TaxTMI 
TaxTMI 
2014 (5) TMI 732
X X X X Extracts X X X X
X X X X Extracts X X X X
....y charging interest U/S 234 and also erred in initiating Penalty U/S 271 (1)( c). 3. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) also erred in confirming both the additions as above said." 2. The brief facts of the case are that the assessee company is engaged in the business of import of rough diamonds and export of polished diamonds. The Assessing Officer (hereinafter referred to as AO) noticed that the assessee had booked a loss of Rs.7,49,70,430/- on account of loss on foreign currency fluctuations. The AO observed that the loss on account of foreign exchange fluctuations was a speculation loss and further that the said speculative transaction did not fall within the exclusion clauses of section 43(5) of the Income Tax Act (hereinafter referred to as 'the Act'). He therefore treated the forex derivative transactions as speculative transactions and further held that the loss on such speculative transaction could not be set off against profit and gains of business but, from that of speculative transactions only. The ld. CIT(A) as per his detailed findings given in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the 'speculative contracts'. As such, the banks do not entertain FCs of speculative nature with the customers like the assessee, the exporter. As such, the extention of FCs, in case of non-receipt of export proceeds on the due dates, is not allowed without cancelling the existing FCs. However, the onus is on the assessee to explain satisfactorily why the assessee resorted to premature cancellation of some FCs. Further, it is not the requirement that there must be 1:1 precise correlation between FC and the corresponding export invoice. So long as the total FCs does not exceed the exports of the year plus outstanding export receivable, the FCs can constitute 'hedging transaction'. Further also, the premature cancellation of FCs may not alter the above conclusions so long as the assessee has valid and acceptable explanation for such cancellations. It should not be the case, to start with, FC can be a 'hedging transaction' but the ending of such FC is 'speculation'. In the light of this synopsis of our views in the matter, we shall not deliberate on the impugned losses." 5. It may be further observed that the Hon'ble Supreme Court in the case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of "commodity derivatives" has been given as under: "Chapter VII Commodities transaction tax ** ** ** 106. In this Chapter, unless the context otherwise requires,- (5) "commodity derivative" means- (i) a contract for delivery of goods which is not a ready delivery contract; or (ii) a contract for differences which derives its value from prices or indices of prices- (A) of such underlying goods; or (B) of related services and rights, such as warehousing and freight; or (C) with reference to weather and similar events and activities, having a bearing on the commodity sector;" 8. So if we correlate the definition of "commodity derivative" as was provided in the Finance Bill 2013 with that as provided under section 43 of the I.T. Act, the same is wide enough not only to include forward contracts in derivatives relating to goods, services and rights such as warehousing and freight but also with reference to weather and similar events and activities having a bearing on the commodity sector. As observed above, the co-ordinate bench of the Tribunal in the case of London Star Diamond Company (I) (P.) Ltd. (supra) has held that even such the forward c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntary evidence is satisfied about the genuineness of the underlying exposure, (b) the maturity of the hedge does not exceed the maturity of the underlying transaction, (c) the currency of hedge and tenor are left to the choice of the customer, (d) where the exact amount of the underlying transaction is not ascertainable, the contract is booked on the basis of a reasonable estimate, (e) foreign currency loans/bonds will be eligible for hedge only after final approval is accorded by the Reserve Bank where such approval is necessary, (f) in case of Global Depository Receipts (GDRs) the issue price has been finalised, (g) balances in the Exchange Earner's Foreign Currency(EEFC) accounts sold forward by the account holders shall remain earmarked for delivery and such contracts shall not be cancelled. They may be, however, be rolled-over, (h) contracts involving rupee as one of the currencies, once cancelled shall not be re-booked although they can be rolled over at ongoing rates on or before maturity. This restriction shall not apply to contracts covering export transactions which may be cancelled, rebooked or rolled over at on-going rates, (i) substitution o....