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TMI Blog2023 (3) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 44 - HIGH COURT PUNJAB AND HARYANA ] In view of the matter, we hold that the rejection of books of account is without any basis. Since, there have been no specific defects pointed out by the Assessing officer and, as such, the whole basis of rejection of books of account is on presumptions, conjectures and surmises and, thus, the Ld. CIT (A) has rightly held that the rejection of books of accounts u/s 145(3) of the Act is not liable to be rejected and thus, in our view, the rejection of books of account in such manner is unsustainable. This ground of revenue is rejected. Speculative transaction and set off of business loss - We find no infirmity or perversity in the finding of the Ld. CIT(A) in holding that the transactions of trading in edible oil by the appellant are not speculative in nature within the meaning of section 43(5) of the Act and therefore, the business loss incurred by the appellant is eligible for set off against other business income in terms of the provisions of section 71(1) of the Act. Thus, the grounds on the issue of speculative transaction and set off of business loss is rejected. Interest on FDR pledged with bank for foreign letter of credit - We hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest had an immediate nexus with the business of the assessee without appreciating that the assessee failed to prove how the interest earned on FDRs and other interest related to his business activities despite the fact that he was specifically required to prove it during assessment proceedings. (v) The CIT(A) has erred in holding that there is direct nexus between interest income and business activities without giving any clear findings as to how such nexus has been proved in the instant case. (vi) The CIT(A) has erred in not recording whether the findings are based on additional evidence produced by the assessee and admitted by the CIT(A), which was in violation of Rule 46A of the Rules as such production of additional evidence was not covered under clause (a) to (d) of Rule 46A and no reasons have been recorded by the CIT(A) for admitting such additional evidence. (vii) The CIT(A) erred in not taking into consideration the findings of Hon'ble Rajasthan High Court in the case of CIT vs. Bhaval Synthetics India, 81 taxmann.com 478 wherein, it was held that interest earned on FDRs kept in bank as margin money for obtaining LOC to purchase machinery was taxable as income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income, which is derived from the said business." 4. In both the appeals, there are common grounds of appeal on identical facts, challenging the issue of additional evidence admitted by the CIT(A), under Rule 46A of the ITAT Rules1963, therefore, both the appeals were taken up for hearing and adjudicated together simultaneously by this common order for the sake of brevity. 5. The facts are taken from ITA No. 56/Asr/2020 as a lead case for discussion. The assessee is a private limited company dealing in import/export of edible/non-edible product and also engaged in the marketing of pesticides/insecticides and other crop saving materials. It had filed its return declaring income of Rs.59,06,920/- for the assessment year 2016-17 on 15.09.2016. The case of the assessee was selected for complete scrutiny through CASS and assessment u/s 143(3) of the Act was framed after invoking provision of section 145(3) of the Act at the total income of Rs.2,37,67,280/- vide an order dated 28.12.2018 and the speculative loss of Rs. 1,78,06,371/- was allowed to be carried forward separately. While making assessment, the AO held that transactions involving sale and purchase of oil undertaken by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct; that the AO was justified in invoking provisions of section 145(3) of the Act as the assessee failed to submit the documents as required by the AO to deduce correct profits of the assesse; that the interest earned on FDRs and other interest had no immediate nexus with the business of the assessee has not been appreciating as the assessee failed to prove how the interest earned on FDRs and other interest related to his business activities despite the fact that he was specifically required to prove it during assessment proceedings and that the findings are based on additional evidence produced by the assessee and admitted by the CIT(A), was in violation of Rule 46A of the Rules as such production of additional evidence was not covered under clause (a) to (d) of Rule 46A and no reasons have been recorded by the CIT(A) for admitting such additional evidence. The Ld. DR argued that the CIT(A) erred in not taking into consideration the findings of Hon'ble Rajasthan High Court in the case of CIT vs. Bhaval Synthetics India, 81 taxmann.com 478 wherein, it was held that interest earned on FDRs kept in bank as margin money for obtaining LOC to purchase machinery was taxable as income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding/bill of entry uploaded by the assessee during the course of assessment proceedings is in paper book-2(Pg-1-62) alongwith the evidence of uploading the same during the course of assessment proceedings. In view of the above stated facts, no additional evidence has been submitted, before the CIT(A)during the course of appellate proceedings, by the assessee. 2. (3) The CIT(A) has erred in holding that the AO was not justified in invoking provisions of Section 145(3) of the Act disregarding the fact that the assessee failed to submit the documents as required by the AO due to deduce correct profits of the assessee. Findings of the CIT(A) [Page 31of the CIT(A) order] The CIT(A), has given the following finding under the heading Decision "It is observed that the AO had applied the provisions of section 145(3) and after rejecting the books of accounts he bifurcated the expenses relating to edible oil and pesticides business without pointing out any defect in the books of account. It is admitted fact that the appellant had maintained books of accounts of the business carried out by him and the same were audited by a CA and the tax audit report along with audited accounts was pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the seller transfers possession of the goods by parting with the commodity either by putting the commodity on the carrier, rail or any other transport, and on the way the purchasers sells the commodity to some third party, the purchase by the first purchaser cannot be treated as speculative transactions. [Page 19 -21 of CIT(A) order]. The CIT (A) has also relied on the judgment of SripalSatyaPal vs. ITO [2008] 217 CTR 337 (Raj.) in which it has been held that catch lies in the fact of taking the physical delivery of the goods by the assessee is not the test for determining the speculative transaction in terms of section 43(5) but the test is settlement of the transaction entered into by the assessee or on his behalf otherwise than by actual delivery of the commodity [Page 21-24 of CIT(A) order]. The CIT(A) has also relied on the judgment of Calcutta High Court in the case of HoosenKasam Dada (India) Ltd. vs. CIT(1964) 52 ITR 171 in which the speculative transactions has been defined to me where there is no delivery under a settlement contract, it is speculative transaction. On the other hand, however speculative the transaction might be, if there is delivery, it cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery of the goods taken by the buyer i.e., appellant as an importer. It has been further held by the CIT(A) that the edible oil has been purchased by the assessee while in transit and the appellant has sold the same to the subsequent buyer on High Seas and the physical delivery of the goods has been taken by the end user for which the evidence has been placed on record. The CIT(A) has given the finding on Page 24 that the fact of taking the physical deliver of the goods by the assessee is not the test for determining the speculative transaction in terms of section 43(5) but the test is settlement of the transaction entered into by the assessee or on his behalf otherwise than by actual delivery of the commodity or scrips. The CIT(A) after relying on the judgments of Andhra Pradesh High Court in the case of CIT vs. Lakshminarayana Trading Co(1995) 82 Taxman 301(AP)/ Rajasthan High court in the case of SripalSatypal vs. ITO (2008) 217 CTR [Raj] and Calcutta High Court in the case of HoosenKasam Dada(India) Ltd. vs. CIT (1964) 52 ITR 171has held on Page 27 that it is held the transactions of trading in edible oil by the appellant are not speculative in nature within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had nothing to do with carrying on business, were upheld. Findings of the CIT(A) With regard to theinterest on FDR pledged with bank for foreign letter of credit, CIT(A) has given the finding on Page 28 and has relied on the judgment of Delhi High Court in the case of CIT vs. Koshika Telecom Ltd.(2006) 287 ITR 479 in which the judgment of Apex Court in the case of CIT vs. Karnal Coop Sugar Mills Ltd (2001) 118 Taxman 489 (SC) has been followed and it has been held that the interest earned by the assessee from fixed deposits is inextricably linked to the business of the assessee of trading of edible oil as the fixed deposits have been kept a security for the purpose of obtaining foreign letter of credit from the bank. With regard to interest income from the parties amounting to Rs. 1,30,41,800, the findings of the CIT(A) is at page 31 of the order as under:- "Since, the purchase and sale of edible oil by the appellant has been held while deciding the ground of appeal no.1 above to be non-speculative in nature and not hit by the provisions of u/s 43(5) of the act, therefore, the 'other interest of income' of the assessee amounting to Rs. 1,20,41,800/- is allowed to be set off u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro Steel Ltd. [1999] 102 Taxman 94 (SC) CIT vs. Shri Ram Honda Power Equip's case [2007] 158 Taxman 474 (Delhi) CIT vs. Karnal Co-op Sugar Mills Ltd. [1999] 102 Taxman 11 (P&H) Lalsons Enterprises vs. DCIT [2004] 89 ITD 25 (Delhi) CIT vs. Shahi Export House [2010] 195 Taxman 163 (Delhi) With regard to interest from parties, the same is also linked to the business of the assessee. Even otherwise, since there is current year loss in the business of edible oil, the loss is liable to be adjusted against the business income derived from this and for this the reliance is placed on the findings of the CIT(A) reproduced above. 9. We have the heard rival contentions, perused the relevant material on record, impugned order, written submissions and case law cited before us. 10. The revenue one of the major objection is regarding alleged violation of the provisions of Rule 46A of Income Tax Rules 1962. The Ld. DR argued that the CIT(A)'s findings are based on additional evidence produced in violation of Rule 46A of the Rules as not covered under clause (a) to (d) of rule 46A and no reasons have been recorded by the CIT(A) for admitting such additional evidence. The Ld. AR in rebuttal su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumptions, conjectures and surmises and, thus, the Ld. CIT (A) has rightly held that the rejection of books of accounts u/s 145(3) of the Act is not liable to be rejected and thus, in our view, the rejection of books of account in such manner is unsustainable. This ground of revenue is rejected. 12. The Ld. CIT(A) has distinguished the judgments of Supreme Court relied upon by the AO on Page 18-19 of the appellate order and all three cases relied upon by the AO has been discussed in detail. The CIT(A) has observed on Page 19 of the impugned order as under: "Therefore in all the three cases relied upon by the Assessing Officer it was categorically held that only the delivery orders exchanged hands and there was no physical and actual delivery of goods. But that was not the case in the case of the appellant where physical delivery of goods had taken place from the seller to edible oil by loading the same into the ship and edible oil was sold by the assessee to the subsequent buyer being a trader or end user and the delivery of such edible oil was taken by the end user from the port in India by submitting the bill of entry at the time of taking delivery." 13. The CIT (A) has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the exporter & the bill of entry has been uploaded during the course of assessment proceedings to prove the actual delivery of the goods. Thus, in both the cases the transaction was settled by the actual delivery of the goods received by the 1st buyer and the ultimate buyer i.e. the end user. Meaning thereby, such transaction of edible oil/goods could not be branded as speculative transaction as per the definition of section 43(5) of the Act. 14.2 It is seen that the CIT(A) has stated on page 25 that the import of edible oil by the assessee from exporter outside India is not speculative as the edible oil was loaded in the ship by seller of goods which amounts to physical delivery of the goods taken by the buyer i.e., appellant as an importer. It has been further held by the CIT(A) that the edible oil has been purchased by the assessee while in transit and the appellant has sold the same to the subsequent buyer on High Seas and the physical delivery of the goods has been taken by the end user for which the evidence has been placed on record. The Ld. CIT(A) has categorically discussed on Page 24 that the fact of taking the physical delivery of the goods by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove to be non-speculative in nature and not hit by the provisions of u/s 43(5) of the act, therefore, the 'other interest of income' of the assessee amounting to Rs. 1,20,41,800/- is allowed to be set off u/s 71 (1) of the Act against the loss arising to the appellant from the business of the appellant of purchase/sale of edible oil." The finding of the CIT(A) is on Page 28 in which it has been held that the judgment of Bhawal Synthesis India 81 Taxman 478 is distinguishable on facts because the Rajasthan High Court has relied on the Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 227 ITR 172 but Delhi High Court in the case of Koshika Telecom Ltd.(2006) 287 ITR 479 relied on the judgments of Apex Court in the case of Karnal Coop Sugar Mills Ltd (2001) 118 Taxman 489 (SC) in which it has been held that interest from deposit of margin money with the banks inextricably linked with the requirement of furnishing of bank guarantee of the assessee is income from business as compared to the interest from the deposits which is on account of parking of surplus funds with the bank to render the interest and therefore the same is exigible to tax as in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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