SACHETA METALS LTD.,,DIST.SABARKANTHA vs. THE DCIT, SABARKANTHA CIRCLE,, HIMATNAGAR

The fact in brief is that assessee has filed return of income on 29.09.2014 declaring total income of Rs. 88,71,670/-. Thereafter filed revised return of income on 27.03.2016 declaring total income of Rs. 87,31,700/-. Subsequently, the case was selected under scrutiny by issuing of notice u/s 143(2) on 28.08.2015.

During the course of assessment, the A.O. has noticed that assessee company has debited Profit and Loss account by an amount of Rs. 1,41,06,103/- on account of Hedging Loss. Therefore, the assessee was asked to explain the Commodity Exchange transaction. The assessee has explained vide letter dated 13.12.2016 as reproduced at page no. 2 to 3 of assessment order stating that it has undertaken MCX transaction only for the purpose of hedging its commodity price. It was also explained that during F.Y. 2012-13, there was some of contract which were pending for square off so it has not booked out contingent loss of Rs. 2,11,47,126/- and carried forward the same to F.Y. 2013-14. It is also submitted that assessee company has not booked contingent loss of Rs. 2,42,26,500/- to the extent of contract pending for square off and therefore it has debited only Rs. 1,41,06,103/- for Hedging Loss. The A.O. has not accepted the explanation of the assessee and stated that assessee has booked loss of Rs.

During the course of appellate proceeding before us. The ld. counsel has submitted paper book containing detail and submission made before the A.O. and ld. CIT(A) during the course of assessment and appellate proceedings. The ld. counsel has contended that the ld. CIT(A) has incorrectly sustain the addition to the extent of Rs. 1,41,06,103/- by treating it as speculation loss without disproving the material and submission made by the assessee. He has vehemently contended that the ld. CIT(A) has not given any show cause notice to the assessee for treating the aforesaid Hedging Loss as speculation loss and the ld. CIT(A) has also not provided relevant reasoning in support of his finding.

On the other hand, ld. D.R. has supported the order of ld. CIT(A).

We have heard both the sides and perused the material on record carefully. It is undisputed fact that the A.O. has made disallowance of Rs. 2,11,47,128/- on account of prior period expenses. The A.O. has stated that the assessee company has debited an amount of Rs. 1,41,06,103/- in the Profit and Loss account on account of hedging transactions however, no such loss was claimed during the preceding years and without any detailed reasoning the assessee has

Contrary to the findings of the A.O., the ld. CIT(A) has held that the assessee company has not claimed the opening balance of Rs. 2,11,47,128/- in the year under consideration, however without giving any reasoning, the ld. CIT(A) has treated the MCX loss of Rs. 1,41,06,103/- claimed by the assessee company as speculation transactions within the meaning of section 43(5) of the Act. With the assistance of the ld. Representative, we have gone through the material on record and noticed that the ld. CIT(A) has not assigned any ratiocination for treating the impugned claim of hedging loss to speculative loss as provided under section 43(5) of the I.T. Act. It is noticed that the ld. CIT(A) has not issued any show cause and not provided required opportunities to the assessee company. The relevant part of the procedure to be adhered while adjudicating the appeal as prescribed in section 250 of the I.T. Act are reproduced as under:

In the light of the above facts and circumstances, we consider that the ld. CIT(A) has not given any reason to substantiate that hedging transactions carried out by the assessee as per MCX account were speculative transactions as prescribed under the Act. Considering the aforesaid anomalies, we set aside the issues in the appeal of the assessee to the file of the ld. CIT(A) for deciding

In view of the above findings, the C.O. of the Revenue has becomes infructuous, therefore, the same stand dismissed.

In the result, the appeal of the Assessee is allowed for statistical purposes and C.O. of the Revenue is dismissed.