2023 (7) TMI 226 - AT - Income Tax

Speculative or non speculative business - treatment of high sea sale which is considered by revenue as speculative transaction as there is no end delivery - Adjustment of loss from activity of High Sea Sale with the interest income - HELD THAT - The issue is only confined related to speculative transaction is delivery of the goods. When the delivery of the goods is executed, there is no treatment of the speculative transaction. The assessee placed a written submission and mentioned the details document that the said goods are duly taken delivery by the assessee during the purchase from sellers. There is no such any paper transaction or the transfer of the goods before taken the delivery. AR submitted the chart with documentary evidence which is depicting that the edible oil purchased from Singapore / Malasysia. Thus 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. Interest earned on FDRs - Interest which was treated as business income by the assessee and adjusted in the profit and loss account - We respectfully relied on the order of Shahi Export House 2010 (8) TMI 785 - DELHI HIGH COURT 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 2023 (3) TMI 601 - ITAT AMRITSAR - Accordingly, the order passed by the ld. CIT(A) is not required for any intervention related interest issue. Accordingly, ground taken for the issue of interest by the revenue is dismissed.

Summary

Issues Involved:
1. Treatment of interest earned on FDRs and other interest as business income or income from other sources.
2. Classification of "high sea sale" of imported goods as speculative transaction under Section 43(5) of the Income Tax Act.

Summary:

Issue 1: Treatment of Interest Earned on FDRs and Other Interest

The revenue argued that the CIT(A) erred in holding that the interest earned on FDRs and other interest had an immediate nexus with the business of the assessee without appreciating that the assessee failed to prove this nexus during assessment proceedings. The CIT(A) also did not record whether the findings were based on additional evidence, which was in violation of Rule 46A of the Rules. The revenue cited precedents from the Rajasthan High Court and the Supreme Court to support their stance that such interest should be taxable as income from other sources.

The assessee contended that the interest earned on FDRs should be considered as business income, arguing that the FDRs were mandatorily pledged as margin with the bank for obtaining letters of credit for the import of edible oil. The CIT(A) upheld this view, distinguishing the case from precedents cited by the revenue, and treating the interest as business income.

The ITAT upheld the CIT(A)'s decision, citing the inextricable link between the FDRs and the business activities of the assessee. The Tribunal relied on the Delhi High Court's decision in the case of Shahi Export House, which allowed for the netting of interest received against interest paid, and concluded that the interest earned on FDRs should be treated as business income.

Issue 2: Classification of "High Sea Sale" as Speculative Transaction

The revenue classified the "high sea sale" of imported goods as speculative transactions under Section 43(5) of the Act, arguing that there was no actual delivery of goods. The CIT(A) upheld the AO's view that the transactions were speculative, as there was no evidence of actual delivery of the commodity to the appellant.

The assessee argued that the transactions were non-speculative, providing documentary evidence of the delivery of goods. The ITAT found that the transactions involved actual delivery of goods, supported by invoices, bills of lading, and other necessary documents. The Tribunal concluded that the transactions were not speculative and dismissed the revenue's classification.

Conclusion:

The ITAT dismissed all the appeals of the revenue, upholding the CIT(A)'s decision to treat the interest earned on FDRs as business income and rejecting the classification of "high sea sale" transactions as speculative. The assessee's appeals were also dismissed as withdrawn.