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2020 (1) TMI 18 - AT - Income TaxDisallowance of loss of foreign currency forward contract - HELD THAT:- 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. [2016 (10) TMI 629 - BOMBAY HIGH COURT] has held that hedging transaction entered in regular course of business activity cannot be treated as speculative transaction. The Co–ordinate Bench in Mahendra Brothers (2016 (8) TMI 1094 - ITAT MUMBAI), has held that it is not required by the assessee to establish a one–to–one linkage between the forward contracts and the export/import transaction. What is required to look at is, whether the amount of hedging transaction is within the amount of underlying transaction of imports and export. In fact, CBDT circular no. 23D (xxxix), dated 12th September 1960, also says that hedging transaction can be taken to be genuine if the total of such transaction does not exceed the total cost of raw material or merchandise in hand. In assessee’s own case for the assessment year 2003–04 has allowed assessee’s claim of loss resulting from cancellation of forward contract in foreign exchange by treating it as genuine business loss. In assessee’s own case in the assessment year 2009–10 would reveal that the reasoning on the basis of which learned Commissioner (Appeals) has 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 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 loss. Disallowance u/s 69A and 69B - HELD THAT:- Assessee was unable to reconcile the difference between the physical stock and the stock as per books of account with valid reasoning. Therefore, to that extent, the facts are established. However, we find merit in the alternative plea of the assessee for restricting the addition to the gross profit. The Assessing Officer is directed to compute the disallowance accordingly. Grounds are partly allowed.
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