TMI Blog2020 (9) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... earliest decision on the said point in the case of Soorajmull Nagarmull [ 1980 (9) TMI 69 - CALCUTTA HIGH COURT] and pointed out that under Section 43(5) of the Act, 'speculative transaction' has been defined to mean a transaction, in which, a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. Assessee herein was not a dealer in foreign exchange, but was an exporter of cotton. Therefore, the Tribunal rightly took note of the transaction done by the assessee though, in order to hedge against the losses, the assessee booked foreign exchange in the forward market with the bank. Export contracts entered into by the assessee for the export of cotton in some cases failed and therefore, the assessee was held to be entitled to claim deduction in respect of the said amount as business loss. - Decided in favour of assessee. - Tax Case Appeal No.26 of 2018 - - - Dated:- 21-9-2020 - Mr. Justice T.S. Sivagnanam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : Mr.T.Ravikumar, SSC For the Respondent : Mr.A.S.Sriraman JUDGMENT T. S. SIVAGNANAM, J. This appeal, filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, a notice was issued to show cause as to why the disallowance should not be made under Section 14A of the Act. 6. The assessee sent a reply stating that they had not incurred any expenditure for making such investment and that in the absence of any expenditure incurred, the question of disallowance did not arise. 7. However, the Assessing Officer rejected the stand taken by the assessee. 8. With regard to the second issue namely disallowance on exchange fluctuation loss, the Assessing Officer found that the debit made in the ledger account was on account of a transaction pertaining to forward contract such as interest charges and bank charges on negotiation and forward contract cancellation charges and therefore proceeded to treat the same as a speculative transaction under Section 43(5) of the Act. 9. The assessee submitted their objections to the same by contending that the loss for foreign exchange derivative was a business loss and not business expenditure and was allowable under Section 28 of the Act, that the crystallized losses on account of foreign exchange derivative contracts were not speculative in nature within the meaning of Section 43(5) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invest Ltd. Vs. CIT [reported in (2015) 378 ITR 33] as well as the decision of the Chennai Tribunal in the case of ACIT Vs. M.Baskaran [ITA.No.1717/Mds/2013 dated 31.7.2014] and accordingly set aside the finding rendered by the Assessing Officer. 13. So far as the issue pertaining to disallowance of exchange fluctuation loss was concerned, the CIT(A) took note of the order passed in the assessee's own case for the assessment year 2009-10 dated 27.2.2013, which was affirmed by the Tribunal in ITA.No.1250/ Mds/2013 vide order dated 27.8.2013. Ultimately, the CIT(A) allowed the appeal filed by the assessee. 14. Challenging the findings on both the grounds, the Revenue preferred an appeal before the Tribunal. 15. So far as the first issue is concerned, the Tribunal took note of the decision of this Court in the case of Redington India Ltd. Vs. CIT [reported in (2017) 77 Taxmann.com 257] and dismissed the appeal filed by the Revenue. On the second issue, the Tribunal referred to the order passed by it in the assessee's own case and held that the transaction done by the assessee was not a speculative transaction to be brought under Section 43(5) of the Act. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had been brought out in the decision of this Court in the case of Rajshree Sugars Chemicals Ltd. Rep.by its Director and Chief Operating Officer R.Varadaraj Vs. Axis Bank Ltd. [reported in (2008) 8 MLJ 261]. This decision was pressed into service to explain as to what are all the four categories of derivatives namely forward contracts, future contracts, swaps and options. 21. It is true that the said decision explains the nature of contracts. However, we find that on facts, the assessee therein entered into future contracts for purchase of shares of certain companies on a specified future date and at a specified price, which was to be settled in cash without actual delivery of the shares. In the instant case, the assessee is not a person in business of finance nor involved in the purchase of any commodity. Therefore, the decision of the Bombay High Court in the case of Bharat R.Ruia (HUF) is distinguishable. 22. The learned Senior Standing Counsel appearing for the respondent Revenue has referred to the decision of the Hon'ble Supreme Court in the case of Snowtex Investment Ltd. Vs. PCIT [reported in (2019) 414 ITR 0227] . 23. The decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses, the assessee booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for the export of cotton in some cases failed and therefore, the assessee was held to be entitled to claim deduction in respect of the said amount as business loss. 27. Mr.T.Ravikumar, learned Senior Standing Counsel for the Revenue has sought to distinguish the decision of this Court in the case of Redington India Ltd. 28. In fact, an identical argument was raised for consideration before the Hon'ble Division Bench of this Court in the case of Chettinad Logistics Pvt. Ltd., and such a contention was rejected by rendering the following findings : 13. Mr.Senthil Kumar, seeks to distinguish the judgment in Redington (India) Ltd. case (supra) based on the fact that Rule 8D had not kicked-in by AY 2007-08, which was the AY being considered in the said case. 14. According to us, this was not the argument, put forth, before the Division Bench. As a matter of fact, the Revenue relied heavily on Rule 8D. 14.1 Mr.Ravikumar, who appeared for the Revenue, in that matter and who is present in this Court, informs us th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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