PR COMMISSIONER OF INCOME TAX-I vs. M/S BRIGHT METAL INDIA PVT LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 333 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/s. Bright Metal (India) Pvt. Ltd., 158-159, Mendwas House, Nehru Bazar, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 06/02/2018 1. By way of this appeal, the appellant has challenged the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department. 2. Counsel for the appellant has framed following substantial questions of law:- “i) Whether on the facts and circumstances of the case and in law the Tribunal has erred in confirming the order of CIT(A), thereby deleting the addition of the Rs.70,30,790/- out of total addition of Rs. 92,87,247/- made by the Assessing Officer, who disallowed the expenses claimed as hedging loss and by holding it as speculative loss? ii) whether on the facts and circumstances of the case and in law the Tribunal has erred in accepting additional evidence i.e. statement

(2 of 7) [ITA-333/2017] containing its stock position (raw material and finished goods) and to compare it with the quantity of forward sales in violation of Rule 46A of the Income Tax Rules? iii) Whether on the facts and circumstances of the case, the finding of the Tribunal as well as the CIT(A) is perverse, contrary to the record and untenable in the eye of law? ” 3. The facts of the case are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 was framed vide order dt. 6.3.2014. While framing the assessment, the AO made disallowance of Rs.92,87,247/- claimed as business expenses under the category of Administrative and other expenses. The assessee before the AO had claimed that this expenses, being the loss on account of currency fluctuation and the raw material price fluctuation. This explanation of the assessee was not accepted by the AO. 4. Counsel for the appellant has contended that both the authorities; CIT(A) and the tribunal have committed serious error in interpreting the business transactions of the assessee which are contrary to Rule 46A of the Income Tax Rules and are also in clear violation of the principles of business. 5. While considering the matter, the CIT(A) has observed as under:- (viii) During the appellate proceedings, the AR was required to file a statement containing its stock position (raw material and finished goods) and to compare it with the quantity of forward sales (enclosed as Annexure-A). The said statement has been examined in view of the above discussion and the principles laid down by the Hon’ble Authority for Advance

(3 of 7) [ITA-333/2017] Ruling in the case of Sopropha SA (supra). A comparison of the details of transactions entered into by the appellant company on the commodity exchange vis-a-vis the stock in hand of the raw material and the finished goods available with the appellant company on the dates of forward contract of sale was made, keeping in view that whenever the cumulative total quantity of the forward contracts of sale exceeds the total of raw material and the finished goods, any loss or profit arising thereon would be treated as speculative in nature. The said comparison revealed that on 29th Octorber, 2010, the forward sales exceeds the raw material and finished goods by 54108 Kg and on 5th November, 2010, the excess quantity further increased by 4161 kgs. Thus, the loss on account of these transactions is treated as speculative loss. It has already been held that loss on crude oil and gold in forward market is speculative in nature as trading in these commodities has nothing to do with the business of the appellant company. Further, the loss on forward contract of purchase (reverse hedging) was also held to be speculative in nature. Therefore, the losses which are speculative nature i.e. not the hedging lossess summarized as under:- S.No. Date Excess Qty Rate Sale Purchase Profit/Loss 1 29-10-10 54108 366.65 19838698 (Stock 105892 kg) Purchase 10-11-10 50000 389.68 19484000 23-11-10 4108 371.03 1524191 -1169493 2 05-11-10 4161 386.61 1608684 (58269- 54108) Purchase 23-11-10 4161 371.03 1543856 64828 3 Crude Oil -600681 4 Crude Oil 41777 5 Gold -413

(4 of 7) [ITA-333/2017] 6 Lead 2633 7 Zinc 3388 Total: A -1660594 Reverse Hedging 13 25-01-11 40000 17217728 17568755 -351027 Purchased on 15/01 and 20/1 14 10-03-11 30000 12617549 12862385 -244836 Purchased on 07/03 and 09/03 Total:B -595863 Grand Total(A+B) -2256457 (ix) It is evident from the above details that these forward sales were in the nature of speculative transactions and the loss arises thereon is in the nature of speculative loss. Therefore, it is held that out of loss of Rs.92,87,247/- claimed by the appellant company as hedging loss and treated by the AO as speculative loss, the as hedging loss and treated by the AO as speculative loss, the speculative loss is to the tune of Rs.22,56,457/- only as worked out in the above table. Therefore, addition of Rs.22,56,457/- is sustained as speculative loss. The AO is directed to verify the above working by observing the principles as laid down in the case of Sopropha SA (supra) and to rectify the figures of speculative loss, if any, accordingly. 6. The tribunal while considering the same has observed as under:- “6. We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. The Ld. CIT(A) in his order has observed as under:

(5 of 7) [ITA-333/2017] “(ix) It is evident from the above details that these forward sales were in the nature of speculative transactions and the loss arises thereon is in the nature of speculative loss. Therefore, it is held that out of loss of Rs.92,87,247/- claimed by the appellant company as hedging loss and treated by the AO as speculative loss, the speculative loss is to the tune of Rs.22,56,457/- only as worked out in the above table. Therefore, addition of Rs.22,56,457/- is sustained as speculative loss. The AO is directly to verify the above working by observing the principles as laid down in the case of Sopropha SA (Supra) and to rectify the figures of speculative loss, if any, accordingly.” 6.1 The grievance of the Revenue is that, the Ld. CIT(A) has acted in violation of Rule 46A in considering the details filed by the assessee during the course of appellate proceedings without calling for remand report from the AO. For the sake of clarity sub-Rule 4 Rule 46A is reproduced here and below:- “46A.(1) The appellant shall not be entitled to produce before the [Deputy Commissioner (appeals)] [or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances namely:- (a) Where the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or (b) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer]; or (c) Where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal; or (d) Where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any grounds of appeal.

(6 of 7) [ITA-333/2017] (2). No evidence shall be admitted under sub-rule

(1)

unless

the

[Deputy Commissioner (Appeals)] shall not take into account any evidence produced under sub- rule(1) unless the [Assessing Officer] has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner Appeals] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (Whether on his own motion or on the request of the [Assessing Officer] under clause (a) of sub- section (1) of section 251 or the imposition of penalty under section 271.” 6.2 A bare reading of sub rule 4 makes it clear that the Commissioner (Appeal) may direct the production of any document or the examination of witness to enable him to dispose of the appeal or for any other substantial cause. We find merit into the contention of the Ld. Counsel for the assessee that sub-Rule 1 of Rule 46A would not be applicable in the present case as the detail of stock was directed by the Ld. CIT(A) during the appellate proceedings to be furnished. Moreover, these evidences in the form of stock were available with the AO. 6.3 Under these facts, we do not see any infirmity into the Ld. CIT(A). Further the Ld. CIT(A) has given a finding on fact that these forward sales were in the nature of speculation transaction and the loss arises thereon is in the nature of speculative loss. This finding on fact is not controverted by the revenue by placing any contrary material on record. Hence, we do not see any merit into the grounds raised by the Revenue, same are dismissed.”

(7 of 7) [ITA-333/2017] 7. In our considered opinion, the view taken by both the authorities is just and proper. Therefore, no substantial question of law arises. 8. Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 18.