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TMI Blog2022 (11) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... neither the assessment order nor the first appellate order clarify in unequivocal terms whether or not the assessee has been dealing in edible oils also apart from the coal. In this situation, the findings of the authorities below cannot be held to be baseless without facts being first fixed. Factual determination is required to give a finding whether the edible oils are connected commodity in the context of point (ii) of the circular (supra). Further factual verification that is required is in respect of point (i) to know whether the hedging transaction in edible oils was against another hedging transaction in coal or it was to guard against the risk of merchandise in stock falling in value. In respect of the bad bebts, according to the AO, the assessee failed to furnish any evidence in support of the claim that the same was offered as income in the respective years; where as according to the CIT(A), the amount was written off as sundry balances but not accounted as bad debts. This also requires verification at the end of the AO as to whether the assessee offered such an amount in the earlier years as income or that this amount is properly written off in the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age claims, settlement expenses, trading account-National Commodity Exchange (NCDEX) etc., which practice they have been following consistently for all the years. According to the assessee the purchase value consists of the cost of material at Rs. 52,07,23,164/- and inward expenses such as settlement expenses of Rs. 96.50 lakhs under trading account-NCDEX Rs. 8,262.12 thereby bringing the total purchase cost to Rs. 53,03,64,901.88. Assessee therefore, explains the so-called excess of purchase at Rs. 96,41,738/- as not excess purchase amount but forms part of normal purchase cost and prayed the learned Assessing Officer not to add the same. 5. Learned Assessing Officer, however, completed the assessment under section 143(3) of the Act by order dated 23/3/2015 by making addition of Rs. 96,41,738/- towards the disallowance of the heading loss, Rs. 5 lakhs by disallowing under section 37(1) of the Act and Rs. 3,81,038/- by disallowing the bad debts. 6. Aggrieved by such an action of the learned Assessing Officer, assessee preferred appeal before the Ld. CIT(A). In respect of the addition of Rs. 96,41,738/- on account of disallowance of the heading loss, assessee contended before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the assessee. Ld. CIT(A) observed that as per the Profit and Loss Account (P L Account), the Revenue from operations was to the tune of Rs. 52,44,40,743/- , other income was Rs. 2,20,79,124/- totalling Rs. 2,54,65,19,867/- ; whereas the cost of material consumed was Rs. 53, 03, 64, 902/- and finance cost and other expenses arrived at loss of Rs. 9,58,856/- by the assessee. The cost of material was arrived as per schedule 18 by taking purchase of Rs. 53,03,64,902/- and, therefore, purchasers of figure was reached as per schedule 15 by taking domestic and imported coal of Rs. 52,07,23,164/- and adding the expenses of Rs. 96,50,000/- to reach the figure of Rs. 53,03,64,901/- . 10. Ld. CIT(A) perused the statement of purchases and sales and found that hedging transactions from NSL Sugars Ltd was shown as transaction without actual delivery and thereby hedging transactions. Ld. CIT(A) recorded that the assessee explained that the transaction of coal was taken as actual transaction even though not delivered and the transaction of edible oils was shown as hedging transaction and as a matter of fact, according to the Ld. CIT(A), from the accounts on the details submitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice in trading in coal, the assessee had to contract the hedging transaction in edible oils. According to him, the learned Assessing Officer is wrong in holding that inasmuch as the assessee did not do the hedging transactions in respect of the imported, but it was in respect of Palmolein oil, the loss incurred in hedging contracts fall within the definition of speculation loss as defined under section 43 (5) of the Act. While placing reliance on the CBDT Circular 23 (supra) he argued that the learned Assessing Officer should not treat genuine hedging transactions in connected communities as a speculative transactions, though the transactions may not be in identically the same commodity. According to him, the assessee deals with both coal and edible oil and therefore, hedging transactions in respect of coal with the edible oil is permissible under section 43 (5) of the Act in view of the circular. He also placed reliance on the decision reported in Ramachandra Shivnarain (supra), VST Industries Ltd (supra) and also in the case of assessee itself for the assessment year 2008-09 in Leo Edibles and Fats Ltd Vs. DCIT in ITA No. 396/Hyd/2012. 15. Per contra, it is the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have gone through the record in the light of the submissions made on either side. It is clear from the record that the reason for the learned Assessing Officer to disallow the hedging losses is that such hedging transaction is not in connected commodities and, therefore, it is a speculative transaction; whereas the reason for the learned CIT(A) to confirm the disallowance of hedging loss is that such transaction in palmolein oil was not in respect of the coal which was taken actual delivery of. It is therefore clear that the Learned Assessing Officer and the learned CIT(A) are eluding to points No. (ii) and (i) of circular (supra) respectively, inasmuch as point (ii) refers to the transactions in connected commodities and point No. (iii) refers to the hedging transactions in respect of the raw materials or the merchandise in stock. 19. A reading of the first appellate orders shows that even according to the information furnished by the assessee, the transaction for purchase of coal was also not intended for actual delivery in order to form it part of stock, so as to guard against the fall in its value the hedging transaction was entered. Further, though the case of assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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