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TMI Blog2013 (8) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... has been defined to mean a transaction in which a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as state above, the assessee was not a dealer in foreign exchange. In order to hedge against 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 in some cases failed. Thus the assessee was entitled to claim deduction as a business loss. In favour of assessee. - ITA No. 2856/Ahd/2012 - - - Dated:- 17-5-2013 - Shri D. K. Tyagi And Shri T. R. Meena,JJ. For the Petitioner : Sri Y. P. Verma, Sr. D. R. For the Respondent : Sri Manish J. Shah. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction under consideration cannot be treated as hedging transaction as the assessee was not dealing in foreign exchange but was dealing in diamonds. The transactions under consideration were also not in respect of raw material or merchandise which the assessee is dealing in during the course of his business so these transactions cannot be excluded from the purview of speculative transactions u/s.43(5) of the I.T.Act. The loss under consideration was arising due to non surrendering/delivery of foreign exchange to the banking institutions with whom the assessee had entered into forward contract of booking foreign exchange. Since the contract was terminated without effecting the delivery of foreign exchange, the same has been treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are incidental to the business of the appellant. Although the appellant is not dealing in the foreign exchange/foreign currency but in order to minimize the loss or maximize the profit, it has been regularly entering into the forward exchange contract with the banks. Whenever the exchange rate for foreign exchange on the date of receipt of payment turns out to be more than the rate at which the bank has agreed to purchase the foreign exchange on the transaction of export of diamonds, the appellant could find it commercially advantageous to cancel the forward exchange contract and to receive the payment against the export at the enhanced exchange rate. The profit earned on account of enhanced exchange rate is credited in the Profit Loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange forward contract as speculative loss, confirmed the order of the CIT(A) deleting the addition on the basis of decision of Supreme Court in the case of CIT vs woodward Governor (1) Pvt Ltd. 294 ITR and ITO vs Badridas Gauridu (P) Ltd. 261 ITR 256 (Bom.), and the guidelines issued by the RBl with reference to FEMA 1999 by holding the transaction as business loss as against the speculation loss treated by the Assessing Officer. In view of the above facts and circumstances of the case and respectfully following the decision of my learned predecessor in Appeal No.CAS-V/311/2007-08 dated 30.07.2008 for A-Y.2005-06 in the appellants case and other judgments cited hereinabove, it is held that the losses on account of cancellation of forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad entered into forward contract with banks in respect of foreign exchange. Some of these contracts could not be honored for which the assessee had to pay Rs.13.50 lacs which was debited to the profit and loss account. The assessee claimed the sum as business loss. Revenue was of the opinion that the loss was speculative in nature. Bombay High Court following the decision of the Calcutta High Court in the case of Soorajmull Nagarmull (supra) held that the expenditure would not be covered under section 43(5) of the Act as speculative transaction. It was observed as under:- "The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer disallowed the claim. The High Court held that the assessee was not a dealer in foreign exchange and the foreign exchanges were only incidental to the assessee's regular course of business and the loss was thus not a speculative loss but incidental to the assessee's business and allowable as such. Facts in the present case are very similar. Admittedly, the assessee is not a dealer in foreign exchange. For the purpose of hedging the loss due to fluctuation in foreign exchange while implementing the export contracts, the assessee had entered into forward contract with the banks. In some cases, the export could not be executed the and assessee had to pay certain charges to the Bank and thereby incurred certain expenses. These expense ..... X X X X Extracts X X X X X X X X Extracts X X X X
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