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2024 (6) TMI 737
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....umstances of the case, the CIT(A) has erred in holding that the transactions undertook by the assessee are not speculative in nature as no actual delivery of goods was received by the assessee. 3. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal." (There is error in the departmental grounds in as much this section is to reads 43(5) instead of 45(3).) 3. The assessee has also filed appeal in Form 36, on the following grounds in respect of the additions sustained in appeal by the first appellate authority: Grounds of Appeal of assessee: "1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 66,04,490/- in respect of disallowance of interest u/s 36 (1)(iii). 2. That the disallowance have been made, though, it was explained to the Ld. CIT(A) that sufficient interest free funds were available with the assessee for investment and which have not been considered by the Assessing Officer 3. That the Ld. CIT(A) has failed to appreciate the fact that the assessee has discharged its burden of establishing that the ....
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.... such since no delivery of the goods has been taken by the assessee , it falls within the provisions of speculative transaction u/s 43(5) of the Act 61. 8. Now let us have a look at the provisions of section 43(5) of the Act 61. Section 43(5) of the Act 61. "A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips." 8.1 From the above provisions of section 43(5) of the Act 61, we find, that the most pertinent point to be examined is whether, in the instant transaction, there has been actual delivery of goods or whether the transaction has been ultimately settled, otherwise than by actual delivery. 9. In order to arrive at the conclusion, we take note of the modus operandi of the business of the assessee, which has been explained by the assessee by way of a written submission filed before the AO and also before the first appellate authority which is reproduced as follows: "(i) That the selling party loads the goods in ship and hands over the following documents to t....
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....ally delivered by the person who made the export of goods to the person who purchased the goods as first importer & the same goods were subsequently purchased by the assessee, during the course of transit & the actual and physical delivery was ultimately taken by the end user of the goods. (xi)The above said chain of events proves beyond any shadow of doubt that the actual & physical delivery of the goods was made by the person making the exports to the person making the import at the port of loading & the actual & physical delivery of the same goods was taken by the end user at the port of delivery in India." 10. On the face of the above factual aspects of the matter the Ld. DR , relied on the order of the AO and on the judgments of the Hon'ble Supreme court in the case of Davenport and Co ( Pvt ) Ltd vs CIT ( 1975 ) 100 ITR 715 , Nirmal Trading Co vs CIT ( 1980 ) 121 ITR 56 and in the case of Jute Investment co Ltd 121 ITR 56 , and argued that in the instant case there is failure on the part of the assessee to prove with evidence that there was actual delivery taken by assessee , and this failure renders the transactions of sale and purchase as speculative. 10.1 We....
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....ered as a speculative transaction for the purposes of section 24." 11.2 The Ld. AR argues that from the above said findings of the Hon'ble Calcutta High Court it stands established that any transaction in which there is delivery, it cannot be considered as a speculative transaction. 11.3 The Ld. AR further relies upon the decision of the Andhra Pradesh High Court in the case of Lakshmi Narayan Trading Company (1995) 82 Taxman 301 (AP) and also on Rajasthan High Court in the case of Sripal Satyapal vs ITO (2008) 217 CTR 337(Rajasthan). 11.4 The Hon'ble Andhra Pradesh High court while dealing with identical situation that where there are successive sales of same commodity coupled with delivery or transfer of the commodity and the physical delivery is only taken by the ultimate purchaser, the transaction does not fall within the sweep of speculative transaction and the Hon'ble High Court has elaborated this finding by way of example in para 6 which is reproduced as under: - "For example, if A sells certain commodity to B and transfers possession of the commodity by parting with the commodity either by putting the commodity on the carrier, rail or any other transport,....
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....e settled by delivery of goods, (and for determining the speculative transaction in terms of 43(5) is that whether the transactions entered into by the assessee has been settled otherwise by way of actual delivery of the goods). The relevant part of the judgement is reproduced as under: - "8. that where the nature of transaction entered into between the parties is such that under the contract the seller parts with the possession of the ' goods and while the goods were in transit the buyer enters into subsequent transaction, then so far as the first seller and the first buyer -are concerned, there would be actual delivery of the goods as the first seller and having parted with the possession of the goods and handed them over to the carrier which would amount to delivery to the buyer, the transaction cannot be regarded as speculative transaction." 11.6 The Ld. AR, also brought to our notice, the judgment of the Amritsar Bench of the ITAT, in the assessee own case in ITA No: 56/ASR/2020, for the Assessment year: 2016-17, where on identical facts the issue has been decided in favour of the assessee. (Copy of the said order has been filed on record). 12. We have heard....
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....s and the order of the Ld. CIT (A) on this issue is upheld. 16. The appeal of the revenue is dismissed. I.T.A. No.490/Chandi/2022 17. All the grounds taken by the assessee, relates to only one issue regarding the addition of Rs. 66,04,490/- as interest income u/s 36(1)(iii) of the Act 61. 18. The facts are that, the assessee has advanced an amount of Rs. 9,25,87,451/- to a concern M/s Diamond Traxmein Private Limited, on 1st April 2016, as an advance for purchase of material, but during the year under appeal, no materials has been supplied by the said party, but the said party returned back an amount of Rs. 3,30,00,000/- in July 2016 and a further amount of Rs. 2,56,00,000/- in October, 2016 (totalling Rs. 5,86,00000/-) leaving an outstanding balance of Rs. 3,39,87,451/-, throughout the year. 19. The contention of the AO is that, on one hand, the assessee has been paying interest on borrowed funds and has paid an amount of Rs. 1,13,20,623/- as interest during the year, and on the other hand the assessee own funds are lying with M/s Diamond Traxmein Pvt Ltd, for which no interest has been charged on such interest free loans and no commercial expediency has been explai....
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....nterest free funds available with the Assessee and thus, there cannot be any disallowance of interest as per the provisions of sec 36(1)(iii) of the Act. 10. The copy of Balance sheet is enclosed in the paper book (relevant page-24). The Assessee has interest free funds to the tune of Rs. 26.76cr as on 31.03.2016 and 28.18cr as on 31.03.2017 as the Assessee has not been paying any interest to the Unsecured Loans. 11. Reliance in this regard is being placed upon the following case laws, wherein it has been held that there cannot be any disallowance u/sec 36(1)(iii) of the Act, in a case wherein there are sufficient interest free funds available with the Assessee at the time of giving advance: a) The decision of the Supreme Court in the case of CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466 where it has been expressly held that where there is finding of a fact that interest free funds available to taxpayer were sufficient to meet its investment, it will be presumed that investments were made from such interest free funds." 24. The pertinent issue to be examined in the instant case is whether the assessee had sufficie....