TaxTMI 
TaxTMI 
2022 (11) TMI 75
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the assessee, learned Assessing Officer noticed that the purchases (exclusive of VAT) was Rs. 52,07,23,164/- whereas the purchases debited to the Profit and Loss Account (P&L Account) was Rs. 53,03,64,902/- and since the sales and purchases carried out throughout the year with only one and the same party, namely, in NCS Sugars Ltd and purchases are more than sales, the learned Assessing Officer sought the explanation of the assessee as to why the excess of purchases claimed of Rs. 96,41,738/- should not be added to the income of the assessee. 4. Assessee explained that the company's normal practice of purchase accounting consists of cost of the material and inward expenses such as operating charges, fright expenses, insurance, banking in terms, shortage claims, settlement expenses, trading account-National Commodity Exchange (NCDEX) etc., which practice they have been following consistently for all the years. According to the assessee the purchase value consists of the cost of material at Rs. 52,07,23,164/- and inward expenses such as settlement expenses of Rs. 96.50 lakhs under trading account-NCDEX Rs. 8,262.12 thereby bringing the total purchase cost to Rs. 53,03,64,901.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions, but not the transactions in scripts outside his holding. 8. Further case of assessee before the Ld. CIT(A) was that the assessee entered into forward contracts only to hedge against the fluctuations in price of the goods in which the trades and the transaction value of the commodities transacted has to be compared instead of comparing the price of each commodity. Assessee also placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Ramachandra Shivnarain (1993) 201 ITR 862 and the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. M/s VST industries Ltd ITA No. 284 of 2014. 9. Ld. CIT(A) considered the contentions of the assessee in the light of the CBDT circular and also the decision is relied upon by the assessee. Ld. CIT(A) observed that as per the Profit and Loss Account (P&L Account), the Revenue from operations was to the tune of Rs. 52,44,40,743/- , other income was Rs. 2,20,79,124/- totalling Rs. 2,54,65,19,867/- ; whereas the cost of material consumed was Rs. 53, 03, 64, 902/- and finance cost and other expenses arrived at loss of Rs. 9,58,856/- by the assessee. The cost of material was arrived as per schedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hedging loss was incurred to guard against the risk of fluctuation in trading in commodities carried out by it and hence false outside the definition of speculative loss under section 43(5) of the Act and that the loss of Rs. 96,41,738/- to have been allowed as normal business loss. Alternative claim of the assessee is that the profit of Rs. 37,17,579/- may be set off against the loss of Rs. 96,41,738/- determined a speculative loss by the learned Assessing Officer. 14. It is the argument of the Ld. AR that the authorities below went wrong in denying the claim of the assessee for deduction of the hedging loss to the tune of Rs. 96, 41, 738/- because the assessee deals both in coal and edible oil and in order to guard against the risk of fluctuations in price in trading in coal, the assessee had to contract the hedging transaction in edible oils. According to him, the learned Assessing Officer is wrong in holding that inasmuch as the assessee did not do the hedging transactions in respect of the imported, but it was in respect of Palmolein oil, the loss incurred in hedging contracts fall within the definition of speculation loss as defined under section 43 (5) of the Act. While ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard sales should not be treated as speculation losses and the hedging sale can be taken to be genuine only to the extent the total of such transactions does not exceed the total stock of raw materials or merchandise in hand. 17. According to the learned DR, in this case, both the transactions under question referring to the hedging loss are themselves hedging transactions taking the colour of speculative transaction, because in neither of the transactions, actual delivery is contemplated. According to him, there is possibility of assessee quoting the losses occurred in the hedging transactions in respect of both the coal and the edible oils, which requires the assessee to prove that one is actual transaction and other one is hedging transaction. 18. We have gone through the record in the light of the submissions made on either side. It is clear from the record that the reason for the learned Assessing Officer to disallow the hedging losses is that such hedging transaction is not in connected commodities and, therefore, it is a speculative transaction; whereas the reason for the learned CIT(A) to confirm the disallowance of hedging loss is that such transaction in palmolein oi....