TaxTMI 
TaxTMI 
2025 (2) TMI 1932
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.... recalled vide M.A.No. 645/Mum/2023. Accordingly, the original appeal on restoration has been fixed and after according due opportunity of hearing to both the parties is being decided here. 3. The main grounds of appeal are as under :- 1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the AO's action of disallowing the business loss of Rs 26,88,98,500/- on contract settlement by holding the same as not genuine. 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the AO's action of holding the business loss of Rs. 26,88,98,500/- as speculative loss and thereby, not allowing the set-off against the non-speculative business income. 4. Brief facts of the case are that the assessee filed its return of income on 29.09.2015 declaring total loss of Rs. 25,50,57,463/-. During the year under consideration, the assessee derived income from commodity trading. It was observed that the assessee had claimed loss of Rs. 26,88,98,500/- on account of loss on commodity trading. The Assessing Officer while adjudicated on the issue of loss observed and decided as below: ....
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.... We submit that the department has proceeded mainly on the premise that the overall nature of transaction appear to be non-genuine as no-evidence provided by us to prove that the transaction is genuine and the price difference arising on settlement of contract is on nature of 'speculation transaction' and therefore, the loss arising out of such purchase and sale transactions are only be set off against the speculation profit. We submit that this objection raised by the department is erroneous in as much as, the same is without proper understanding of the manner in which commodity business are transacted between a Buyer and Seller in the trade. We submit that during the year 2014-15, we have entered into six contracts with M/s Arabseque Mercantile Pvt Ltd. (i.e. the buyer) & M/s Betul Oil Limited (i.e. the buyer) for sale of commodity "Coriander". In terms of the said contract, the title to the contracted goods is transferred to buyer by us at a price (generally the prevailing market price) agreed between the parties, however, the physical delivery of the goods shall be given to the buyer at any time before the contract expires (known as the delivery period) whi....
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....e buyer and the said loss is recorded by us in our books as "Loss from contract settlement" under Purchase Accounts. As explained above, the said loss is nothing but the price difference/profit/Loss earned between the sale and purchase transaction entered by us with the buyer. In other words, it is the loss by us selling the goods at a higher price and thereafter buying the same back at a lower price. In view of the above submissions, we submit that the contract entered by us with the Buyer is an activity of trading in goods and not a speculative transaction, We humbly pray before your good self to kindly drop the subject point in the interest of justice and equity." 6.1 The details of the contracts undertaken by the VMEPL for sale of coriander commodity (Badami Whole Dhaniya) are as under :- Contract No. Party Date Rate (Rs. )/MT Qty MT Contract Period (Days) Amount (Rs.) BOL/Agri/Vision/03/32 BOL 30.05.2014 91,650/- 1500 60 13,74,75,000/- BOL/Agri/Vision/03/30 BOL 29.05.2014 90,450/- 2000 60 18,09,00,000/- AMPL/Agri/Vision/03/29 AMPL 27.05.2014 90,100/- 1500 60 13,51,50,....
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....,300 3,19,63,500/- AMPL/Agri/Vision/03/23 28.07.2014 88,650/- 1,11,400 2500 22,750 5,68,75,000/- BOL/Agri/Vision/03/22 22.07.2014 88,900/- 1,11,400 2500 22,500 5,62,50,000/- BOL/Vision/BOL/03/21 21.07.2014 88,700/- 1,11,400 2300 22,700 5,22,10,000/- TOTAL 26,88,38,500 All the above said contracts were settled and the loss of Rs. 26,88,38,500/- was claimed by the assessee in profit and loss account. Copy of one of the debit notes is also enclosed along with the assessment order as Annexure - II. These debit notes were printed on the letter head of AMPL and BOL without any identification numbers on them. After the minute observations of the debit notes and contact notes, it is seen that even the reference contract numbers mentioned in debit notes are also different. The same can be seen after comparing the above two tables. There was no broker involved at any of the stage till the settlement of contract. Even after the settlement of contract, no actual payment was made from AMPL to VMEPL, not only this; payment was never paid fr....
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....terthought and a device to illegitimately reduce the tax liability. Since it is afterthought, the similarity of rate of coriander in contract note to the rate reflected on NCDEX platform is of no consequence. This is not an independent transaction between the strangers but between two persons commercially well acquainted with one another. This increases the scope of manipulation. It is significant to note that the counter party i.e. AMPL, has profit from the contract settlement but the said profit was set off against its loss of business. Ultimately, therefore, neither of the parties have paid any tax on this transaction. The contract settlement by SCCPL and loss from the said transaction cannot be viewed in isolation. Enquiries and verification reveal without an iota of doubt that the group entities have manipulated the profits and loss in their constituent companies in such a way that there should not be any tax on any of the profit. This itself makes it clear that the goods were never delivered nor there was any movement of a single rupee for the transaction. The SCCPL also mentions that they had bought back the commodity, this is like doing b....
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....ing contract' or "betting'. Besides, the consideration must also be lawful. 7. Lawful objects: According to Sec. 10, an agreement may become a valid-contract only, if it is for a lawful consideration and lawful object. According to Sec. 23, the following considerations and objects are not lawful :- (i) If it is forbidden by law; (ii) If it is against the provisions of any other law; (ii) If it is fraudulent; (iv) If it damages somebody's person or property; or (v) If it is in the opinion of court, immoral or against the public policy. Thus, any agreement, if it is illegal, immoral, or against the public policy, cannot become a valid contract. 8. Agreement not expressly declared void: An agreement to become a contract should not be an agreement which has been expressly declared void by any law in the country, as it would not be enforceable at law. 9. Certainty and possibility of performance: Agreements to form valid contracts must be certain, possible and they should not be uncertain, vague or impossible. An agreement to do something impossible is void under Sec. 5....
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....n earlier para and the same is found to be devoid of any merit. Section 43(5) of the Act reads as under :- 43(5) speculative transaction" means a transaction in which a contract for the purchase or 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: Provided that for the purposes of this clause- (a) 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; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; (....
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....se of its business. (d) an eligible transaction in respect of trading in derivatives referred to in clause 35 (ac)] of section 2 36 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange; The contract settlement transaction was not an eligible transaction as it has not been carried out in a recognized stock exchange. (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association (which is chargeable to commodities transaction tax under chapter VII of the Finance Act, 2013(17 of 2013) The contract settlement transaction was not an eligible transaction as it has not been carried out in a recognized stock exchange and not even carried out in a recognized association as there is no third party involved at any of the stage of the transaction. In light of the discussion as made as foregoing, the loss of Rs. 26,88,38,500/- claimed by VMEPL on account of loss shares/commodities in its profit and loss account within the ambit of loss from speculation business within the meaning of section 43(5) of the Act. 5.1 As per section 73(1) of t....
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....process had raised sharply. But could not explain why it failed to deliver the goods even partially when the prices were increasing. 9. Also an another group concern i.e Shreyans Credit and Capital Ltd:SCCPL) had also entered into transactions with Arbesque Merchantile P.Ltd one of the parties with whom the assessee also entered into contract with which was also premeditatae (para 6.3.14) 5.1 The ld.CIT(A) has also placed reliance on various judicial decisions of High Courts and Apex court in support of his conclusion that the whole exercise undertaken was simply smokescreen to carry out bogus loss transactions in the garb of sale of commodity which was not real and the assessee failed to dispel all the queries of the AO to prove otherwise. 5.2 In so far as the alternative plea of the assessee that the loss arising due to settlement of contract was wrongly treated as loss from speculation business u/s 43(5) by the AO is concerned, in paras 7.1 to 7.3, the contents of the assessment order as also the submissions made by the assessee have been reproduced and in the concluding para 7.3, the ld.CIT(A) observed that loss already being treated as non genuine the ground was....
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....er two parties have set off substantial business losses and disclosed negligible income in their respective returns of income for the relevant year from the profit claimed to have earned from the impugned transactions. The transactions were admittedly not done on any recognized commodity exchange platform through SEBI registered broker and therefore, not carried out electronically on screen based systems through member or an intermediary, screen-based registered under the bye-laws, bye rules and regulations of the recognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 and the rules, regulations or bye laws made or directions issued under that Act on a recognized association and which is supported by a time stamped contract note issued by such member or intermediary to identity number allotted under the Act, every client indicating in the contract note, the unique client identity rules, regulations or bye-laws, unique trade number and permanent account number allotted under this Act. In the present case, the self-serving contract notes were manually made to suit the convenience of the respective pu....
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....e assessee in the present case has not brought on record any such cogent evidence to buttress its claim of loss. 7.4 It may be stated here that the coordinate bench in the case of ITA No. 1644/Mum/2020 M/S. Shreya Credit & Capital P. Ltd. vs Dcit, Central Circle 7(2), Mumbai dated 31 March, 2023 on almost identical facts and circumstances, upheld the decision of the authorities below and appeal of the assessee was dismissed. 7.5 The Hon'ble Supreme Court in the case of JuggilalKamlapat v. CIT [1969] 73 ITR 702 has held that the income-tax authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction and that in exceptional cases the Court can lift the veil of corporate entity and to pay regard to the economic realities behind the legal façade. Similarly, the Assessing Officer has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetuate fraud. The Hon'ble Delhi High Court in PNB Finance Ltd. v. Shri Shital Prasad Jain [1983] 54 Comp. Cas. 66 has held that the doctrine of piercing the corporate veil wherever necessary might be invoked by the Court in the int....