1984 (7) TMI 37 - HC - Income Tax

Assessee's Forward Transaction Loss Not Hedge; No Appeal Against Interest Levy

The High Court held that the loss incurred by the assessee in forward transactions in cotton seed oil and neem oil was categorized as a speculative loss, ... Advance Tax, Appeal To AAC, Hedging Transaction Issues Involved:1. Whether the loss sustained by the assessee in forward transactions in cotton seed oil and neem oil was a loss sustained in speculation business.2. Whether there was a right of appeal against the levy of interest u/s 215 of the Income-tax Act, 1961.Issue 1: Speculation Business LossThe assessee, a partnership firm engaged in the manufacture and sale of groundnut oil, claimed a loss of Rs. 1,60,946 from forward transactions in cotton seed oil and neem oil. The Income-tax Officer (ITO) rejected the claim, categorizing the transactions as 'speculative transactions' u/s 43(5) of the I.T. Act, 1961. The assessee argued that these were hedge contracts as per clause (a) of the proviso to sub-s. (5) of s. 43, meant to guard against price fluctuations. However, the ITO found no connection between these commodities and the assessee's business of groundnut oil. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) upheld the ITO's decision, noting the lack of evidence supporting the hedge claim and the independence of the transactions from the assessee's main business. The High Court affirmed that the transactions in question were speculative, as they did not meet the criteria of clause (a) of the proviso to sub-s. (5) of s. 43, and were not connected to the assessee's primary business.Issue 2: Right of Appeal Against Interest Levy u/s 215The ITO charged interest of Rs. 14,539 u/s 215 for the assessment year 1973-74. The AAC upheld the levy but directed a recomputation of interest considering relief granted in appeal. The ITAT ruled that there was no right of appeal against the levy of interest u/s 215, citing prior decisions of the High Court. The High Court agreed, stating that a right of appeal is statutory and cannot be implied. It emphasized that s. 246(c) allows appeals only when the assessee denies liability to be assessed under the Act as a whole, not merely against specific provisions like interest u/s 215. The Court noted that the legislature provided specific appeal rights against interest levied u/s 216 but not u/s 215, indicating a deliberate legislative choice. The Court also highlighted alternative remedies available to the assessee for waiver or reduction of interest under rules 40 and 117A of the I.T. Rules, and s. 273A of the Act.ConclusionThe High Court answered both questions in the affirmative, ruling in favor of the Revenue and against the assessee. The Court also emphasized the need for the ITO to give reasons and an opportunity to the assessee before levying interest, suggesting that interest should be charged through separate, identifiable orders. The Court rejected the oral application for leave to appeal to the Supreme Court.