Tribunal disallows hedging loss and Section 14A claims, upholding Assessing Officer's decisions.

The Tribunal upheld the disallowance of the hedging loss as speculative under Section 43(5) of the Income Tax Act, disallowing the claim of Rs. 37,88,391/- against business loss. Additionally, the disallowances under Section 14A for Assessment Year 2011-12 and 2012-13, amounting to Rs. 6,82,287/- and Rs. 1,73,382/- respectively, were confirmed. The Tribunal dismissed both appeals, affirming the Assessing Officer's decisions.

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Issues Involved:
1. Disallowance of hedging loss of Rs. 37,88,391/- against the business loss claimed in Assessment Year 2011-12.
2. Disallowance under Section 14A of the Income Tax Act of Rs. 6,82,287/- and Rs. 1,73,382/- for Assessment Year 2011-12 and 2012-13 respectively.

Issue-wise Detailed Analysis:

1. Disallowance of Hedging Loss:
The assessee, a limited company engaged in manufacturing and trading soya products, claimed a hedging loss of Rs. 37,88,391/- as a business expenditure. The Assessing Officer (A.O.) disallowed this claim, treating it as speculative loss under Section 43(5) of the Income Tax Act since the transactions were settled without physical delivery of goods. The assessee argued that these transactions were entered to hedge against price fluctuations in soya commodities, which should be considered business transactions under proviso (a) of Section 43(5). However, the Tribunal found that the assessee failed to provide specific details proving that these contracts were to guard against price fluctuations in actual delivery contracts. Consequently, the Tribunal upheld the A.O.'s decision, treating the loss as speculative and not eligible for business loss deduction. The assessee was allowed to set off this speculative loss against speculative profits as per Section 73 of the Act.

2. Disallowance under Section 14A:
The assessee had invested Rs. 88,00,000/- in equity shares of Girdharilal Sugar & Allied Industries Limited, not for business purposes. The A.O. disallowed interest expenditure of Rs. 10,56,000/- on these investments, which was later reduced by the Commissioner of Income Tax (Appeals) [CIT(A)] to the amounts suo-moto disallowed by the assessee under Section 14A—Rs. 6,82,287/- for Assessment Year 2011-12 and Rs. 1,73,382/- for Assessment Year 2012-13. The assessee argued that no disallowance should be made as no exempt income was earned. However, the Tribunal noted that the assessee had itself made disallowances under Section 14A in its income tax returns, acknowledging the use of interest-bearing funds for non-business investments. The Tribunal upheld the CIT(A)'s decision, confirming the disallowance amounts as per Rule 8D of the Income Tax Rules, which provides the method for computing disallowance under Section 14A.

Conclusion:
The Tribunal dismissed both appeals, confirming the disallowance of the hedging loss as speculative and upholding the disallowances under Section 14A for the respective assessment years. The judgments were pronounced in the open Court on 19.11.2018.

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