TaxTMI 
TaxTMI 
2025 (5) TMI 1705
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....d. CIT(A) has erred in deleting the disallowance of speculative loss for Rs. 27,84,23,191/- ignoring the fact that the assessing had incurred the said loss on account of trading in gold derivative on MCX whereas MCX was recognized under the rule 6DDD w.e.f. 29.11.2013 vide CBDT notification no. 92/2013. 2. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in fact that the assessee has done trading in gold derivative on MCX which falls under the provision of section 43(5)(a) which was introduced in the act w.e.f. 01.04.2014 and was not applicable to F.Y. 2011-12 relevant to A.Y. 2012-13." 3. The facts relating to the issue are that the assessee company is engaged in the business of trading in gold, silver, bullion, precious and semi-precious metals. During the impugned year, the assessee had claimed deduction of Rs. 27.84 crores on account of arbitrage and hedging. The AO treated the same as speculative loss, rejecting the assessee's contention that it was primarily a hedging transaction to guard against loss through future price fluctuation in respect of his contracts for actual delivery of goods as per the exclusion to the definition of specul....
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....ti-commodity Exchange (MCX), which item the assessee dealt with in the course of its business. The claim of the assessee being that in the business of bullion trading, that it was indulging in, the price of gold experienced a lot of volatility and, therefore, any downward movement of gold price subsequent to purchase of gold would result in significant amount of loss to the assessee and, therefore, to protect itself from negative or downward movement in the price of gold, the company indulged into derivative trading of gold on MCX for hedging purposes, which was excluded from the definition of speculative transaction as per proviso (a) to section 43(5) of the Act . 6. The case of the AO for rejecting assesses claim is that the exception in 43(5)(a) of the Act excludes only hedging transactions entered into with the purpose of safeguarding loss through future price fluctuation in respect of contract of actual sale (emphasis provided by us). That, if the purpose of hedging is to safeguard loss on account of price volatility in contracts of purchases, the said transactions are not covered in the exception provided in clause (a) of the proviso. The AO's case is that the assessee, ad....
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....se of CIT vs. Ramchandra Shivnarain, 201 ITR 862 (Bom.). categorically holding traders also to be covered under the exclusionary clause at para 4 of the order is as under:- "4. Section 43(5) defines speculative transaction. It reads as under:- "Definitions of certain terms relevant to income from profits and gains of business or profession.... (1) to (4)***** (5) 'speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips; Provided that for the purposes of this clause- (a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting beniness to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him, or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuat....
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....trader. 14. The ld. DR before us was unable to support the order of the AO with any decision of either the jurisdictional High Court or the Hon'ble Apex Court holding to the contrary. 15. In the light of the same, we completely agree with the ld.CIT(A) that the finding of the AO that hedging transactions undertaken by the assessee in its capacity as trader of bullion would not be covered by proviso (a) to section 43(5) of the Act is contrary to settled law and based on an incorrect interpretation of the proviso(a) to section 43(5) of the Act. 16. Taking up the next aspect relating to the interpretation of section 43(5) proviso (a) of the Act, based on which the AO held the transactions undertaken by the assessee to be speculative in nature, it has been pointed out to us that the case of the AO was that proviso (a) does not save hedging of purchase transactions from the exclusionary clause to the definition of speculative transaction. 17. Ld. Counsel for the assessee contended that courts as also CBDT have categorically ruled out genuine hedging transactions, both of purchase and sale, from being treated as speculative. 18. Our attention was drawn to the decision of t....
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....ore us at P.B 133-140 being: Sl. No. Particulars Paper Book Page No. 1 Copy of invoice for purchase of 30 kg gold from HHEC dated 18.08.2011 134 2 Copy of contract note dated 17.08.2011 evidencing sale of 20kgs of gold in the derivative market of MCX 135-136 3 Copy of contract note dated 18.08.2011: • Evidencing sale of 10kgs of gold in the derivative market of MCX • Evidencing purchase of 30 kgs of gold in the derivative market of the MCX 137-138 4 Copy of invoice for sale of 30 kg gold to Parker Bullion Pvt Ltd. dated 18.08.2011 140 21. He contended that the total of derivative transactions undertaken by the assessee never exceeded its purchase or sale. It was pointed out that such facts were brought to the notice of the CIT(A) also which stands reproduced at page 6 & 7 of his order as under: "(vi). To demonstrate that it falls within the parameters set by judicial decisions, the assessee gave various examples of its contracts, interalia as under: On 17.08.2011, the appellant purchased an additional 30 kg of gold from The Handicrafts & Handlooms Exports Corporation of India (HHEC). To hedg....
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....enter into hedging transaction to protect itself from the fluctuation in the price. However, in no instance the assessee has sold more gold than it has purchased. This was also demonstrated by various example of sale and purchase made at different times. It therefore appears that the assessee is not carrying any speculative business. However, if at any date the sale is more than the available stock, that amount is to be taken as speculative. (iv). From the various judicial decisions, it is clear that although the word "purchase' is not included in the clause (a) of section 43(5), where only the word merchandised sold by him is mentioned, such transaction would cover both. Various Courts have relied on the CBDT Circular No. 230 of 12.09.1960 which clarifies that the proviso to section 43(5) is not restricted only to forward purchase contracts but also to bona fide forward sale contract. No other circular/notification/instruction or any other case law has been brought on record by the AD to rebut the Board's decision in the above mentioned circular. The circular also mentions that only if the forward sale exceeds the stock, the excess transaction should be treated as....
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....1.01.2014 and the impugned assessment year before us being 2012-13, the assessee, therefore, was not entitled to any benefit of the exclusionary clause. 26. There is no merit in this argument of the Revenue. The assessee in any case has sought exclusion under proviso (a) to section 43(5) of the Act and has been held to be entitled so by the ld.CIT(A) whose order has been confirmed by us also. The assessee has held its transactions to be in the nature of hedging transactions to safeguard against any loss from the sale of its goods in terms of proviso (a) to section 43(5). The clause (e) to which the Revenue has drawn our attention to stating that the assessee is entitled to be excluded by virtue of this proviso alone having traded on the MCX platform applies only to traders dealing in derivatives on the MCX platform. While proviso (a) excludes hedging transactions from the purview of speculative transaction, proviso (e) deals with a completely different set of and nature of transactions. Proviso (e) excludes all derivative transactions carried out on the MCX platform of trading of commodities transaction tax by all traders to be not speculative in nature. Therefore, the scope of ....
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.... we find that the ld.CIT(A) has recorded a categorical finding of fact that the impugned amount was paid by the assessee to DLB for storage in its vault the gold purchased from it and the said payment was made on account of delay in taking delivery of the said gold beyond the agreed period. It was the charges paid due to additional time taken by the assessee in identifying buyers. The ld.CIT(A) has noted that the AO while making the disallowance had neither analysed the nature of expense nor did he seek any information or document about the said expense. The ld. DR was unable to controvert the above factual finding of the ld.CIT(A). In the light of the same, we see no reason to interfere in the order of the ld.CIT(A). The ld.CIT(A), after recording the facts relating to the impugned expenditure and deriving therefrom that they were in the nature of compensation paid by the assessee, which finding both on facts and interpretation, the ld. DR has been unable to dislodge before us, has allowed the assessee's claim of expenditure. The ground of appeal No.3 raised by the Revenue is, therefore, dismissed. 31. In effect, the appeal of the Revenue is dismissed. Order pronounced in th....
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....., 1954 In which it wes stated that as regards hedging In'raw materials, the ITOs should not be too particular about the quantities and timing so long as the transactions constitute genuine hedging. Similarly, ITOs should not treat genuine hedging transactions in connected commodities ac speculative transactions though the transactions may not be in Identically the same commodity. Thus, hedging trangattions in one type of cotton against another type of cotton, one variety of oil seed against another, one type of proin against another should not be treated as speculative transactions provided the other conditions of Expin. 2 to 8. 24 are satisfied. The condition mentioned in the last two sentences of the decision on point (I) above will apply here 8:50. Point (III) .- Where a transaction conterr plating actual delhery is ultimately settled (wholly or partialy) by paying differences and without actual delively due to any reasons and where there was no intention to speculate, the transaction should be excluded from the purview of speculative transactions. Board's decision,-The Board'are, unable to accept this suggestion as general rule. It is already provided, if on the facts....