TMI Blog2010 (10) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the addition ofRs. .3,50,000/- made by the Assessing Officer on account of excess labour payments made by the assessee to its contractors, without appreciating the facts of the case. 3. The brief facts of the case are that appellant is a partnership firm engaged in the business of manufacturing of polished diamonds after getting the rough diamonds processed through contractors and exporting polished diamonds. In the course of assessment proceedings, Assessing Officer observed that assessee claimed labour charges at the rate of Rs. .425/- per carat, whereas the similar manufacturing concerns have made payments in the range of Rs. . 250 to Rs. .350/-. It was also observed by Assessing Officer that rates of labour charges has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled for. It was also argued that assessee has maintained quantitative details and filed complete details relating to movement of rough diamonds issued and inflow of polished diamonds from production. 5. After considering the submissions of the Learned Authorised Representative of the assessee, the Learned Commissioner of Income Tax (Appeals) held as under :- I have carefully considered the contention of the appellant as well as that of the Assessing Officer. The Assessing Officer has made the disallowance mainly on the ground that other units are claiming labour charges in the range of Rs. .250 to Rs. .350 per carat whereas assessee has claimed the same at the rate of Rs. .425/- per carat. In my opinion, if Assessing Officer want ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) restricted the disallowance to Rs. .50,000/- by observing as under:- I have carefully considered the contention of the appellant as well as that of the Assessing Officer. The Assessing Officer has made the disallowance mainly on the ground that other units are claiming labour charges in the range of Rs. .250 to Rs. .350 per carat whereas assessee has claimed the same at the rate of Rs. .425/- per carat. In my opinion, if Assessing Officer wants to apply said rate in that case, it has to be proved beyond any shadow of doubt that there are absolutely no difference in the nature of manufacturing activity, quality of rough diamonds and polished diamonds etc. In the instant case, it is seen that assessee has also filed confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the order of the Learned Commissioner of Income Tax (Appeals). It is confirmed and the ground of appeal of the Revenue is dismissed. 9. Ground No.2 reads as under:- On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) has erred in treating the loss of Rs. .5,29,446/- on cancellation of forward contracts as business loss as against the speculation loss held by the Assessing Officer, without appreciating the facts of the case. 10 The brief facts of the case are that treatment of forward contract cancellation loss instead of business loss as claimed by assessee. The Assessing Officer has treated said loss as speculation loss on the ground that assessee has done to sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Learned Commissioner of Income Tax (Appeals) has held as under:- I have considered the reasons given by Assessing Officer and also the submissions of assessee. It is seen that there are basically five forward exchange contracts cancelled during the year under consideration. I find that all the contracts are against specific import/export order/invoices. It is a known fact that persons who are engaged in the business of import/export are exposed to the risk of fluctuation in the exchange rate of currency. It is therefore, quite natural that in order to minimize the risk they may enter into such contracts with banks. As such the forward exchange contracts are very much in the nature of hedging transactions and therefore, the same cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 45(3) are not applicable to such kind of contracts. The point at issue stands covered by the judicial pronouncements relied upon by Learned Authorised Representative of the assessee. Hence, loss arising on cancellation of forward contract is allowed as business loss and hence this ground of appeal is allowed. 14. The Learned Departmental Representative could not point out any error in the findings of the Learned Commissioner of Income Tax (Appeals). We find that the Learned Assessing Officer himself has admitted in the order of assessment that the assessee has entered into foreign exchange contract to protect itself from loss arising out of fluctuation in rate of foreign exchange. Thus, in the instant case, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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