Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.7.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE KRISHNAN RAMASAMY T.C.A.No.818 of 2016 M/s.Capricorn Food Products India Ltd., New No.AH-11/Old No.AH-216, 2nd Street, 8th Main Road, Shanthi Colony, Anna Nagar, Chennai 600 040. PAN: AABCC 1550 B Appellant vs Assistant Commissioner of Income Tax Company Circle-I(3), Chennai. Respondent Tax Case Appeal filed under Section 260-A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Madras B Bench dated 27.5.2016 in I.T.A.No.2179/Mds/2015. For Appellant : Mr.G.Baskar For Respondent : Mr.T.Ravikumar, Senior Standing Counsel http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT ORDER (Made by Dr.Vineet Kothari,J) Court was held by Video Conference, as per Resolution of Full Court dated 3 July 2020, by Judges at their respective residences and counsel, staff of Court appearing from their respective residences. 2. present Appeal has been filed by Assessee M/s.Capricorn Food Products India Limited raising following purported substantial questions of law calling in question correctness of order passed by Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 27.5.2016 in I.T.A.No.2179/Mds/2015, for Assessment Year 2008-2009:- "(i) Whether order of Tribunal is sustainable in law as it suffers from serious inconsistencies and illegalities? (ii) Whether Tribunal is right in law in summarily disposing of appeal without adverting to detailed submissions made, facts and figures placed before it without applying its mind in judicious manner? (iii) Whether Tribunal is right in law in giving certain directions to Assessing Officer while setting aside http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT assessment without noticing fact that loss claimed in respect of case of Aishwaria & Co is from derivative trading whereas loss in present case is on account of hedging of foreign currency receivable from exports? (iv) Whether on facts and in circumstances of case Income Tax Appellate Tribunal is right in law in directing Assessing Officer that only transactions which are completed are to be considered for purpose of determining business loss from these foreign exchange forward contract?" 3. operative part of Order of learned Tribunal clearly shows that matter has only been remanded to Assessing Authority with similar directions given by Tribunal in its earlier decision in case of Aishwarya & Company Private Limited in I.T.A.No.860/Mds/2014, as given in para 8 of its order. 4. said para 8 including extract from order of Tribunal in Aishwarya & Company Private Limited is quoted below for ready reference:- " 8. We have heard both parties and perused material on record. In our opinion, issue in dispute was considered by this Tribunal in case of http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT M/s.Aishwarya & Co. P. Ltd., in ITA No.860/Mds/2014 vide order dated 29.05.2015 wherein followed decision of Calcutta High Court in case of M/s.Baljit Securities Pvt. Ltd. (88 CCH 313) and held as under: "Clause (d) of Section 43(5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any ransaction in which contract for purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or scrip was speculative transaction. Sub- section 1 of Section 73 provides as follows: '(1) Any loss, computed in respect of speculation business carried on by assessee, shall not be set off except against profits and gains, if any, of another speculation business.' resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT out of speculative transaction. In present case, assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, assessee has been dealing in actual selling and buying of shares as also dealing in shares only for purpose of settling transaction otherwise than by actual delivery. question arise whether losses arising out of dealings and transaction in which assessee did not ultimately take delivery of shares or give delivery of shares could be set off against income arising out of dealings and transactions in actual buying and selling of shares. answer to this question is to be found in explanation appended to Section 73 which reads as follows: 'Explanation: where any part of business of company other than company whose gross total http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT income consists mainly of income which is chargeable under heads "interest on securities", or company principal business of which is business of banking or granting of loans and advances) consists in purchase and sale of shares of other companies, such company shall, for purposes of this section, be deemed to be carrying on speculation business to extent to which business consists of purchase. In order to resolve issue before us, section has to be read in manner as follows: "Explanation : Where any part of business of company ( ..) consist in purchase and sale of shares of other companies, such company shall, http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT for purposes of this section, be deemed to be carrying on speculation business to extent to which business consists of purchase and sale of such shares. It would, thus, appear that where assessee, being company, besides dealing in other things also deals in purchase and sale of shares of other companies, assessee shall be deemed to be carrying on speculation business. assessee, in present case, principally is share broker, as already indicated. assessee is also in business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, entire transaction carried out by assessee, indicated above, was within umbrella of speculative transaction. There http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT was, as such, no bar in setting off loss arising out of derivatives from income arising out of buying and selling of shares. This is what learned Tribunal has done. 9. From above decision of Calcutta High Court in case of Baljit Securities Pvt. Ltd. cited supra, issue stands covered in favour of assessee. However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than total export turnover of assessee for assessment year under consideration and if derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and Assessing Officer is directed to compute accordingly. This ground is allowed as indicated above. http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT 5. Further, Mumbai Bench of ITAT in case of Araska Diamond P. Ltd vs ACIT, 152 ITD 203, has held as under: "Total sales during year amounted to 27.78 crores, that AO and FAA had held such transaction were speculative in nature and had disallowed claim made by assessee, that assessee was of opinion that transactions entered into by it were not speculative transactions. ITAT found that amount involved in forward contract(FC) was more than 100% of turnover of assessee, that FC were not relatable to specific bills, that assessee had not related any single bill to any of contract and had not provided any purchase order during assessment or appellate proceedings. ITAT found that in case under consideration assessee was not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT be held to be hedging transactions. As assessee was dealing in diamonds and FC entered into only for diamonds would have been covered by proviso (a) to section 43(5)of Act. As held by Hon'ble High Court of Calcutta in matter of Gourepore Co. Ltd, onus was on assessee to prove that transactions in question were not of speculative nature. ITAT was of opinion that it had failed to discharge onus cast upon him by statute. It was also not able to contradict finding of fact that booking and cancellation of FC of foreign exchange were not in respect of specified export or import. Besides, finding of fact given by Revenue Authorities remained un-contravened that loss in question shown by it pertained to those FC transactions, against which no actual delivery of foreign exchange was made. On appreciation of facts surrounding transaction ITAT had reached at conclusion that transactions entered in to by assessee http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT were speculative in nature and case of assesseeis not covered by proviso(a) of section 43(S) of Act. Disputed transactions were speculative and not hedging transaction, that assessee could not relate any single bill to any of contract and it had not provided detail of any purchase order relatable to specific transaction, during assessment or appellate proceedings. Thus, transactions undertaken by it have to be taken as transactions relatable to Foreign Exchange. ITAT was of opinion that order of FAA does not suffer from any legal or factual infirmity. Therefore, considering peculiar facts and circumstances of case, ITAT confirmed his order FAA and decide effective ground against assessee." 6. In view of above orders of Tribunal, we are of opinion that Assessing Officer has to consider foreign exchange derivative in proportion to export turnover as regular business http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT transaction of assessee. If derivative transaction undertaken by assessee is in excess of export turnover then that loss suffered in respect of that portion of excess transaction has to be considered as speculative loss only and that excess derivative transaction has no proximity with export turnover and Assessing Officer is directed to compute accordingly. Further, Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for purpose of considering business loss and only transactions which are completed to be considered for purpose of determining business loss from these foreign exchange forward contract. With this observation, we remand this issue to file of Assessing Officer for fresh consideration. http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT 7. Before us, ld. Representative relied on judgment of Gujarat High Court in CIT vs Friends and Friends Shipping P. Ltd, [2013J 217 Taxman 267, for proposition that if assessee failed to take delivery within period indicated in contract and assessee had given instructions to bank for cancellation of contract on payment of agreed charges to bank these transactions cannot be considered as speculative transaction. However, there is no finding in this judgment towards this effect and reliance placed by assessee is misplaced. More so, this issue was considered by Mumbai Tribunal while delivering decision in case of Araska Diamond P. Ltd, 152 lTD 203, and after following judgments of Calcutta High Court in case of Bengal & Assam Co. Ltd vs CIT 227 CTR 399, and Bombay High Court judgment in case of CIT vs Badridas Gauridu P. Ltd 261 ITR 256, Tribunal came to conclusion that transactions, which http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT were prematurely cancelled, cannot be considered as business transaction and it is to be considered as speculative transaction. In view of above, we are inclined to remit issue back to file of Assessing Officer for fresh consideration." In view of this, we are remitting issue in dispute to file of AO on similar direction. Hence, appeal of assessee is partly allowed for statistical purposes. 9. In result, both appeals of Revenue and assessee are partly allowed for statistical purposes. 3. Mr.G.Baskar, learned counsel for Appellant/Assessee submitted that while remanding case to Assessing Authority, Tribunal has given certain directions and its views about Exchange Fluctuations to be treated as speculative loss or business loss and therefore, it is not open remand which is likely to prejudice case of Assessee while Assessing Authority passes fresh order upon such remand. 4. learned Senior Standing Counsel Mr.T.Ravikumar appearing for Respondent/Revenue has not seriously objected to Assessing Authority passing fresh orders in accordance with law. http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT 5. Therefore, we do not find any substantial question of law to be arising in present case at this stage, requiring our consideration or pronouncement on merits of case, since matter has only been remanded to Assessing Authority. 6. However, we make it clear that objections of Assessee shall be kept open and Assessee will be free to rely upon relevant materials including later case laws, if any, delivered on this issue in various High Courts. 7. Assessing Authority may proceed to pass fresh orders, uninfluenced by any observations made by Tribunal in above quoted portion of its previous order as well as present order of learned Tribunal. 8. With these observations, Appeal is disposed of without answering questions of law at our end. No order as to costs. (V.K.J.) (K.R.,J.) 23.7.2020 Ssk/kpl Index:Yes/No Internet:Yes/No http://www.judis.nic.in Order dt 23.7.2020 in TCA 818 of 2016 Capricorn Food Products India Ltd v . ACIT Dr.VINEET KOTHARI, J. and KRISHNAN RAMASAMY, J. ssk. T.C.A.No.818/2016 23.7.2020 http://www.judis.nic.in Capricorn Food Products India Ltd. v. Assistant Commissioner of Income-tax Company Circle-I(3), Chennai