TMI Blog2017 (11) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract in respect of merchandise to guard against loss through future price fluctuation in respect of the merchandise sold, such contract has necessarily to be that of a contract for purchase (we are not concerned with this question in this reference), but then the same thing cannot be said about hedging contracts entered into by a manufacturer in respect of raw material. Even though in the commercial world the cost of raw material plays an important role in determining the price at which a manufacturer agrees to sell or deliver the manufactured goods, yet it does not necessarily mean that future price fluctuation in respect of the manufactured product must correspond to price fluctuation in respect of the raw material. There can be cases where even while the price of raw materials falls, the price of the manufactured goods contracted to be delivered may go up resulting in a loss to the manufacturer. In such a case, the loss that is likely to be occasioned to a manufacturer in respect of price fluctuation of the goods contracted to be delivered can be safeguarded by entering into hedging contract by way of sale of the raw materials. In our opinion, there exists no valid reason f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income 4. Brief facts giving rise to the dispute in present appeal are as under: 5. Assessee-M/s Surya International (P) Limited, Faizabad Road, Akbarpur, Ambedkar Nagar is engaged in the business of production, refining and sale of edible oil and its by-products. For the A.Y. 2009-10, return of income was e-filed on 30.09.2009 disclosing income of ₹ 1,70,98,490/-. Income was revised on 03.09.2010 declaring loss of ₹ 66,87,700/-, which included loss caused by fire to the extent of ₹ 2,37,86,192/-. 6. Assessing Officer (hereinafter referred to as A.O. ) held that Assessee has claimed certain losses which were in the nature of speculative loss and hence would not qualify for set off against non-speculative business income. A.O. Thus disallowed such setting off losses of ₹ 1,07,88,693/-. It also disallowed loss on account of fire claimed by Assessee to the extent of ₹ 82,84,770/-. Assessment was finalized by order dated 30.12.2011 by A.O. i.e. Deputy Commissioner of Income Tax, Circle, Faizabad (hereinafter referred to as DCIT ) for a total income of ₹ 1,34,02,763/-. 7. Assessee preferred Appeal before Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of raw materials, for improvement and manufacture of refined oil is highly volatile. In order to protect Assessee from such volatility, it had been entering into contracts for purchase of raw materials, mainly crude oil, which is raw material for refined oil manufactured by Assessee in its its industrial undertaking situated at Akbarpur, District Ambedkar Nagaar. Since Assessee did not have requisite infrastructure for direct imports, it had been entering into contracts for purchase of such commodity on high-sea-sale basis. Many a times, looking to market trend, Assessee had to cancel such contracts for sale of raw materials (crude oil), In the present A.Y., it has resulted to a loss of ₹ 1,07,88,693/- which Assessee claimed as a business loss. It is also evident from discussions made by CIT (A), who has also not found stand of Assessee in regard to be incorrect, that for manufacturing of edible oil and by-products, rice bran, soyabean oil and palm oil are main raw materials. Market for procurement of raw materials is seasonal as well as highly volatile. It is for this reason Assessee had entered into contract to ensure procurement of palm oil from well recogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. Such contracts entered into by a merchant or manufacturer to safeguard against loss through future price fluctuation are in the commercial world known as hedging contracts. This clause contemplates contracts entered into by two classes of persons, namely, (1) a person who manufactures goods from raw materials, and (2) a merchant who carries on merchanting business. Whereas in the case of a manufacturer it is the contract entered into by him in respect of raw materials used in the course of his manufacturing business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him, that are taken out of the ambit of speculative transactions, the contracts taken out of the scope of such transactions in the case of merchants are those which he enters into in respect of his merchandise with a view to safeguard loss through future price fluctuation in respect of contracts for actual delivery of merchandise sold by him. It is significant to note that Section 43 nowhere provides that such hedging contr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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