2024 (7) TMI 212 - AT - Income Tax

Edible oil trading with actual delivery not speculative under section 43(5), interest disallowance under section 36(1)(iii) deleted

ITAT Amritsar ruled in favor of the assessee on two issues. First, regarding speculative transactions under section 43(5), the tribunal held that ... Speculative transaction u/s 43(5) - contention of the revenue is that assessee has not taken physical delivery of edible oil at the port of destination (i.e at the port of delivery in India), it falls within the provisions of speculative transaction u/s 43(5) - HELD THAT:- Respectfully following the judgments of Hoosen Kasam Dada (India ) Ltd [1962 (9) TMI 70 - CALCUTTA HIGH COURT and Sripal Satyapal vs ITO [2007 (1) TMI 627 - RAJASTHAN HIGH COURT] and on the views expressed in the case of Lakshminarayan Trading Company [1995 (3) TMI 20 - ANDHRA PRADESH HIGH COURT] and the judgment of the coordinate bench [2023 (3) TMI 601 - ITAT AMRITSAR] in the assessee own case, we hold that the ultimate settlement of the transactions entered into by the assessee has been settled by the actual delivery of the goods to the ultimate buyer and thus the transactions of sale and purchase in the instant case does not fall within the provisions of section 43(5) of the Act 61 and are not speculative transactions - Decided against revenue. Disallowance of interest u/s 36(1)(iii) - no interest is charged by the assessee on such advance made to 3 parties - HELD THAT:- Dealing with G H Crop Protection Private Limited are fully business dealing and the amount has been paid by way of advance for procuring of materials and since the said materials were not supplied due to unavoidable circumstances the funds has been refunded by the said party. Moreover, name of the party G H Crop Protection Private Limited is appearing in the schedule of loans taken/ accepted and repayments made during the year. This is just to establish that there is regular business dealing with the said party and the amounts advanced or taken, does not necessarily bear interest at all times. This transaction has been out of business exigency. DR has not disputed or controverted the arguments of the assessee on the aspect of availability of interest free funds, as shown to have been reflected in the audited balance sheet. We are of the opinion that there is neither any reason nor any material to disbelieve the figures contained in the audited balance sheet, more so, the availability of unsecured loans (free of interest) duly reflected in the balance sheet under the head unsecured long term borrowings on 31st March 2015, which is sufficient to meet the advance of Rs. 19 lakhs and 14 lakhs, respectively, given to Homeland Enclave Limited, and J P Singh and Co, and respectfully following the decision of Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] we delete the addition sustained by the CIT(A) u/s 36(1)(iii) of the Act 61. Decided in favour of assessee. Issues Involved:1. Whether the transactions undertaken by the assessee are speculative in nature under section 43(5) of the Income Tax Act, 1961.2. Disallowance of proportionate interest on interest-free advances under section 36(1)(iii) of the Income Tax Act, 1961.3. Validity of the reassessment proceedings initiated under section 148 of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Speculative Transactions under Section 43(5)The department contended that the transactions involving high sea sales of palm oil by the assessee were speculative in nature as defined under section 43(5) of the Income Tax Act, 1961, because no actual delivery of goods was received by the assessee. The department argued that since the end user took physical delivery and paid customs duty, the transactions should be considered speculative.The Tribunal examined the provisions of section 43(5), which defines a speculative transaction as one where the contract for purchase and sale of any commodity is settled otherwise than by actual delivery or transfer of the commodity. The assessee provided a detailed explanation of the business process, supported by documentary evidence, showing that the goods were physically delivered to the end user, which was not disputed by the AO.The Tribunal cited several judgments, including the Calcutta High Court in Hoosen Kasam Dada (India) Ltd vs CIT, Andhra Pradesh High Court in Lakshmi Narayan Trading Company, and Rajasthan High Court in Sripal Satyapal vs ITO, which established that transactions involving actual delivery of goods cannot be considered speculative. The Tribunal concluded that the transactions were settled by actual delivery of goods to the ultimate buyer and thus did not fall under the provisions of section 43(5).The Tribunal upheld the CIT(A)'s order, which allowed the assessee's claim of business loss arising out of trading of edible oils on high sea sales to be set off against interest income.Issue 2: Disallowance of Interest under Section 36(1)(iii)The assessee contested the addition of Rs. 1,97,688/- on account of disallowance of proportionate interest on interest-free advances. The assessee argued that the advances were made for commercial expediency and that interest-free funds were available to cover these advances.The Tribunal noted that the AO had accepted the documentary evidence provided by the assessee, showing regular business dealings with the parties involved. The Tribunal also considered the Supreme Court's decision in CIT vs Reliance Industries Ltd, which held that if interest-free funds are available, it will be presumed that investments are made from such funds.The Tribunal found no reason to disbelieve the figures in the audited balance sheet, which showed sufficient interest-free funds to cover the advances. Consequently, the Tribunal deleted the addition of Rs. 1,97,688/- sustained by the CIT(A) under section 36(1)(iii).Issue 3: Validity of Reassessment Proceedings under Section 148The assessee raised an additional ground challenging the initiation of reassessment proceedings under section 148, arguing that there was neither any tangible material in possession of the AO nor any reason to believe that income had escaped assessment.The Tribunal admitted this ground, following the Supreme Court's judgment in NTPC vs CIT, which allows legal grounds to be raised at any stage. However, since the Tribunal had already decided the assessee's grounds on merits in favor of the assessee, the additional ground became academic and was not adjudicated upon.ConclusionThe Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that the transactions were not speculative and allowed the business loss to be set off against interest income. The Tribunal also allowed the assessee's cross-objection, deleting the disallowance of interest under section 36(1)(iii). The additional ground regarding the validity of reassessment proceedings was admitted but not adjudicated upon as it became academic.