2017 (12) TMI 40

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....year under consideration was trading in pulses for which it had entered into agreements with foreign party vide memorandum of understanding dated 10.05.2006 and 07.08.2006 with JK International Pvt. Ltd. and Agro Corp International Pvt. Ltd., respectively. Due to unavoidable circumstances assessee was not in a position to honour contractual obligation in respect of contract entered into between the parties. Assessee had to pay to the party for breach of contract. This resulted in loss of Rs. 3,08,75,218/-. Ld. AO treated the loss on account of breach of contract being a speculation loss. 3. Aggrieved by order of Ld. AO, assessee preferred appeal before Ld. CIT(A), who deleted the addition. 4. Aggrieved by order of Ld. CIT(A) revenue prefe....

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....d that assessee had entered into contracts, with foreign party, who send shipment by the agreed due dates. He submitted that assessee had completed several purchase contracts during year's, however, it could not honour the contract with one of the party by due date, and said contracts came to an end due to non-performance. Ld. AR referred to written submission filed in the paper book's which tabulates particulars of contracts as under: S. No. Name of party Date of contract Due date of shipment Date of breach of contract Date of settlement 1. J.K International Pvt. Ltd. 10/05/06 30/07/06 30/07/06 05/07/06 2. Agro Corp International Pvt. Ltd. 07/08/06 31/08/06 31/08/06 08/09/06 8. He submitted that as assessee could ....

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....that payment of Rs. 3,08,75,218/-, has been paid by assessee for breach of contract. For the sake of convenience the observations of Ld. AO are reproduced here: "This loss was not by sale of such pulses at prices lower than what they were bought by indemnification it had to pay for cancelling the contract." 13. Then Ld. AO goes on to say that contract was cancelled with a speculation that assessee may incur loss, as the purchase price had fallen. Ld. AO was of the opinion that assessee in the regular course of business sold goods which were not even in its hands and therefore, we considered as it was a sort of loss on trading in future option. In our view, Ld. AO cannot blow hot and cold at same time. On one breath he's admitting that a....

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....bed as a speculative transactions within the meaning of section 43 (5) of the act." 14. It is observed from the paper book at page 11 wherein details of claim/damages paid against breach of import contracts has been placed. According to this chart, assessee had paid damages against cancellation of two import contracts dated 15/06/06 and 10/07/06 placed at pages 17-19 and 20 22 along with credit note at page 23 and 24 respectively. Further from the letter of understanding executed on 05/04/04 placed at page 12-16 of paper book, between the Assessee and Agrocorp International PTE Ltd deals with breach of contract by buyer as under: "3, Breach of Contract by the Buyer The timely compliance of the contract is the essence of this letter of u....