“High Sea Sale” of Imported Goods are not considered as speculative transaction u/s 43(5) of Income Tax Act: ITAT Upholds Interest Income as Business Income

The Amritsar bench of the Income Tax Appellate Tribunal (ITAT) has recently held that high sea sales of imported goods are not considered as speculative transactions under Section 43(5) of the Income Tax Act, 1961. Thus the bench upheld the interest income from fixed deposits and other investments as business income. 

The Assesee G.G. Oil & Fats Pvt Ltd had treated the interest amount of Rs.7.3 crore on FDRs and 32.17 lakhs as business income and had adjusted with loss of “high sea sale” of imported goods. The said interest is considered as ‘Income of Other Sources’ by the Assessing Officer.

Further, the revenue has taken the “high sea sale” of imported goods as a speculative transaction under Section 43(5) of the Income Tax Act and the loss is treated as speculative loss which is barred to adjust with the interest.

The assessee stated that the entire transaction is not speculative and also the interest derived/earned is related to the business of the assessee which is considered as business income not as ‘Income from other sources’.

Aggressive by the order assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. After considering the submissions of both parties  CIT(A) held that “high sea sale” of imported goods was considered as a speculative transaction under Section 43(5) of the Income Tax Act. However, CIT(A) treated the interest income as business income.

Aggrieved by the order of CIT(A) assessee and revenue filed an appeal before the tribunal.

Sudhir Sehgal, counsel for the revenue submitted that the transaction related to “high sea sale” is a speculative transaction and the loss earned from this transaction would be treated as speculative loss Section 43(5) of the Income Tax Act. Further, there is no delivery of the goods from the end of the assessee.

The counsel also argued that interest which was earned from the fixed deposits and other investment are not the business income but it would be treated as income from other sources.

S. M. Surendranath counsel for assessee submitted that Assessee company is involved in the business of crude palm oil (CPO) trading and, thus, the assessee is carrying on only one business and no other business. The interest is earned on fixed deposit and other interests have also an immediate nexus with the business of the assessee that is import of edible oil and its resale.

Further counsel argued that handing over the delivery orders was sufficient as constituting actual delivery of the goods hence there is no treatment of the speculative transaction.

Accordingly, the tribunal after considering the facts,  materials and arguments of both parties observed that the entire transaction is going through by proper delivery of the goods during purchase and the assessee had provided documents for evidence of delivery of goods related to high sea sale and confirmed the interest income treated as business income.

Therefore the two-member bench of Dr. M. L. Meena, (Accountant Member) and Anikesh Banerjee, (Judicial Member) allowed the appeal filed by the assessee.

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