INCOME TAX OFFICER WARD-1(1), BATHINDA vs. M/S APEX FIBRE INDIA LIMITED, BATHINDA

Per Dr. M. L. Meena, AM:

Both the appeals have been filed by the Revenue against the order of

the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar (Camp at

Bathinda), even dated 29.11.2019 in respect of Assessment Year 2016-17.

“(i) The CIT(A) has erred in not taking into consideration the findings of Hon’ble Supreme Court in Davenport & Co. (P) Ltd. vs. CIT, (1975) 100 ITR 715, Nirmal Trading Co. vs. CIT (1980) 121 ITR 54, and Jute Investment Co. Ltd. vs. CIT (1980) 121 ITR wherein it was held that the transaction of transfer to delivery notes as speculative.

(ii) The CIT(A) has erred in holding that the transactions under took by the assessee are not speculative in nature disregarding the definition of speculative transaction provided by section 43(5) of the Act.

(iii) The CIT(A) has erred in holding that the AO was not justified in invoking provisions of section 145(3) of the Act disregarding the fact that the assessee failed to submit the documents as required by the AO to deduce correct profits of the assessee.

(iv) The CIT(A) erred in holding that the interest earned on FDRs and other interest had an immediate nexus with the business of the assessee without appreciating that the assessee failed to prove how the interest earned on FDRs and other interest related to his business activities despite the fact that he was specifically required to prove it during assessment proceedings.

3 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

(v) The CIT(A) has erred in holding that there is direct nexus between interest income and business activities without giving any clear findings as to how such nexus has been proved in the instant case.

(vi) The CIT(A) has erred in not recording whether the findings are based on additional evidence produced by the assessee and admitted by the CIT(A), which was in violation of Rule 46A of the Rules as such production of additional evidence was not covered under clause (a) to (d) of Rule 46A and no reasons have been recorded by the CIT(A) for admitting such additional evidence.

(vii) The CIT(A) erred in not taking into consideration the findings of Hon’ble Rajasthan High Court in the case of CIT vs. Bhaval Synthetics India, 81 taxmann.com 478 wherein, it was held that interest earned on FDRs kept in bank as margin money for obtaining LOC to purchase machinery was taxable as income from other sources.

(viii) The CIT(A), Bathinda erred in not taking into consideration the findings of Hon’ble Supreme Court in the case of .Conventional Fasteners vs. CIT, 94 taxmann.com 80 wherein, the finding of the Hon’ble Uttarakhand High Court that interest income earned from FDRs kept as security and as a business pre requisite had nothing to do with carrying on business, were upheld.

“(i) The CIT(A) has erred in not taking into consideration the findings of Hon'ble Supreme Court in Davenport &. Co. (P) Ltd. vs. CIT, (1975) 100 ITR 715, Nirmal Trading Co. vs. CIT (1980) 121 ITR 54, and Jute Investment Co. Ltd. vs. CIT (1980) 121 ITR wherein it was held that the transaction of transfer to delivery notes as speculative.

(ii) The CIT(A) has erred in holding that the transactions under took by the assessee are not speculative in nature disregarding the definition of speculative transaction provided by section 45(3) of the Act.

(iii) The CIT(A) erred in holding that the interest earned had an immediate nexus with the business of the assessee without appreciating that the assessee failed to prove how the interest earned related to his business activities

4 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors despite the fact that he was specifically required to prove it during assessment proceedings. (iv) The CIT(A) has erred in holding that there is direct nexus between interest income and business activities without giving any clear findings as to how such nexus has been proved in the instant case.

(v) The CIT(A) has erred in not recording whether the findings are based on additional evidence produced by the assessee and admitted by the CIT(A), which was in violation of Rule 46A of the Rules as such production of additional evidence was not covered under clause (a) to (d) of Rule 46A and no reasons have been recorded by the CIT(A) for admitting such additional evidence.

(vi) The CIT(A), Bathinda erred in not taking into consideration the findings of Hon'ble Uttarakhand High Court in the case of Conventional Fasteners vs CIT, subsequently upheld by the Hon'ble Supreme Court (94 taxmann.com 80), wherein, in para 24 of the order, it was held that any income, which may be derived from carrying on the business, even if it is incidental, would quality as business income under section 28 but that is not the same thing as saying that it is a business income, which is derived from the said business.”

facts, challenging the issue of additional evidence admitted by the CIT(A),

under Rule 46A of the ITAT Rules1963, therefore, both the appeals were

taken up for hearing and adjudicated together simultaneously by this common

order for the sake of brevity.

discussion. The assessee is a private limited company dealing in

import/export of edible/non-edible product and also engaged in the marketing

of pesticides/insecticides and other crop saving materials. It had filed its return

5 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors declaring income of Rs.59,06,920/- for the assessment year 2016-17 on

15.09.2016. The case of the assessee was selected for complete scrutiny

through CASS and assessment u/s 143(3) of the Act was framed after

invoking provision of section 145(3) of the Act at the total income of

Rs.2,37,67,280/- vide an order dated 28.12.2018 and the speculative loss of

Rs. 1,78,06,371/- was allowed to be carried forward separately. While making

assessment, the AO held that transactions involving sale and purchase of oil

undertaken by the assessee did not involve actual delivery of goods, and

thus, the assessee indulged in speculative transactions within the meaning of

section of 43(5) of the Act. Regarding the interest income of Rs.2,22,31,375/-

which was claimed as business income and set off against the speculative

loss, the AO held such income to be taxable under the head ’Income from

other sources’ as the assessee failed to explain how the interest income was

related to business activities. Interest income of Rs.2.22 Cr comprised interest

amounting to Rs.0.91 Cr on FDRs and other interest amounting to Rs.1.30 Cr

on loans and advances. The assessee failed to substantiate as to how the

interest of Rs.2.22 Cr credited to P & L as ‘Interest’ formed part of business

activities of the assessee. Therefore, the interest amounting to Rs.2.22 Cr

was held to be taxable under the head ‘Income from other sources.

6 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors 6. Aggrieved with the assessment order, the assessee filed an appeal

before CIT(A), Bathinda. The CIT(A) vide order dated 29.11.2019 in Appeal

No. 454/2019-20 allowed the appeal of the assessee. The CIT(A) held that

the transactions undertook by the assessee were not speculative within the

meaning of section 43(5) of the Act. The CIT(A) held that the interest earned

on FDRs and other interest had an immediate nexus with the business of the

assessee i.e., import of edible oil and resale and that such interest income

was part and parcel of the business of the assessee and therefore allowed to

be set off against speculative loss. The CIT(A) also held that the AO was not

justified in rejecting the books of the assessee u/s 145(3) of the Act and that

the AO was not justified in estimating that expenses pertaining to pesticide

business without pointing out any specific defect.

before us. The Ld. Addl. CIT(DR) submitted that the CIT(A) has erred in not

taking into consideration the findings of Hon’ble Supreme Court in Davenport

& Co. (P) Ltd. vs. CIT, (1975) 100 ITR 715, Nirmal Trading Co. vs. CIT (1980)

121 ITR 54, and Jute Investment Co. Ltd. vs. CIT (1980) 121 ITR wherein it

was held that the transaction of transfer to delivery notes as speculative. He

contended that the transactions under took by the assessee are speculative in

7 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors nature in view of the definition of speculative transaction provided by section

43(5) of the Act; that the AO was justified in invoking provisions of section

145(3) of the Act as the assessee failed to submit the documents as required

by the AO to deduce correct profits of the assesse; that the interest earned on

FDRs and other interest had no immediate nexus with the business of the

assessee has not been appreciating as the assessee failed to prove how the

interest earned on FDRs and other interest related to his business activities

despite the fact that he was specifically required to prove it during assessment

proceedings and that the findings are based on additional evidence produced

by the assessee and admitted by the CIT(A), was in violation of Rule 46A of

the Rules as such production of additional evidence was not covered under

clause (a) to (d) of Rule 46A and no reasons have been recorded by the

CIT(A) for admitting such additional evidence. The Ld. DR argued that the

CIT(A) erred in not taking into consideration the findings of Hon’ble Rajasthan

High Court in the case of CIT vs. Bhaval Synthetics India, 81 taxmann.com

478 wherein, it was held that interest earned on FDRs kept in bank as margin

money for obtaining LOC to purchase machinery was taxable as income from

other sources and that the CIT(A), Bathinda has not considered the findings of

Hon’ble Supreme Court in the case of Conventional Fasteners vs. CIT, 94

taxmann.com 80 wherein, the finding of the Hon’ble Uttarakhand High Court

8 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

that interest income earned from FDRs kept as security and as a business pre

requisite had nothing to do with carrying on business, were upheld. He

pleaded that the impugned order be set aside.

that the Ld. CIT(A) has been justified in granting relief to the appellant

assesse. He argued that no fresh evidence was filed to be admitted by the Ld.

CIT(A) and thus, the allegation of admission of additional evidence is factually

incorrect. He has filed a paper book and written synopsis in support of the

contentions raised at the time of hearing before the bench. The relevant part

is reproduced as under:

2.1 The Grounds of Appeal raised by the Department and the relevant findings of the CIT(A) have been discussed alongwith findings of the CIT(A) & further rebuttal to the grounds of appeal as under:

S.No. Grounds of Appeal raised by the AO Finding of the CIT(A)/Rebuttal of the assessee 1. (6) The CIT(A) has erred in not Rebuttal of the assessee recording whether the findings are The grounds of appeal on the issue of the based on additional evidence alleged violation of the provisions of Rule produced by the assessee and 46A is vague because of the wording admitted by the CIT(A), which was in

9 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

violation of Rule 46A of the Rules as “whether the findings are based on such production of additional additional evidence produced by the evidence was not covered under assessee”. clause (a) to (d) of rule 46A and no The CIT(A) has based his findings on the bills reasons have been recorded by the of entry as an evidence for physical delivery CIT(A) for admitting such additional of goods on which the complete particulars evidence. of the name of the importer/end user has been mentioned. [Page 17 of CIT(A) order] The invoices issued by the exporter/bill of lading/bill of entry uploaded by the assessee during the course of assessment proceedings is in paper book-2(Pg-1-62) alongwith the evidence of uploading the same during the course of assessment proceedings. In view of the above stated facts, no additional evidence has been submitted, before the CIT(A)during the course of appellate proceedings, by the assessee.

10 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

In these circumstances the rejection of books of account without any basis is unsustainable and the rejection of books of accounts u/s 145(3) of the Act is dismissed.” Rebuttal of the assessee That since no specific defects have been pointed out by the Assessing officer and, as such, the whole basis of rejection of books of account is on presumptions, conjectures and on surmises and, thus, the Ld. CIT (A) has rightly held that the books of accounts are not liable to be rejected.

11 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

transactions. [Page 19 -21 of CIT(A) order]. The CIT (A) has also relied on the judgment of SripalSatyaPal vs. ITO [2008] 217 CTR 337 (Raj.) in which it has been held that catch lies in the fact of taking the physical delivery of the goods by the assessee is not the test for determining the speculative transaction in terms of section 43(5) but the test is settlement of the transaction entered into by the assessee or on his behalf otherwise than by actual delivery of the commodity [Page 21-24 of CIT(A) order]. The CIT(A) has also relied on the judgment of Calcutta High Court in the case of HoosenKasam Dada (India) Ltd. vs. CIT(1964) 52 ITR 171 in which the speculative transactions has been defined to me where there is no delivery under a settlement contract, it is speculative transaction. On the other hand, however speculative the transaction might be, if there is delivery, it cannot be considered to be a speculative transaction. SECTION 43(5) Speculative transactions means a transaction in which a contract for the purchase or sale (2) The CIT(A) has erred in holding of any commodity, including stocks and that the transactions under took by shares, is periodically or ultimately settled the assessee are not speculative in otherwise than by the actual delivery or nature disregarding the definition of transfer of the commodity or scripts. speculative transaction provided by Facts relating to transactions of edible oil section 45(3) of the Act. [Section during High Seas 43(5) as the section has been mentioned wrongly.] (Relevant documents filed in Paper book-2 pages-1-62) • The AO treated the transaction of edible oil carried on by the assessee as speculative transaction within the meaning of section 43(5) because according to the

12 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

AO the assessee did not take actual delivery of goods. • The assessee made two type of transactions and in the first type of transactions the entity making export of goods from outside India transfers the possession, to the assessee as importer, by parting with the edible oil/goods by loading the same into ship and the assessee sold the same to the subsequent buyer and delivery of such edible oil/goods was taken by the end user from the port of arrival in India, and after paying taxes by such end user the port authority issued bill of entry to the end user. • In the second type of transaction the assessee purchased edible oil/goods from the first importer [entity who purchased the edible oil/goods from exporter] while edible oil/goods was in transit in the ship and the delivery of such edible oil/goods was taken by the end user at the port of arrival in India to whom bill of entry is issued by the port authority. • The invoice issued by the exporter & the bill of entry has been uploaded during the course of assessment proceedings to prove the actual delivery of the goods.

Hence in both the cases the transaction was settled by the actual delivery of the goods received by the 1st buyer and the ultimate buyer i.e. the end user and the transaction of edible oil/goods could not be branded as speculative transaction. Findings of the CIT(A) The CIT(A) has discussed the submissions of the assessee from Page 3 to 15 of the assessment order and the findings under the head Decision from Page 14 to 25 of the

13 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

assessment order. The CIT(A) has given the finding on Page 25 of the order that the import of edible oil by the assessee from exporter outside India is not speculative as the edible oil was loaded in the ship by seller of goods which amounts to physical delivery of the goods taken by the buyer i.e., appellant as an importer. It has been further held by the CIT(A) that the edible oil has been purchased by the assessee while in transit and the appellant has sold the same to the subsequent buyer on High Seas and the physical delivery of the goods has been taken by the end user for which the evidence has been placed on record. The CIT(A) has given the finding on Page 24 that the fact of taking the physical deliver of the goods by the assessee is not the test for determining the speculative transaction in terms of section 43(5) but the test is settlement of the transaction entered into by the assessee or on his behalf otherwise than by actual delivery of the commodity or scrips. The CIT(A) after relying on the judgments of Andhra Pradesh High Court in the case of CIT vs. Lakshminarayana Trading Co(1995) 82 Taxman 301(AP)/ Rajasthan High court in the case of SripalSatypal vs. ITO (2008) 217 CTR [Raj] and Calcutta High Court in the case of HoosenKasam Dada(India) Ltd. vs. CIT (1964) 52 ITR 171has held on Page 27 that it is held the transactions of trading in edible oil by the appellant are not speculative in nature within the meaning of section 43(5) of the Act. Accordingly, the business loss incurred by the appellant is eligible for set off against other income in terms of the provisions of

14 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

section 71(1) of the Act. Rebuttal of the assessee The CIT(A) has held the transactions of edible oil by the assessee during high seasasnon-speculative as against treatment of the same by the AO as speculative as defined u/s 43(5) of the Income Tax Act, 1961 for which the facts of the case brought on record by the assessee, during the course of appellate & assessment proceedings, to prove that the actual delivery of the goods was taken by the assessee in the ship as importer & by the end user at the time of arrival in India has been discussed threadbare by the CIT(A). The CIT(A) has distinguished the judgements of Apex Court relied on by the AO & has also given the detailed reasons for following judgements as cited by the assessee. 4. (4) The CIT(A) erred in holding that Findings of the CIT(A) the interest earned on FDRs and With regard to theinterest on FDR pledged other interest had an immediate with bank for foreign letter of credit, CIT(A) nexus with the business of the has given the finding on Page 28 and has assessee without appreciating that relied on the judgment of Delhi High Court in the assessee failed to prove how the the case of CIT vs. Koshika Telecom interest earned on FDRs and other Ltd.(2006) 287 ITR 479 in which the interest related to his business judgment of Apex Court in the case of CIT vs. activities despite the fact that he Karnal Coop Sugar Mills Ltd (2001) 118 was specifically required to prove it Taxman 489 (SC) has been followed and it during assessment proceedings. has been held that the interest earned by the assessee from fixed deposits is inextricably linked to the business of the assessee of trading of edible oil as the fixed deposits have been kept a security for the purpose of obtaining foreign letter of credit from the bank.

15 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

(5)The CIT(A) has erred in holding With regard to interest income from the that there is direct nexus between parties amounting to Rs. 1,30,41,800, the interest income and business findings of the CIT(A) is at page 31 of the activities without giving any clear order as under:- findings as to how such nexus has “Since, the purchase and sale of edible oil been proved in the instant case. by the appellant has been held while deciding the ground of appeal no.1 above to be non-speculative in nature and not hit by the provisions of u/s 43(5) of the act, therefore, the ‘other interest of income’ of the assessee amounting to Rs. 1,20,41,800/- is allowed to be set off u/s 71 (1) of the Act against the loss arising to the appellant from the business of the appellant of purchase/sale of edible oil.” The finding of the CIT(A) is on Page 28 in (7) The CIT(A) erred in not taking which it has been held that the judgment of into consideration the findings of Bhawal Synthesis India 81 Taxman 478 is Hon’ble Rajasthan High Court in the distinguishable on facts because the case of CIT vs. Bhaval Synthetics Rajasthan High Court has relied on the Apex India, 81 taxnabb.com 478, wherein, Court in the case of Tuticorin Alkali it was held that interest earned on Chemicals and Fertilizers Ltd. vs. CIT (1997) FDRs kept in bank as margin money 227 ITR 172 but Delhi High Court in the case for obtaining LOC to purchase of Koshika Telecom Ltd.(2006) 287 ITR 479 machinery was taxable as income relied on the judgments of Apex Court in the from other sources. case of Karnal Coop Sugar Mills Ltd (2001) 118 Taxman 489 (SC) in which it has been held that interest from deposit of margin money with the banks inextricably linked with the requirement of furnishing of bank guarantee of the assessee is income from business as compared to the interest from the deposits which is on account of parking of surplus funds with the bank to render the interest and from the same exigible to tax as income from other sources.

The CIT(A) has distinguished the judgment of (8) The CIT(A), Bathinda erred in not Apex Court in the case of Conventional taking into consideration the findings Fasteners vs. CIT 94 taxmann.com 80 on of Hon’ble Supreme Court in the case Page 28 of the order and it has been held

16 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors

of Conventional Fasteners vs. CIT 94 that the judgment of the Apex Court is not taxmann.com 80 wherein, the applicable to the facts of the case because findings of the Hon’ble Uttarakhand the case before the Apex Court related to High Court that interest income claim of deduction u/s80IC and it has been earned from FDRs kept as security held by the Apex Court that the interest and as a business pre-requisite had earned from the fixed deposit kept as nothing to do with carrying on security had nothing to do with carrying on business, were upheld. of business of manufacture and sale of electric meter and the assessee was not entitled to deduction u/s 80IC. Rebuttal of the assessee During the course of assessment proceeding, it was stated before the AO that the goods imported by it are backed up with LC [letter of credit] and that FDR made by it was not surplus FDR but as per bank’s term, it uses to make FDR as cash margin against these LCs opened against the import of goods and that the income arising out from these FDRs is its operative income and business income. [Para Page 3 of the Assessment order] In the following cases it has been held by the various courts that the interest from fixed deposits which is inextricably linked to the business of the assessee is income from business income & not income from other sources. CIT vs. Koshika Telecom Ltd.[2006] 287 ITR 479 (Delhi) CIT vs. Karnal co-op Sugar Mills Ltd. [2001] 118 Taxman 489 (SC) CIT vs. Bokaro Steel Ltd. [1999] 102 Taxman 94 (SC) CIT vs. Shri Ram Honda Power Equip’s case [2007] 158 Taxman 474 (Delhi) CIT vs. Karnal Co-op Sugar Mills Ltd. [1999]

17 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors 102 Taxman 11 (P&H) Lalsons Enterprises vs. DCIT [2004] 89 ITD 25 (Delhi) CIT vs. Shahi Export House [2010] 195 Taxman 163 (Delhi) With regard to interest from parties, the same is also linked to the business of the assessee. Even otherwise, since there is current year loss in the business of edible oil, the loss is liable to be adjusted against the business income derived from this and for this the reliance is placed on the findings of the CIT(A) reproduced above.

record, impugned order, written submissions and case law cited before us.

the provisions of Rule 46A of Income Tax Rules 1962. The Ld. DR argued

that the CIT(A)’s findings are based on additional evidence produced in

violation of Rule 46A of the Rules as not covered under clause (a) to (d) of

rule 46A and no reasons have been recorded by the CIT(A) for admitting such

additional evidence. The Ld. AR in rebuttal submitted that the issue of the

alleged violation of the provisions of Rule 46A is vague because of the

wording used are “whether the findings are based on additional evidence

18 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors produced by the assessee”. The counsel contended that the CIT(A) has

based his findings on the bills of entry as an evidence for physical delivery of

goods on which the complete particulars of the name of the importer/end user

has been mentioned. [Page 17 of CIT(A) order]. This fact is further supported

by the invoices issued by the exporter/bill uploaded by the assessee and

lading/bill of end user, during the course of assessment proceedings (APB-2,

Pgs.1-62) alongwith the evidence of uploading the same during the course of

assessment proceedings. Thus, the allegation of the department as regards to

admission of additional evidence in violation of Rule 46A of the Income Tax

Rules, is factually incorrect. Hence, this ground is dismissed.

holding that the AO was not justified in invoking provisions of Section 145(3)

of the Act, disregarding the fact that the assessee failed to submit the

documents as required by the AO. The CIT(A) on the issue of rejection of

books of accounts categorically observed that the AO had applied the

provisions of section 145(3) and rejected the books of account without

pointing out any defect in the books. It is admitted fact that the appellant had

maintained books of accounts of the business carried out by him and the

same were audited by a CA and the tax audit report along with audited

19 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors accounts was placed before the AO in the assessment proceedings, but no

specific defect was pointed out in the books of accounts. Merely because the

appellant did not submit separate trading and profit and loss account for

purchase and sale of edible oil and pesticides, it cannot be said to be specific

defect for rejecting the books of accounts and the case of the assessee is

covered by the decision of Hon’ble Punjab and Haryana High Court in the

case of CIT vs. Smt. Salochana Bhatia 20 taxmann.com 298 and in the case

of CIT vs. Om overseas (2009) 315 ITR 185 [P&H]. In view of the matter, we

hold that the rejection of books of account is without any basis. Since, there

have been no specific defects pointed out by the Assessing officer and, as

such, the whole basis of rejection of books of account is on presumptions,

conjectures and surmises and, thus, the Ld. CIT (A) has rightly held that the

rejection of books of accounts u/s 145(3) of the Act is not liable to be rejected

and thus, in our view, the rejection of books of account in such manner is

unsustainable. This ground of revenue is rejected.

relied upon by the AO on Page 18-19 of the appellate order and all three

cases relied upon by the AO has been discussed in detail. The CIT(A) has

observed on Page 19 of the impugned order as under:

20 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors “Therefore in all the three cases relied upon by the Assessing Officer it was categorically held that only the delivery orders exchanged hands and there was no physical and actual delivery of goods. But that was not the case in the case of the appellant where physical delivery of goods had taken place from the seller to edible oil by loading the same into the ship and edible oil was sold by the assessee to the subsequent buyer being a trader or end user and the delivery of such edible oil was taken by the end user from the port in India by submitting the bill of entry at the time of taking delivery.”

ITO”, [2008] 217 CTR 337 (Raj.) in which it has been held that catch lies in

the fact of taking the physical delivery of the goods by the assessee is not

the test for determining the speculative transaction in terms of section 43(5)

but the test is settlement of the transaction entered into by the assessee or

on his behalf otherwise than by actual delivery of the commodity. The CIT(A)

has also relied on the judgment of Calcutta High Court in the case of

“HoosenKasam Dada (India) Ltd. vs. CIT”,(1964) 52 ITR 171 in which the

speculative transactions has been defined to me where there is no delivery

under a settlement contract, it is speculative transaction. On the other hand,

however speculative the transaction might be, if there is delivery, it cannot

be considered to be a speculative transaction.

transaction in which a contract for the purchase or sale of any commodity,

21 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors including stocks and shares, is periodically or ultimately settled otherwise

than by the actual delivery or transfer of the commodity or scripts. The

assesse has filed a paper book in support of the facts relating to transactions

of edible oil on High Seas Transactions (APB-2, Pgs. (1-62). The AO treated

the transaction of edible oil carried on by the assessee as speculative

transaction within the meaning of section 43(5) because according to the AO

the assessee did not take actual delivery of goods.

14.1 The assessee made two types of transactions. In the first type of

transactions, the entity making export of goods from outside India, transfers

the possession, to the assessee as importer, by parting with the edible

oil/goods by loading the same into ship and the assessee sold the same to

the subsequent buyer and delivery of such edible oil/goods was taken by the

end user from the port of arrival in India, and after paying taxes by such end

user the port authority issued bill of entry to the end user. In the second type

of transaction the assessee purchased edible oil/goods from the first

importer [entity who purchased the edible oil/goods from exporter] while

edible oil/goods was in transit in the ship and the delivery of such edible

oil/goods was taken by the end user at the port of arrival in India to whom bill

of entry is issued by the port authority. The invoice issued by the exporter &

22 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors the bill of entry has been uploaded during the course of assessment

proceedings to prove the actual delivery of the goods. Thus, in both the

cases the transaction was settled by the actual delivery of the goods

received by the 1st buyer and the ultimate buyer i.e. the end user. Meaning

thereby, such transaction of edible oil/goods could not be branded as

speculative transaction as per the definition of section 43(5) of the Act.

14.2 It is seen that the CIT(A) has stated on page 25 that the import of

edible oil by the assessee from exporter outside India is not speculative as

the edible oil was loaded in the ship by seller of goods which amounts to

physical delivery of the goods taken by the buyer i.e., appellant as an

importer. It has been further held by the CIT(A) that the edible oil has been

purchased by the assessee while in transit and the appellant has sold the

same to the subsequent buyer on High Seas and the physical delivery of the

goods has been taken by the end user for which the evidence has been

placed on record. The Ld. CIT(A) has categorically discussed on Page 24

that the fact of taking the physical delivery of the goods by the assessee is

not the test for determining the speculative transaction in terms of section

43(5) but the test is settlement of the transaction entered into by the

assessee or on his behalf otherwise than by actual delivery of the commodity

23 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors or scrips. For this finding, he relied on the judgments of Andhra Pradesh

High Court in the case of CIT vs. Lakshminarayana Trading Co (1995) 82

Taxman 301(AP); Rajasthan High court in the case of Sripal Satypal vs. ITO

(2008) 217 CTR [Raj] and Calcutta High Court in the case of Hoosen Kasam

Dada(India) Ltd. vs. CIT (1964) 52 ITR 171. Accordingly, it is held that the

transactions of trading in edible oil by the appellant are not speculative in

nature within the meaning of section 43(5) of the Act. Therefore, the

business loss incurred by the appellant is eligible for set off against other

income in terms of the provisions of section 71(1) of the Act.

14.3 Considering the factual matrix and Judicial analysis of law, we find

no infirmity or perversity in the finding of the Ld. CIT(A) in holding that the

transactions of trading in edible oil by the appellant are not speculative in

nature within the meaning of section 43(5) of the Act and therefore, the

business loss incurred by the appellant is eligible for set off against other

business income in terms of the provisions of section 71(1) of the Act. Thus,

the grounds on the issue of speculative transaction and set off of business

loss is rejected.

foreign letter of credit. The Ld. CIT(A) has discussed the issue on Page 28

24 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors while relying on the judgment of Delhi High Court in the case of “CIT vs.

Koshika Telecom Ltd.”,(2006) 287 ITR 479 in which the judgment of Apex

Court in the case of CIT vs. Karnal Coop Sugar Mills Ltd (2001) 118 Taxman

489 (SC) has been followed and it was held that the interest earned by the

assessee from fixed deposits is inextricably linked to the business of the

assessee of trading of edible oil as the fixed deposits have been kept a

security for the purpose of obtaining foreign letter of credit from the bank.

15.1 However, regarding the interest income from the parties

amounting to Rs. 1,30,41,800, the findings of the CIT(A) as given on page

31 of the order is as under:-

“Since, the purchase and sale of edible oil by the appellant has been held while deciding the ground of appeal no.1 above to be non-speculative in nature and not hit by the provisions of u/s 43(5) of the act, therefore, the ‘other interest of income’ of the assessee amounting to Rs. 1,20,41,800/- is allowed to be set off u/s 71 (1) of the Act against the loss arising to the appellant from the business of the appellant of purchase/sale of edible oil.” The finding of the CIT(A) is on Page 28 in which it has been held that the

judgment of Bhawal Synthesis India 81 Taxman 478 is distinguishable on

facts because the Rajasthan High Court has relied on the Apex Court in the

case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 227 ITR

172 but Delhi High Court in the case of Koshika Telecom Ltd.(2006) 287 ITR

25 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors 479 relied on the judgments of Apex Court in the case of Karnal Coop Sugar

Mills Ltd (2001) 118 Taxman 489 (SC) in which it has been held that interest

from deposit of margin money with the banks inextricably linked with the

requirement of furnishing of bank guarantee of the assessee is income from

business as compared to the interest from the deposits which is on account

of parking of surplus funds with the bank to render the interest and therefore

the same is exigible to tax as income from other sources.

15.2 The CIT(A) has distinguished the judgment of Apex Court in the

case of Conventional Fasteners vs. CIT 94 taxmann.com 80 on Page 28 of

the order by holding that the judgment of the Apex Court is not applicable to

the facts of the case because the case before the Apex Court related to

claim of deduction u/s80IC and it has been held by the Apex Court that the

interest earned from the fixed deposit kept as security had nothing to do with

carrying on of business of manufacture and sale of electric meter and the

assessee was not entitled to deduction u/s 80IC.

15.3 It is evident from the Assessment Order that during the course of

assessment proceeding, it was stated before the AO that the goods imported

by it are backed up with LC [letter of credit] and that FDR made by it was not

surplus FDR but as per bank’s term, it uses to make FDR as cash margin

26 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors against these LCs opened against the import of goods and that the income

arising out from these FDRs is its operative income and business income.

[Para Page 3 of the Assessment order].

15.4 In view of the above factual discussion, and judicial precedent, we

hold that the goods imported by the assessee are backed up with LC [letter

of credit] and that FDR made by it was not surplus FDR but as per bank’s

term and hence, the interest from these fixed deposits which were

inextricably linked to the business of the assessee would taxed as business

income and not as income from other sources. Accordingly, the department

ground no. 7 and 8 that interest earned on FDRs kept in bank as margin

money for obtaining LOC and bank security for high Sea Business

Transaction to be income from other sources as against business income

are rejected.

15.5 So far as the interest from parties is concerned, the same cannot

be said to be also linked to the business of the assessee. Even otherwise,

since there was current year loss in the business of edible oil, the loss is

liable to be adjusted against the business income derived from this year and

for this reason, the Ld AR has no objection to our view that the interest from

27 ITA Nos. 56 & 84/Asr/2020 G.H. Crop Science Pvt. Ltd. v. Dy. CIT & Ors the parties would be charged to tax under the head Income from other sources.

I.T. A. No. 84/Asr/2020

No. 56/Asr/2020. Therefore, our observation and finding given in I.T.A. No. 56/Asr/2020 shall be applicable in mutatis mutandis to the appeal in I.T.A. No. 84/Asr/2020.

Order pronounced in the open court on 23.02.2023

Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr./P.S.* Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order