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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per Dr. M. L. Meena, AM: Both the above appeals have been filed by the Assessee against the separate order passed by the Ld. CIT(A)/ NFAC, Delhi each dt. 22/03/2022 in respect of Assessment Years 2015-16 & 2017-18.
I.T.A. No. 97 & 99/Asr/2022 Assessment Year: 2015-16 & 2017-18 2
Since the issues involved in both the above appeals are common and were heard together so they are being disposed off by way of this consolidated order for the sake of convenience and brevity.
We shall take ITA No. 97/Asr/2022 for the A.Y. 2015-16 as a lead case wherein the Assessee has raised the following grounds:
That the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law by up holding that business of high sea sales of edible oil is speculative in nature within the meaning of section 43(5) of the Act whereas as per the explanations furnished and material placed on record during the assessment and appellant proceedings, such business is non- speculative in nature. As such, addition made is unjustified and uncalled for. The same be deleted. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not deciding the Ground No. 4 of the appeal which is reproduced below:- “That the ld. AO has erred in law and on facts by making an addition of Rs 2,14,1 l,872/-by holding that the FDR interest and other interest as income from other sources not connected with the oil business of the assessee company without appreciating the fact that as per material placed on record as well as audited balance sheet filed by the assessee company, interest earned from the FDR given as margin money as a condition for obtaining FLC required for making purchases of oil is part and parcel of the business of the assessee company. As such, addition made is unjustified, uncalled for and against the settled law. The same be deleted.” The issue under reference has been decided in favour of the assessee appellant by the CIT(A) vide his order dated 30-05-2019 for the assessment year 2013-14. As such, addition made is unjustified, uncalled for and against the settled law. The same be deleted. 3. That the appellant craves to add, amend or alter any ground of appeal on or before the hearing.
Briefly the facts of the case are that the assessee company is engaged in the business of crude palm oil trading. During the assessment proceedings the Assessing Officer has made an addition on account of High Sea Sale of edible oil being speculative in nature within the meaning of Section 43(5) of the Act. Being not satisfied with the explanation furnished in the submissions filed by the
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assessee on record during the course of assessment proceeding hold that the business activity of the assessee was non speculative in nature.
4.1 The Assessing Officer has further assessed the FDR interest and other interest income as income from other sources being not connected with oil business of the assessee company.
In the appeal, the Ld. CIT(A) has confirmed the findings of the Assessing Officer by observing vide para 6.3 of the impugned order as under:
6.3 DECISION:- I have perused the assessment order, submission of the appellant, various judgements cited by the AO and the appellant and the order of the CIT(A),Bhatinda dated 30.05.2019 in the case of the appellant for AY 2013- 14. 6.4. Identical issue of speculative transaction u/s 43(5) for high sea sales was examined by the CIT(A),Bhatinda in the case of the appellant for AY 2013-14. The relevant para 12 of the said order is as below: " 12. In the appellant's case, it is an admitted fact that there has been no delivery of the commodity to the appellant and pursuant to the purchase and the commodity has been resold. It is also not known whether the second buyer has also resold it without delivery or he is the ultimate user after taking the delivery. Mere shipment and goods in transit' would not, as per the Hon'ble Supreme Court's decision, constitute actual delivery, which is contemplated in section 43(5) to treat the transaction as non-speculative. Considered in this background, the appellant fails to successfully challenge the action of the AO in treating the appellant's business as speculative. The grounds of appeal as at SI No. 2 & 3 supra are, thus, decided against the appellant." 6.5 On perusal of the CIT(A) order for AY 2013-14, I found that the CIT(A),Bhatinda has discussed the issue in detail and has considered the submission of the appellant before confirming the action of the AO that the business of ’high sea sales' of the assessee is speculative in nature. Relying upon the decision of the CIT(A), Bhatinda in the case of the appellant for AY 2013-14, I also held that the high sea purchase & sales transactions of the CPO are speculative transactions within the meaning of section 43(5) of the Act and therefore, he loss on account of such speculative transactions can’t be set-off against the business income or income from other sources of the appellant. Ground of appeal on this account is therefore, DISMISSED. 6.6 Without prejudice, the appellant has further raised a ground of appeal that the AO has erred both on facts and in law by assessing the interest income from FDR at Rs. 2,20,02,493/- without giving any rebate of expenditure incurred against earning this interest income especially rebate of interest paid to the bank amounting to Rs. 1,74,61,326/- for availing OD facility. 6.7 On perusal of the assessment order and the submission of the appellant, it is observed that the appellant has asked for the allowance of expenses against
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earning of interest income assessed as income from other sources. The interest earned on FDR has been considered by AO as separate income from the speculative business of high sea sale purchase and sales of CPO and assessed as 1 income from other sources’. The appellant has arrived upon the income of Rs.9,14,010/ after taking into consideration of all the expenses, including the expenses of Rs. 1,74,61,326/- for availing OD facility.
The Ld. Counsel for the Assessee submitted that the authorities below have not appreciated the material facts on record and proceeded for making addition under section 43(5) of the Act without considering the written explanation and the material documents placed on record during the course of assessment proceedings and appellate proceedings explaining that the assessee’s business was not speculative in nature.
The Ld. AR argued that the Ld. CIT(A) has erred in facts and law in holding that the FDR interest and other interest was income from other sources as it was not connected with the oil business of the assessee company. Without appreciating the fact that as per the records and the material documents evidence duly supported with audited balance sheet filed by the assessee company that interest earned from the FDR’s which were given as margin money is a condition for obtaining FLC required for making purchases of oil has been part and parcel of the business of the assessee company. He further contended that this issue under reference has been decided in favour of the assessee company by Ld. CIT(A) vide his order dt. 30/05/2019 for the A.Y 2013- 14. However the Assessing Officer has made the addition by observing that since the Department has filed an appeal before the High Court and in order to keep the issue alive he has no option but to make the addition as evident from the observation of the Assessing Officer which read as under :
Assessee had filed its return of income in response to the notice u/s 148 on 07.09.2018. Thereafter notice u/s 143(2) was issued on 16.09.2019 online. In response to notice u/s 142(1) dated 27.08.2019, assessee submitted reply online on dated 13.09.2019. The relevant portion of reply is as under: - “the issue recorded in the reasons pertain the disallowance of interest
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income earned from FDR held for the purpose of Foreign Letter of Credit (FLC) against the oil trading business of the assessee. This issue has already been settled and decided by the Worthy Commissioner of Income Tax (Appeals), Bathinda vide appeal No. 245/IT/CIT(A)/BTI/2018-19/ dated 30.05.2019 that interest income earned on FDRs and other interest is connected with the business of the assessee and cannot be disassociated with the said business. Thereafter, interest income forms part and parcel of the business of import of edible oil and its re-sale. In view of the above facts and circumstances, it is therefore requested to kindly vacate the assessment proceedings so initiated.
The reply filed by the assessee was carefully examined but not found acceptable and was rejected vide letter dated 18.09.2019, which is reproduced as under:-
“Your reply has carefully been considered. However, it is observed that in similar cases, the CIT(A) upheld the findings of AO treating the High Sea Sale transaction as speculative u/s 43(5) of the Act. Further, the findings of CIT(A), holding that interest income on FDR and other interest income could not be disassociated from the said business have not been accepted by the Department and appeals have been fled before Hon’ble ITAT against the findings of the CIT(A). Hence your objections in this regard are hereby rejected. You are required to furnish necessary information as required vide notice u/s 142(1) so as to enable me to complete assessment proceedings.”
Thereafter assessee vide notice u/s 142(1) dated 05.10.2019 asked to submit information as required vide notice dated 27.08.2019.
In response, assessee furnished the reply dated 10.10.2019 online vide which assessee had requested to decide the case as per merits. As the assessee failed to file reply to specific queries raised vide notice u/s 142(1) dated 27.08.2019 and requested to decide the case on merits. Therefore, the assessment is finalized in the case on the basis of material/documents available on file.
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The AR has argued that the Ld. CIT(A) has merely followed the order of the Ld. CIT(A) passed in the previous year and not adjudicated the issue on merits with regard to the interest income has it been from the same business or income from other sources while giving specific findings whether the business income was speculative or non speculative. Although the issue has attended finality by the order of the ITAT in assessee’s own case in ITA No. 506/Asr/2019 & 495/Asr/2019 for the A.Y. 2013-14 wherein the Tribunal has confirmed the order of the Ld. CIT(A) by holding the interest on FDR to be income from the same business of import & export of crude palm oil. The relevant part of the order of the ITAT, Amritsar Bench vide para 11 & 11.6 reads as under:
We respectfully followed the order of the Hon’ble Apex Court and Hon’ble High Court it is clear view that when the goods are not taken by the delivery the entire issue is treated as speculative transaction. But in assessee’s case the entire transaction is going through by proper delivery of the goods during purchase and the documents are provided for evidence of delivery of goods related to high sea sale. We find that the observation of the ld. CIT(A) is not accepted and liable to be dismissed.
11.1 In discussion related to interest which was treated as business income by the assessee and adjusted in the profit and loss account. The revenue has relied on the order of the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift and credit society ltd, (supra) and in case of Bhagwati Synthetics (supra) both are factually not similar with the assessee’s issues. We respectfully relied on the order of Hon’ble Apex Court in the case of Shahi Export House,(supra)
Where the interest was taken as expenses. Not as an income from other sources. The investment in fixed deposit of the assessee were duly utilized for formation of letter of credit in relation to the foreign transaction. In the export and import, the investments are utilised in short term investment and there is no such any fix time of investment related to generation of the interest out of the said investment. We also relied on the order of the ITAT, Amritsar Bench. Accordingly, the order passed by the ld. CIT(A) is notrequired for any intervention related interest issue. Accordingly, ground taken for the issue of interest by the revenue is dismissed.
The Ld. AR prayed that addition confirmed by the Ld. CIT DR may be deleted.
Ld. DR stands by impugned order.
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We have heard rival contention, perused the material on record and Tribunal order on the issue of interest income from FDR’s. Since, on parity of facts the matter is covered by decision of Coordinate Amritsar Bench (supra) as the investments were duly utilized in FDR’s for formation of FLC in relation to foreign transactions. Following the decision of Coordinate Bench Amritsar in assessees own case, we hold that the interest income earned by the assessee from the FDR constitutes part of the business income of the assessee.
In view of that matter, the impugned order of the Ld. CIT(A) is held to be infirm and perverse to the fact on record. Accordingly, the addition on the issue of FDR interest is deleted.
In the result, Ground No. 2 of the appeal of the assessee is allowed.
The assessee has wished to withdraw the Ground No. 1 of the appeal as he gets relief on Ground No. 2. Therefore Ground No. 1 is dismissed as withdrawn.
In the backdrop of the aforesaid discussion the appeal of the assessee is disposed of in terms indicated as above.
Order pronounced in the open court on 08/06/2023
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member A.G Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The DR, I.T.A.T. True Copy By Order