Commissioner Of Income Tax-I, Jodhpur v. M/S. Shree Nath Gum & Chemicals

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR : JUDGMENT : D.B. INCOME TAX APPEAL NO.106/2014 Commissioner of Income Tax-I, Jodhpur Vs. M/s. Shree Nath Gum & Chemicals Date of Judgment :: 19.1.2016 PRESENT HON’BLE THE ACTING CHIEF JUSTICE MR.AJIT SINGHHON’BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant/s. ---- BY THE COURT: This appeal under Section 260-A of the Income Tax Act, 1961('the Act') is directed against the order dated 26.11.2013 passed bythe Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('theTribunal'), whereby the appeal filed by the appellant against theorder dated 19.3.2013 passed by the Commissioner of Income Tax(Appeals), Jodhpur ('the CIT(A)') has been dismissed. The Assessing Officer ('A.O.') by its assessment order dated30.12.2011 for assessment year 2009-2010, inter-alia came to theconclusion that the transaction entered by the assessee in forwardbooking of foreign exchange was a speculative transaction, whichcannot be allowed for set off against normal business income anddisallowed the same to the extent of Rs.74,22,009/- and added thesame to the profit of the business of the assessee. Feeling aggrieved, the assessee filed appeal, the CIT(A) by itsorder dated 19.3.2013, after quoting provision of Section 43(5) of the Act, considering several judgments of ITAT and High Courtsincluding the judgment of Bombay High Court in CIT v. BadridasGauridu (P) Ltd. : 261 ITR 256, held as under:- “4.7. It is clear that hedging transactions are not deemedto be speculative transaction. Such transaction areentered into by manufacturer and merchants in thecourse of the business to source against loss throughfuture price fluctuation. In cases where there is actuallydelivery or transfer of the commodity or goods takesplace, the transaction would not amount to speculativetransaction. In the sec. 43(5) where exceptions are given,the transaction i.e. hedging contract entered into bymanufacturers and merchants in the course of theirbusiness to guard against the also through pricefluctuation are excluded the definition of speculativetransaction. So it is clear that a hedging loss is to betreated as business loss and is allowable to be set offagainst business and profit. In view of the above, the ground of appeal isallowed.” The CIT(A) also came to the conclusion that the assessee was not engaged in the transaction of F & O and commodities and shareswhich is done electronically; assessee is not a dealer in foreignexchange; the foreign exchange contract booked by the assesseewas incidental to the regular business and was done in normalcourse of business, which is a hedging contract. Feeling aggrieved, the Revenue filed appeal before theTribunal. The Tribunal, after hearing the parties, came to thefollowing conclusion and dismissed the appeal : In view of the above, the ground of appeal isallowed.” The CIT(A) also came to the conclusion that the assessee was not engaged in the transaction of F & O and commodities and shareswhich is done electronically; assessee is not a dealer in foreignexchange; the foreign exchange contract booked by the assesseewas incidental to the regular business and was done in normalcourse of business, which is a hedging contract. Feeling aggrieved, the Revenue filed appeal before theTribunal. The Tribunal, after hearing the parties, came to thefollowing conclusion and dismissed the appeal : “4. We have heard the rival submissions and havecarefully perused the entire material on record. We findthat the assessee has debited on amount ofRs.74,22,009/- as FCP account and explained that thisamount is claimed as loss on forward booking of USdollars against export receivable. It was further explainedthat the exporter books dollars with a certain bank for afurther date when his dollars form export claim areestimated to come. If the dollars of the assessee are notreceived by that date, the bank charges the difference ofthe booked price with the price of dollar on that date anddebit it to the account of the assessee. Considering thisexplanation of the assessee the A.O. Observed that this isa speculative business loss and cannot be set off againstnormal business income and that set off loss ofcarefully perused the entire material on record. We findthat the assessee has debited on amount ofRs.74,22,009/- as FCP account and explained that thisamount is claimed as loss on forward booking of USdollars against export receivable. It was further explainedthat the exporter books dollars with a certain bank for afurther date when his dollars form export claim areestimated to come. If the dollars of the assessee are notreceived by that date, the bank charges the difference ofthe booked price with the price of dollar on that date anddebit it to the account of the assessee. Considering thisexplanation of the assessee the A.O. Observed that this isa speculative business loss and cannot be set off againstnormal business income and that set off loss of speculative business is not allowable. However, the ld. CIT(A) observed that the assessee in an exporter of gwargum and due to fluctuation in the dollar rate to cover upthe risk the assessee had entered into an contract withthe bank. There was actual delivery in the case of theassessee. The ld. CIT(A) has allowed set off by holdingthat a hedging loss is to be treated as business loss and isallowable to set off against business and profit. We find nofault with the finding of the ld. CIT(A) and cannot allowthe appeal of the revenue. Accordingly, we dismiss thegrounds, raised by the revenue.” Learned counsel for the appellant submitted that the CIT(A)and Tribunal fell in error in not accepting the plea raised by theappellant and the order impugned cannot be sustained and theappeal involves substantial questions of law as proposed. Having considered the submissions made by learned counselfor the appellant and have perused the material available on record,we are of the opinion that the CIT(A) has recorded a finding of factthat the assessee had made contract with the Bank to cover up therisk of fluctuation in the dollar rate and there was actual delivery inthe appellant's case and based on the material and submissions, itdid not agree with the assessing officer's finding. The above findingof fact has been further upheld by the Tribunal as noticedhereinbefore. Learned counsel for the appellant has failed to point out anyperversity in the findings of fact recorded by the CIT(A) and theTribunal. In view of the above discussion, no substantial question of lawis involved in the present appeal, the same is, therefore, dismissed. (ARUN BHANSALI), J. (AJIT SINGH), ACTG.CJ. Rm/-