M/S. DHANALAKSHMI JEWELLERS,,SHIVAMOGGA vs. INCOME TAX OFFICER, WARD-1, SHIVAMOGGA

Date of Hearing : 09-09-2020 Date of Pronouncement : 16-09-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 22/02/2017 passed by Ld.CIT(A) Davangere, for assessment year 2011-12 on following grounds of appeal: “1. The orders of the authorities below in so far as they are against the appellant are opposed to Law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in sustaining an addition of Rs.18,95,478/- out of the original addition of Rs.24,71,028/- as unproved liability under the facts and in the circumstances of the appellant's case.

3. The learned CIT[A] is not justified in upholding the addition of Rs. 28,81,267/- being the loss incurred by the appellant from futures trading in other commodities out of the original addition of Rs.80,87,243/- considered as speculative loss under the facts and in the circumstances of the appellant's case.

4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” Brief facts of the case are as under:

2. Assessee is a firm carrying on business in trading in gold and silver and also ornaments. For year under consideration assessee filed its return of income on 28/09/2012 declaring loss of Rs.38,67,610/-. The case was selected for scrutiny. Ld.AO called for various details and books of accounts. From details filed, Ld.AO observed that assessee was carrying on business in running gold benefit scheme by collecting monthly instalment from various customers. In gold benefit scheme assessee had a liability of Rs.95,67,028/- as on 31/03/2012. Ld. AO called for details of liability in response to which, assessee could furnish details amounting to Rs.70,96,000/-with a request to grant some more time to furnish balance details. As details were not furnished, Ld.AO made addition amounting to Rs.24,71,028/- as unapproved liability.

3. Ld.AO noted that, assessee entered into buying and selling of gold and silver with JRG Wealth Management Ltd., which was also part of assessee’s business. It was observed that assessee carried out this business only with an intention to hedge against loss in respect of existing stock of gold and silver jewellary. Ld.AO called upon assessee to furnish all details/evidences regarding future trading for period under consideration. On perusal of information furnished by assessee, Ld.AO concluded that future trading was nothing but speculation business, and accordingly disallowed loss of Rs.80,87,243/-.

4. Aggrieved by additions made by Ld.AO, assessee preferred appeal before Ld.CIT(A). Assessee in respect of addition made as unapproved liability, furnished creditors details under the scheme in accordance to groups they were categorised as. Ld.CIT(A) remanded evidences filed by assessee to Ld.AO. In remand report, Ld.AO accepted sum of Rs.5,75,550/- as proved. Ld.CIT(A) therefore granted relief to assessee to the extent of Rs.5,75,550/- confirmed the balance.

5. In respect of speculative losses added in hands of assessee, Ld.CIT(A) upheld observations of Ld.AO and was of the opinion that, transaction entered into by assessee is not merely speculative especially gold and silver trading but is not covered by provisions of section 43(5) of the Act. Ld.CIT(A) held that, there is no connection between assessee’s trade and commodity trade in future other than gold and silver. 6. Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 7. Ld.AR submitted that, Ground No.1,4 are general in nature and therefore do not require adjudication. 8. Ground No.2 is in respect of addition of Rs.18,95,478/- as unapproved liability. Ld.AR during the course of hearing, submitted that, assessee filed various documents to support its claim of balance amount of Rs.24,71,028/- which was remanded to Ld.AO for verification by Ld.CIT(A). He submitted that, remand report by Ld.AO has not been forwarded to assessee, thereby violated principles of natural Justice. He submitted that, assessee is not aware about how relief could only be limited to Rs.5,75,550/- even though, entire amount of Rs.24,71,028/- stands explained. He referred to page 59-75 of paper book, wherein details were provided. 8.1 Ld.CIT.DR placed reliance on orders passed by authorities below. 8.2 We have perused submissions advanced by both sides in light of records placed before us. 8.3 It has been submitted by Ld.AR that, Ld Ld.CIT(A) did not afford opportunity to rebut remand report by Ld.AO, as the same was not provided to assessee. In view of the above, we do not intend to express our opinion, and remand this issue to Ld.CIT(A) with a direction to provide copy of remand report to assessee. Assessee is then directed to file reply in respect of the same. Ld.CIT(A) shall consider submissions made by assessee in light of evidences filed and decide the issue on merits in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly, this ground raised

by assessee stands allowed for statistical purposes.

9. Ground No.3 is in respect of disallowance of Rs.80,87,243/- as speculative losses. 9.1 Ld.AR submitted that, assessee entered into buying and selling of gold and silver with JRG Wealth Management Ltd., which was considered as integral part of assessee’s business against which loss of Rs.49,32,524/- was incurred.

He also submitted that assessee entered into buying and selling of other commodities on MCX Stock Exchange, against which loss of Rs.28,81,267/- was incurred. He placed reliance on CBDT Circular No. 46/2009, dated 25/05/2009, wherein assessee is eligible for such losses arising out of commodities including stock and shares. 9.2 It is also been submitted that, circular was not brought to the notice of authorities below. 9.3 Accordingly we are of the opinion that, this issue needs to be revisited by Ld.CIT(A) in light of Circular No. 46/2009 dated 25/05/2009. Assessee is directed to file details before Ld. CIT (A) in accordance with requirement mentioned in the Circular relied upon. 9.4 Ld.CIT(A) shall then verify details filed by assessee and pass detailed order on merits based upon evidences filed in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result, appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 16th Sept, 2020. Sd/- Sd/- (A.K GARODIA) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 16th Sept., 2020. /Vms/ Copy to: