By K. B. Bhujle, Advocate
ACIT vs. Surya International (P) Ltd.; 406
ITR 274 (All): Date of order: 6th September, 2017
A.
Y. 2009-10
The assessee was engaged in the business of production, refining and
sale of edible oil and its by-products. For the A. Y. 2009-10, the assessee
claimed that the market related to purchase of raw materials, for improvement
and manufacture of refined oil was highly volatile and it had entered into
contracts for purchase of raw materials, mainly crude oil, which was the raw
material for refined oil on “high seas sale” basis and many times, looking to
the market trend, the assessee had to cancel such contracts for sale of raw
materials (crude oil). In the relevant year, it had resulted in a loss of Rs,
1,07,88,693/- which the assessee claimed as the business loss. The Assessing
Officer disallowed the claim holding it to be speculative loss.
The
Tribunal allowed the claim in respect of 32 transactions.
On appeal
by the Revenue, the Allahabad High Court upheld the decision of the Tribunal
and held as under:
“i) Section 43(5) of the Income-tax Act, 1961,
provides that speculative transaction means a transaction in which a contract
for the purchase or sale of any commodity including stocks and shares, is
periodically and ultimately settled otherwise than by the actual delivery or
transfer of the commodity or scrips.
ii) Clause (a), however, provides that a
transaction of this nature will not be deemed to be a speculative transaction
if the contract in respect of raw material or merchandise had been entered into
by a person in the course of his manufacturing or merchanting business to guard
against loss through future price fluctuations in respect of his contracts for
actual delivery of goods manufactured by him. Such contracts entered into by a
merchant or manufacturer to safeguard against loss through future price
fluctuation are in a commercial world known as hedging contracts. This clause
contemplates contracts entered into by two classes of persons namely (a) a
person who manufactures goods from raw materials, and (b) a merchant who
carries on merchanting business. Whereas in the case of a manufacturer it is
the contract entered into by him in respect of raw materials used in the course
of his manufacturing business to guard against loss through future price fluctuations
in respect of his contracts for actual delivery of goods manufactured by him,
that are taken out of the ambit of speculative transactions, the contracts
taken out of the scope of such transactions in the case of merchants are those
which he enters into in respect of his merchandise with a view to safeguard
loss through future price fluctuation in respect of contracts for actual
delivery of merchandise sold by him.
iii) It is significant to note that section 43
nowhere provides that such hedging contracts must necessarily be purchasing
contracts. It will depend upon the facts of each case whether a particular
transaction by way of forward sale, which is mutually settled otherwise than by
actual delivery of the said goods has been entered into with a view to
safeguard against loss through price fluctuation in respect of the contract for
actual delivery of the goods manufactured.
iv) The Tribunal was correct in allowing the
claim of the assessee in respect of 32 transactions.”
