TMI Blog2005 (3) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer of reducing 90% of the premium received on cancellation of forward contracts of the foreign exchange, for the purpose of computing depreciation allowable under section 80HHC of the Act; and - second, against CIT(A) s holding the 90% of the interest on fixed deposits is to be reduced for the purpose of computing section 80HHC deduction. 3. We will take up the second grievance first. As far as second grievance of the assessee is concerned, learned representatives have fairly agreed that this issue is now covered by the Special Bench decision of the Tribunal in the case of Lalsons Enterprises v. Dy. CIT [2004] 89 ITD 25 (Delhi). Learned Departmental Representative, however, dutifully relies upon the orders of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the prevailing market conditions in the foreign exchange market, the assessee considered it appropriate to cancel the forward contracts and book the profits, i.e., realize the difference between agreed forward contract price and prevailing market price. On this cancellation of forward exchange contracts, or, put it differently, realization of difference between the contracted price of dollars vis-a-vis the prevailing market price of the foreign exchange, the assessee received a sum of Rs. 10,30,305. The assessee s claim was that this receipt of Rs. 10,30,305 was an integral part of its export business profits. The Assessing Officer, however, was of the view that 90% of the aforesaid receipt is liable to be excluded from the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange as required under sub-section (2) of section 80HHC. The assessee is not satisfied by the order of the CIT(A) also and is in second appeal before us. 7. We have heard Shri Shivaram, learned counsel for the assessee, and Shri Sarangal, learned Departmental Representative. We have also carefully perused the orders of the authorities below, as also the paper book filed before us, and duly considered factual matrix of the case as also the applicable legal position. 8. We must first of all address ourselves to the nature of these forward exchange contracts, and the question whether or not these transactions can be considered to be an integral part of the export business or whether or not these transactions are to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled without delivery, the conditions of section 43(5), describing speculative transactions, are clearly fulfilled, the requirement of Explanation 2 to section 28 is not fulfilled inasmuch as it cannot be concluded that the transactions are such a nature as to constitute a business by itself. In our understanding of the situation, these transactions are genuine business transaction to hedge against increased cost of purchases of rough diamond imports. It is a commonly accepted part of the financial management practices today that the risk element, due rise in value of foreign currency in respect of the import transactions entered, is minimised by entering into forward contracts for purchase of that currency. This is particularly necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more aspect of the matter, and that is the reason as to why the forward contracts were cancelled midway and the profits were booked on the same instead of using these contracts to actually meet the foreign exchange requirements at the time of paying the import bills. We have noted that all these contracts were cancelled on 13th April, 1992, when the prevailing market price was INR 100 = US$ 3.235, as against the forward contract rate of INR 100 = US $ 3,840 and the rates of INR 100 = US $ 3.68 to 3.7325 prevailing on the date of imports. The due dates of payment at that point of time were only 16 days to 77 days away, as evident from the chart showing the due dates-which was also contained in page 31 of the paper-book. The decision as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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