9911796707
TMI Blog2013 (2) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment was completed under sec.143(3) of the Act on 29.12.2008 determining total income at RS. 3,24,08,232/-. While completing the assessment, the Assessing Officer treated RS. 73,39,500/- as speculation loss and did not allow set off against normal business income. The Assessing Officer was of the view that the foreign exchange contracts entered into by the assessee are speculative transactions within the meaning of sec.43(5) of the I.T. Act. The Assessing Officer was of the view that this type of derivative contracts done by the assessee is a separate business altogether and, therefore, such loss arising out of derivative contracts is speculation business of the assessee. On appeal, the Commissioner of Income Tax (Appeals) sustained the action of the Assessing Officer in holding that the Forex contracts of the assessee are speculative transactions. 4. The Counsel for the Assessee submits that the assessee exports and realizes the proceeds in foreign currency. He submits that as the exchange rate for foreign currency fluctuate with a view to mitigate and guard against the loss arising from foreign currency fluctuation and to maximize the realization the assessee enters i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an authorized dealer in foreign currency can not purchase or sell other than for its business purposes. Therefore, he submits that various forms of forward contracts are basically entered into hedge for the effect of fluctuation of foreign exchange in the business transaction which will ultimately affect the business profit. 7. The Counsel for the Assessee submits that Explanation (3) to section 43A of the Act has considered forward contracts for determining cost of assets in relation to foreign exchange fluctuation. He submits that the Hon'ble Supreme Court in the case of Elcon Engineering Co. Ltd. (322 ITR 20) held that roll over premium should be debited/credited to the cost of asset. The Counsel for the Assessee, therefore, submits that forward contracts cannot be considered as speculative contracts. The Counsel for the Assessee submits that sec.43(5) of I.T. Act which deals with speculative contracts apply only to commodities and stocks and shares. The Counsel for the Assessee relied on the decision of Hon'ble Calcutta High Court in the case of CIT v. Soorajmull Nagarmull (129 ITR 169) and the decision of Hon'ble Bombay High Court in the case of CIT v. Bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss against business income of the assessee. 9. We have heard both sides. Perused the materials on record and the orders of authorities below. The assessee is an exporter of hosiery garments. There is no dispute that the assessee is not a dealer in foreign exchange. The assessee's forex transactions are regulated by RBI. The assessee is carrying on the forex transactions only in the course of its business and not as a separate business as observed by the Assessing Officer because the assessee is not a dealer in foreign exchange. The Hon'ble Bombay High Court in the case of CIT v. Badridas Gauridu (P) Ltd (supra) held that an assessee who is an exporter of cotton engaged in forward contracts with banks in foreign exchange is not a speculative transaction. It was held that loss deductible is business loss. While holding so, the Hon'ble Bombay High Court held as under :- "The assessee-company carried on business as export house. The assessee-company is an exporter of cotton. On 30th Dec., 1992, the assessee filed its return of income showing an income of Rs. 1,13,100. The assessee had entered into forward contracts with the banks in respect of foreign exchange. Some of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee for export of cotton in some cases faileRs. In the circumstances, the assessee was entitled to claim deduction in respect of Rs. 13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court, with which we agree, in the case of CIT vs. Soorajmull Nagarmull (1981) 22 CTR (Cal) 8 : (1981) 129 ITR 169. In the circumstances, there is no merit in the appeal. The appeal fails and the same is dismissed with no order as to cost." The Hon'ble Calcutta High Court in the case of CIT v. Soorajmull Nagarmull (supra) has also taken similar view. The Delhi Bench of the Tribunal in the case of Munjal Showa Ltd v. DCIT (supra) held that foreign currency or any currency is neither commodity nor shares. It was also held that in view of the provisions of FERA, it is legally impossible to enter into a speculative transaction in respect of foreign currency and such a forward contract is excluded from the ambit of speculative transaction by proviso (c) to Sec.43(5) of the I.T. Act. Relevant paras are extracted below :- "31. Foreign currency or any currency is neither commodity nor shares. The Sale of Goods Act, specifically excludes cash from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p held the action of the Assessing Officer in excluding duty draw back for the purpose of computing relief under sec.80IB of the Act. The Commissioner of Income Tax (Appeals) held as under: "7.1 The assessee had claimed deduction u/s.80IB wherein they had included Duty Draw back amount as profits derived from industrial undertaking. The Assessing Officer has denied this benefit on the basis that duty draw back amount cannot be included in the eligible profit for claiming deduction u/s80IB. This issue is squarely covered in favour of the revenue by the decision of Hon'ble Apex Court in the case of Liberty India vs. CIT reported in 183 Taxman 349(2009)(SC), wherein it is held as under :- 'DEBP is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEBP is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export project. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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