TMI Blog2018 (12) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... have taken into account the procurement price of the raw material at the prevailing rate. In order to avoid such uncertainties, the assessee would enter into hedging contracts. Essentially, the entire exercise was for the purpose of making the profit out of its manufacturing activity more predictable. If the assessee had not entered into such contract and relied on the spot purchase of the product, surely the resultant loss or profit as a case may be, would be part of the assessee's manufacturing activity and thereby, in any case qualify for deduction under Section 80IB or eligible for carrying forward loss if otherwise permissible under the Act. No difference in the situation merely because such gain or loss were pursuant to hedging co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product is an agrobased product called Crude Menthol Oil (hereinafter referred to as raw material). Since this raw material is subject to high price fluctuation, the assessee entered into forward contracts to hedge itself against such price fluctuation. In the period relevant to the assessment years 2006-07, the assessee earned profit out of such hedging contracts. The assessee's main business of production of L-Menthol was eligible for deduction under Section 80IB of the Income Tax Act, 1961 ( the Act for short). In the return the assessee filed for the said year, the assessee claimed deduction of the profit received through the hedging contracts. The Assessing Officer was of the opinion that the same was not allowable, primary on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso were wrongly recognized by the CIT (Appeals) and the Tribunal; since the same were speculative in nature. 7. On the other hand, learned counsel for the assessee opposed the appeals contending that the main raw material which was used for manufacture of final product was given to high price fluctuations. The assessee had therefore, entered into forward contracts to insulate itself from price fluctuation. The activity was thus closely connected with the assessee's manufacturing activity. The Tribunal, therefore, committed no error. 8. Having heard learned counsel for the parties and having perused the documents on record what appears to be undisputed is that the product in question is primary raw material for the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of making the profit out of its manufacturing activity more predictable. If the assessee had not entered into such contract and relied on the spot purchase of the product, surely the resultant loss or profit as a case may be, would be part of the assessee's manufacturing activity and thereby, in any case qualify for deduction under Section 80IB of the Act or eligible for carrying forward loss if otherwise permissible under the Act. We do not find any difference in the situation merely because such gain or loss were pursuant to hedging contract of the assessee. 10. The full bench of Gujarat High Court in case of Pankaj Oil Mills Vs. Commissioner of Income Tax (1978) 115 ITR 824 (Gujarat) had an occasion to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's hedging contract not being derived from its manufacturing activity and loss not being allowed being speculative in nature. We may record that the Tribunal in impugned judgment had noted the statement showing monthwise details of quantities of stock and quantities of future sale contract entered into by the assessee which showed that the quantity of future contract entered was less than the available stock. Thus, if the assessee was required to give delivery of the goods, sufficient quantity of goods was available. 11. We are in agreement with the contention of the learned counsel for the revenue that certain observations made by the Tribunal in the impugned judgment concerning the concept of the profit being derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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