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TMI Blog2017 (11) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinafter referred to as "Revenue") being aggrieved by judgment and order dated 15.03.2016 passed by Income Tax Appellate Tribunal, Lucknow, Bench, Lucknow (hereinafter referred to as "Tribunal") in Income Tax Appeal (hereinafter referred to as "ITA") No. 196/LKW/2014 relating to Assessment Year (hereinafter referred to as "A.Y.") 2009-10. 3. It was admitted on following substantial question of law: "A. Whether on the facts and circumstances of the case and in law the Hon'ble Income Tax Appellate Tribunal was correct by taking the losses incurred from 32 transactions out of 90 transactions entered into by the respondent/assessee as business losses due to wrong interpretation of the provisions of Section 43 (5) and without appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now (hereinafter referred to as "CIT (A)") and disputed following three terms, which were added/disallowed by A.O. "a. Loss in speculation business Rs. 1,07,88,693/- b. Extra claim of loss by fire Rs. 82,84,770/- c. Claim of loss for salvaged fatty acid Rs. 10,17,000/-" 8. CIT (A) granted relief in respect to the loss caused by fire and instead of Rs. 82,84,770/- it was restricted to Rs. 57,91,635/-.That is how Assessee got relief of Rs. 24,93,135/- with respect to amount disallowed on account of speculative business CIT(A) rejected Assessee's claim. 9. Ground no.08 relating to loss of salvaged Free Fatty Acid to the tune of Rs. 10,17,000/- was not pressed before CIT(A). Accordingly, appeal was partly allowed. 10. Assessee pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith mode of business of Assessee. Assessee claimed that market related to purchase of raw materials, for improvement and manufacture of refined oil is highly volatile. In order to protect Assessee from such volatility, it had been entering into contracts for purchase of raw materials, mainly crude oil, which is raw material for refined oil manufactured by Assessee in its its industrial undertaking situated at Akbarpur, District Ambedkar Nagaar. Since Assessee did not have requisite infrastructure for direct imports, it had been entering into contracts for purchase of such commodity on "high-sea-sale" basis. Many a times, looking to market trend, Assessee had to cancel such contracts for sale of raw materials (crude oil), In the present A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded findings with respect to 32 transactions in favour of Assessee. 13. The question as to what is "hedging transaction" and when it can be a "speculative transaction" was considered by this Court in Additional Commissioner of Income Tax Vs.M.P. Sugar Mills Private Limited 1984 (148) ITR 203 (Alld.). Assessee therein claimed that contracts both for sale and purchase of raw materials, if entered into with a view to safeguard future price fluctuation, in respect of contracts for actual delivery of goods manufactured by it, are out of ambit of "speculative transactions" as defined by Section 43(5), but Revenue contended that only contracts for purchase of raw material made by Assessee would qualify for being treated as speculative transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contracts taken out of the scope of such transactions in the case of merchants are those which he enters into in respect of his merchandise with a view to safeguard loss through future price fluctuation in respect of contracts for actual delivery of merchandise sold by him. It is significant to note that Section 43 nowhere provides that such hedging contracts must necessarily be purchase contracts. Of course, in cases where loss through future price fluctuation in respect of contracts for actual delivery of goods manufactured or merchandise sold, can in fact not be safeguarded by entering into contract for sale of raw materials or merchandise, there would be no reason to exclude such transaction from the ambit of Section 43(5) (a) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confining the same to hedging contracts by way of purchases of such raw materials alone. It will depend upon the facts of each case whether a particular transaction by way of forward sale, which is mutually settled otherwise than by actual delivery of the said goods, has been entered into with a view to safeguard against loss through price fluctuation in respect of the contract for actual delivery of the goods manufactured." 14. This Court distinguished three judgments relied by Revenue i.e. Gujrat High Court's Division Bench judgment in Chimanlal Chhotalal Vs. CIT (1968) 69 ITR 129 (Guj), a Division Bench of Madras High Court in CIT Vs. S.K.AR. K. AR. Somasunddaram Chettiar and Company (1975) 101 ITR 832 (Mad) and in Madhya Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X
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