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2024 (3) TMI 1122 - AT - Income TaxNature of loss - Marked to market loss on hedging of the transaction - treated as speculative loss or normal business loss - HELD THAT - The issue is squarely covered by the various decisions in the case of CIT vs. Soorajmull Nagarmull 1980 (9) TMI 69 - CALCUTTA HIGH COURT and in the case of CIT v. Badridas Gauridu (P.) Ltd. 2003 (1) TMI 61 - BOMBAY HIGH COURT . The similar view has taken in the case of Shankara Infrastructure Materials Ltd. 2021 (7) TMI 306 - KARNATAKA HIGH COURT wherein it has been held that the loss incurred by the assessee on account of hedging the transaction to avoid higher loss on account of foreign exchange fluctuation was to be allowed as deduction u/s 37(1) of the Act. Appeal of the assessee stands allowed.
Issues involved:
The issue of whether a marked to market loss incurred by the assessee on hedging of a transaction should be treated as speculative loss or normal business loss is examined in this case. Comprehensive details of the judgment: The appellant, engaged in the business of purchase and sale of bullions and manufacturing of gold ornaments, suffered a marked to market loss on hedging future contracts with gold suppliers to mitigate potential losses due to price fluctuations. The Assessing Officer disallowed this loss as not being part of the regular business activities. The CIT(A) upheld this disallowance. However, the appellant argued that entering into such future contracts was a normal course of business to safeguard against losses, and the loss should be considered a business loss. The Tribunal referred to precedents from various High Courts, including the jurisdictional High Court and the Bombay High Court, which supported the allowance of such losses as business deductions under section 37(1) of the Income Tax Act. The Tribunal noted that the appellant's actions were in line with business practices and were not speculative in nature. Therefore, the addition made by the lower authorities was deemed unjustified, and the appellant's appeal was allowed.
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