METROPOLITAN TRADING CO.,MUMBAI vs. ADDL.C.I.T.18(2), MUMBAI

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ITA 2885/MUM/2012Status: DisposedITAT Mumbai30 September 2016AY 2007-085 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the loss of Rs. 6,58,094/- was correctly treated as speculative loss. However, the profit of Rs. 1,26,357/- from similar transactions should also be treated as speculative profit and set off against the loss.

What were the facts?

The assessee, a partnership firm, incurred a loss of Rs. 6,58,094/- on commodities and derivatives, which the Assessing Officer and CIT(A) treated as speculative loss. The assessee also had a profit of Rs. 1,26,357/- from similar transactions.

What were the issues?

Whether the loss on commodities and derivatives is speculative, and if so, whether similar profits can be set off against such losses.

Which sections of the Income-tax Act were involved?

Section 43(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI

Before: SHRI G.S. PANNU & SHRI AMARJIT SINGH

For Appellant: Smt. Vasanti B. Patel
For Respondent: Shri M. Rajan
Hearing: 26/09/2016Pronounced: 30/09/2016

This appeal by the assessee is directed against the order of CIT(A)-29, Mumbai dated 13.01.2012, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order dated 30.12.2009 passed by the Assessing Officer, Mumbai under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2.

In this appeal, assessee has raised the following Grounds of appeal :-

“1. The learned CIT(A) erred in confirming the finding of the assessing officer that the loss of Rs.6,58,094/- was speculative in nature.

2 M/s. Metropolitan Trading Co.

2. (a) Without prejudice to the above, the learned CIT(A) erred in not directing setting off of profit of Rs.1,26,357/- against the loss of Rs.6,58,094/-.

(b) The learned CIT(A) failed to appreciate that the nature of loss of Rs.6,58,094/- and profit of Rs.1,26,357/- was identical and having treated the loss Rs.6,58,094/- as speculative loss, he ought to have treated the profit of Rs.1,26,357/- as speculative and directed the setting off of the two. (c) The learned CIT(A) failed to appreciate that the assessing officer had not given any finding to the effect that the profit of Rs.1,26,357/- was on delivery-based transaction.”

3.

In brief, the relevant facts that the appellant is a partnership firm which is engaged in the business of manufacturing and sale of ties, shirts and other business incidental thereto. In the course of assessment proceedings, the Assessing Officer noticed that assessee had debited in the Profit & Loss Account a sum of Rs.6,58,094/- under the head ‘loss on commodities and derivatives’. On being show-caused, assessee contended that transactions in commodities were undertaken where delivery was taken and storage charges were paid for storing the same and that it was to be understood as a ‘business loss’ eligible for set-off against other business income and other incomes. The Assessing Officer, however, negated the plea of the assessee and held that such loss was a ‘speculative loss’ hit by the provisions of Sec. 43(5) of the Act. The CIT(A) has also affirmed the said decision. Both the lower authorities have concurrently recorded a finding that assessee has not given any proof of taking actual delivery of the commodities while concluding that the transactions were speculative in nature.

3 M/s. Metropolitan Trading Co.

4.

The aforesaid position continues even before us and, therefore, we find no reason to interfere with the said conclusion of the lower authorities. However, the learned representative for the assessee pointed out that the aforesaid transactions were in Jeera which had been treated as speculative in nature. The learned representative referred to the copy of Profit & Loss Account placed in the Paper Book at page 7 and pointed out that assessee had also credited a sum of Rs.1,26,357/- as ‘profit on commodities and derivatives’. It has been pointed out that the aforesaid crediting of income is on a similar footing as the ‘loss on commodities and derivatives’ debited in the Profit & Loss Account. According to her, profit earned under similar circumstances be also taken as of similar nature as the loss of Rs.6,58,094/- considered to be speculative in nature. The plea of the learned representative is that the assessee be allowed to set-off such profit and that the balance of speculative loss be allowed to be carried and set-off in the subsequent years against speculative income, as per law.

5.

The ld. DR merely placed reliance on the order of lower authorities and contended that in the absence of proof of delivery, the loss has been rightly held to be assessable as speculative loss.

6.

Having considered the rival stands, we find that the alternative plea raised by the learned representative for the assessee deserves to be upheld. No doubt, the loss of Rs. 6,58,094/- has been rightly treated as speculative loss, so however, even the profit declared by the assessee of Rs. 1,26,357/- under similar circumstances deserves to be treated as speculative profit. The Assessing Officer is directed to set-off

4 M/s. Metropolitan Trading Co. the speculative loss against the speculative income of the current year and allow carry-forward of the balance loss for adjustment in future years, as per law. Thus, on this aspect, assessee partly succeeds.

7.

The only other issue assailed by assessee is the adhoc disallowance of 20% out of car expenses and depreciation disallowed by the lower authorities on account of personal use of car.

8.

On this aspect, the learned representative for the assessee referred to the Paper Book and pointed out that the expenses which have been subjected to disallowance cannot be construed as personal expenses because assessee has paid the Fringe Benefit Tax on the same. In this context, reference has been made to page 27 to 31 of the Paper Book wherein details of the Fringe Benefit Tax (FBT) paid have been placed.

9.

Considering the aforesaid submissions, we find no reason to uphold the adhoc disallowance made by the lower authorities especially considering the fact that assessee has paid FBT on such expenses. The order of CIT(A) is set-aside and Assessing Officer is directed to delete the addition.

10.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 30th September, 2016.

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