2019 (5) TMI 1707 - AT - Income Tax

Forward contracts in respect of 'Foreign currency' being speculative profit can be set off of against the loss debited in gold desk account - contention was declined on the ground that no correlation between the forward contract transactions of gold and corresponding purchases and export of jewellery was established to satisfy the requirements of law - HELD THAT - This Court is of the opinion that the assessee s contention has some merit the earlier portion of the main impugned order specifically noticed the compilation of documents produced during the proceedings, which contained specific contracts and the transactions which the Revenue alleged were speculative. Given that the Revenue s appeal has been remitted, the ITAT s approach in our opinion was not correct. Accordingly, the assessee s question with respect to the verification of the transactions and the correlation with specific contracts shall be examined having regard to the assessee s contentions as well. We are of the considered view that since the identical issues for AY 2010-11 are already pending adjudication by the AO having been remanded by the Hon ble Delhi High Court, the same issues qua for the year under assessment are also required to be remanded back to the AO to decide in accordance with the order passed by the Hon ble High Court. Consequently, both the appeals are set aside to the AO to decide in accordance with the decision taken in AY 2010-11 by following the directions by the Hon ble High Court.

Issues Involved:
1. Treatment of speculative profit from forward contracts against loss in gold desk account.
2. Treatment of loss from gold desk account as speculative.
3. Addition of notional interest on interest-free advances.

Analysis:

Issue 1: Treatment of speculative profit from forward contracts against loss in gold desk account
The Revenue sought to set aside the order deleting the addition of speculative profit derived from forward contracts against the loss in the gold desk account. The Revenue argued that the CIT(A) erred in treating the loss from gold desk transactions as speculative without the assessee's claim during the assessment proceedings. The Revenue contended that the transactions were not listed on a recognized stock exchange and did not meet the conditions under section 43(5)(d) of the Income Tax Act. The CIT(A) had deleted the additions, disagreeing with the Revenue's stance.

Issue 2: Treatment of loss from gold desk account as speculative
The assessee, a jewelry manufacturer, contested the treatment of the loss from the gold desk account as speculative by the ACIT. The ACIT observed that the transactions were in the nature of hedging but treated them as speculative under section 43(5) of the Act. The AO concluded that the assessee failed to establish the transactions were for hedging purposes, resulting in an addition to the loss amount. The CIT(A) partially allowed the appeal, leading both the Revenue and assessee to appeal to the Tribunal.

Issue 3: Addition of notional interest on interest-free advances
Additionally, the Revenue sought to set aside the deletion of the addition of notional interest on interest-free advances made by the assessee to partners. The Revenue contended that the CIT(A) erred in deleting the addition of notional interest at 10% on the sum expended by the assessee. The Tribunal, after considering the arguments and the previous decision of the Delhi High Court, remanded the issues back to the AO for further examination in line with the High Court's directions for the assessment year 2010-11. Consequently, both appeals were allowed for statistical purposes.

This detailed analysis covers the key issues addressed in the judgment, highlighting the arguments presented by both the Revenue and the assessee, along with the Tribunal's decision to remand the matters back to the AO for further consideration in accordance with the High Court's directives.

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