ACIT, Bangalore V. M/s Hanuman Weaving Factory, Bangalore

ITA 1112/BANG/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68302 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-05-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 06-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K GANESH RAO
• Assessee Lawyers: K S JAIN
• Keywords: Business income; Depreciation; Business expenditure; Speculation loss; Revenue expenditure; Capital expenditure
• Section: 143(3); 43(5); 10B; 28

Judgement Text

ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 1 OF 20 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCHES, BANGALORE BEFORE SHRI SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1112 /BANG/2012 (ASSESSMENT YEAR: 2009-10) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3(1) BANGALORE VS. M/S.HANUMAN WEAVING FACTORY NO.05, HANUMAN BUILDINGS, TANK BUND ROAD, BANGALORE PAN: AABFH 7295 M (APPELLANT) (RESPONDENT) ITA NO.1320 /BANG/2012 (ASSESSMENT YEAR: 2009-10) M/S.HANUMAN WEAVING FACTORY NO.05, HANUMAN BUILDINGS, TANK BUND ROAD, BANGALORE PAN: AABFH 7295 M VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3(1) BANGALORE (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI A.K.GANESH RAO, DR ASSESSEE BY: SHRI K.S. JAIN, CA DATE OF HEARING: 01/08/2013 DATE OF PRONOUNCEMENT: 23/08/2013 O R D E R PER GEORGE GEORGE K. J.M. THESE TWO APPEALS ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE FIRM ARE DIRECTED AGAINST THE ORDER OF T HE CIT (A)-II, BANGALORE, DATED 6.7.2012. THE RELEVANT ASSESSMENT YEAR IS 2009-10. ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 2 OF 20 I. ITA NO.1112/B/12 BY THE REVENUE : 2. THE REVENUE HAS, IN ITS MEMORANDUM OF APPEAL, R AISED THREE GROUNDS. HOWEVER, ALL THE GROUNDS ARE CONFIN ED TO THE SOLITARY ISSUE, NAMELY: WHETHER THE CLAIM OF EXPENDITURE OF RS.32,17,578/- INCURRED FOR RELAYING OF THE FLOOR WITH MARBLE IS CAPITAL OR REVENUE? II. ITA NO.1320/B/12 BY THE ASSESSEE : 3. THE ASSESSEE HAS RAISED SEVENTEEN GROUNDS IN AN ILLUSTRATIVE MANNER. HOWEVER, DURING THE COURSE OF HEARING, THE LEARNED A.R. HAS PRESSED FOR ADJUDICATION OF THE GR OUND NO.4 ONLY WHICH STATES AS UNDER: THAT THE AUTHORITIES BELOW HAVE ERRED IN DISALLOWI NG THE EXPENDITURE ON CANCELLATION OF FORWARD CONTRACT AMO UNTING TO RS.65,17,187/- BY WRONGLY TREATING IT AS SPECUL ATION LOSS. 3.1. AS THE ISSUES RAISED IN THESE APPEALS ARE INT ER-LINKED AND PERTAINING TO THE SAME ASSESSEE, FOR THE SAKE OF CO NVENIENCE, THEY ARE HEARD, CONSIDERED TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. 3.2. WE SHALL FIRST TAKE UP THE ISSUE RAISED BY TH E REVENUE FOR CONSIDERATION AS UNDER: ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 3 OF 20 I. ITA NO.1112/B/12 BY THE REVENUE : 4. BRIEFLY STATED, THE FACTS OF THE ISSUE ARE AS B ELOW: 4.1. THE ASSESSEE FIRM IS AN EXPORTER O F SILK FABRICS INVOLVING THE PROCESS OF REELING, TWISTING, DYEING, WEAVING, PRINTING, EMBROIDERY WORK ETC. DURING THE YEAR UNDER DISPUT E, THE ASSESSEE HAD FURNISHED ITS RETURN OF INCOME, ADMITTING AN IN COME OF RS.2,24,34,844/- WHICH WAS, INITIALLY, PROCESSED U/ S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SUBJECTED TO SCRUTINY U/ S 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS .35,75,087/- TOWARDS COST OF MARBLES FOR REPLACEMENT OF FLOORING IN ITS BUILDING. BEING QUERIED AS TO WHY THE SAME SHOULD NOT BE TREA TED AS A CAPITAL EXPENDITURE, IT WAS CONTENDED BY THE ASSESSEE THAT THE VALUE OF BUILDING WILL NOT BE ENHANCED DUE TO RELAYING OF FL OORS AS IT WAS INTENDED FOR PROTECTING THE SILK FABRICS WHILE SPRE ADING. THUS, IT WAS CONTENTED THAT THE EXPENDITURE INCURRED WAS REVENUE IN NATURE . 4.2. THE AO HELD, BY REJECTING THE ASSESSEES CONT ENTION THAT THE REPLACEMENT OF RED-OXIDE FLOORING WHICH WAS TWE NTY FIVE YEARS OLD WITH MARBLES GIVES ARISE TO AN ENDURING BENEFIT AND, THUS, THE EXPENDITURE INCURRED WAS CAPITAL IN NATURE. ACCORD INGLY, A SUM OF RS.32,17,578/-, AFTER ALLOWING DEPRECIATION AT 10%, WAS ADDED TO THE INCOME OF THE ASSESSEE. ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 4 OF 20 4.3. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE, AM ONG OTHERS, BEFORE THE CIT (A) FOR RELIEF. AFTER TAKING INTO A CCOUNT THE SUBMISSION MADE BY THE ASSESSEE, THE CIT (A) WAS OF THE VIEW THAT THE EXPENDITURE ON REPLACING THE FLOORING WAS IN TH E NATURE OF REVENUE AND, THUS, ALLOWABLE DEDUCTION. THE RELEVA NT PORTION OF HER REASONING IS EXTRACTED AS UNDER: 3.3.IN MY VIEW, THE EXPENDITURE INCURRED BY THE APPELLANT ON RELAYING O F THE FLOORING FITS INTO REPAIR AND MAINTENANCE AND IS ALLOWABLE AS A REVENUE EXPENDITURE. COURTS HAVE BEEN HOLDING THAT SUCH EXPENDITURE IS TO BE TREATED AS REVENUE EXPEND ITURE AND NOT CAPITAL EXPENDITURE AS NO NEW ASSET IS BROUGHT INTO EXISTENCE AND IT IS IN THE NATURE OF REPAIR ETC. I DERIVE SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF DELHI PRESS SAMACHAR PATRA (P) LTD REPORTED IN 322 ITR 590 (DEL) WHERE, AFTER CONSIDER ING THE DECISION OF THE HONBLE SUPREME COURT IN CIT V. SAR AVANA SPINNING MILLS LTD REPORTED IN 293 ITR 201. IT WA S HELD THAT SUCH EXPENDITURE ON REPAIRS, REINFORCEMENT, REPLACEMENT OF DILAPIDATED BEAMS, PILLARS, WALLS ET C., OF EXISTING PRESS BUILDING WAS NOT CAPITAL EXPENDITURE BUT ONLY REVENUE EXPENDITURE AS THE ASSESSEE DID NOT BRING I NTO EXISTENCE ANY NEW ASSET OVER AND ABOVE EXISTING BUI LDING. EXPENDITURE ON REPLACING THE FLOORING IN THE PRESEN T CASE WOULD ALSO BE IN THE NATURE OF REVENUE EXPENDITURE AND ALLOWABLE 4.4. AGGRIEVED, THE REVENUE HAS COME UP BEFORE US WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, IT W AS SUBMITTED THAT THE CIT (A) HAD FAILED TO REFER TO THE AMENDED PROV ISIONS TO S. 30(A)(I)&(II) BY WAY OF INSERTION OF EXPLANATION BE LOW THIS SECTION BY THE FINANCE ACT 2003 W.E.F. 1.4.2004 WHICH READS FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE A MOUNT PAID ON ACCOUNT OF THE COST OF REPAIR REFERRED TO IN SUB-CL AUSE (I) AND THE ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 5 OF 20 AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS TO IN SUB -SECTION (II) OF CLAUSE (A) SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. IT WAS, THEREFORE, PLEADED THAT THE A CTION OF THE AO REQUIRES TO BE RESTORED. TO STRENGTHEN ITS STAND, THE REVENUE HAD PLACED RELIANCE ON THE FOLLOWING CASE LAWS: (I) BALLIMAL NAVAL KISHORE V. CIT (1997) 224 ITR 414; (II) PUNJAB STATE INDUSTRIAL DEV. CORPORATION LTD V. CIT 225 ITR 792; (III) CIT V. MADRAS AUTO SERVICES (P) LTD 233 ITR 468 4.5. ON THE OTHER HAND, THE LEARNED AR SUPPORTED T HE FINDINGS OF THE CIT (A) ON THE ISSUE. IT WAS, FURT HER, SUBMITTED THAT THE STAND OF THE CIT (A) WAS BASED ON THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT (SUPRA) AND ALSO THE HONBLE SUPRE ME COURT IN THE CASE OF CIT V. SARAVANA SPINNING MILLS LIMITED (SUP RA) AND, HENCE, THE SAME REQUIRES TO BE SUSTAINED. 4.6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND ALSO PERUSED THE RELEVANT MATERIALS ON CASE RECORD. THE RED-OXIDE FLOORING OF MORE THAN TWENTY FIVE YEA RS OLD WAS REPLACED BY MARBLES FOR SMOOTH AND UN-HINDERING FUN CTIONING OF THE ASSESSEES BUSINESS. AS RIGHTLY POINTED OUT BY THE CIT (A), THE ASSESSEE HAD, IN FACT, NOT BROUGHT INTO EXISTENCE A NY NEW ASSET OVER AND ABOVE THE EXISTING BUILDING, BUT, EFFECTED REPA IRS ONLY IN THE FLOOR BY REPLACING IT WITH MARBLES WHICH FALLS WITH IN THE SCOPE OF REPAIRS AND MAINTENANCE OF THE EXISTING BUILDING. THIS VIEW HAS ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 6 OF 20 BEEN HELD BY THE HONBLE DELHI HIGH COURT REPORTED IN 322 ITR 590 (DEL) (SUPRA) AND ALSO THE HONBLE SUPREME COURT (S UPRA). 4.6.1. WE HAVE, WITH DUE REGARDS, PERUSED THE RULI NG OF THE HONBLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANOTHER V. CIT REPORTED IN (1997) 224 ITR 414 (SC) AS RELIED ON BY THE REVENUE. IN THE SAID CASE, THE HONBLE SUPREME COURT, WHILE ANALYSING THE PROVISIONS OF S. 10(2)(V) OF THE IT A CT, 1922, HAD REFERRED TO THE RULING OF THE BOMBAY HIGH COURT IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTURING CO. LIMITED REP ORTED IN (1956) 30 ITR 338(BOM) WHEREIN MR. JUSTICE CHAGLA C .J., SPEAKING FOR THE DIVISION BENCH, OBSERVED THAT THE EXPRESSIO N CURRENT REPAIRS MEANS EXPENDITURE ON BUILDINGS, MACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION, BUT, WHICH IS ONLY FOR THE ;PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EX ISTING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE ASSESSEE A NEW OR DIFFERENT ADVANTAGE. THE LEARNED CHIEF JUSTICE OBSERVED THAT THEY ARE SUCH REPAIRS AS ARE ATTENDED TO AS AND WHE N NEED ARISES AND THAT THE QUESTION WHEN A BUILDING, MACHI NERY ETC., REQUIRES REPAIRS AND WHEN THE NEED ARISES MUST BE DECIDED NO T BY ANY ACADEMIC OR THEORETICAL TEST BUT BY THE TEST OF COMMERCIAL EXPE DIENCY. THE LEARNED CHIEF JUSTICE OBSERVED: THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN M IND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIME D AS EXPENDITURE FOR REPAIRS WHAT IS REALLY DONE IS TO P RESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTE NCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVAN TAGE. THIS CAN BE THE ONLY DEFINITION OF REPAIRS BECAUSE IT IS ONLY ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 7 OF 20 BY REASON OF THIS DEFINITION OF REPAIRS THAT THE EX PENDITURE IS REVENUE EXPENDITURE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENUE NATURE BUT IT WOULD BE A C APITAL EXPENDITURE, AND IT IS CLEAR THAT THE DEDUCTION WHI CH IS LEGISLATURE HAS PERMITTED UNDER SECTION 10(2)(V) IS A DEDUCTION WHERE THE EXPENDITURE IS A REVENUE EXPEND ITURE AND NOT A CAPITAL EXPENDITURE ACCEPTING THE RATIO LAID DOWN BY T HE HONBLE BOMBAY HIGH COURT (SUPRA), THE HONBLE SUPREME COURT OBSER VED THAT IN OUR OPINION THE TEST INVOLVED BY CHAGLA C.J., IN NEW SH ORROCK SPINNING AND MANUFACTURING CO. LTDS CASE (1956) 30 ITR 338 (BOM), IS THE MOST APPROPRIATE ONE HAVING REGARD TO THE CONTEXT I N WHICH THE SAID EXPRESSION OCCURS. IT HAS BEEN FOLLOWED BY A MAJOR ITY OF THE HIGH COURT IN INDIA. WE RESPECTFULLY ACCEPT AND ADOPT THE TES T. APPLYING THE AFORESAID TEST, IF WE LOOK AT THE FAC TS OF THIS CASE, IT WILL BE EVIDENT THAT WHAT THE ASSESSEE DID WAS NOT MERE REPAIRS BUT A TOTAL RENOVATION OF THE THEATRE. NEW MACHINERY, NEW FURN ITURE, NEW SANITARY FITTINGS AND NEW ELECTRICAL WIRING WERE INSTALLED B ESIDES EXTENSIVELY REPAIRING THE STRUCTURE OF THE BUILDING. BY NO STR ETCH OF IMAGINATION, CAN IT BE SAID THAT THE SAID REPAIRS QUALIFY AS CU RRENT REPAIRS WITHIN THE MEANING OF SECTION 10(2)(V). IT WAS A CASE OF TOTAL RENOVATION AND HAS RIGHTLY BEEN HELD BY THE HIGH COURT TO BE CAPITAL I N NATURE. 4.6.2. WE HAVE CAREFULLY PERUSED THE RUL ING OF THE HONBLE SUPREME COURT (SUPRA). IN THAT CASE, THE ASSESSEE DID NOT MAKE MERE ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 8 OF 20 REPAIR BUT A TOTAL RENOVATION OF THE THEATRE, NEW M ACHINERY, NEW FURNITURE ETC., WERE INSTALLED BESIDES EXTENSIVELY REPAIRING THE STRUCTURE OF THE BUILDING. IT WAS, THEREFORE, RULE D THAT IT CANNOT BE SAID THAT THE SAID REPAIRS QUALIFY AS CURRENT REPA IRS WITHIN THE MEANING OF S. 10(2)(V) WHEREAS IN THE PRESENT CASE, THE ASSESSEE HAD ONLY REPLACED THE RED-OXIDE FLOORING WITH MARBLES I N ORDER TO FACILITATE SMOOTH RUNNING OF ITS BUSINESS. WE ARE, THEREFORE, OF THE VIEW THAT THE CASE LAW RELIED ON BY THE REVENUE CAN NOT COME TO ITS RESCUE AS THE PRESENT CASE IS CLEARLY DISTINGUISHAB LE. 4.6.3. CONSIDERING THE ABOVE MENTIONED F ACTS INTO ACCOUNT AND ALSO IN CONFORMITY WITH JUDICIAL VIEWS (SUPRA), WE ARE OF THE FIRM VIEW THAT THE EXPENDITURE INCURRED TO THE TUNE OF R S.32,17,578/- [AFTER ALLOWING DEPRECIATION AT 10% BY THE AO] CANN OT BE CATEGORIZED AS CAPITAL IN NATURE. IN SUBSTANCE, TH E REVENUES APPEAL IS DISMISSED. 5. WE SHALL NOW PROCEED TO DEAL WI TH THE ISSUE RAISED BY THE ASSESSEE IN THE FOLLOWING PARAGRAPHS: II. ITA NO.1320/B/12 BY THE ASSESSEE : ADDITION OF RS.65,17,189/- BY TREATING AS SPECULATIVE LOSS: 5.1. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED IN ITS ACCOUN TS A SUM OF RS.1,56,03,464/- AS DIFFERENCE IN FOREIGN EXCHANGE. BEING QUERIED, THE ASSESSEE HAD FURNISHED A LENGTHY SUBMISSION BY JUSTIFYING ITS ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 9 OF 20 ACTION AS RECORDED IN THE ASSESSMENT ORDER UNDER DI SPUTE. HOWEVER, THE AO NOTED THAT THE DIFFERENCE IN FOREIGN EXCHANG E ARISES FOR THE ASSESSEE AS EXPORTER OF SILK FABRICS AND CLOTH AT T HE TIME OF REALISATION OF EXPORT PROCEEDS RECEIVED IN FOREIGN CURRENCY. T HAT THE ASSESSEE RECEIVES EXPORT PROCEEDS AS PER INVOICES, BUT, AT T HE TIME OF REALISING THE SAME, WHAT THE ASSESSEE GETS IS ON THE BASIS OF PREVALENT MARKET RATE OF THE FOREIGN CURRENCY I.E., IF THE RATE IS HIGHER, THE BENEFIT IS CREDITED TO P & L ACCOUNT OR, IF THE RATE IS LOWER, THE LOSS IS DEBITED. THE AO HAD, FURTHER, NOTED THAT THE ASSESSEE HAD DE BITED TO THE P & L ACCOUNT A SUM OF RS.96.86 LAKHS DUE TO THE FLUCTU ATION IN FOREIGN CURRENCY OUT OF THE TOTAL AMOUNT OF RS.1.56 CRORES. THE DIFFERENCE OF RS.65,17,187/-BETWEEN THE TWO WAS FOUND TO HAVE BEE N DEBITED TO P & L ACCOUNT AS LOSS ARISING FROM THE CANCELLATION O F FORWARD CONTRACT IN FOREIGN EXCHANGE. THE AO ALSO FOUND THAT THE AS SESSEE HAD ENTERED INTO FORWARD CONTRACT AGREEMENT WITH THE ST ATE BANK OF INDIA FOR DELIVERING A FIXED AMOUNT OF FOREIGN EXCH ANGE IN A MONTH AT A FIXED RATE. CANCELLATION OF THE FORWARD CONTR ACT RESULTS IN RECOVERY OF THE DIFFERENCE BETWEEN CONTRACTED RATE AND THE RATE AT WHICH THE CONTRACT IS CANCELLED KNOWN IN THE INTERN ATIONAL BUSINESS PARLANCE AS SWAP CHARGES. THE LEDGER ACCOUNT OF THE ASSESSEE ALSO REVEALS THAT THE ASSESSEE HAD PAID SUCH SWAP CHARGE S AMOUNTING TO RS.65.17 LAKHS DUE EITHER TO DIFFERENCE IN FOREIGN CURRENCY ON FORWARD CONTRACT OR CANCELLATION OF FORWARD CONTRAC T ON FIFTEEN OCCASIONS BETWEEN 15.5.2008 AND 31.3.2009. THE AO HAD FURTHER NOTICED THAT THE ASSESSEES CASE WAS ONE OF FORWARD CONTRACTS RELATING TO TRANSACTION IN FINANCIAL ASSET COMING WITHIN THE CONCEPT OF SPECULATIVE TRANSACTIONS AND NOT COMING WITH THE EX CEPTION ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 10 OF 20 CONTEMPLATED IN THE PROVISO (A) TO S. 43(5) OF THE ACT. THE AO ALSO NOTICED A CLAUSE IN THE ASSESSEES CONTACT WITH THE BANK RELATES TO CANCELLATION WHICH READS AS UNDER: CANCELLATION THE CONTRACTED BUYING / SELLING RAT E WILL BE SET OFF AGAINST THE BANKS READY T.T. SELLING / BUY ING RATE ON THE DATE OF CANCELLATION AND DIFFERENCE WILL BE RECOVERED FROM, OR PAID TO, YOU AS THE CASE MAY BE. 5.2 ON THE BASIS OF THE SAID CLAUSE, THE AO CAME T O THE CONCLUSION THAT THE CONTRACT HAS BEEN ULTIMATELY SETTLED OTHE RWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY I.E., FOREIGN EXCHANGE. PLACING RELIANCE ON A FEW CASE LAWS, THE AO HELD TH AT THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXPENDITURE AMOUNTING TO RS.65.17 LAKHS DUE TO FOREIGN EXCHANGE LOSS AND, ACCORDINGLY, BROU GHT THE SAME TO TAX. 5.3. AGGRIEVED, THE ASSESSEE HAD FILED APPEAL BEF ORE THE CIT (A). THE CIT (A), HOWEVER, AFTER DUE CONSIDERATION OF TH E ASSESSEES PLEA, HAD CONFIRMED THE AOS ACTION. THE RELEVANT PORTIO NS OF HER REASONING ARE EXTRACTED AS UNDER; 4.4 THE FACT IS THAT THE APPELLANT HAS ENTERED INTO A NUMBER OF TRANSACTIONS WITH THE STATE BANK O F INDIA FOR TRADING IN US DOLLARS AT A PARTICULAR RAT E WHICH HAVE BEEN SETTLED WITHOUT DELIVERY. IN ADDITION, O THER CONTRACTS FOR US DOLLARS AND GREAT BRITAIN POUND ST ERLING HAVE BEEN SETTLED WITH DELIVERY. THE ISSUE IS ONLY WITH REGARD TO THE CONTRACTS SETTLED WITHOUT DELIVERY. SECTION 43(5) OF THE I.T ACT WHICH DEALS WITH THE DEFINITIO N OF SPECULATIVE TRANSACTION CLEARLY COVERS SUCH TRANS ACTIONS WITHIN ITS AMBIT. THESE ARE ALSO NOT EXCLUDED FROM SUCH DEFINITION BY THE PROVISO TO SECTION 43(5) OF THE A CT. AS ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 11 OF 20 SUCH, THE TRANSACTIONS IN QUESTION ARE CLEARLY SPE CULATIVE TRANSACTIONS UNDER THE I.T. ACT. HOWEVER, IT STIL L REMAINS TO BE SEEN, WHETHER OR NOT THESE SPECULATI VE TRANSACTIONS CONSTITUTE A SPECULATION BUSINESS T O WHICH EXPLANATION 2 TO SECTION 28 APPLIES. 4.5. IT IS SEEN THAT THE APPELLANT HAS TRADED IN FO REIGN EXCHANGE DERIVATE WITH BANK AND VOLUME OF SUCH TRAD E IS BASED ON THE AVERAGE RECEIPT OF THE PAST 3 YEARS A S STATED BY THE APPELLANT. IT IS NOT THE CASE OF THE APPELLANT THAT EACH EXPORT ORDER IS DIRECTLY PROTECTED AGAINST FOREIGN EXCHANGE RISK. INSTEAD, THE APPELLANT HAS ENTERED INTO A SER IES OF SPECULATIVE TRANSACTIONS EVERY MONTH, KEEPING IN VIEW HIS EXPECTED FOREIGN EXCHANGE AVAILABILITY ON THE STREN GTH OF EXPORT ORDERS IN HIS REGULAR BUSINESS OF EXPORT. T HESE TRANSACTIONS ARE, THEREFORE, IN THE NATURE OF A PAR ALLEL BUSINESS OVER AND ABOVE THE REGULAR BUSINESS, THE CONNECTION WITH THE REGULAR BUSINESS BEING ONLY INC IDENTAL AND NOT DIRECT. THE TRANSACTIONS IN FOREIGN EXCHAN GE MARKET ARE WITH A PROFIT INTENT SEPARATE FROM HIS R EGULAR BUSINESS AND NOT MERELY TO EXCLUSIVELY PROTECT RISK S IN FOREIGN EXCHANGE FLUCTUATION AS CLAIMED BY THE APPE LLANT. 4.6. ON SUCH FACTS AND CIRCUMSTANCES OF THE CASE, T HE SPECULATIVE TRANSACTIONS ENTERED INTO BY THE APPELL ANT CLEARLY CONSTITUTE A SPECULATION BUSINESS TO WHIC H EXPLANATION 2 TO SECTION 28 AND ALSO SECTION 73 OF THE I.T. ACT APPLY. THIS ASPECT HAS BEEN DEALT WITH IN DETA IL BY THE HONBLE ITAT, BANGALORE IN THE CASE OF SHRI K.MOHAN EXPORTS & CO IN 126 ITD 0059 (BANG) . 5.3.1. THOUGH THE CIT (A) HAD FAIRLY CONCEDED T HAT THE ISSUE ON HAND WAS IN A DIFFERENT CONTEXT AS TO WHETHER INCOM E FROM SPECULATION PROFITS CAN BE SAID TO BE INCOME DERIV ED FROM EXPORTS FOR THE PURPOSE OF SECTION 10B OR NOT, SHE, HOWEVER , OBSERVED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. SOORAJ MULL NAGARMULL (129 ITR 169) WHICH HAS BEEN RELIED ON BY ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 12 OF 20 THE HIGH COURT OF BOMBAY IN ITS DECISION IN THE CAS E OF CIT V. BADRIDAS GAURIDAS (P) LTD (261 ITR 256) CITED BY TH E ASSESSEE HAS BEEN DISCUSSED IN DETAIL AND DISTINGUISHED BY THE J URISDICTIONAL TRIBUNAL IN THE CASE OF K. MOHAN EXPORTS & CO. (SUP RA). AFTER EXTENSIVELY EXTRACTING THE FINDINGS OF THE EARLIER BENCH IN THE CASE OF K.MOHAN EXPORTS & CO (SUPRA), THE CIT (A) HAD OBSER VED THAT 4.6.(SIC) 4.7. IN THE PRESENT CASE ALSO, A SERIES OF SPECULATIVE TRANSACTIONS HAVE BEEN UNDERTAKEN ON TH E BASIS OF EXPORT TURNOVER OF EARLIER 3 YEARS AND THESE WOU LD CLEARLY CONSTITUTE A SPECULATION BUSINESS. IN SUCH A CAS E, THIS LOSS CANNOT BE WHOLLY OR EXCLUSIVELY FROM THE REGUL AR BUSINESS OF THE APPELLANT BUT ARISING OUT OF THE SE PARATE SPECULATION BUSINESS ENGAGED IN BY THE APPELLANT. THE SAME HAS RIGHTLY BEEN DISALLOWED BY THE ASSESSING O FFICER. 5.4. AGGRIEVED, THE ASSESSEE HAS COME BEFORE US WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, THE ARGUMENT S PUT-FORTH BY THE LEARNED AR ARE SUMMARIZED AS UNDER: - THAT THE ASSESSEE IS NOT A DEALER IN FOREIGN EXC HANGE, BUT, HAD ENTERED INTO FORWARD CONTRACT TRANSACTIONS WITH SBI WITH THE OBJECT OF PROTECTING THE EXPORT PROCEEDS AGAINST TH E FOREIGN EXCHANGE FLUCTUATIONS IN THE MARKET. HENCE, THE CO NCEPT OF DELIVERY AND NON-DELIVERY IS OF NO CONSEQUENCE AND IS IRRELEVANT IN THE CONTEXT OF THE ASSESSEE. THE ASS ESSEE WHO IS PRIMARILY A DEALER IN SILK, THE TRANSACTIONS OF FOR WARD CONTRACT WAS NOT DONE IN ISOLATION BUT WAS DONE WITH THE OBJ ECT OF PROTECTING THE BUSINESS INTEREST OF TRADING IN SILK , AND, HENCE, THE PROVISIONS OF S. 43(5) OF THE ACT ARE NOT ATTRA CTED; - THAT THE TRANSACTIONS ARE NOT SPECULATIVE IN NAT URE, BUT, ENTERED INTO WITH THE OBJECT OF PROTECTING BUSINESS PROFITS AND BUSINESS INTEREST WOULD NOT BRING TO THE FORE ANY S PECULATIVE BUSINESS. AS A CONSEQUENCE, EXPLANATION TO S. 28 I S NOT ATTRACTED IN THE ASSESSEES CASE; ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 13 OF 20 - THAT IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS TRADED IN FOREIGN EXCHANGE DERIVATIVES WITH BANK. IT IS A FA CT THAT ALL SUCH TRANSACTIONS HAVE BEEN ENTERED INTO BASED ON T HE AVERAGE BUSINESS RECEIPTS OF THE PAST THREE YEARS. THIS IN ITSELF IS AN INDICATION THAT TRANSACTIONS OF FORWARD CONTRACTS H AVE NOT BEEN DONE IN ISOLATION AND, THEREFORE, CANNOT BE CO NSIDERED AS SPECULATIVE TRANSACTIONS; - THAT DIFFERING WITH THE SUGGESTION OF THE CIT (A ) THAT EACH EXPORT ORDER SHOULD HAVE BEEN PROTECTED AGAINST FOR EIGN EXCHANGE RISK WHICH WOULD HAVE BROUGHT THE TRANSACT IONS OUTSIDE THE SCOPE OF SPECULATIVE TRANSACTIONS ETC., IT WAS CLAIMED THAT IT WOULD MAKE NO DIFFERENCE WHETHER EA CH EXPORT ORDER IS DIRECTLY PROTECTED OR THE PORTION IS THROU GH A SERIES OF TRANSACTIONS. AS LONG AS THE TRANSACTIONS OF FORWA RD CONTRACT ARE HINGED ON REAL BUSINESS TRANSACTIONS AND ARE NO T DONE IN ISOLATION AND, THE ASSESSEE HAS NO EXCLUSIVE BUSINE SS INTEREST IN SUCH FORWARD CONTRACT TRANSACTIONS, IT CANNOT BE CL ASSIFIED EITHER AS SPECULATIVE TRANSACTIONS OR BUSINESS; - CONTRADICTING WITH THE CIT (A) PRESUMPTION THAT THE ASSESSEE CARRIED ON PARALLEL BUSINESS OVER AND ABOVE THE REG ULAR BUSINESS, IT WAS CLAIMED THAT THE TRANSACTIONS OF F ORWARD CONTRACT WERE IN RELATION TO THE AVERAGE FOREIGN EX CHANGE BUSINESS RECEIPT OF THE EARLIER THREE YEARS, AND TH AT IT WAS NOT DONE IN ISOLATION, BUT, WAS CONNECTED WITH RECEIPT OF BUSINESS PROCEEDS FROM FOREIGN BUYERS/CUSTOMERS. THE CANCELL ATION OF FORWARD CONTRACT WAS CONTINGENT UPON THE BUSINESS R ECEIPTS IN FOREIGN CURRENCY AND, THEREFORE, WAS NOT IN ISOLATI ON AND NOT A PARALLEL BUSINESS AS ALLEGED BY THE CIT (A); - RELIES ON THE RULING OF THE HONBLE MADRAS HIGH COURT ION THE CASE OF SRI RANGAVILAS GINNING & OIL MILLS V. CIT ( 1982) 133 ITR 85 (MAD) - DISTINGUISHING THE CASE OF K. MOHAN & CO, (EXPOR T) PVT. LTD (SUPRA) RELIED ON BY THE AUTHORITIES BELOW, IT WAS SUBMITTED THAT SINCE THE ASSESSEE IS NOT SEEKING ANY BENEFITS U/S 10B, THE FINDINGS OF THE HONBLE EARLIER BENCH IS NOT APPLIC ABLE AND INCONSEQUENTIAL TO THE FACTS AND CIRCUMSTANCES OF T HE ASSESSEES CASE; ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 14 OF 20 - RELIES ON THE FOLLOWING CASE LAWS: (I) CIT V. BADRIDAS GAURIDU (P) LTD (2003) 261 ITR 0256 (BOM); (II) CIT V. SOORAJMUL NAGARMULL (1981) 129 ITR 169 (CAL); & (III) CIT V. PANCHAMAHJAL STEEL LTD (2013) 33 TAXMA NN.COM 10 (GUJ) - THAT IF THERE WERE A SINGLE TRANSACTION, IT CAN BE A SPECULATIVE BUSINESS AS IT WAS DONE IN ISOLATION, HOWEVER, THE ASSESSEES CASE, IT IS NOT A SPECULATION LOSS, BUT, A BUSINESS LOSS AS THE MOTIVE OF ENTERING INTO FORWARD CONTRACT WAS WITH T HE OBJECT OF MITIGATING THE BUSINESS RISK ASSOCIATED WITH THE SILK TRADE IN WHICH IT WAS PRIMARILY INTERESTED; - THAT THE FORWARD CONTRACT OF FOREIGN CURRENCY IS NOT DOUBT A LOSS AND NOT EXPENDITURE. HOWEVER, LOSS WILL BE AL LOWABLE U/S 28 AS IT SATISFIES CERTAIN CONDITIONS AS CONTEMPLAT ED IN THAT SECTION. IF THIS IS EXAMINED CLOSELY, THE FOLLOWIN G PRINCIPLES EMERGE FROM THE ACTION OF THE ASSESSEE, NAMELY: (A) THE ASSESSEE IS AN EXPORTER OF SILK FABRICS AN D, THEREFORE, AMOUNTS RECEIVABLE FROM THE CUSTOMERS ARE OBVIOUSLY DENOMINATED IN FOREIGN CURRENCY; (B) THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACT S OF FOREIGN CURRENCY TO MITIGATE RISK IN FLUCTUATIONS; (C) THERE WERE SOME PARTS OF THE CONTRACTS THAT WERE EXECUTED BY INFLOW OF EXPORT PROCEEDS AND THERE WER E OTHERS THAT HAD TO BE CANCELLED ON ACCOUNT OF LOWER RECEIPTS THAN WERE ANTICIPATED; THIS OBVIOUSLY IS T HE OUTCOME OF THE BUSINESS DYNAMICS AND, THEREFORE, HA S TO BE TREATED AS PART OF THE BUSINESS PROCESS; (D) LOSS ON ACCOUNT OF FORWARD CONTRACTS SPRINGS D IRECTLY FROM AND INCIDENTAL TO THE CARRYING ON THE BUSI NESS OF EXPORT OF SILK FABRIC BY THE ASSESSEE; (E) THE LOSS IS NOT INCURRED ON A CAPITAL ACCOUNT OR FIXED ASSETS SO AS TO MAKE IT CAPITAL LOSS; & ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 15 OF 20 (F) THERE EXISTS A DIRECT AND PROXIMATE NEXUS BETW EEN ITS EXPORT BUSINESS AND THE LOSS ON ACCOUNT OF FORWARD CONTRACT. 5.4.1. IN CONCLUSION, IT WAS SUBMITTED THAT THE LOSS INCURRED ON CANCELLATION OF FORWARD CONTRACT OF FOREIGN CURRENC Y AMOUNTING TO RS.65.17 LAKHS IS A BUSINESS LOSS AND NOT SPECULATI VE LOSS AND, THEREFORE, THE SAME REQUIRES TO THE ALLOWED FOR SET OFF. 5.4.2. ON THE OTHER HAND, THE LEARNED DR SUPPO RTED THE ACTION OF THE AUTHORITIES BELOW ON THE ISSUE. IT WAS, FURTHE R, SUBMITTED THAT THE ISSUE HAS SINCE BEEN DISCUSSED BY THE FIRST APP ELLATE AUTHORITY ELABORATELY AND ARRIVED AT A RIGHT CONCLUSION THAT THE LOSS INCURRED BY THE ASSESSEE CANNOT BE WHOLLY OR EXCLUSIVELY TER MED FROM ITS REGULAR BUSINESS, BUT, ARISING OUT OF THE SEPARATE SPECULATIVE BUSINESS AND, THEREFORE, THE STAND OF THE CIT(A) DE SERVES TO BE SUSTAINED. 5.5. WE HAVE CAREFULLY EXAMINED THE RIVAL SUBMIS SIONS AND ALSO PERUSED THE RELEVANT MATERIALS ON RECORD. BRIEFLY, THE ASSESSEE HAD DEBITED TO ITS P& L ACCOUNT A SUM OF RS.90,86,277/- DUE TO THE FLUCTUATION IN FOREX OUT OF THE TOTAL AMOUNT OF RS. 1.56 CRORES AND THE DIFFERENCE THEREOF, AMOUNTING TO RS.65.17 LAKHS WAS CLAIMED AS LOSS ARISING FROM THE CANCELLATION OF FORWARD CONTR ACT IN FOREX. THE AO, HOWEVER, FOR THE REASONS RECORDED IN HIS ORDER UNDER DISPUTE AND ALSO RELYING ON CERTAIN CASE LAWS, HELD THAT THE AS SESSEE WAS NOT ENTITLED TO CLAIM THE SAID EXPENDITURE DUE TO FOREX LOSS AND, ACCORDINGLY, BROUGHT TO TAX. THE CIT (A), RELYING O N THE FINDINGS OF ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 16 OF 20 THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF K MOHAN EXPORTS & CO. (SUPRA) CAME TO THE CONCLUSION THAT A SERIES OF SPECULATIVE TRANSACTIONS HAVE BEEN UNDERTAKEN. 5.5.1. THE ASSESSEE HAD ENTERED INTO A FORWARD/EX CHANGE CONTRACT AGREEMENT WITH NONE OTHER THAN A LEADING NATIONALIZ ED BANK, NAMELY, THE STATE BANK OF INDIA. THE AGREEMENT CLEA RLY STIPULATES THAT THE FORWARD CONTRACT IS FOR EXPORT PROCEEDS. THE ASSESSEE, ADMITTEDLY, IS NOT A DEALER IN FOREIGN EXCHANGE. I T IS AN ADMITTED POSITION THAT THE TRANSACTIONS OF FORWARD CONTRACT WERE IN RELATION TO THE AVERAGE FOREIGN EXCHANGE BUSINESS RECEIPTS OF T HE 3 YEARS. IT WAS NOT DONE IN ISOLATION, BUT, WAS CONNECTED WITH RECE IPTS OF BUSINESS PROCEEDS FROM FOREIGN BUYERS/CUSTOMERS. THIS CLEAR LY INDICATES THAT TRANSACTION OF FORWARD CONTRACTS WITH SBI IS WITH T HE SOLE OBJECT OF PROTECTING THE EXPORT PROCEEDS AGAINST FOREIGN EXCH ANGE FLUCTUATION IN THE MARKET. SUCH CONTRACTS WERE DIRECTLY FROM A ND INCIDENTAL TO THE ASSESSEES BUSINESS OF EXPORT OF SILK FABRICS A ND, THEREFORE, DO NOT REPRESENT SPECULATIVE TRANSACTION. HENCE, THE CONC EPT OF DELIVERY AND NON-DELIVERY IS OF NO CONSEQUENCE AND IS IRRELE VANT IN CONTEXT OF FACTS OF THIS CASE. THE LEARNED AR HAS FURNISHED D ETAILS OF FORWARD CONTRACTS ENTERED INTO ON VARIOUS DATES. WE NOTICE THAT DELIVERED PERCENTAGE OF US DOLLAR IS 73.59% AND THE SHORTFALL IN DELIVERY IS 26.41%. WE NOTICE SHORTFALL IN DELIVERY IS TOWARDS THE CLOSE OF ACCOUNTING YEAR ON ACCOUNT OF NON-RECEIPT EXPORT PR OCEEDS FROM FOREIGN BUYERS/CUSTOMERS. ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 17 OF 20 5.5.2. THE CIT (A) HAD STATED THAT EACH EXPORT ORDER SHOULD HAVE BEEN PROTECTED AGAINST FOREIGN EXCHANGE RISK WHICH WOULD HAVE BROUGHT THE TRANSACTION OUTSIDE THE SCOPE OF SPECUL ATIVE TRANSACTIONS. ACCORDING TO US, IT WOULD MAKE NO DI FFERENCE WHETHER EACH EXPORT ORDER IS DIRECTLY PROTECTED OR THE PROT ECTION IS THROUGH A SERIES OF TRANSACTIONS. AS LONG AS THE TRANSACTION S OF FORWARD CONTRACTS ARE CONCERNED, WE FIND THAT THEY ARE DIRE CTLY LINKED WITH THE ASSESSEES BUSINESS OF EXPORT OF SILK FABRICS A ND, AS SUCH, IT CANNOT BY ANY STRETCH OF IMAGINATION BE CLASSIFIED AS SPE CULATIVE BUSINESS. 5.5.3. THE AO AND THE CIT (A) HAVE PLACED STRONG RELIANCE IN THE CASE OF K. MOHAN EXPORTS (SUPRA) TO COME TO A CONCL USION THAT THE ASSESSEES CLAIM OF BUSINESS EXPENDITURE DEBITED TO FOREX LOSS IN FORWARD CONTRACT CANNOT BE AN ALLOWABLE DEDUCTION. IN K.MOHAN EXPORTS CASE, IT WAS CONCLUDED BY THE HO NBLE EARLIER BENCH THAT - ASSESSEE-EXPORTER HAVING ENTERED INTO FORWARD CONT RACTS IN RESPECT OF FOREIGN EXCHANGE RECEIVABLE AS A RESU LT OF EXPORT IN RESPECT OF THE EXPORT TURNOVER AND SETTLE D THE SAME WITHOUT ACTUAL DELIVERY, THE PROFIT FROM SUCH FORWA RD CONTRACTS IS ASSESSABLE AS PROFIT FROM SPECULATION BUSINESS IN VIEW OF EXPLN. 2 TO S. 28 R/W S. 43(5), AND SPEC ULATION BUSINESS NOT BEING THE BUSINESS OF ASSESSEES UNDER TAKING, PROFIT FROM FORWARD CONTRACTS COULD NOT BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE UNDERTAKING FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER S. 10B. ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 18 OF 20 WITH DUE REGARDS, WE HAVE PERUSED THE ABOVE FINDING S AND OF THE FIRM VIEW THAT THE ISSUE ITSELF WAS ON THE DIFF ERENT FOOTING. TO BE PRECISE, THE ISSUE BEFORE THE EARLIER BENCH WAS DED UCTION U/S 10B AND WHETHER THE PROFITS FROM FORWARD CONTRACTS CAN BE S AID TO BE DERIVED FROM THE ASSESSEES UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 10B OF THE ACT WHEREAS THE ISSUE ON HAND IS ENTIRELY DI FFERENT. THE ABOVE REASONING HAS BEEN FAIRLY CONCEDED BY THE CIT (A) I N HER FINDINGS. FOR READY REFERENCE, THE RELEVANT PORTION OF HER RE ASONING IS EXTRACTED AS UNDER (AT THE COST OF REPETITION): 4.6. THIS ASPECT HAS BEEN DEALT WITH IN DETAIL BY THE HONBLE ITAT, BANGALORE IN THE CASE OF SHRI K.MOHAN EXPORTS & CO IN 126 ITD 0059 (BANG). ALTHOUGH THE ISSUE ON HAND WAS IN A DIFFERENT CONTEXT AS TO WHETHER INCOME FROM SPECULATION PROFITS CAN BE SAID TO BE INCOME DERIV ED FROM EXPORTS FOR THE PURPOSE OF SECTION 10B OR NOT , . 5.5.4. ON THE OTHER HAND, WE FIND THAT THE ISSU E IN QUESTION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE FROM THE FOLLOWING JUDGMENTS OF HONBLE BOMBAY AND GUJARAT HIGH COURTS : (I) CIT V. BADRIDAS GAURIDU (P) LTD (2003) 261 IT R 256 (BOM) : THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS WIT H THE BANKS IN RESPECT OF FOREIGN EXCHANGE. SOME OF THES E CONTRACTS COULD NOT BE HONOURED BY THE ASSESSEE FOR WHICH IT HAD TO PAY SOME AMOUNT WHICH WAS DEBITED TO THE P & L ACCOUNT. THE ASSESSEE CLAIMED THE SAME AS BUSINESS LOSS BEING PAYMENT ON ACCOUNT OF CANCELLATION OF FORWARD BOOKING OF FOREX WITH THE B ANKS IN RESPECT OF ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 19 OF 20 EXPORTS ORDERS. FINALLY, WHEN THE ISSUE CAME UP FO R CONSIDERATION THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WAS AN EXPORT HOUSE. THEREFORE, FOREIGN EXCHANGE CONTRACTS WERE B OOKED ONLY AS INCIDENTAL TO THE ASSESSEE'S REGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL F INDING TO THIS EFFECT IN ITS ORDER. THE AO HAS NOT CONSIDE RED THESE FACTS. UNDER S. 43(5) OF THE ACT, 'SPECULATIVE TRAN SACTION' HAS BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A C ONTRACT FOR THE PURCHASE OR SALE OF A COMMODITY IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF SUCH COM MODITY. HOWEVER, AS STATED ABOVE, THE ASSESSEE WAS NOT A DE ALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXPORTER OF C OTTON. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BAN K. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE A SSESSEE FOR EXPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM D EDUCTION IN RESPECT OF RS. 13.50 LAKHS AS A BUSINESS LOSS. T HIS MATTER IS SQUARELY COVERED BY THE JUDGMENT OF THE C ALCUTTA HIGH COURT, WITH WHICH WE AGREE, IN THE CASE OF CIT VS. SOORAJMULL NAGARMULL (1981) 22 CTR (CAL) 8 : (1981) 129 ITR 169 (CAL). (II THE HONBLE GUJARAT HIGH COURT HAS, IN THE CAS E OF CIT III V. PANCHMAHAL STEEL LTD REPORTED IN (2013) 33 TAXMA NN.COM 10 (GUJ) ON A SIMILAR ISSUE, HELD AS UNDER: .ADMITTEDLY, THE ASSESSEE IS A NOT A DEALER I N FOREIGN EXCHANGE. FOR THE PURPOSE OF HEDGING THE L OSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE WHILE IMPLEMENTI NG THE EXPORT CONTRACTS, THE ASSESSEE HAD ENTERED INTO FOR WARD CONTRACT WITH BANKS. IN SOME CASES, THE EXPORT COU LD NOT BE EXECUTED AND THE ASSESSEE HAD TO PAY CERTAIN CHARGE S TO THE BANK AND THEREBY INCURRED CERTAIN EXPENSES. THESE EXPENSES, THE ASSESSEE CLAIMED BY WAY OF EXPENDITUR E TOWARDS BUSINESS. WE DO NOT FIND THAT THE TRANSACT ION CAN ITA NOS.1112 AND 1320 OF 2012 HANUMAN WEAVING FACTO RY BANGALORE PAGE 20 OF 20 BE STATED TO BE IN SPECULATION AS TO COVER UNDER SU B-SECTION (5) OF SECTION 43 OF THE ACT. 5.5.5. TAKING INTO ACCOUNT THE ABOVE FACTS INTO CONSIDERATION AND ALSO IN CONFORMITY WITH THE RULING OF VARIOUS J UDICIARIES (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ORDER OF THE AO ON THE ISSUE. IN SU BSTANCE, THE ISSUE GOES IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT : (I) THE REVENUES APPEAL IS DISMISSED; & (II) THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED AT THE END OF THE HEARING ON 23 RD AUGUST, 2013. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED 23 RD AUGUST, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE