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TMI Blog2019 (10) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as speculative transaction. A forward contract is regarded as hedging transaction only when it is entered into with a view to safeguard the losses in respect of a contract for actual sales or purchase of goods in future. Any profit or loss arising from such hedging transaction will be treated as business profit or allowable business loss. Since in the case in hand, the assessee has entered into forward contract only in respect of price of the gold and silver and not in respect of foreign exchange rate which is directly affecting the export proceeds or import outgo in foreign exchange. Therefore, the profit or loss arising from such forward contracts cannot be treated as integral or incidental to the export activity but it is certainly an integral part of business activity of the assessee. Since the assessee is purchasing raw material in local market, therefore, such profit or loss shall have a bearing on the cost of raw material and consequently the profits and gain from the export of the jewellery is directly affected by the profit or loss of forward contract. In order to hold that the forward contracts entered into by the assessee are hedging transaction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegral part of the business of the assessee for availing the electricity connection for its manufacturing activity. Hence, the interest received on security deposit with JVVNL will be included in the business profits of undertaking for the purpose of computing the deduction U/s 10AA of the Act in terms of sub-Section (7) of the said provision. Consequently, the deduction will be computed as per the formulae given in sub-Secdtion (7) of Section 10AA of the Act and the profits of the business undertaking includes said interest income and the profits derived from the export of the articles or things of services shall be computed in proportionate to the export turnover to total turnover. This amount will be part of the business profits undertaking but shall not be part of the export turnover. The A.O. is directed to recompute the deduction as per the formulae given in sub-section (7) of Section 10AA Disallowance of deduction U/s 10AA of the Act in respect of miscellaneous income - HELD THAT:- Assessee has not advanced any argument as to why the disallowance of deduction U/s 10AA of the Act in respect of Misc. income is not justified. In absence of any explanation or argument on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0AA deserves to be allowed on the same. 2. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal. 2. Ground No. 1 of the appeal is general regarding disallowing deduction U/s 10AA of the Income Tax Act, 1961 (in short, the Act) in respect of income which comprising the different components which ae specified in the other grounds, therefore, no specific adjudication is required in respect of ground No. 1 of the appeal. 3. Ground No. 1.1 of the appeal is regarding the disallowance of deduction U/s 10AA of the Act in respect of the profit earned from derivative transactions claimed as hedging transactions by way of forward contracts. The assessee is a partnership firm and engaged in the business of manufacturing and trading of jewellery. The assessee having 100% export oriented unit (EOU) at SEZ, Sitapura, Jaipur. In the return of income, the assessee has claimed entire income under the head business and profession and claimed exemption/deduction U/s 10AA of the Act. The A.O. while passing the assessment in pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract for purchase as well as sale of goods. The contracts were against the orders in hand as the assessee received orders in advance at least 3-4 months. He has referred to the details of forward contract and submitted that on a particular date outstanding hedging contract of gold and silver during the year under consideration was not exceeding the actual sale/export of gold and silver jewellery. Therefore, when the forward contract quantity of gold and silver was always less than the actual quantity of export of gold and silver jewellery then the said forward contract cannot be held as speculative but it is only in hedging transaction and profit or loss arising from such contract will be treated as business profit or loss. 6. On the other hand, the ld DR has submitted that the ld. CIT(A) has given a specific finding that the assessee has failed to produce supporting evidence to show that the transactions which have earned the profit were hedging transactions hence in absence of necessary details to establish the direct nexus between the forward contract and actual transaction of sale/export, the assessee has failed to discharge its onus. He has relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction. Following second proviso shall be inserted after the existing proviso to clause (5) of section 43 by the Finance Act, 2018, w.e.f. 1-4-2019 : Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply. Thus, the transaction in which the contract for purchase or sale of any commodity settled otherwise then by actual delivery or transfer of commodity is treated as speculative transaction. However, there are exceptions as provided under the proviso and the relevant clause for the purpose which is applicable in the case of the assessee is clause (a) which reads that a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions which have yielded profit were hedging transactions. It is the duty of the A.O. to first ascertain whether the forward contracts are only in respect of covering the actual transaction of purchase and sale and not beyond actual transaction of purchase and sale then such forward contracts would be regarded as hedging transaction and cannot be treated as speculative transaction. Accordingly, the rulling relied upon by the ld. AR of the assessee is not in dispute as far as the principle laid down by the Hon ble Gujarat High Court in the case of Pankaj Oil Mills Vs CIT (supra) but the facts remained unverified whether the forward contracts entered into by the assessee during the year are covering only actual transaction of purchase and sale so as to refer the hedging transaction to safeguard the future loss due to fluctuation of prices. Accordingly, this issue is set aside to the record of the A.O. to verify the actual details of forward contract as well as the actual transaction of purchase and sale made by the assessee during the year. 8. Ground No. 1.2 of the appeal is regarding denial of deduction U/s 10AA of the Act on the interest received from JVVNL/RESB. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Consequently, the deduction will be computed as per the formulae given in sub-Secdtion (7) of Section 10AA of the Act and the profits of the business undertaking includes said interest income and the profits derived from the export of the articles or things of services shall be computed in proportionate to the export turnover to total turnover. This amount will be part of the business profits undertaking but shall not be part of the export turnover. The A.O. is directed to recompute the deduction as per the formulae given in sub-section (7) of Section 10AA of the Act. 12. Ground No. 1.3 of the appeal is regarding disallowance of deduction U/s 10AA of the Act in respect of miscellaneous income of ₹ 883/-. 13. At the outset, we note that the ld. CIT(A) has decided this issue as under: The appellant has not stated anything about the deduction not allowed by the A.O. U/s 10AA of the Act in respect of Misc. income of ₹ 883/- and thus, it is held that action of the A.O. was justified. 14. Before us also, the assessee has not advanced any argument as to why the disallowance of deduction U/s 10AA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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