TMI Blog2019 (6) TMI 1527X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee directed against the order of the Commissioner of Income Tax (Appeals)-1, Coimbatore ( CIT(A) for short) dated 26.10.2015 for the Assessment Year (AY) 2009 -2010. 2. The Assessee company raised the following grounds of appeal: 1. The order of the Commissioner of 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 confirming the disallowance of the Assessing officer on the ground that the definition of commodity is an inclusive one u/s 43(5) of the Income tax Act, 1961. 5. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities P ltd (88 CCH 313) . 3. The brief facts of the case are as under: The appellant namely M/s. Precot Meridian Limited, is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and sale of cotton yarn, fabrics, garments and gene-gratian sale of electricity . The return of income for the AY 2009-10 was filed on 21.09.2009 disclosing total loss of ₹ 24,29,95,888/- under the normal provision and book profit of C6,99,37,975/- under the provisions of Section 115JB of the Income Tax Act, 1961 (in short the Act ). Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Company Circle-I(2), Coimbatore (hereinafter called AO ) vide order dated 27.12.2011 passed u/s. 143(3) of the Act, at total income of ₹ 6,38,66,300/-. While doing so, the AO disallowed the claim for derivative loss of C28,97,50,845/- and ex-gratia payment made to employees C1,57,64,343/- and disallowance u/s.14A r.w.r. 8D for C13,47,000/-. 4. Being aggrieved, an appeal was preferred before the ld.CIT(A) who vide impugned order confirmed the disallowance of forex derivatives, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,23,77,35 12,88,99,426 The Assessing Officer disallowed the claim holding it to be speculative loss. The term speculation is defined under the provisions of Section 43(5) of the Act which is as under:- 43. DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION In section 28 to 41 and in this section, unless the context otherwise requires-- (1).......................... (2)......................... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be of capital nature. Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of ₹ 25 lakhs and ₹ 12,50,000 were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of ₹ 11 lakhs and ₹ 5,50,000 resulting to the assessee on remission of those two amounts to India, on account of alteration in the rate of exchange, would be a trading loss, but if, instead, these two amounts were held on capital account and were part of fixed capital, the loss would plainly be a capital loss. The question whether the loss suffered by the assessee was a trading loss or a capital loss cannot, therefore, be answered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or, to put it differently, as part of fixed capital or of circulating capital. We would have ordinarily, in thes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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