2014 (5) TMI 1171

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....of the business carried on by the assessee-company, books of accounts and other details, the Assessing Officer came to a conclusion that the assessee has violated the provisions of law stated in Section 40A(3) for making cash payments against purchase of old gold ornaments exceeding the exemption limit. The assessee-company is purchasing old gold ornaments from the customers and new gold ornaments are sold to those customers. In the process of that transaction, the assessee is issuing purchase invoices against the purchase of old gold ornaments and issuing sales bills for the sale of new gold ornaments. 4. But, regarding the payment side, the transaction is closed by making the payment of the differential amount. If a customer purchases new gold ornaments of more value than that of old gold ornaments exchanged by him, the customer makes cash payments to the assessee, of the differential amount. Likewise, when the old gold purchase value is more than the value of the corresponding sale of new gold ornaments, the assessee-company makes payments only of the differential amount to the customer. Wherever such payments made in cash by the assessee-company, were in excess of the exemptio....

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....ded in clause (d) to Rule 6DD. The Commissioner of Income Tax (Appeals), relying on the judgment of the Hon'ble Punjab and Haryana High Court rendered in the case of CIT v. Kishan Chand Maheswari Dass (121 ITR 232), held that such exchange transactions are not hit by provisions of Section 40A(3). Accordingly, the Commissioner of Income Tax (Appeals) deleted the said addition of Rs. 4,35,21,892/-. Regarding the hedging loss of Rs. 99,23,199/-, the Commissioner of Income Tax (Appeals) examined the issue in a detailed manner, particularly, in the light of the law stated in Sections 43(5) and 73 of the Income-tax Act, 1961. He observed that what constitutes speculation has become a matter of controversy notwithstanding the definition of same provisions in Section 43(5), being a transaction periodically and ultimately settled otherwise than by actual delivery. The Commissioner of Income Tax (Appeals) observed that certain categories of contracts are not treated as speculative transactions by virtue of the proviso to Section 43(5) and particularly provided in clauses (a) and (d) of that proviso. Clause (a) provides that a contract in respect of raw materials or merchandise entered in....

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....jeweler will prepare separate bill for purchase of old gold and sale of new ornaments when the transaction was in exchange of old gold with a new ornament. Detailed arguments have been made on this issue. 11. The contention of the Revenue is that Rule 6DD is not applicable in a case where purchase is made from A and sale is made to B. The contention is really against the facts of the case. We are not considering a case where the assessee is purchasing old gold ornaments from person A and selling new gold ornaments to another person B. In such circumstances, those sales are entirely different and independent both by nature and both by the parties involved. In such a case, settlement of account by receiving and paying the differential amounts does not arise at all. In the present case, that is not the issue pointed out by the assessing authority and replied by the assessee. The issue arises where the assessee-company purchases old gold ornaments from a person and sells new gold ornaments to the same person. It is in such circumstances, the final settlement of the transactions is made by paying and receiving the amount of differential value. 12. The transaction considered in this ca....

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....The second issue is disallowance of Rs. 99,23,199/- being hedging loss treated by the assessing authority as speculative loss. 18. Section 43(5) describes what is a speculative transaction. Accordingly, a speculative transaction means a transaction in which a contract for purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transaction of the commodity or scrips. But, there are two exceptions to the above. One of the exceptions is that the above definition of speculative transaction will not apply to a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. In the present case, the assessee has entered into a future contract to guard against the loss through future price fluctuations in gold. The assessee is in the business of manufacturing and merchanting of gold. Therefore, the future contract entered into by the assessee is straightaway covered by the f....