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TMI Blog2024 (6) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 43(5) for actual delivery or the transfer of commodity by the assessee or is agent but the emphasis is on that whether transactions entered into by the parties were settled by delivery of goods, (and for determining the speculative transaction in terms of 43(5) is that whether the transactions entered into by the assessee has been settled otherwise by way of actual delivery of the goods). It is not a case, where delivery of the goods were not contemplated at all , but it is a case where goods where physically purchased by the importer from the foreign seller, who loaded the goods on the ship , and thereafter , the assessee has purchased the goods from the importer while on the high seas in transit , and thereafter, the assessee sold the goods by handing over and transfer of title documents, in favour of the ultimate buyer, which includes handing over the sale invoice, High Seas sales agreement, copy of original import invoice, and copy of bill of lading to the purchaser , while the goods were still on high seas in transit and finally , the ultimate buyer has taken delivery and physical possession of the goods by filing the bill of entry at the port of delivery in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no actual delivery of goods was received by the assessee. 3. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. (There is error in the departmental grounds in as much this section is to reads 43(5) instead of 45(3).) 3. The assessee has also filed appeal in Form 36, on the following grounds in respect of the additions sustained in appeal by the first appellate authority: Grounds of Appeal of assessee: 1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 66,04,490/- in respect of disallowance of interest u/s 36 (1)(iii). 2. That the disallowance have been made, though, it was explained to the Ld. CIT(A) that sufficient interest free funds were available with the assessee for investment and which have not been considered by the Assessing Officer 3. That the Ld. CIT(A) has failed to appreciate the fact that the assessee has discharged its burden of establishing that the sufficient interest free funds were available and disallowance u/s 36(1)(iii) was called for. 4. That the addition has been upheld against the facts and circumstances of the case. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) of the Act 61. Section 43(5) of the Act 61. A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. 8.1 From the above provisions of section 43(5) of the Act 61, we find, that the most pertinent point to be examined is whether, in the instant transaction, there has been actual delivery of goods or whether the transaction has been ultimately settled, otherwise than by actual delivery. 9. In order to arrive at the conclusion, we take note of the modus operandi of the business of the assessee, which has been explained by the assessee by way of a written submission filed before the AO and also before the first appellate authority which is reproduced as follows: (i) That the selling party loads the goods in ship and hands over the following documents to the assessee: - a) Invoice b) Bill of lading c) Weight and Quality Certificate (ii) That during the course of transportation of goods from the country where the seller is located to India, the edible oil is sold by the assessee by handing over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person making the exports to the person making the import at the port of loading the actual physical delivery of the same goods was taken by the end user at the port of delivery in India. 10. On the face of the above factual aspects of the matter the Ld. DR , relied on the order of the AO and on the judgments of the Hon ble Supreme court in the case of Davenport and Co ( Pvt ) Ltd vs CIT ( 1975 ) 100 ITR 715 , Nirmal Trading Co vs CIT ( 1980 ) 121 ITR 56 and in the case of Jute Investment co Ltd 121 ITR 56 , and argued that in the instant case there is failure on the part of the assessee to prove with evidence that there was actual delivery taken by assessee , and this failure renders the transactions of sale and purchase as speculative. 10.1 We also observed that the Ld. DR in course of his argument has not taken into cognizance the fact that in the instant case, the goods (edible oil), has been actually delivered and has been taken physical delivery of, by the end user, (the ultimate buyer) at the port of arrival. 10.2 The judgments cited by the Ld. DR, above, are all distinguishable on facts because in the cited cases there has been no physical delivery of goods at any stage, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Sripal Satyapal vs ITO (2008) 217 CTR 337(Rajasthan). 11.4 The Hon ble Andhra Pradesh High court while dealing with identical situation that where there are successive sales of same commodity coupled with delivery or transfer of the commodity and the physical delivery is only taken by the ultimate purchaser, the transaction does not fall within the sweep of speculative transaction and the Hon ble High Court has elaborated this finding by way of example in para 6 which is reproduced as under: - For example, if A sells certain commodity to B and transfers possession of the commodity by parting with the commodity either by putting the commodity on the carrier, rail or any other transport, and on the way B, the purchaser, sells the commodity to some third party C, the purchase by the first purchaser B cannot, in our view, be treated as speculative transaction for the simple reason that the delivery or transfer of the commodity contemplated under clause (5) of section 43, has taken place. Further, the Hon ble High Court held that under the sale of goods Act the delivery of goods can be made either by physical delivery of commodity directly to the purchaser or to the carrier fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the first seller and the first buyer -are concerned, there would be actual delivery of the goods as the first seller and having parted with the possession of the goods and handed them over to the carrier which would amount to delivery to the buyer, the transaction cannot be regarded as speculative transaction. 11.6 The Ld. AR, also brought to our notice, the judgment of the Amritsar Bench of the ITAT, in the assessee own case in ITA No: 56/ASR/2020, for the Assessment year: 2016-17, where on identical facts the issue has been decided in favour of the assessee. (Copy of the said order has been filed on record). 12. We have heard both the parties and considered the materials on record and we find that the chain of events as laid down by the assessee, supported by documentary evidences, has not been disputed by the AO and in fact, the documentary evidences in support of the same is accepted by the AO, and actual physical delivery of the goods has been taken by the last buyer as a result of the transaction carried out by the assessee. 12.1 It is not a case, where delivery of the goods were not contemplated at all , but it is a case where goods where physically purchased by the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said party returned back an amount of Rs. 3,30,00,000/- in July 2016 and a further amount of Rs. 2,56,00,000/- in October, 2016 (totalling Rs. 5,86,00000/-) leaving an outstanding balance of Rs. 3,39,87,451/-, throughout the year. 19. The contention of the AO is that, on one hand, the assessee has been paying interest on borrowed funds and has paid an amount of Rs. 1,13,20,623/- as interest during the year, and on the other hand the assessee own funds are lying with M/s Diamond Traxmein Pvt Ltd, for which no interest has been charged on such interest free loans and no commercial expediency has been explained by the assessee either. 20. As such as per provisions of section 36(1)(iii) of the Act 61, the AO has made a proportionate disallowance of interest amounting to Rs. 66,04,490/-, on interest free advances and added back the same to total income. 21. In first appeal proceedings the addition was sustained by the first appellate authority on the ground that on the basis of the audited accounts and balance sheet filed the assessee could not properly explain and show the availability of surplus funds, good enough to cover the interest free advances. He further opined that had there b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free funds available with the Assessee at the time of giving advance: a) The decision of the Supreme Court in the case of CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466 where it has been expressly held that where there is finding of a fact that interest free funds available to taxpayer were sufficient to meet its investment, it will be presumed that investments were made from such interest free funds. 24. The pertinent issue to be examined in the instant case is whether the assessee had sufficient interest free funds in the FY 2015-16, when the advance of Rs. 9,25,87,451/- has been made to the party M/s Diamond Traxmein Pvt Ltd. 25. The assessee has filed copies of the audited balance sheet (full set) as on 31st March 2017, and has filed a compilation of share capital reserve and surplus and interest free funds as on 31st March 2016 and on 31st March 2017, which reflects an amount of Rs. 19.80 crores as unsecured loans (interest free) as on 31st March 2016 and an amount of Rs. 20 crores Unsecured Loans (interest free) as on March 2017. 26. The argument of the Ld. AR is that the unsecured loans (which are free of interest) are available to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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