seed oil or neem oil. The ITO also held that the contracts in question are not in respect of merchandise entered into or dealt with by the assessee in the course of its merchanting business. The ITO categorically found that the assessee never carried on any business in the commodities of cotton seed oil and neem oil, whether as a manufacturer or as a merchant. In those circumstances, the ITO held that the ingredients of clause (a) of the proviso to sub-s. (5) of s. 43 were not satisfied. In that view, the ITO held that the loss arose in respect of transactions which are clearly " speculative transactions " within the meaning of s. 43(5) of the Act and are not saved by clause (a) of the proviso to sub-s. (5) of s. 43 ; consequently, the ITO rejected the assessee's claim for setting off the above-referred loss against the assessee's income from business. The assessee filed an appeal before the AAC of Income-tax urging that " the Income-tax Officer was not justified in disallowing the hedging loss of Rs. 1,60,946 ". Before the AAC, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g loss, if sufficient stocks exist, sufficient stocks of groundnut oil do not exist in the case of the assessee. The AAC further held that cotton seed oil and neem oil could not be considered as connected commodities. In the above view, the AAC held that the loss arising out of the transactions could not be considered as loss arising on hedging transactions. He, accordingly, rejected the assessee's contention. The assessee carried the matter in second appeal to the Income-tax Appellate Tribunal; suffice it to say that the Tribunal affirmed the decision of the lower authorities and held that the loss incurred by the assessee in transactions relating to cotton seed oil and neem oil were transactions of speculative nature and could not be considered to be hedging contracts in terms of clause (a) of the proviso to sub-s. (5) of s. 43. In coming to the above conclusion, the Tribunal found that there were no existing contracts to guard against any possible loss on account of future price fluctuations and the contracts in cotton seed oil and neem oil were totally independent. The Tribunal also held that the Board's circular is inapplicable to the facts of the assessee's case because for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress our disapproval of this procedure. The Tribunal is the ultimate fact-finding authority and at least, at the stage of the Tribunal, an endeavour should have been made to ascertain as to what are the factual details relating to the claim and why the assessee claimed that these contracts were entered into to guard against loss through future price fluctuations. It is unfortunate that this has not been done. We tried our best to elicit necessary information for the purpose of appreciating the basis for the assessee's claim; but learned counsel representing the assessee as well as the learned standing counsel for the Revenue expressed their inability to furnish any information, as there are absolutely no details on record. We would have, in the circumstances above mentioned, remitted the matter back for careful scrutiny of facts ; but we are not doing so because we are satisfied that the assessee's claim is prima facie untenable. Learned counsel for the assessee, Sri Srirama Rao, cited several decisions bearing on the point. He endeavoured to focus our attention on certain aspects in respect of which there is a divergence of opinion among the courts. It is contended by him that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the aid of machinery, and selling lint and cotton seed. The assessee entered into 14 forward contracts for the delivery of lint at a future date, and those contracts were settled otherwise than by delivery of the goods. There were no contracts in respect of raw materials or merchandise. Even so, the assessee claimed that the transactions were not speculative transactions as, according to him, they were hedging transactions to guard against possible loss from another set of transactions. Repelling the above contention, it was held by this court that, in the absence of contracts in respect of raw materials or merchandise, the forward contracts entered into for the delivery of lint could not be considered to be hedging transactions. Reference may also be made to the judgment of the Delhi High Court in Delhi Flour Mills Co. Ltd. v. CIT [1974] 95 ITR 151 (Delhi). After referring to the judgment of this court in Omkarmal Agarwal v. CIT [1968] 67 ITR 329 (AP) and also the decision of the Gujarat High Court in Chimanlal Chhotalal v. CIT [1968] 69 ITR 129, the Delhi High Court expressed agreement with the views expressed that the raw material, in respect of which the assessee enters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrovertible position of law emerging from the provisions contained in cl. (a) of the proviso to sub-s. (5) of s. 43, Sri Srirama Rao, learned counsel for the assessee, fell back on the circular issued by the Central Board of Direct Taxes to which we have already made a reference in paragraph 3 supra. Learned counsel urged that, although the hedge contracts entered into by the assessee may not strictly fall within the terms of cl. (a) of the proviso to s. 43(5), they are still saved by the circular of the Central Board of Direct Taxes and the ITO is bound to give effect to the said circular and allow the loss suffered by the assessee in the course of the hedge contracts. Learned counsel fairly concedes that these hedge contracts were not entered into by the assessee in order to guard itself against loss through future price fluctuations in respect of any other contracts for actual delivery of goods manufactured or merchandise sold. It is urged that the hedge contracts were entered into with a view to guard against the risk to raw materials or merchandise in stocks falling in value. It is stated that the assessee was having adequate stocks of groundnut seeds, groundnut kernel and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions and not from genuine hedging transactions. In the present case, there is no finding that the assessee had enough stocks of raw materials or merchandise in hand on each occasion, when the forward contract was entered into. It does not appear that the assessee endeavoured to file any particulars before the authorities below to support its claim on the above basis. There is no indication that this aspect of the matter has been looked into by the authorities below and any finding was arrived at and that, on each of the dates when the assessee entered into forward transactions in cotton seed oil and neem oil, there was adequate stock of raw materials or merchandise in hand and the hedge contracts did not exceed the ready stock. In the absence of a clear finding on this aspect, it is difficult to accept the contention that clarification No. 1 given by the Central Board of Direct Taxes is automatically applicable. Learned counsel, Sri Srirama Rao, contended that the authorities below never disputed the availability of adequate stocks of raw materials and merchandise in the hands of the assessee and, therefore, this court ought to proceed on the basis that, on each occasion when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication. We are satisfied that the forward contracts entered into by the assessee in cotton seed oil and neem oil are not covered by cl. (a) of the proviso to s. 43(5) of the Act and must, therefore, be considered as " speculative transactions " within the meaning of s. 43(5) of the Act. The Tribunal was, therefore, justified in coming to the conclusion that the loss arising in respect of such forward contracts cannot be set oft against the assessee's income from the business in the manufacture and sale of groundnut oil. For these reasons, our answer to the first question is in the affirmative, i.e., in favour of the Revenue and against the assessee. We shall now consider the second question referred to us which relates to the levy of interest under s. 215 of the Act. In the assessment order passed for the year 1973-74, the ITO charged interest on Rs. 14,539 under s. 215 of the Act. The order does not indicate why this interest was charged. The assessee filed an appeal against the charge of interest on the ground that the " Income-tax Officer was not justified in charging the interest ". The AAC upheld the levy of interest on the ground that the advance tax paid by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal against the quantum of interest levied. Yet, another line of decisions was that it is open to an assessee to even contend against the quantum of interest levied. As against the above decisions, courts have also taken the view that an assessee has no right to file an appeal against the charge of interest under s. 215 and, consequently, the assessee cannot repudiate liability to pay interest under s. 215 in an appeal filed. These are the varying views of the various High Courts and it is not necessary either to set out these cases in detail or to enter into an elaborate discussion leading to the different shades of opinion expressed by the different High Courts. In view of the varying shades of opinion expressed by the different High Courts, we have given our most anxious consideration to the matter to see if a case is made out for reconsideration of the decision of this court in Boddu Seetharamaswamy v. CIT [1955] 28 ITR 156 and the unreported judgment of this court in R. C. Nos. 74, 75 and 76 of 1969, dated November 8, 1971 (CIT v. Bankatlal Gopikishan) We are not satisfied that a case for reconsideration is made out. It need not be emphasised that a right of appeal is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or provision of this Act. In the context of cl. (c) of S. 246, the word " assessed " cannot mean computation of income or determination of tax, because such things are already provided for in the latter part of the same clause. Obviously, the expression " assessed " is used in a comprehensive sense to mean subjected to the whole procedure for ascertaining and imposing liability on the taxpayer; and the liability is under the Act and not under any particular provision or individual section of the Act. The Full Bench, therefore, held that the denial should be against being subjected to the whole procedure for ascertaining and imposing liability on the taxpayer. A denial against being subjected to a part of the process of ascertaining and imposing liability is not within its ambit. It is not necessary to multiply authorities on this point, because, in our opinion, the plain construction of the crucial phrases in s. 246(c) of the Act regarding the denial of liability to be assessed under the Act do not envisage a case where the assessee merely denies his liability to pay interest under s. 215 of the Act. In our opinion, therefore, s. 246(c does not confer a right of appeal on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly thought that it is unnecessary to provide a right of appeal, care was taken to ensure that the assessee, against whom interest is levied, is not left without a remedy. Rule 40 of the I.T. Rules, 1962, confers a right on the assessee to seek waiver or reduction of interest levied under ss. 215 and 217. The interest can either be waived or reduced by the ITO himself or by the IAC of Income-tax as specifically provided in r. 40. Similarly, an assessee has a right under r. 117A to ask for waiver or reduction of interest levied under s. 139. The interest can be waived by the ITO or the IAC of Income-tax as specifically provided in r. 117A. Apart from these provisions, the assessee has also a right to approach the CIT for waiver or reduction of interest under s. 273A of the Act. After all this, the assessee could perhaps question the levy of interest in a proceeding under art. 226 of the Constitution, if the levy is illegal. These are the various remedies open to an assessee to challenge the levy of interest under ss. 139(8), 215 and 217 of the Act. It cannot, therefore, be said that an assessee is left without remedies against the charge of interest by the ITO and, therefore, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any reasons for the decision arrived at. Attention of the learned judges was not invited to the earlier decisions of this court in Boddu Seetharamaswamy v. CIT [1955] 28 ITR 156 and in R.C. Nos. 74, 75 and 76 of 1969, dated November 8, 1971 (CIT v. Bankatlal Gopikishan We are, therefore, unable to accept the contention of the learned counsel that the above observations constituted a decision on the point. Before parting with this matter, we must refer to one aspect which is disturbing. The ITO seems to have charged the interest in the assessment order without stating any reasons whatsoever. He seems to have treated the charge of interest as a matter of automatic consequence and that an assessee has no say in these matters before interest is actually charged. It would also appear that the ITO considered the charge of interest as part of the assessment, although the power to levy interest is conferred altogether under different provisions not dealing with the determination of total income and computation of tax. We have already referred earlier that the assessee has a right to ask for waiver or reduction of interest leviable under s. 215, under rule 40 of the I.T. Rules, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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