Principal Commissioner Of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj v. M/S. Bright Metal (India) Pvt. Ltd., 158-159, Mendwas House, Nehru Bazar, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 333 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/s. Bright Metal (India) Pvt. Ltd., 158-159, Mendwas House, Nehru Bazar, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 06/02/2018 1. By way of this appeal, the appellant has challenged thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department. 2.Counsel for the appellant has framed following substantialquestions of law:- “i) Whether on the facts and circumstancesof the case and in law the Tribunal has erredin confirming the order of CIT(A), therebydeleting the addition of the Rs.70,30,790/-out of total addition of Rs. 92,87,247/- madeby the Assessing Officer, who disallowed theexpenses claimed as hedging loss and byholding it as speculative loss? ii) whether on the facts and circumstances ofthe case and in law the Tribunal has erred inaccepting additional evidence i.e. statement containing its stock position (raw materialand finished goods) and to compare it withthe quantity of forward sales in violation ofRule 46A of the Income Tax Rules? iii) Whether on the facts and circumstancesof the case, the finding of the Tribunal as wellas the CIT(A) is perverse, contrary to therecord and untenable in the eye of law? ” 3.The facts of the case are that the case of the assessee waspicked up for scrutiny assessment and the assessment u/s 143(3)of the Income Tax Act, 1961 was framed vide order dt. 6.3.2014.While framing the assessment, the AO made disallowance ofRs.92,87,247/- claimed as business expenses under the category of Administrative and other expenses. The assessee before the AOhad claimed that this expenses, being the loss on account ofcurrency fluctuation and the raw material price fluctuation. Thisexplanation of the assessee was not accepted by the AO. 4.Counsel for the appellant has contended that both theauthorities; CIT(A) and the tribunal have committed serious errorin interpreting the business transactions of the assessee which arecontrary to Rule 46A of the Income Tax Rules and are also in clearviolation of the principles of business. 5.While considering the matter, the CIT(A) has observed asunder:- (viii)During the appellate proceedings, theAR was required to file a statement containingits stock position (raw material and finishedgoods) and to compare it with the quantity offorward sales (enclosed as Annexure-A). Thesaid statement has been examined in view ofthe above discussion and the principles laiddown by the Hon’ble Authority for AdvanceAR was required to file a statement containingits stock position (raw material and finishedgoods) and to compare it with the quantity offorward sales (enclosed as Annexure-A). Thesaid statement has been examined in view ofthe above discussion and the principles laiddown by the Hon’ble Authority for Advance 5.While considering the matter, the CIT(A) has observed asunder:- (viii)During the appellate proceedings, theAR was required to file a statement containingits stock position (raw material and finishedgoods) and to compare it with the quantity offorward sales (enclosed as Annexure-A). Thesaid statement has been examined in view ofthe above discussion and the principles laiddown by the Hon’ble Authority for AdvanceAR was required to file a statement containingits stock position (raw material and finishedgoods) and to compare it with the quantity offorward sales (enclosed as Annexure-A). Thesaid statement has been examined in view ofthe above discussion and the principles laiddown by the Hon’ble Authority for Advance Ruling in the case of Sopropha SA (supra). Acomparison of the details of transactionsentered into by the appellant company on thecommodity exchange vis-a-vis the stock inhand of the raw material and the finishedgoods available with the appellant company onthe dates of forward contract of sale was made,keeping in view that whenever the cumulativetotal quantity of the forward contracts of saleexceeds the total of raw material and thefinished goods, any loss or profit arisingthereon would be treated as speculative innature. The said comparison revealed that on29[th] Octorber, 2010, the forward sales exceedsthe raw material and finished goods by 54108Kg and on 5[th] November, 2010, the excessquantity further increased by 4161 kgs. Thus,the loss on account of these transactions istreated as speculative loss. It has already beenheld that loss on crude oil and gold in forwardmarket is speculative in nature as trading inthese commodities has nothing to do with thebusiness of the appellant company. Further, theloss on forward contract of purchase (reversehedging) was also held to be speculative innature. Therefore, the losses which arespeculative nature i.e. not the hedging lossesssummarized as under:- S.No.DateExcess RateSalePurchaseProfit/LossQty129-10-1054108366. (Stock 105892 kg)Purchase10-11-1050000389.681948400023-11-104108371.031524191-1169493205-11-104161386.611608684(58269-54108)Purchase23-11-104161371.031543856648283Crude Oil-6006814Crude Oil417775Gold-413 6Lead26337Zinc3388Total: A-1660594Reverse Hedging1325-01-11400001721772817568755-351027Purchased on 15/01 and 20/11410-03-11300001261754912862385-244836Purchased on 07/03 and 09/03Total:B-595863Grand -2256457Total(A+B) (ix) It is evident from the above details thatthese forward sales were in the nature ofspeculative transactions and the loss arisesthereon is in the nature of speculative loss.Therefore, it is held that out of loss ofRs.92,87,247/- claimed by the appellantcompany as hedging loss and treated by theAO as speculative loss, the as hedging lossand treated by the AO as speculative loss, thespeculative loss is to the tune ofRs.22,56,457/- only as worked out in theabove table. Therefore, addition ofRs.22,56,457/- is sustained as speculativeloss. The AO is directed to verify the aboveworking by observing the principles as laiddown in the case of Sopropha SA (supra) andto rectify the figures of speculative loss, if any,accordingly. 6.The tribunal while considering the same has observed as under:- “6. We have heard the rival contentions,perused the material available on record andgone through the order of the authoritiesbelow. The Ld. CIT(A) in his order hasobserved as under: 6.The tribunal while considering the same has observed as under:- “6. We have heard the rival contentions,perused the material available on record andgone through the order of the authoritiesbelow. The Ld. CIT(A) in his order hasobserved as under: “(ix) It is evident from the above details thatthese forward sales were in the nature ofspeculative transactions and the loss arisesthereon is in the nature of speculative loss.Therefore, it is held that out of loss ofRs.92,87,247/- claimed by the appellantcompany as hedging loss and treated by theAO as speculative loss, the speculative loss isto the tune of Rs.22,56,457/- only as workedout in the above table. Therefore, addition ofRs.22,56,457/- is sustained as speculativeloss. The AO is directly to verify the aboveworking by observing the principles as laiddown in the case of Sopropha SA (Supra)and to rectify the figures of speculative loss,if any, accordingly.” 6.1 The grievance of the Revenue is that, theLd. CIT(A) has acted in violation of Rule 46Ain considering the details filed by theassessee during the course of appellateproceedings without calling for remandreport from the AO. For the sake of claritysub-Rule 4 Rule 46A is reproduced here andbelow:- “46A.(1) The appellant shall not be entitledto produce before the [Deputy Commissioner(appeals)] [or, as the case may be, theCommissioner (Appeals), any evidence,whether oral or documentary, other than theevidence produced by him during the courseof proceedings before the [Assessing Officer],except in the following circumstancesnamely:- (a) Where the [Assessing Officer] hasrefused to admit evidence which ought tohave been admitted; or (b) Where the appellant was prevented bysufficient cause from producing the evidencewhich he was called upon to produce by the[Assessing Officer]; or (c) Where the appellant was prevented bysufficient cause from producing before the[Assessing Officer] any evidence which isrelevant to any ground of appeal; or (d) Where the [Assessing Officer] has madethe order appealed against without givingsufficient opportunity to the appellant toadduce evidence relevant to any grounds ofappeal. (2). No evidence shall be admitted undersub-rule(1)unlessthe[DeputyCommissioner (Appeals)] shall not take intoaccount any evidence produced under sub-rule(1) unless the [Assessing Officer] hasbeen allowed a reasonable opportunity- (a) to examine the evidence or document orto cross-examine the witness produced bythe appellant, or (b) to produce any evidence or document orany witness in rebuttal of the additionalevidence produced by the appellant. (4) Nothing contained in this rule shall affectthe power of the [Deputy Commissioner(Appeals)] [or, as the case may be, theCommissioner Appeals] to direct theproduction of any document, or theexamination of any witness, to enable him todispose of the appeal, or for any othersubstantial cause including the enhancementof the assessment or penalty (Whether on hisown motion or on the request of the[Assessing Officer] under clause (a) of sub-section (1) of section 251 or the impositionof penalty under section 271.” 6.2 A bare reading of sub rule 4 makes itclear that the Commissioner (Appeal) maydirect the production of any document or theexamination of witness to enable him todispose of the appeal or for any othersubstantial cause. We find merit into thecontention of the Ld. Counsel for theassessee that sub-Rule 1 of Rule 46A wouldnot be applicable in the present case as thedetail of stock was directed by the Ld. CIT(A)during the appellate proceedings to befurnished. Moreover, these evidences in theform of stock were available with the AO. 6.2 A bare reading of sub rule 4 makes itclear that the Commissioner (Appeal) maydirect the production of any document or theexamination of witness to enable him todispose of the appeal or for any othersubstantial cause. We find merit into thecontention of the Ld. Counsel for theassessee that sub-Rule 1 of Rule 46A wouldnot be applicable in the present case as thedetail of stock was directed by the Ld. CIT(A)during the appellate proceedings to befurnished. Moreover, these evidences in theform of stock were available with the AO. 6.3 Under these facts, we do not see anyinfirmity into the Ld. CIT(A). Further the Ld.CIT(A) has given a finding on fact that theseforward sales were in the nature ofspeculation transaction and the loss arisesthereon is in the nature of speculative loss.This finding on fact is not controverted by therevenue by placing any contrary material onrecord. Hence, we do not see any merit intothe grounds raised by the Revenue, same aredismissed.” 7.In our considered opinion, the view taken by both theauthorities is just and proper. Therefore, no substantial question of law arises. 8.Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 18.