9911796707
TMI Blog2019 (6) TMI 1527X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals), is violative of the principles of equity and natural justice, the mandatory provisions of the Income Tax Act 1961. Disallowance on Loss on Forex Derivatives 2. The Commissioner of Income tax (Appeals) erred in confirming the order of the Assessing officer with respect to loss on foreign exchange derivates on the ground that foreign exchange is a commodity as envisaged u/s 43(5)(d) of the Income tax Act, 1961. 3. The Commissioner of Income tax (Appeals) erred in not allowing the loss on foreign exchange derivates as foreign exchange transactions are speculative in nature based on just two decisions of the Calcutta Tribunal and the Honorable Bombay High Court. 4. The Commissioner of Income Tax (Appeals) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes without appreciating the fact that the loss arose out of derivative transactions settled during the year on account of contracts expired during the year and the resulting loss is real and not notional in nature. 10. The Commissioner of Income tax (Appeals) erred in considering the Jurisdictional Tribunal case of Craftsman Automation (p) Ltd vs Additional Commissioner of Income tax in ITA no 21531Mds/2011 without taking into account two more cases which are favorable to the appellant. 11. The Commissioner of Income tax (Appeals) erred in not considering the decision of the Jurisdicational Tribunal in the case of M/s Majestic Export v JCIT in ITA no 1336 & 3072IMds/2014 dated July 2015. 12. The Commissioner of Income tax (Appeals) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted the addition of ex-gratia payment made to employees and directed the Assessing Officer to restrict the disallowance only to the extent of C1,23,735/-. 5. Being aggrieved, the appellant is in appeal before us in the present appeal contending that the foreign exchange derivates is not speculative transaction. The transactions are undertaken with a view to hedge the loss on account of currency exposure risk to the foreign exchange transaction. He also placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. D. Chetan and Co, 390 ITR 36 (Bom). 6. On the other hand, the ld. Sr. Departmental Representative placed reliance on the orders of lower authorities. 7. We heard the rival submissions and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ................ (5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause--(a) 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 respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him ; or(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue items. The Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd vs CIT, (1979) 116 ITR 1 wherein placing reliance an earlier judgments in the cases of Badridas Daga vs. CIT, (1958) 34 ITR 10, CIT vs. Tata Locomotive and Engineering Co. Ltd, (1966) 60 ITR 405, held as under:- ''The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter when the case was heard before the revenue authorities and the Tribunal and hence it would be desirable that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the ITO to take additional evidence and make a report to it, on the question whether the sums of Rs. 25 lakhs and Rs. 12,50,000 were held in West Pakistan as capital asset or as trading asset or, in other words, as part of fixed capital or part of circulating capital in the business. The Tribunal will, on the basis of this additional evidence and in the light of the law laid down by us in this judgment, determine whether the loss suffered by the assessee on remittance of the two sums of Rs. 25 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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