THE ACIT,(OSD) RANGE-I,, AHMEDABAD vs. M/S. DOSHI POLYMERS PVT. LTD.,, AHMEDABAD

Solitary grievance of the Revenue is maintainability of action of the CIT(A) in deleting disallowance of Rs.45 lakhs made by the AO as

Briefly stated, assessee, a private limited company filed its return of income for the Asstt.Year 2011-12 declaring total income amounting to Rs.2,06,20,640/-. Return filed by the assessee was subject to scrutiny. In the course of scrutiny assessment, the AO on verification of profit & loss account, interalia found that the assessee has claimed expenses of Rs.45 lakhs on account of compensation paid to supplier (Oswal Extrusion Ltd.), owing to failure of the assessee to lift material on contracted date. The assessee claims to have paid Rs.45 lakhs on account of difference between purchase rate and current rate of supply of material which was worked out to Rs.45 lakhs by the supplier as detailed in the assessment order. The assessee claimed aforesaid loss towards settlement of quantum of damages. The AO however did not agree with the claim of the assessee and held that loss arising on account of settlement of contract by making payment of difference of rate falls within the provision of section 43(5) of the Act having regard to the fact that transaction has been settled without delivery of commodities named in the purchase contract. The AO accordingly declined to allow business loss of Rs.45 lakhs claimed towards payment of damages against its ordinary business income.

Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) revisited facts noted above and observed that the assessee while having entered into the contract of purchase with its supplier and corresponding contract with its client for supply of identical material on the same date i.e.

Aggrieved Revenue preferred appeal before the Tribunal.

At the time of hearing, none appeared on behalf of the assessee. The matter was accordingly proceeded exparte in the absence of assessee. The ld.DR for the Revenue was accordingly heard to support its appeal.

We have taken note of arguments put forth on behalf of the Revenue as well as orders of authorities below. Sole issue in controversy is whether loss arising on account of cancellation of contract due to compelling circumstances can be treated as business loss or falls within deeming fiction of section 43(5) of the Act or not. As noted above, the loss of Rs.45 lakhs has arisen to the assessee on account of damages paid to the supplier due to failure of the assessee to lift the supply in the course of carrying its business. The assessee has claimed the loss so arisen as a normal incidence of the business and thus claimed as ordinary business loss. The AO, on the other hand, is of the view that transaction of purchase was settled without delivery, and therefore it is a speculative transaction within the meaning of section 43(5) of the Act. It is the case of the Revenue that loss being speculative in nature is not a permissible deduction against ordinary business income. Accordingly, claim of loss was denied to the assessee. Thus, short issue for our consideration is whether payment towards damages on account of breach of contract is speculative loss or a business loss.

Accordingly, appeal of the Revenue is dismissed.

Assessee in its CO has merely supported order of the CIT(A) and is not aggrieved per se by the order of the CIT(A). Since, the Revenue’s appeal stands dismissed, CO is rendered infructous, and thus dismissed.

In the result, appeal of Revenue in ITA No.1438/Ahd/2015 is dismissed and CO no.100/Ahd/2015 is dismissed ex parte as infructous.