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TMI Blog2019 (5) TMI 1593X X X X Extracts X X X X X X X X Extracts X X X X ..... n of addition of Rs. 1,92,50,300/- on account of disallowance of loss on foreign currency exchange treating it to be speculative loss; and addition of Rs. 59,839/- on account of disallowance of deduction of other income. 2. The facts in brief qua the first issue is concerned, Ld. AO from the perusal of the profit and loss account noted that assessee has claimed an amount of Rs. 1,92,50,300/- on account of forward contracts in US Dollar-Rupee to hedge the export receivable in USD. In response to the show cause notice as to why the said amount should not be allowed being speculative in nature, the assessee has submitted as under:- "The assessee carries on the business of manufacturing as well as exports of Automotive lighting & signalling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market which were unprecedented & beyond the control of the assessee. (v) The hedging was done on the basis of confirmed orders with customers & past export performance of the assessee. The forward contracts were entered before the actual delivery of gods which is evidenced by the purchase order entered with the customers. (vi) The assessee has not entered into any act which was prohibited under the law. There was no violation of any provisions of FEMA as governed by RBI for risk management under which entering of forward contracts In Foreign exchange was permitted only to exporters. (vii) The assessee has incurred a real loss and not a notional or fictitious loss. The loss has been claimed on actual payment and not on notional bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is not by way of physical delivery. The transaction is not for forward purchase of raw material or merchandise and therefore, in view of section 43(5) the same is to be treated as speculative transaction and loss arising is to be held as speculative loss. 4. Before the Ld. CIT (A), the assessee has made very elaborate submissions which have been incorporated from pages 2 to 10 of the appellate order. The Ld. CIT (A) has deleted the said disallowance after considering the entire facts and material on record. In sum and substance, the finding of fact given by the Ld. CIT (A) are that, firstly, assessee was carrying on the business of manufacturing and supplies of auto component, sheet metal parts, etc., to various automotive manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits. He has held that the loss in forward contracts in the case of the assessee cannot be in the nature of speculation as defined in section 43(5). 5. Before us, Ld. DR strongly relied upon the order of the AO, and further submitted that the underlying hedging was for foreign currency, i.e., USD and settlement was not by way of physical delivery rather it mentions payment in exchange rate prevailing on the specified dates. Thus, it is clearly a speculative transaction in terms of section 43(5). He also strongly relied upon the judgment of Hon'ble Bombay High Court in the case of CIT vs. Shri Bharat R Ruia (HUF) (2011) 337 ITR 452, wherein it was held that future contracts for purchase / sale of an underlying security permitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of judgment of Hon'ble High Court of Calcutta in the case of CIT vs Ambo Agro Products (P) Ltd. reported in 257 Taxman 1 56. 7. Copy of judgment of Honble High Court of Allahabad in the case of ACIT vs Surya International (P) Ltd. reported in 406 ITR 274. 8. Copy of order of Llon'ble ITAT Delhi in the case of Silicon Graphics Systems (India) Pvt. Ltd. vs DCIT in IT A No. 2976/Del/2013. 9. Copy of order of Honble ITAT Delhi in the case of DCIT vs Matrix Clothing Pvt. Ltd. in ITA Nos. 2949 & 2950/Del/2014. 7. We have heard the relevant submissions and also perused the relevant finding given in the impugned orders as well as the material referred to before us at the time of hearing. The assessee company is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended to guard against losses through future price fluctuations. It has also been pointed out that in the earlier years in scrutiny proceedings such losses have been treated to be a business loss. The Ld. CIT (A) has categorically noted that it was a complete party wise details of the purchase orders against which exports were made in USD during the year and also perused the copy of purchase orders exceeding USD 25,000. In fact assessee has exported goods during the year under consideration amounting to USD 19,67,954 as against availability of purchase orders amounting to USD 22,13,453. Thus, it cannot be held that the future contracts were not connected to the assessee's export and was a separate transactions de-hors the export of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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