By K. B. Bhujle, Advocate
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CIT vs. M/s. D. Chetan & Co. (Bom); ITA No. 278 of 2014 dated 01/10/2016:
www.itatonline.org:
The assessee is engaged in the
business of import and export of diamonds. during the assessment proceedings,
the Officer found that Respondent assessee explained that the amount of
rs.78.10 lakhs claimed as loss was on account of having entered into hedging
transactions to safeguard variation in exchange rates affecting its
transactions of import and export by entering into forward contracts. The
Assessing Officer by order of assessment dated 27th december 2011 disallowed the
claim on the ground that it is a notional loss of a contingent liability debited
to Profit and Loss Account. Resultantly,
the same was added to the assessee’s total income. The Cit (appeals) allowed
the assessee’s appeal inter alia relying upon the decisions of tribunal in
Bhavani Gems vs. ACIT (ITA No.2855/Mum/2010 dt.30.3.2011) and the Special Bench
decision in the case of DCIT vs. Bank of Bahrain and Kuwait ((2010) 132 TTJ
(Mumbai) (SB) 505). The Cit (appeals) on facts found that the transaction of forward
contract was entered into during the course of its business. It held that it
was not speculative in nature nor was it the case of the Assessing Officer that
it was so. Thus the loss incurred as forward contract was allowed as a business
loss. The Tribunal upheld the finding of the Cit (appeals). The tribunal found
that the transaction of forward contract had been entered into for the purpose
of hedging in the course of its normal business activities of import and export
of diamonds.
On appeal by the revenue, the
high Bombay Court upheld the decision of the tribunal and held as under:
“i) The Tribunal has, while
upholding the finding of the Cit (appeals), independently come to the
conclusion that the
transaction entered into
by the assessee is not in the nature of speculative activities. Further, the hedging transactions were entered into so
as to cover variation in foreign exchange rate which would impact its business
of import and export of diamonds. These concurrent finding of facts are not
shown to be perverse in any manner. In fact, the Assessing Officer also in the
Assessment Order does not find that the transaction entered into by the
assessee was speculative in nature.
ii) The reliance placed on the decision in S.
Vinodkumar Diamonds Pvt. Ltd. vs. Addl.CIT ITA 506/MUM/2013 rendered on 3rd may
2013 in the revenue’s favour would not by itself govern the issues arising
herein. This is so as every decision is rendered in the context of the facts
which arise before the authority for adjudication. Mere conclusion in favour of
the revenue in another case by itself would not entitle a party to have an
identical relief in this case. In fact, if the revenue was of the view that the
facts in S. vinodkumar are identical/similar to the present facts, then
reliance would have been placed by the revenue upon it at the hearing before
the tribunal. The impugned order does not indicate any such reliance. It
appears that in S. vinodkumar, the tribunal held the forward contract on facts
before it to be speculative in nature in view of section 43(5) of the act. However,
it appears that the decision of this court in CIT vs. Badridas Gauridas (P) Ltd.
261 ITR 256 (Bom) was not brought to the notice of the tribunal when it
rendered its decision in S. vinodkumar (supra). in the above case, this court
has held that forward contract in foreign exchange when incidental to carrying
on business of cotton exporter and done to cover up losses on account of
differences in foreign exchange valuations, would not be speculative activity
but a business activity.”
