TMI Blog2019 (8) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... dictional High Court , set aside the order of CIT(A) and direct the AO to delete the adjustment or addition to that income. Loss on foreign currency forward contracts as speculation loss instead of business loss treated by the assessee - HELD THAT:- In order to hedge the foreign currency fluctuation, assessee enters into foreign exchange forward contracts through banks as per RBI norms and thus these transactions are entered into in the ordinary course of business of the assessee and are integral and inseparable part of its business. In view of these facts and circumstances, we are not in agreement with the conclusion of the Ld.CIT(A) that the loss suffered due to cancellation of these forward contracts in foreign exchange was a speculative loss. Moreover, the case of assessee is squarely covered by various decisions, referred above, wherein it was held that loss incurred due to cancellation of forward foreign currency contract in the ordinary course of business is a business loss and not a speculative loss. Hon'ble Bombay High Court in the case of CIT Vs. D.Chetan and Co., [ 2016 (10) TMI 629 - BOMBAY HIGH COURT ] has held that Transaction entered into in the regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the learned Assessing Officer (AO) erred in carrying out adjustments to the returned income of the appellant, without appreciating the fact that such adjustments are not based on any incriminating material found during the course of search. The appellant prays that the order passed by the learned A.O. is bad in law as the jurisdiction u/s.153A is vitiated. Ground No.2 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) failed to appreciate that the Ld.AO had erroneously set off of brought forward losses and unabsorbed depreciation of earlier years amounting to ₹ 53,56,717/- against the total income while computing deduction under Section 10A. Ground No.3 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the Ld.AO of setting off loss of non-eligible Unit 1 of ₹ 59,66,887/- against profit of eligible Unit 2 and then computing deduction under Section 10A of the Act . 3. The issue raised by assessee in Ground No.1 is a jurisdictional issue, challenging the order of CIT(A), upholding the order of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said order can only be made, based upon the incriminating material seized during the course of search and not otherwise as done by the AO. The d counsel of the assessee, therefore, submitted that the addition made by the AO in the assessment framed u/s.143(3) r.w.s.153A of the Act are without jurisdiction and has to be deleted. Ld.AR in defense of his argument, relied on the decision of CIT Vs. Continental Warehousing Corporation Ltd., [374 ITR 645] (Bom) and prayed for the Bench that the assessment framed by the AO may kindly be set aside as without jurisdiction. 6. Ld. DR on the other hand, relied on the orders of authorities below. 7. We have heard the rival contentions and perused the material on record as placed before us. We observe that in this case the assessment u/s.143(3) of the Act was framed vide order dt.30-12-2008, whereas search was conducted on 08- 08-2011. Thus, the assessment has attained finality on the date of search. In our opinion, AO can not disturb the completed and finalized assessment on the date of search which has attained finality. The AO has jurisdiction to disturb the assessment if the Department has seized some incriminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in foreign currency which were not deliverables at the first place. All the forward contracts were cancelled and no delivery was taken in any of the forward foreign exchange contracts. Therefore, by applying the provisions of Section 43(5), Section 73 along with Instruction No.3 of 2010, dt.23- 03-2010 issued by the CBDT, AO asked the assessee as to why this sum of ₹ 1,35,97,584/- being loss on forward contracts should not be disallowed and added back to the total income of the assessee as the same was speculative which was replied by the assessee vide written submissions dt.21-02-2014 by submitting that the transactions of foreign exchange were in regular course of assessee s business and the quantum of such forward transactions were within the import and export exposure on month to month basis. Ld.AR submitted that assessee was importing various raw-materials like polished diamonds, accessories, colour stones, precious metal etc., for manufacturing of jewellery items and these materials were either imported or procured from Domestic Tariff Area (DTA). Since the assessee was located in Seepz, these were generally payable in foreign currency. Similarly, assessee exports fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as under: 1. Assessee has not been able to establish the linkage between the purchase and sale of diamonds/jewelry with the specific hedging contracts. 2. Merely because the exposure in the international market was of value higher than the amount of forward contracts, transactions of such forward contracts would not automatically become hedging. The advantage of hedging to assessee cannot be given purely on the basis of amount involved. 3. The language of clause 5 of proviso to section 43(5) is absolutely clear. The exception is available only to the contracts in the nature of guard against loss through future price fluctuations. This exemption is available only where such contracts are in the nature of guard and the onus is on the assessee to prove that such contracts in his case were held as a guard and assessee had not been able to prove is there was any hedging. 4. Assessee s arguments are general is nature and onus has not been discharged with specific hedging linkages. 5. Reliance on facts of A.Y.2003-04: The issue of Hedging is one of facts there is no dispute in law. It has been elaborately brought out in Assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee requires foreign exchange for the purpose of making payment to creditors as well as receipt of payment from the sundry Debtors. It is a well known fact that there is a wide fluctuations in foreign currency. The assessee may have to suffer the loss due to fluctuation in the foreign exchange rates as the assessee has to meet the commitments of paying to creditors while the payments are also received from the foreign customers in foreign currency. In order to hedge the foreign currency fluctuation, assessee enters into foreign exchange forward contracts through banks as per RBI norms and thus these transactions are entered into in the ordinary course of business of the assessee and are integral and inseparable part of its business. In view of these facts and circumstances, we are not in agreement with the conclusion of the Ld.CIT(A) that the loss suffered due to cancellation of these forward contracts in foreign exchange was a speculative loss. Moreover, the case of assessee is squarely covered by various decisions, referred above, wherein it was held that loss incurred due to cancellation of forward foreign currency contract in the ordinary course of business is a business los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Referring to the decision of the Tribunal in the case of ACIT Vs. Mahendra Brothers in ITA Nos. 1880/Mum/05 948/Mum/06 vide order dated 29.4.2009 for the assessment years 2001-02 2003-04 respectively, she submitted that the Tribunal in the said decision, following the decision of the Hon'ble High Court of Kolkata in the case of CIT Vs. Soorajmull Nagarmuli reported in 129 ITR 169 (Bom) and the decision of Hon'ble Bombay High Court in the case of CIT Vs. Badridas Gauridu (I) Ltd., 261 ITR 256 (Bom) had dismissed the appeals filed by the Revenue, where it was held by the CIT(A) that exchange loss on account of cancellation of forward contract amounts to business loss. She accordingly submitted that the issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal. 30. The learned D.R., on the other hand, supported the order of the CIT(A). 31. After hearing both the sides, we find that this issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal, where one of us was a party. In the said decision the loss on account of cancellation of foreign exchange contract was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assessment order, reduced the other income of ₹ 70,72,017/- while computing deduction u/s.10A of the Act. 16.2. In the appellate proceedings, the CIT(A) dismissed the appeal on this ground, by holding that such income comprised of interest on Sale of Scrap ₹ 1,000/-, Security Deposits of ₹ 24,641/-, Sundry Expenses back written back of ₹ 70,46,376/- which were in the nature of business, salary, travelling expenses, commission expenses, goods purchased, general expenses etc., claimed in earlier years i.e., AYs.2008- 09 and 2009-10. These were returned back during the year, hence brought to tax under the head income from other sources . According to the CIT(A), all the credit expenses were actually in the nature of expenses only and no way constitutes the income/receipt, which were eligible u/s.10A of the Act and therefore, the benefit of Section 10A cannot be granted qua this income. 16.3. Ld.AR submitted for the Bench that the total other income comprised of four items, the details thereof are given at para 8 of the appellate order. Out of four items, third item was of ₹ 70,46,376/- representing the Sundry Expenses written-off, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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