Itxa 1804-17 v. Badridasgauridu (P.) Ltd., (2003)261 Itr 256(Bom

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1804 OF 2017 Pr.Commissioner of Income Tax-14… AppellantV/s. M/s Foods and Inns. Ltd.… Respondent --- Mr.Suresh Kumar, Advocate for the Appellant.Mr.Ajay Kumar Singh with Mr.Ravindra Poojary, Advocatefor the Respondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 22, 2020 P.C.:- 1. Heard Mr.Suresh Kumar, learned standing counsel, Revenue for the appellant; and Mr.Ajay Kumar Singh,learned counsel for the respondent-assessee. 2.This appeal under Section 260A of the Income TaxAct, 1961 (briefly “the Act” hereinafter) has beenpreferred by the Revenue against the order dated 7[th]June, 2016 passed by the Income Tax Appellate Tribunal,“F” Bench, Mumbai (briefly “the Tribunal” hereinafter) inIncome Tax Appeal No.6271/Mum/2014 together withCross-Objection No.34/Mum/2016 for the assessmentyear 2010-11. Priya Soparkar 3.The appeal has been preferred on the followingquestion which is contended to be a substantial question of law:- “Whether, on the facts and circumstances ofthe case and in law, the Tribunal is correct inlaw in deleting the disallowance of loss offoreign exchange by holding that the same isnot speculative loss but is allowable asbusiness loss?” 4.In the assessment proceeding which culminated in the assessment order dated 25[th] March, 2013 passedby the Assessing Officer under Section 143(3) of the Act, loss of foreign exchange of Rs.6,53,06,057.00 was heldto be a speculative loss and the said amount wasaccordingly disallowed and added to the total income ofthe assessee. 5.Aggrieved by the aforesaid, assessee preferred appeal before the Commissioner of Income Tax (Appeals),Mumbai contending that the aforesaid amount was not aspeculative loss but a loss incurred in the course ofbusiness. By the order dated 16[th] July, 2014, the firstappellate authority accepted the contention of theassessee and directed deletion of such disallowance. Priya Soparkar 326 itxa 1804-17 6.Revenue thereafter preferred further appeal beforethe Tribunal. While dismissing the appeal of the revenuevide the order dated 7[th] June, 2016, Tribunal held thatthe aforesaid loss could not be construed as speculativeloss and in this connection relied upon a decision of thiscourt in Commissioner of Income Tax VS. BadridasGauridu (P.) Ltd., (2003)261 ITR 256(Bom). 7.Aggrieved, present appeal has been preferred onthe aforesaid question. the aforesaid question. 8.Submissions made by learned counsel for the partieshave been considered. 9.At the outset, we may advert to the findingrecorded by the Tribunal in the order dated 7[th] June,2016 which is as under:- “5.3.1 We have heard the rival submissionsand perused and carefully considered thematerial on record, including the judicialpronouncements referred to in the orders ofthe authorities below. From the fact on record,it is not disputed that the assessee isengaged in the manufacture and export ofprocessed food products such as fruit pulp andother allied items, for which it was receivingexport sales proceeds from abroad in foreignexchange currencies. We find from the recordthat the learned CIT (A), after examination ofthe matter, found that the assessee had 9.At the outset, we may advert to the findingrecorded by the Tribunal in the order dated 7[th] June,2016 which is as under:- “5.3.1 We have heard the rival submissionsand perused and carefully considered thematerial on record, including the judicialpronouncements referred to in the orders ofthe authorities below. From the fact on record,it is not disputed that the assessee isengaged in the manufacture and export ofprocessed food products such as fruit pulp andother allied items, for which it was receivingexport sales proceeds from abroad in foreignexchange currencies. We find from the recordthat the learned CIT (A), after examination ofthe matter, found that the assessee had entered into foreign exchange forwardcontracts with banks only to safeguard itselfand hedge against the exposure risks infuture fluctuation in the exchange rates offoreign currency to be received by it as exportsale proceeds. It is seen that these foreignexchange forward contracts entered intowith banks from time to time in the relevantperiods under consideration, were madeagainst confirmed export orders and exportof goods by the assessee.5.3.2 In our view the AO’s findings to thecontrary that the aforesaid foreign exchangelosses suffered by the assessee are speculativein nature was factually flawed as it was basedon a factually incorrect assumption that theassessee not being dealer in foreignexchange, its forward contracts were only forforeign exchange which were settle d withoutdelivery thereof. The RBI has permittedimporters and exporters to enter into foreignexchange forward contracts with the banks inrespect of its export orders. In the case onhand the assessee entered in to foreignexchange export contracts with banks to theextent of its export orders; which means everyforeign exchange forward contract is againsta specific export order. In this factual matrix,it is clear that the assessee did not deal inforeign exchange, but entered into foreignexchange forward contract within banks tosafeguard itself against possible foreignexchange losses on account of export saleproceeds to be received.5.3.3 We concur with the view of the learnedCIT (A) in the impugned order that the factsand circumstances of the case establish thatthe proviso (a) to section 43(5) of the Act issquarely applicable in the case on hand sincethe foreign exchange forward contracts enteredinto by the assessee with banks, in the course Priya Soparkar of its manufacturing and export business offruit pulp and allied items, were in order tosafeguard itself against possible future foreignexchange losses on account of exports saleproceeds receivable, due to fluctuation in priceof different commodities and which contractswere backed by confirmed export orders fordealing of goods manufactured or traded by it.These transactions were not speculative innature and the resultant foreign exchangelosses were consequently not speculativelosses but allowable business losses. Suchcontracts are directly from the incidental tothe assessee’s business of manufacture andexport of fruit pulp and allied products andtherefore, in our view, do not representspeculative transactions.Therefore, the conceptof delivery and non-delivery thereof is of noconsequence and is irrelevant in the context ofthe facts of the case on hand. As long as theaforesaid transactions of foreign exchangeforward contracts are concerned, they aredirectly linked with the assessee’s businessof manufacture and export of fruit pulp andallied items. In our considered view, by nostretch of imagination can they be classifiedas ‘speculative business’.5.3.4 We find that the issue on hand issquarely covered in favour of the assessee bythe decision of the Hon’ble Bombay HighCourt in the case of CIT Vs. Badridas Gauridu(P) Ltd. (2003)261 ITR 256(Bom): “The assessee had entered intoforward contracts with the Banks inrespect of foreign exchange. Some ofthese contracts could not behonoured by the assessee for which ithad to pay some amount which wasdebited to the P & L account. Theassessee claimed the same as Priya Soparkar business loss being payment onaccount of cancellation of forwardbooking of forex with the banks inrespect of export orders. Finally whenthe issue came up for considerationthe Hon’ble Bombay High Court heldas under :-The assessee was not a dealer inforeign exchange. The assessee wasa cotton exporter. The assessee wasan export house. Therefore, foreignexchange contracts were booked onlyas incidental to the assessee’s regularcourse of business. The Tribunal hasrecorded a categorical finding to thiseffect in its order. The AssessingOfficer has not considered these facts.Under Section 43(5) of the Income-taxAct, “speculative transaction” hasbeen defined to mean a transactionin which a contract for the purchaseor sale of a commodity is settledotherwise than by the actual deliveryor transfer of such commodity.However, as stated above, theassessee was not a dealer in foreignexchange. The assessee was anexporter of cotton. In order to hedgeagainst losses, the assessee hadbooked foreign exchange in theforward market with the bank.However, the export contracts enteredinto by the assessee for export ofcotton in some cases failed. In thecircumstances, the assessee wasentitled to claim deduction in respectof Rs. 13.50 lakhs as a business loss.This matter is squarely covered by thejudgment of the Calcutta High Court,with which we agree, in the case of Priya Soparkar CIT V. Soorajmull Nagarmull (1981) 22CTR Cal)8: (1981) 129 ITR 169 (Cal)”. 5.3.5 Taking into account the facts andcircumstances of the case as discussed aboveand the judicial pronouncement referred to(supra), we are of the considered view that theorders of the learned CIT(A) for assessmentyears 2009-10 and 2010-11 holding thatforeign exchange losses of Rs.16,72,65,011/-and Rs.6,53,06,057/- for assessment years2009-10 and 2010-11 respectively werebusiness losses and directing the AO to allowthe same calls for no interference from usand we therefore confirm an uphold the same.Consequently, Revenue’s grounds No.1(a) and(b) for A.Y. 2009-10 and ground No. 2 for A.Y.2010-11 are dismissed.” 10.From the above, it is seen that assessee hadentered into foreign exchange export contracts withbanks to the extent of its export orders. In other words,every foreign exchange forward contract was against aspecific export order. Therefore, Tribunal held thatassessee did not deal in foreign exchange but hadentered into foreign exchange forward contract withbanks to safeguard itself against possible foreignexchange losses on account of export sale proceeds tobe received. Priya Soparkar 826 itxa 1804-17 11. Tribunal concurred with the view taken by theCommissioner of Income Tax (Appeals) that thesetransactions were not speculative in nature and theresultant foreign exchange losses were consequentlynot speculated loss but allowable business loss. Suchcontracts were incidental to the assessee’s business ofmanufacture and export of fruit pulp and alliedproducts and therefore, did not represent speculativetransactions. 12.As referred to and relied upon by the Tribunal, thiswas also the view taken by this court in BadridasGauridu (P.) Ltd.(supra). 13.This position has been again reiterated inCommissioner of Income-Tax Vs. D. Chetan andCompany, (2017) 390 ITR 36 (Bom), wherein it hasbeen held as under:- Priya Soparkar 826 itxa 1804-17 11. Tribunal concurred with the view taken by theCommissioner of Income Tax (Appeals) that thesetransactions were not speculative in nature and theresultant foreign exchange losses were consequentlynot speculated loss but allowable business loss. Suchcontracts were incidental to the assessee’s business ofmanufacture and export of fruit pulp and alliedproducts and therefore, did not represent speculativetransactions. 12.As referred to and relied upon by the Tribunal, thiswas also the view taken by this court in BadridasGauridu (P.) Ltd.(supra). 13.This position has been again reiterated inCommissioner of Income-Tax Vs. D. Chetan andCompany, (2017) 390 ITR 36 (Bom), wherein it hasbeen held as under:- “The impugned order of the Tribunal has,while upholding the finding of theCommissioner of Income-tax (Appeals),independently come to the conclusion thatthe transaction entered into by therespondent-assessee is not in the nature ofspeculative activities. Further the hedgingtransactions were entered into so as to covervariation in foreign exchange rate which would impact its business of import and exportof diamonds. These concurrent finding of factsare not shown to be perverse in any manner.In fact, Assessing Officer also in theassessment order does not find that thetransaction entered into by the respondent-assessee was speculative in nature. It furtherholds that at no point of time did the Revenuechallenge the assertion of the respondent-assessee that the activity of entering intoforward contract was in the regular course ofits business only to safeguard against6 theloss on account of foreign exchange variation.Even before the Tribunal, we find that therewas no submission recorded on behalf of theRevenue that the respondent-assessee shouldbe called upon to explain the nature of itstransactions. Thus, the submission now beingmade is without any foundation as the stand ofthe assessee on facts was never disputed.So far as the reliance on Accounting Standard11 is concerned, it would not by itselfdetermine whether the activity was a part ofthe respondent-assesee’s regular businesstransaction or it was a speculative transaction.On present facts, it was never the Revenue’scontention that the transaction wasspeculative but only disallowed on the groundthat it was notional. Lastly, the reliance placedon the decision in S. Vinodkumar (supra) inthe Revenue’s favour would to by itself governthe issues arising herein. This is so as everydecision is rendered in the context of the factswhich arise before the authority foradjudication. Mere conclusion in favour of theRevenue in another case by itself would notentitle a party to have an identical relief inthis case. In fact, if the Revenue was of theview that the facts in S. Vinodkumar (supra)are identical/similar to the present facts, thenreliance would have been placed by the Revenue upon it at the hearing before theTribunal. The impugned order does notindicate any such reliance. It appears that inS. Vinodkumar (supra), the Tribunal held t hatforward contract on facts before it to bespeculative in nature in view of section 43(5)of the Act. However, it appears that thedecision of this court in CIT v. BadridasGauridu P. Ltd.(2003)261 ITR 256(Bom);(2004) 134 Taxman 376(Bom) was notbrought to the notice of the Tribunal when itrendered its decision in S. Vinodkumar(supra). In the above case, this court hasheld that forward contract in foreignexchange when incidental to carrying onbusiness of cotton exporter and done tocover up losses on account of differences inforeign exchange valuations, would not bespeculative activity but a business activity.” 14.Recently, this court had dismissed the appeals 14.Recently, this court had dismissed the appeals preferred by the Revenue in Principal Commissionerof Income-Tax-3 Vs. Jindal Drugs Ltd., Income TaxAppeal Nos.1517, 1545 and 1642 of 2016 decidedon 17[th] February, 2018 and Principal Commissionerof Income Tax-5 Vs. M/s M. Suresh and Company,Pvt. Ltd., Income Tax Appeal No.1607 of 2016decided on 23[rd] January, 2019, wherein similar pointwas urged by the Revenue. Priya Soparkar 11 26 itxa 1804-17 15.Following the above, we do not find any merit inthe appeal. No question of law arises from the impugnedorder of the Tribunal. 16. Consequently, the appeal is dismissed. No cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) ….