TMI Blog2013 (8) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) TMI 61 - BOMBAY High Court) in order to hedge against the losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. Thus the assessee was entitled to claim deduction in respect of payment made on account of cancellation of forward booking of foreign exchange with banks as a business loss. Also see CIT vs. Soorajmull Nagurmull (1980 (9) TMI 69 - CALCUTTA High Court). Thus AO has to see the forward contract entered by the assessee for covering risk of underlying transaction and such underlying transaction to be segregated and loss on these transactions to be considered as business losses. Loss on other transaction which are not underlying transaction has to be considered as speculative transactions. As assessee has filed a chart showing the details of speculative transaction at ₹ 19,63,702/-. The Assessing Officer is directed to exclude these contracts and decide accordingly - appeal of assessee partly allowed for statistical purposes. - ITA.No.396/Hyd/2012 - - - Dated:- 31-5-2013 - Shri Chandra Poojari And smt. Asha vijayaraghavan,JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract's delivery date. This is done by closing out the position. The difference between the spot rate on the closure date and the booking rate will be considered profit or loss on account of forward contract. If the spot rate would be more than the booking rate it will be considered as currency forward contract gain or vice versa. In case of the company, it enters into a currency forward contract to minimize the exposure from the fluctuation of the foreign currency. The company books the loss or gain depending on the spot rate of the foreign currency on the date of delivery. In case the spot rate of the foreign currency falls below the booking rate the company will cancel the currency forward contract before the due date and book sitas currency forward contract cancellation loss. To conclude it will be observed that the practice of currency forward contract is very common in the field of commerce and trade to safeguard the interest of the entity from the fluctuation in the rate of foreign currency at a future date especially for those who are involved in foreign trade transaction whether import or export of material, goods or services . 3. The assessee also filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.03.2007 i.e., before the invoice date. He, therefore, concluded that it is not clear as to how the forward contracts are related to the invoice inquestion. He observed that a look at the other contracts and invoices clearly reveals that contrary to the claims of the assessee, the invoices do not have correlation with the forward contract for purchase of currency. He, therefore, held that the claim of the assessee that the forward contract are entered into only to hedge the foreign exchange bills during the period of transit of oil is not borne out by the documentation provided by the assessee. Currency contracts are for 6 months or more as has been shown above in the example and not for 6 to 45 days as claimed by the assessee. 7. The CIT (A) further held that the assessee has given its explanation that the forward contracts are only with respect to purchase. However, as per the details given by the assessee, a large number of contracts are sale of oils as well. It was further noted by the CIT(A) that the assessee does not have storage facilities to take the delivery of and to later on sell the imported oil and the assessee has not been able to show transaction- wise import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarge the onus as explained in their orders in detail by the AO and CIT(A). 4. As can be seen there is no correlation between the invoices and the forward contracts. In fact some of the transactions in oil are mere high sea purchases and sales within a short span of 2 to 3 days. 5. Some of the forward contracts are in the nature of day trading with no relevance to the oil purchase and sale. The clear motive appears to make money out of speculative trading through cross currency contracts instead of hedging existing risk in oil deals. 10. Before us, Learned Counsel appearing on behalf of the assessee Shri T.S. Ajay relied on the following case laws. (i) DCIT, Mumbai vs. Intergold (I) Ltd. (2009) 27 SOT 239 (Mum.) (ii) CIT vs. Badridas Gauridu (P.) Ltd. 261 ITR 256 (Bom.) (HC) (iii) CIT v. Soorajmuli Nagarmuli 129 ITR 169 (Kol.) (HC) 11. Learned Counsel submitted that in all the earlier years the return filed by the assessee has been accepted. The learned Counsel explained that the forward contracts were taken on rolling basis and the RBI forward cover taken in advance based on the performance. The Learned Counsel for the assessee has also pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gauridu Pvt. Ltd. (2003) 261 ITR 256 (Bom.) (H.C.) by the Hon'ble Bombay High Court that assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against the losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect of payment made on account of cancellation of forward booking of foreign exchange with banks as a business loss. 14. Further in the case of CIT vs. Soorajmull Nagurmull (1981) 129 ITR 169 it has been held as follows :- 7. Here there is no finding that entering into foreign exchange contract was the nature of the business of the assessee. This was only an incidental part of the business operation for the export and import of the goods by the assessee. The assessee was not a dealer in foreign exchange contracts as such. Foreign exchange contracts were only incidental to the assessee's regular course of business. Therefore, all the arguments regarding whether it conies within the Expln. 2, in our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be set off against speculation loss of earlier years. This view has been consistently followed by this court. Reference may be made to the decision in the case of C1T v. Ramjeevan Sarawgee Sons [1977] 107 ITR 845, where this court also considered the decision of the Supreme Court in the case of Davenport Co. P. Ltd. v. CIT [1975] 100 ITR 715, on which reliance was placed on behalf of the revenue and it was distinguished. We are in respectful agreement with the observations of Mr. Justice Sen in that case at p. 849 of the report in so far as it distinguished the decision of the Supreme Court in the case of Davenport Co. P. Ltd. [1975] 100 ITR 715. We may also refer to the decision of this court in the case of CIT v. Arun General Industries Ltd. [1977] 110 ITR 286, where all these previous decisions of this court have been noted. Except the Madras High Court in the case of R. Chinnaswami Chettiar v. CIT [1974] 96 ITR 353, all other High Courts have taken a similar view. The decision of the Supreme Court in the case of Davenport Co. P. Ltd. [1975] 100 ITR 715 upon which reliance was placed by learned advocate for the revenue is in our opinion not relevant in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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