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TMI Blog2019 (7) TMI 1542X X X X Extracts X X X X X X X X Extracts X X X X ..... d return of income on 19.07.2012 declaring total income of Rs. 132,82,202/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 was issued and complied with. During the scrutiny proceeding, the Assessing Officer observed loss on gold desk deal, amounting to Rs. 15,42,923/-. The assessee explained that the loss is in respect of transactions hedged against underlying stock of gold and transactions to reduce cost of finance and thus all the transaction are part of business and not speculative transactions. According to the assessee, these transactions cannot be deemed to be speculative transactions as they fall under clause (a) and (b) of section 43(5) of the Act. In view of the Assessing Officer, the assessee didn't furnish any evidence in support of claim of transaction covered under proviso (a) to Section 43(5) of the Act. He further observed that these transactions are derivative transactions and in absence of trading on the recognized Stock Exchange, the assessee cannot be allowed the benefit of subsection (d) of section 43(5) of the Act. The Ld. Assessing Officer also noted that in preceding assessment year similar loss of Rs. 103,93,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellery finally exported to the buyer i.e. 30/06/2008. In case, the price of gold goes up, the exporter get more value of the jewellery due to rise in the price of the gold, however, if the price, goes down the exporter will get less value of the jewellery as compared to the value on the date of purchase. In order to eliminate the risk of loss on sale of jewellery, if any due to fall in price of gold on the date of booking of sales as compared to prices on the date of purchase, the exporter enters into a forward contract with bank or any authorized person on 01/04/2008 for sale of gold on the future date (which may be around the date of supply of jewellery to the buyer, say 30/06/2008 ), on the same price on which, the exporter has purchased the gold i.e. Rs. 30,000/- per 10 gms. Now, in case the price of the gold on the date of supply of jewellery goes up, say Rs. 40,000/- per 10 gms, then there will be a loss of Rs. 10,000 per gram to the exporter, at the time of settlement of this forward contract transaction, however there will be a gain of Rs. 10,000 per gram in export order supplied. Thus, when both the forward contract transaction and actual supply of the jewellery, are seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction." 4.9.3 Thus, according to the section any transactions of contract for purchase and sale of commodities (here in this case Gold), which is settled periodically, otherwise than by way of actual delivery or transfer of that commodity, the transaction would fall under speculative transaction. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dging foreign exchange loss on outstanding receivables in foreign currency. In the said case there was one to one correlation between the forward contracts and the export invoices but in the instant case the assessee has failed to correlate underlying asset with the forward contracts entered into by the assessee. We agree with the finding of the Ld. CIT(A) that the facts of the case of London Star Diamond company are distinguishable from the facts of the assessee and accordingly ratio of the said decision is not applicable over the facts of the instant case. 4.9.9 The Ld. CIT(A) has also relied on the rule of consistency as laid down by the Hon'ble Supreme Court in the case of Radhasami Stasang 193 ITR 321 in view of the loss treated by the assessee as speculative loss in the preceding assessment year. 4.9.10 In view of the above discussion, we uphold the decision of the Ld. CIT(A) on the issue in dispute. The grounds of the appeal of the assessee are accordingly dismissed. 5. The ground Nos. 1 to 4 of the appeal of the revenue relates to holding the transaction of foreign currency forward contracts amounting to Rs. 99,22,176/-as speculative by the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; being speculative profit has to be set off of against the loss of Rs. 1,03,93,854/- debited in gold desk account. Consequentially, the addition of Rs. 1,03,93,854/- is restricted to Rs. 4,71,678/-. The AO shall give consequential relief." 5.4 On perusal of the above finding, we note that the Ld. CIT(A) has decided the issue in view of the facts noted in the case of forward contract transactions of the gold and no documentary evidence in support have been referred in his findings on the issue in dispute. 5.5 In view of the aforesaid facts, we feel it appropriate to restore this issue to the file of the Assessing Officer for deciding afresh after providing adequate opportunity of being heard to the assessee, with liberty to the assessee to file necessary documentary evidence in support its claim. Thus, the ground Nos. 1 to 4 of the appeal of the Revenue are accordingly allowed for statistical purposes." 5. Subsequently, aggrieved with the order of the ITAT, the assessee preferred appeal for the assessment year 2010-11 before the Hon'ble High Court of Delhi at New Delhi vide W.P. (C) 4469/2019 CM APPL 19848/19 wherein the Hon'ble Court held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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