TMI Blog2015 (9) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... est to the concerned bank. Further, it is to be seen whether the volume / quantum of derivative transaction entered by the assessee is more than the total export turnover and payment of interest to bank and volume of transaction cannot be more than these two components. Accordingly, we are directing the Assessing Officer to keep these facts in mind and decide the issue in the light of the Tribunal order in the case of M/s. Majestic Exports (2015 (7) TMI 936 - ITAT CHENNAI ). With these observations, we are remitting back this issue back to the file of the Assessing Officer for fresh consideration. - Decided partly in favour of assessee for statistical purposes. - ITA No. 209/Mds/2013 - - - Dated:- 28-8-2015 - Chandra Poojari, AM And V. Durga Rao, JM, JJ. For the Appellant : Shri G Baskar, Adv For the Respondent : Dr B Nischal, IRS, JCIT ORDER Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore dated 01.11.2012 for the assessment year 2009-2010. 2. The grievance of the assessee in this appeal is with regard to confirming the disallowance of loss incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Euro, US Dollars. It was an over the counter option and not the exchange traded and in the contract notes between the assessee and the bank, the transaction was termed derivative. It was also seen from the contract that the contract was finally settled not by the delivery of the Dollor, Yen, Euro but by paying the loss in Indian rupee computed on the notional sale of the foreign currency. It was further seen that these transactions have been done as a business by itself. As mentioned in the annexure of ICICI Bank terms and conditions, the forward contract is for one year and other derivatives contract is for three years. The purpose of this derivative contract was to hedge interest rates and or currency risks. Nowhere in the contract it was seen that the purpose of this contract was to manage and minimize the exchange fluctuation loss against export receivables. The ld. Authorised Representative for assessee could not produce any evidence to prove that the derivative contract / forward contract were entered into by the company considering the receivables from the export of auto castings. The assessee made a foreign exchange forward contract with regard to foreign currency as a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein transactions in shares alone were treated as nonspeculative. A perusal of the contract note and details furnished by the assessee would indicate that the transaction entered into by the assessee was not based on any export bill or export receivable in foreign exchange but a short term speculative bet on the movement of the Rupee Vs Euro. Since the moment of Euro was against the prediction of the assessee, he has suffered substantive loss in the derivative transaction . The Forex derivative transaction was not actually settled by actual delivery of foreign exchange but only difference between the agreed price on the statement date is credited or debited to the account of the assessee. Forex derivative did not have any underlying hedge against the export bill or receivables by the assessee. A foreign exchange derivative, if it is a hedged, should reduce the risk and loss to the assessee. A perusal of the contract notes and corresponding hedge loss incurred by the assessee during the short period, would indicate that the derivative transactions have only increased the risk to the assessee and not reduced the risk like a hedge. Considering the facts and circumstances contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as sec.43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of CIT v. Concord Commercial Pvt. Ltd. (2005) 95 ITD 117 (Mum)(SB). In this case, the Special Bench held that: Before considering whether the assessee's case is hit by the deeming provision of Explanation to Sec. 73 of the Act, the aggregate of the business profit / loss has to be worked out based on the nonspeculative profits; either it is from share delivery or from share derivative. 7. From the above, it is concluded that both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of speculative transaction exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other than a company whose gross total income consists mainly of income which is chargeable under the heads interest on securities , or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase. In order to resolve the issue before us, the section has to be read in the manner as follows: Explanation: Where any part of the business of a company ( . . . .. .. .. .. .. .. .. . .. .. . ) consist in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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