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2024 (4) TMI 590 - AT - Income TaxDetermine the nature of losses on forward foreign exchange contracts and foreign exchange derivative contracts - CIT(A) deleting the disallowances of losses made by the AO on Forward Foreign Exchange Contract and Foreign Exchange Derivative Contract by treating them as business loss and allowed them to set off and carry forward against the business income - AR as submitted that the transactions would not be covered u/s 43(5) but the losses were allowable to the assessee as business expenditure u/s 37(1) - HELD THAT:- The assessee, in the present case, is not a dealer in foreign exchange and therefore, it could not be said that such transactions were part and parcel of business transactions unless interse nexus thereof was established by the assessee. In the decision of Mumbai Tribunal in Vinodkumar Diamonds Pvt. Ltd. [2013 (11) TMI 408 - ITAT MUMBAI] it was held by the bench that in order that for forward transactions in commodities may fall within proviso (a) to section 43(5) of the Act, it would be necessary that the raw materials or merchandise in respect of which the forward transactions have been made by the assessee must have a direct connection with the goods manufactured or the merchandise sold by him. As per Board’s Circular, in order to be genuine and valid hedging contracts of sales, the total of such transactions should not exceed the total stocks of the raw materials or the merchandise on hand which would include existing stocks as well as the stocks acquired under the firm contracts of purchase as held by Mumbai Tribunal in the case of Araska Diamond (P.) Ltd [2014 (10) TMI 776 - ITAT MUMBAI] - This decision considered the decision of MP Sugar Mills (P.) Ltd. [1983 (8) TMI 42 - ALLAHABAD HIGH COURT] which held that it will depend upon the facts of each case whether a particular transaction by way of forward sale, which is mutually settled otherwise than by actual delivery of the said goods, has been entered into with a view to safeguard against loss through price fluctuation in respect of the contract for actual delivery of the goods manufactured. Therefore, the loss was held to be not allowable either u/s 43(5) or under proviso thereof. Thus the adjudication of Ld. CIT(A) is set aside and the issue is restored back to the file of CIT(A) for de novo adjudication with a direction to the assessee to substantiate its case and by filing requisite details / explanations. Revenue appeal stand allowed for statistical purposes.
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