TMI Blog2020 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s own case for the assessment year 2003 04 has allowed assessee s claim of loss resulting from cancellation of forward contract in foreign exchange by treating it as genuine business loss. In assessee s own case in the assessment year 2009 10 would reveal that the reasoning on the basis of which learned Commissioner (Appeals) has disallowed assessee s claim of business loss arising out of foreign currency forward contract is identical to the reasoning of learned Commissioner (Appeals) while disallowing assessee s claim of loss in respect of hedging contract in the impugned assessment. Therefore we hold that loss arising on cancellation of foreign currency forward contracts cannot be treated as speculative loss under section 43(5) of the Act. Accordingly, we allow assessee s claim of loss. Disallowance u/s 69A and 69B - HELD THAT:- Assessee was unable to reconcile the difference between the physical stock and the stock as per books of account with valid reasoning. Therefore, to that extent, the facts are established. However, we find merit in the alternative plea of the assessee for restricting the addition to the gross profit. The Assessing Officer is directed to comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. He observed, the assessee failed to furnish any evidence to establish one to one linkage between the foreign currency forward contracts and the underlying import or export transaction. Thus, he held that purchase and sale of diamond and the forward contracts are two separate and distinct transactions independent of each other. Therefore, he treated the loss arising from cancellation of foreign currency forward contract as speculation loss under section 43(5) of the Act and disallowed claim of set off against the business profit. The assessee challenged the aforesaid disallowance before the first appellate authority. 4. Learned Commissioner (Appeals) upheld the disallowance by more or less agreeing with the reasoning of the Assessing Officer. The learned Commissioner (Appeals) observed, the assessee was unable to establish the linkage between the purchase and sale of diamond/jewellery with the specific hedging contracts. She observed, merely because the exposure in the international market was of higher value than the amount of forward contract, the transaction cannot be treated as hedging transaction. Referring to the proviso to section 43(5) of the Act, she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favourable view and has allowed the claim of loss by reversing the decision of the Revenue authorities in treating them as speculative transaction. In support, he drew our attention to the relevant observations of the Tribunal in these orders. 7. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, unless the assessee is able to establish one to one linkage between the foreign currency forward contracts and the underlying import and export transactions, they cannot be treated as hedging transaction. Drawing our attention to section 43(5) r/w its proviso, he submitted, linkage of hedging contract with actual exposure has to be establish to come out of ambit of speculative transaction. He submitted, assessee s claim of hedging loss was allowed in assessment year 2003 04 as the linkage between the forward contract and actual exposure was established which is not the case in the impugned assessment year. Therefore, assessee s claim has been rightly disallowed. 8. We have considered rival submissions and perused the material on record. We have also applied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 10, in ITA no.2577/Mum./2018, dated 19th August 2019, the Tribunal reiterating the view taken by it earlier has allowed assessee s claim of loss. In fact, a perusal of the order passed by the Tribunal in assessee s own case in the assessment year 2009 10, as referred to above, would reveal that the reasoning on the basis of which learned Commissioner (Appeals) has disallowed assessee s claim of business loss arising out of foreign currency forward contract is identical to the reasoning of learned Commissioner (Appeals) while disallowing assessee s claim of loss in respect of hedging contract in the impugned assessment. Therefore, considering the overall facts and circumstances of the case in the light of the decisions relied upon and more particularly, the consistent view taken by the Tribunal in assessee s own case for the assessment year 2003 04, 2008 09 and 2010 11 on identical issue, as referred to above, we hold that loss arising on cancellation of foreign currency forward contracts cannot be treated as speculative loss under section 43(5) of the Act. Accordingly, we allow assessee s claim of loss. This ground is allowed. 9. In grounds no.2 and 3, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch is also without any basis as loss cannot be valued on a particular day. Without prejudice, the learned Authorised Representative submitted, even if there is a minor difference in stock, the addition, if any, can be made by applying the gross profit rate. 12. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted that the difference in stock was established on record as the assessee was unable to reconcile the difference with valid explanation. Therefore, the additions made should be sustained. 13. Having considered rival submissions, we are of the view that the assessee was unable to reconcile the difference between the physical stock and the stock as per books of account with valid reasoning. Therefore, to that extent, the facts are established. However, we find merit in the alternative plea of the assessee for restricting the addition to the gross profit. The Assessing Officer is directed to compute the disallowance accordingly. Grounds are partly allowed. 14. In the result, assessee s appeal is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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