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2009 (8) TMI 1249 - AT - Income TaxDeduction u/s 10B - Gain on forward contracts - Whether proceeds from hedging foreign currency risk does not constitute income derived from exports and is also not received in convertible foreign exchange ? - HELD THAT:- As in the instant case, there are a number of transactions and the forward contracts have been taken in respect of 46 per cent of the export turnover. Thus, it is not an isolated transaction. Hence, in view of Explanation 2 to section 28, the profit from the forward contract will have to be assessed as profit from speculation business. It is true that section 10B(1) says that a deduction of such profit and gains as are derived by 100 per cent export oriented undertaking is to be allowed as deduction. For the purposes of sub-section (1), the quantum of deduction is to be computed as per section 10B(4). The deduction permissible is in the same proportion to the profit of the business of the undertaking as it bears to the export turnover to the total turnover. The words uses are "profit of the business of the undertaking". The business of the undertaking is to manufacture and export readymade garments. As held profit from forward contract is profit to be assessed under the head ‘Speculation business’ and speculation business is not the business of the undertaking. Hence, for the purpose of computing deduction u/s 10B, speculation business cannot be considered as the business of the undertaking. Thus we hold that the CIT(A) was not justified in holding that profit from forward contract is to be included in the profit of the business of the undertaking for the purposes of computing deduction u/s 10B.
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