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TMI Blog2020 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... contract amounting to Rs. 39,02,500. 3. Brief facts are, the assessee, a resident company, is engaged in the business of manufacture and export of jewellery. For the aforesaid activity, the assessee has set-up three units located in SEEPZ, Mumbai. A search and seizure operation under section 132 of the Income Tax Act, 1961 (for short "the Act") carried out on the assessee on 8th August 2011. Pursuant to such search and seizure operation, proceedings under section 153A of the Act were initiated against the assessee by issuing a notice on 21st September 2012. In response to the said notice, the assessee filed its return of income on 7th December 2012, declaring total income of Rs. 55,09,485. During the assessment proceedings, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority. 4. Learned Commissioner (Appeals) upheld the disallowance by more or less agreeing with the reasoning of the Assessing Officer. The learned Commissioner (Appeals) observed, the assessee was unable to establish the linkage between the purchase and sale of diamond/jewellery with the specific hedging contracts. She observed, merely because the exposure in the international market was of higher value than the amount of forward contract, the transaction cannot be treated as hedging transaction. Referring to the proviso to section 43(5) of the Act, she observed, exception is available only to the contracts in the nature of guard against loss through future price fluctuation. She observed, unless the assessee proves that foreign currency f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h September 1960, submitted, it clearly says that hedging sales can be taken to be genuine only to the extent the total of such transactions does not exceed the total cost of raw materials or merchandise in hand. Thus, he submitted, since the foreign currency forward contracts are far lesser than the underlying exposure in foreign market, there is no reason to consider them as speculative transaction so as to disallow assessee's claim of business loss. Further, the learned Authorised Representative submitted, while deciding identical issue in assessee's own case in assessment years 2003-04, 2008-09 and 2009-10, the Tribunal has taken a favourable view and has allowed the claim of loss by reversing the decision of the Revenue authorities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of import of raw material and export of jewellery for which it has set-up units in special economic zone. Therefore, the fact that the assessee undertakes transaction in foreign currency is beyond doubt. It is the claim of the assessee that to guard against loss arising due to fluctuation in the price of foreign currency towards payables and receivables, the assessee has entered into hedging through forward contracts. From the facts on record, it is further evident that the foreign currency forward contracts held by the assessee are far lesser than the underlying exposure on account of imports and exports. The Hon'ble Jurisdictional High Court in CIT v/s D. Chetan & Co., has held that hedging transaction entered in regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowed assessee's claim of business loss arising out of foreign currency forward contract is identical to the reasoning of learned Commissioner (Appeals) while disallowing assessee's claim of loss in respect of hedging contract in the impugned assessment. Therefore, considering the overall facts and circumstances of the case in the light of the decisions relied upon and more particularly, the consistent view taken by the Tribunal in assessee's own case for the assessment year 2003-04, 2008-09 and 2010-11 on identical issue, as referred to above, we hold that loss arising on cancellation of foreign currency forward contracts cannot be treated as speculative loss under section 43(5) of the Act. Accordingly, we allow assessee's claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer made addition of Rs. 4,49,017, as unexplained investment under section 69B of the Act and where there was shortage in physical stock, the Assessing Officer treated them as out of book sales and made addition of Rs. 3,70,237, under section 69A of the Act. The assessee challenged the aforesaid additions before the learned Commissioner (Appeals) without any success. 11. Reiterating the stand taken before learned Commissioner (Appeals), the learned Authorised Representative submitted, the difference arising after the reconciliation is very minor difference which could be due to the weighing and the custom allowed loss which was taken on an estimate basis. He submitted, no addition/disallowance should have been made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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