TMI Blog2016 (1) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. This issue was considered by the Mumbai Tribunal while delivering the decision in the case of Araska Diamond P. Ltd, [2014 (10) TMI 776 - ITAT MUMBAI ] wherein the Tribunal came to the conclusion that the transactions, which were prematurely cancelled, cannot be considered as business transaction and it is to be considered as speculative transaction. - Decided in favour of revenue for statistical purposes. - ITA No.2246/Mds/2014 - - - Dated:- 18-12-2015 - CHANDRA POOJARI, AM AND G PAVAN KUMAR, JM For the Petitioner : Shri A V Sreekanth, JCIT For the Respondent : Shri Vikram Vijayaraghavan, Adv. ORDER Per: Chandra Poojari: This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)(Central)-I, dated 20.5.2014 for assessment year 2009-10. 2. The only issue in this appeal is with regard to treatment of loss arisen on account of foreign exchange derivative contracts. 3. The facts of the issue are that the assessee-company is engaged in the business of processing and export of marine products. The assessee suffered a loss of ₹ 2,56,46,747/- on account of foreign exchange forward contract transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed it as business loss. According to the Assessing Officer this loss was not business loss and it is a speculative loss and this transaction is speculative in nature as such the loss incurred on this transaction cannot be set off against business income of the assessee. According to the ld. Authorised Representative for assessee, the derivative transaction cannot fall under sec.73. Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of sec.73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in sec.43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of sec.43(5), trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of sec.43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of the commodity or scrip was a speculative transaction. Sub-section 1 of Section 73 provides as follows: '(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.' The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the shares or give delivery of the shares could be set off against the income arising out of the dealings and transactions in actual buying and selling of shares. An answer to this question is to be found i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. This ground is allowed as indicated above. 5. Further, the Mumbai Bench of ITAT in the case of Araska Diamond P. Ltd vs ACIT, 152 ITD 203 has held as under: Total sales during the year amounted to ₹ 27.78 crores, that the AO and the FAA had held such transaction were speculative in nature and had disallowed the claim made by the assessee, that the assessee was of the opinion that transactions entered into by it were not speculative transactions. ITAT found that the amount involved in the forward contract (FC) was more than 100% of the turnover of the assessee, that FC were not relatable to specific bills, that the assessee had not related any single bill to any of the contract and had not provided any purchase order during the assessment or appellate proceedings. ITAT found that in the case under consideration assessee was not dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compute accordingly. Further, the Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for the purpose of considering the business loss and only the transctions which are completed to be considered for the purpose of determining the business loss from these foreign exchange forward contract. With this observation, we remand this issue to the file of the Assessing Officer for fresh consideration. 7. Before us, the ld. Representative relied on the judgment of Gujarat High Court in CIT vs Friends and Friends Shipping P. Ltd, [2013] 217 Taxman 267 = 2011-TIOL-952-HC-AHM-IT, for the proposition that if the assessee failed to take delivery within the period indicated in contract and the assessee had given instructions to bank for cancellation of contract on payment of agreed charges to the bank these transactions cannot be considered as speculative transaction. However, there is no finding in this judgment towards this effect and the reliance placed by the assessee is misplaced. More so, this issue was considered by the Mumbai Tribunal while delivering the decision in the case of Arask ..... X X X X Extracts X X X X X X X X Extracts X X X X
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