TMI Blog2019 (7) TMI 1542X X X X Extracts X X X X X X X X Extracts X X X X ..... ent appeal has been filed by the assessee against the order of the Ld. CIT(A)-17, New Delhi dated 24.02.2016. 2. The assessee has raised the following grounds: 1. That Learned ACIT has erred in law and on facts while treating ₹ 1,54,29,231/- being the loss of gold desk account as speculative loss and likewise CIT(A) is not justified while confirming the same. 2. That the learned CIT(A) has not appreciated the facts of the case, explanation offered proceeded to hold the loss of ₹ 1,54,29,231/- as speculative loss. 3. Briefly stated facts of the case are that the assessee was engaged in the business of trading and manufacturing of gold and diamond jewellery. For the year under consideration, the assessee filed return of income on 19.07.2012 declaring total income of ₹ 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 ₹ 15,42,923/-. The assessee explained that the loss is in respect of transactions hedged against underlying sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and perused the relevant material on record. The facts in respect of the transaction brought on record by the Ld. CIT(A) have not been disputed by the Ld. counsel of the assessee. The assessee is contesting that forward contract transaction of Gold are hedging transactions, whereas according to the Assessing Officer, no supporting documents have been filed. The hedging transactions can be illustrated as under: For example, imagine an exporter has got an export order of jewellery, say 1000 grams on 01/04/2008, which has to be supplied within 3 months, say by 30/6/2008. The price of pure gold per 10 gms as on 01/04/2008 is say ₹ 30,000/-. The exporter purchases the gold and start manufacturing of the jewellery. The exporter apprehends that the prices of gold may go up or may go down as on the date of jewellery 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 28 to 41 and in this section, unless the context otherwise requires- (1) (2) (3) . (4) .. (5) speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into 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 ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) of Section 43(5) of the Act, its forward contract transactions should have been corroborated one by one, with the purchases of gold and supply of jewellery manufactured. Before the Assessing Officer, the assessee failed to correlate these forward contract transactions of gold and corresponding purchases and export of jewellery. Even such details have not been filed either before the Ld. CIT(A) or before us. Thus, on this ground, the assessee cannot be allowed the benefit of proviso (a) to section 43(5) of the Act in absence of any documentary evidences to support its contention of fulfilling conditions of proviso (a) to section 43(5) of the Act. 4.9.8 Further, the Ld. CIT(A) has distinguished the facts of the case with the facts of the case of London Star Diamond company. In the said case forward contracts were entered into with banks for hedging 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gains arisen from Forward contracts in respect of 'Foreign Currency1 as business income though he has placed reliance on the decision in the case of K Mohan Company (Export) (P) Ltd. (2010) 130 TTJ 719. However, the nature of Forward contracts in respect of 'Foreign Currency' as mentioned above is speculation. Thus, both types of transactions; Forward contracts in respect of 'pure gold' and Forward contracts in respect of 'Foreign Currency' being similar has to be treated on the same footings. Thus, it is hereby held that the profit of ₹ 99,22,176/- derived on account of Forward contracts in respect of 'Foreign Currency' as mentioned above is speculative profit/gains and not the business income as held by the AO. Accordingly, it is held that the profit of ₹ 99,22,176/- derived on account of Forward contracts in respect of 'Foreign Currency' being speculative profit has to be set off of against the loss of ₹ 1,03,93,854/- debited in gold desk account. Consequentially, the addition of ₹ 1,03,93,854/- is restricted to ₹ 4,71,678/-. The AO shall give consequential relief. 5.4 On perusal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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