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TMI Blog2020 (1) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... red to and relied upon by the Tribunal, this was also the view taken by this court in Badridas Gauridu case [ 2003 (1) TMI 61 - BOMBAY HIGH COURT ] This position has been again reiterated in Commissioner of Income-Tax Vs. D. Chetan and Company [ 2016 (10) TMI 629 - BOMBAY HIGH COURT ] held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. - Decided in favour of assessee. - UJJAL BHUYAN MILIND N. JADHAV, JJ. Mr. Suresh Kumar, Advocate for the Appellant. Mr. Ajay Kumar Singh with Mr. Ravindra Poojary, Advocate for the Respondent. P.C.:- 1. Heard Mr.Suresh Kumar, learned standing counsel, Revenue for the appellant; and Mr.Ajay Kumar Singh, learned counsel for the respondent-assessee. 2. This appeal under Section 260A of the Income Tax Act, 1961 (briefly the Act hereinafter) has been preferred by the Revenue against the order dated 7th June, 2016 passed by the Income Tax Appellate Tribunal, F Bench, Mumbai (briefly the Tribunal hereinafter) in Income Tax Appeal No.6271/Mum/2014 together with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with banks only to safeguard itself and hedge against the exposure risks in future fluctuation in the exchange rates of foreign currency to be received by it as export sale proceeds. It is seen that these foreign exchange forward contracts entered into with banks from time to time in the relevant periods under consideration, were made against confirmed export orders and export of goods by the assessee. 5.3.2 In our view the AO s findings to the contrary that the aforesaid foreign exchange losses suffered by the assessee are speculative in nature was factually flawed as it was based on a factually incorrect assumption that the assessee not being dealer in foreign exchange, its forward contracts were only for foreign exchange which were settle d without delivery thereof. The RBI has permitted importers and exporters to enter into foreign exchange forward contracts with the banks in respect of its export orders. In the case on hand the assessee entered in to foreign exchange export contracts with banks to the extent of its export orders; which means every foreign exchange forward contract is against a specific export order. In this factual matrix, it is clear that the assessee did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der :- The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee s regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under Section 43(5) of the Income-tax Act, speculative transaction has been defined to mean a transaction in which a contract for the purchase or sale of a commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect of ₹ 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 V. Soorajmul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner. In fact, Assessing Officer also in the assessment order does not find that the transaction entered into by the respondent-assessee was speculative in nature. It further holds that at no point of time did the Revenue challenge the assertion of the respondent-assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against6 the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf of the Revenue that the respondent-assessee should be called upon to explain the nature of its transactions. Thus, the submission now being made is without any foundation as the stand of the assessee on facts was never disputed. So far as the reliance on Accounting Standard 11 is concerned, it would not by itself determine whether the activity was a part of the respondent-assesee s regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue s contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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