TaxTMI 
TaxTMI 
2018 (12) TMI 1339
X X X X Extracts X X X X
X X X X Extracts X X X X
....d facts we may record from Income Tax Appeal No.1642 of 2016 and thereafter, to the extent the facts are different in other appeals, we shall notice the same. 2. Tax Appeal No.1642 of 2016 is filed by the revenue. It concerns assessment year 2006-07. Following question has been presented for our consideration : "Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that the hedging activity of Mentha Oil has a direct nexus with the manufacturing activity and therefore eligible for deduction u/s 80IB of the Income Tax Act, 1961, when hedging profit is not derived from industrial activity?" 3. This question arises in following background. The respondent-assessee is a limited compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... are concerned with the assessment years 2007-08 and 2009-10 respectively. In these years also the assessee had entered into hedging contracts. However, this resulted in the assessee suffering losses. The assessee therefore, claimed set off of such losses against its business income. The Assessing Officer did not accept the assessee's claim primarily holding that the assessee's losses were speculative in nature. In this case also CIT (Appeals) allowed the assessee's appeals. The Tribunal rejected the revenue's appeals. 6. In this background, counsel for the revenue submitted that the profit arising out of hedging contract cannot be stated to be derived from the assessee's manufacturing activity. He submitted that in o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing an article or thing. 9. We are conscious that Section 80IB of the Act uses expression "profit derived from" and this expression has been seen as restrictive in nature as compared to the expression "arising out of". However, in the present case what we find is that the assessee needed high quantity of steady supply of the raw material, which would go into manufacturing its final product. If the assessee did not enter into hedging contract, it would be exposed to wide fluctuation of costs in procuring such material. This would expose the assessee to possible losses since while undertaking contracts for production and sale of the final product, the assessee would have taken into account the procurement price of the raw material at the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Division Bench of this Court in case of Commissioner of Income-tax Vs. Badridas Gauridu (P.) Ltd. (2004) 134 Taxman 376 (Bombay) was examining a situation where the assessee was an exporter of cotton and not an agent in foreign exchange. Assessee had booked forward exchange in forward market in order to hedge against losses. The export contract entered into by the assessee for export of cotton in some cases failed. The Court held that the deduction in respect of the loss suffered by the assessee in the process was a business loss. It was observed that as per the RBI permission the assessee was entitled to book foreign exchange against export orders received by it. The contracts were incidental to the assessee's business of export of....