ACIT Non Corporate Circle 7(1) , CHENNAI V. Tuk Tuk Exports , CHENNAI

ITA 1630/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5760 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 23-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S PANDIAN IRS
• Assessee Lawyers: V PADMANABAN C A
• Keywords: Capital asset; Retrospective amendment; Speculation loss
• Section: 72(1); 43(5)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./I.T.A. NO.1630/MDS/2017 / ASSESSMENT YEAR : 2012-2013. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 7(1) CHENNAI VS. M/S. TUK TUK EXPORTS, NO.R-36, R. BLOCK, 16 TH STREET, ANNA NAGAR, CHENNAI 600 040 [PAN AAEFT 8678F] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : DR. S. PANDIAN, IRS, JCIT. $%! ' # /RESPONDENT BY : SHRI. V. PADMANABAN, C.A. & ' ' () /DATE OF HEARING : 07-12-2017 *+ ' () /DATE OF PRONOUNCEMENT : 07-12-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: IN THIS APPEAL FILED BY THE REVENUE IN WHICH IT ASSAILS AN ORDER DATED 20.04.2017 OF LD. COMMISSIONER OF INCOM E TAX (APPEALS)- 7, CHENNAI, IT HAS ALTOGETHER RAISED FOUR GROUNDS O F WHICH GROUNDS 1 & 4 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDIC ATION. ITA NO.1630/MDS/2017 :- 2 -: 2. GROUND NO.2 OF THE REVENUE READS AS UNDER:- 2.1. THE CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF COMMISSION PAID TO NON- RESIDENT AGENT WITHOUT DEDUCTING TDS U/S 195 OF THE ACT, WITHOUT CONSIDERING THE NATURE OF SERVICE I.E. , MANAGERIAL AND TECHNICAL SERVICES ARE PROVIDED BY THE FOREIGN AGENT. 2.2. THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THE FOREIGN AGENT WAS FULLY INVOLVED IN PROVIDING MANAGERIAL AND TECHNICAL SERVICES TO THE ASSESSEE FOR PROCURING EXPORT ORDERS. 2.3. THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS BY NOT DEDUCTING TDS ILLS 195 OF THE ACT . 3. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF MANUFACTURING AND EXPORTS OF GARMENTS, HAD FILED IT S RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING NIL INC OME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY T HE LD. ASSESSING OFFICER THAT ASSESSEE HAD PAID >58,69,024/- TO TW O FOREIGN AGENTS NAMED MR. CHRIS BOREHAM AND M/S. EDMOND DANTES LIM ITED AS COMMISSION. AS PER THE LD. ASSESSING OFFICER, ASSE SSEE OUGHT HAVE DEDUCTED TAX AT SOURCE ON THE ABOVE AMOUNT AS REQUI RED U/S.195 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). AS SESSEE WAS PUT ON NOTICE. REPLY OF THE ASSESSEE WAS THAT THE PAYMEN T WAS AGENCY COMMISSION @2% ON ALL COMMERCIAL EXPORTS CANVASSED BY THESE ITA NO.1630/MDS/2017 :- 3 -: ENTITIES. ASSESSEE ALSO FILED A COPY OF A LETTER I N THIS REGARD ISSUED BY M/S. EDMOND DANTES LIMITED. HOWEVER, LD. ASSESSING OFFICER DID NOT ACCEPT THE ABOVE REPLY. ACCORDING TO HIM, MR. CHR IS BOREHAM WAS A LEADING HANDLER OF EXPORT FOR READYMADE GARMENTS. AS PER THE LD. ASSESSING OFFICER, THE AGREEMENT WHICH WAS IN THE N ATURE OF A LETTER, WAS DRESSED UPTO CATER AND CIRCUMVENT SEC.195 OF THE ACT. FURTHER, AS PER THE LD. ASSESSING OFFICER, E-MAIL CORRESPON DENCE BETWEEN ASSESSEE AND THESE ENTITIES WERE ON MATTERS RELATIN G TO COTTON PRICES AND ABOUT THE TOPIC OF COTTON PRICES WHICH THEY WE RE TO DISCUSS WHEN PARTNER OF THE ASSESSEE VISITED BERLIN. ACCORDING TO THE LD. ASSESSING OFFICER, E-MAIL BETWEEN THE ASSESSEE AND THE FOREIG N AGENT ESTABLISHED THAT THE LATTER WAS NOT A MERE AGENT B UT WAS ALSO INVOLVED IN ADVISING THE ASSESSEE ON ACCOUNTING THE COMMISS ION PAYMENTS, BASED ON INDIAN ACCOUNTING CYCLE. FURTHER, AS PER T HE LD. ASSESSING OFFICER SUCH AGENTS WERE ALSO INVOLVED IN STRATEGIZ ING THE PRICE OF THE COTTON. LD. ASSESSING OFFICER WAS OF THE OPINION T HAT THE SERVICES RENDERED BY THE AGENTS WERE TECHNICAL AND MANAGERI AL IN NATURE. ACCORDING TO HIM IRRESPECTIVE OF THE CITUM OF BUSIN ESS OF THE FOREIGN AGENT, INCOME EARNED BY THEM FROM SOURCES IN INDIA WAS TAXABLE IN THEIR HANDS. AS PER THE LD. ASSESSING OFFICER, AS SESSEE HAD FAILED TO DEDUCT TAX AT SOURCE AS REQUIRED U/S.195 OF THE ACT . DISALLOWANCE OF >58,69,024/- WAS MADE APPLYING SEC.40(A)(I) OF THE ACT. ITA NO.1630/MDS/2017 :- 4 -: 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF T HE ASSESSEE WAS THAT THE FOREIGN AGENTS WERE ENTITLED TO COMMISSIO N BASED ON THE INVOICE RAISED BY THE ASSESSEE FOR THE EXPORTS CANV ASSED THROUGH THEM. AS PER THE ASSESSEE, SUCH COMMISSION WAS P AID ONLY ON REALIZATION OF THE EXPORTS PROCEEDS. FURTHER, AS P ER THE ASSESSEE, DISCUSSION REGARDING COTTON PRICES WAS ONLY DUE TO THE FACT THAT COMMISSION WAS PAYABLE AS A PERCENTAGE OF THE SELL ING PRICE. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE HELD THAT PAYMENTS MA DE TO THE FOREIGN AGENTS WERE IN THE NATURE OF SALES COMMISSION AND WAS NOT FOR ANY MANAGERIAL OR TECHNICAL SERVICES. ACCORDING TO HIM, SUCH REMUNERATION WAS LINKED TO THE VOLUME OF EXPORT ORDERS PROCURE D BY THE FOREIGN AGENT AND WAS NOT GIVEN FOR ANY SPECIFIC SERVICES LIKE MARKET SURVEY, DESIGN ASSISTANCE, QUALITY OR STYLING OF PRODUCTS. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) COMMISSION TO NON RESIDENT AGENTS COULD NOT BE CONSIDERED AS TECHNICAL SERVIC ES. RELIANCE WAS PLACED BY LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PRIVATE LIMITED, 367 ITR 155 , AND THAT OF HONBLE APEX COURT IN THE CASE OF CIT VS. TOSHOKU LIMITED, 125 ITR 525 . WHAT WAS HELD BY ITA NO.1630/MDS/2017 :- 5 -: THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS REP RODUCED HEREUNDER:- 4 .6 ON ANALYZING THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE FURTHER, THE FOLLOWING ASPECTS ARE OF RELEVANCE: 1. THE AGENT HAD RENDERED THE SERVICES OUTSIDE INDIA BUT THEIR SERVICES WERE NOT UTILIZED IN INDIA. 2. THE COMMISSION INCOME TO NON-RESIDENT AGENT WAS NOT RECEIVED IN INDIA AND WAS NOT ACCRUING OR ARISING II1 INDIA WHETHER DIRECTLY OR INDIRECTLY. 3. INCOME IN THE FORM OF COMMISSION DID NOT ACCRUE OR ARISE TO THE NON- RESIDENT AGENT THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR THROUGH TRANSFER OF CAPITAL ASSET SITUATED IN INDIA. 4. SUCH COMMISSION PAYMENTS DID NOT FULFILL THE CONDITIONS SPECIFIED UNDER SECTION 9 (L)(I) OF THE ACT. 4.7 THE FACTS IN THE CASE OF THE APPELLANT FIRM ARE SIMILAR TO THE FACTS OF THE DECISION IN THE CASE OF TOSHOKU LI MITED DECIDED BY THE HON'BLE APEX COURT (SUPRA). IN THE APPELLANTS' CASE ALSO SERVICES OF NON-RESIDENT FOREIGN AGENTS H AVE BEEN TAKEN TO PROCURE EXPORT ORDERS. THE COMMISSION PAID IS LINKED. TO THE PROCURAL OF EXPORT ORDER ABOVE, AND NOT OTHERWISE. THE HON'BLE SUPREME COURT IN THE CASE OF TOSHOKU LIMITE D (SUPRA) HAS SETTLED THE LAW BY HOLDING THAT THE PROVISIONS OF SECTION 9(1) OF THE ACT ARE NOT APPLICABLE TO PAYMENTS MADE ON ACCOUNT OF COMMISSION TO NON-RESIDENT SALES AGENT. CONSEQUENTLY, THE PROVISIONS OF SECTION 195 OF THE ACT DO NOT APPLY. RELIANCE IS ALSO PLACED ON THE DECISION OF T HE HON'BLE MADRAS HIGH COURT IN THE CASE OF FAIZAN SHOES PRIVA TE LIMITED DISCUSSED SUPRA. 4.8 IN VIEW OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE, THE DISALLOWANCE OF RS.58,69,024/- MADE ON ACCOUNT OF COMMISSION PAID TO NON- RESIDENT AGENT STANDS DE LETED. ITA NO.1630/MDS/2017 :- 6 -: THESE GROUNDS ARE ALLOWED. , 5. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT EXPLANATION TO SEC 9(2) OF THE ACT W AS SUBSTITUTED BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT W.E.F. 01.06.1976. ACCORDING TO HIM, BY VIRTUE OF THIS EXPLANATION, T HE QUESTION WHETHER NON RESIDENT HAD RENDERED SERVICES IN INDIA OR HAD A PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA HAD BECOME IRRELEVA NT. ACCORDING TO HIM, ONCE PAYMENT WAS IN THE NATURE OF ROYALTY OR TECHNICAL SERVICES, ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE. AS PE R THE LD. DEPARTMENTAL REPRESENTATIVE BY VIRTUE OF EXPLANATI ON (2) TO CLAUSE (VII) OF SECTION 9(1) OF THE ACT, TECHNICAL SERVICE S INCLUDED RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE S. THUS, ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) F ELL IN ERROR IN HOLDING THAT ASSESSEE WAS NOT LIABLE TO DEDUCT T AX AT SOURCE ON THE PAYMENTS EFFECTED BY IT TO THE NON RESIDENT AGENTS. 6. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D BY THE REVENUE THAT ITA NO.1630/MDS/2017 :- 7 -: COMMISSION PAID BY THE ASSESSEE TO THE FOREIGN AGEN TS WAS CALCULATED AS A PERCENTAGE OF THE SALES. THERE IS MUCH STREN GTH IN THE ARGUMENT OF THE ASSESSEE THAT PRICES OF COMMODITY W AS DISCUSSED WITH THE AGENTS, SINCE COMMISSION WAS WORKED OUT AS A PE RCENTAGE OF THE BILLINGS. FURTHER, ASSESSEE COULD ALSO SHOW THAT C OMMISSION WAS PAID BY IT ONLY ON THE ACTUAL REALIZATION FROM THE EXPO RTS CANVASSED BY THE FOREIGN AGENTS. THERE IS NOTHING ON RECORD TO SHOW THAT AGENTS HAD RENDERED ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE AGENTS WERE SIMPLY CANVASSING SALES FOR THE ASSESSE E AND GETTING COMMISSION. THEIR LORDSHIPS IN THE CASE OF FAIZAN SHOES PRIVATE LIMITED (SUPRA) HAD HELD AS UNDER:- ' ON A READING OF SECTION 9(1)(VII) OF THE ACT, WE AR E NOT INCLINED TO EXPECT THE PLEA TAKEN BY THE LEARNED SENIOR STANDING COUNSEL APPEARING FOR THE REVENUE THAT COMMISSION PAID BY T HE ASSESSE TO THE NON-RESIDENT AGENT WOULD COME IN THE TERM OF 'FEES FOR TECHNICAL SERVICES '. IN THE CASE ON H AND, FOR PROCURING ORDERS FOR LEATHER BUSINESS FROM OVERSEAS BUYERS WHOLESALERS OR RETAILERS AS THE CASE MAY BE, THE NON-RESIDENT AGENT IS PAID 2.5% COMMISSION ON FOB BASIS. THAT APPEARS TO BE A COMMISSION ON SIMPLICIT ER. WHAT IS IN THE NATURE OF TECHNICAL SERVICE THAT THE SO-CALLED NON-RESIDENT AGENT HAS PROVIDED ABROAD TO THE ASSES SE IS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFICER. THE OPENING OF LETTERS OF CREDIT FOR THE PURPOSE OF COM PLETING EXPORT OBLIGATION IS AN INSTANT OF EXPORT AND, THER EFORE, THE NON-RESIDENT AGENT IS NOT AN OBLIGATION TO RENDER S UCH SERVICES TO THE ASSESSE FOR WHICH COMMISSION IS PAI D. THE NON-RESIDENT AGENT DOES NOT PROVIDE TECHNICAL SERVI CES FOR THE PURPOSES OF RUNNING OF THE BUSINESS TO THE ASSE SSEE IN INDIA. THE SERVICES RENDERED BY THE NON-RESIDENT AG ENT, CAN AT BEST BE CALLED AS THE SERVICE FOR COMPLETION OF ITA NO.1630/MDS/2017 :- 8 -: EXPORT COMMITMENT. WE ARE, THEREFORE, OF THE CONSID ERED OPINION THAT THE COMMISSION PAID TO THE NON-RESIDEN T AGENT WILL NOT FALL WITHIN THE DEFINITION OF FEES FOR TEC HNICAL SERVICES. IT IS TO BE NOTED THAT JUDGMENT GIVEN BY JURISDICTI ONAL HIGH COURT WAS AFTER CONSIDERING THE EFFECT OF SUBSTITUTION OF E XPLANATION TO SECTION 9(2) OF THE ACT, BY FINANCE ACT, 2010 WITH RETROSP ECTIVE EFFECT FROM 1.09.1976. WE ARE THEREFORE OF THE OPINION THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING T HE DISALLOWANCE MADE U/S.40(A) (IA) OF THE ACT. GROUND NO.2 OF THE REVENUE STANDS DISMISSED. 8. GROUND NO.3 OF THE REVENUE IS AS UNDER:- 3.1. THE CIT (A) ERRED IN DELETING THE DISALLOWANCE OF FORWARD CONTRACT AS SPECULATION LOSS WITHOUT CONSIDERING THE FACTS THAT THESE TRANSACTIONS WERE CARRIED OUT THROUGH THE ASSESSEE'S BANKER NOT THROUGH RECOGNIZED STOCK EXCHANGE. 3.2 THE CIT (A) FAILED TO APPRECIATE THE FACTS THAT THE STATUTORY PROVISION U/S 43(5) OF THE ACT, MAKES IT ELIGIBLE/QUALIFY/RECOGNIZE THE TRADING IN THE FORWARD MARKET AS BUSINESS, ONLY WHEN IT ROUTED THROUGH RECOGNIZED STOCK EXCHANGE, THE ASSESSEE SHOULD FULFILL THE ABOVE CONDITIONS TO CLAIM THE SAME. ITA NO.1630/MDS/2017 :- 9 -: 9. FACTS APROPOS ARE THAT ASSESSEE HAD MADE FORWARD B OOKINGS TO GUARD AGAINST FOREIGN EXCHANGE FLUCTUATION AND HAD SUFFERED LOSS OF >25,08,718/- ON CANCELLATION OF SUCH BOOKINGS. FORWARD BOOKING CANCELLATIONS WERE DONE BY THE ASSESSEE THROUGH HIS BANK. LD. ASSESSING OFFICER WAS OF THE OPINION THAT FORWARD BOOKINGS WERE NOT TRADED THROUGH A RECOGNIZED STOCK EXCHANGE, AND HEN CE THE RESULTANT LOSS WAS SPECULATION LOSS. ACCORDING TO HIM, ASSESS EE COULD NOT PROVE THAT LOSS ARISING ON ACCOUNT OF FOREIGN EXCHANGE H EDGING CONTRACTS AROSE THROUGH ANY TRADING DONE THROUGH RECOGNIZED S TOCK TRADING. LOSS OF >25,08,715/- WAS TREATED SEPARATELY AS SPE CULATION LOSS BY THE LD. ASSESSING OFFICER. 10. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF T HE ASSESSEE WAS THAT THE FORWARD CONTRACTS ENTERED BY IT WERE TO L OCK THE EXCHANGE RATE, ON SALES REALIZATIONS THAT WERE EXPECTED ON A FUTURE DATE. ACCORDING TO THE ASSESSEE, SETTLEMENT OF SUCH FOREI GN CONTRACT COULD BE EITHER ON CASH OR ON DELIVERY BASIS OR ON EXP ORT REALIZATION. AS PER THE ASSESSEE, IF AT THE TIME OF EXPORT REALIZ ATION THE RATES WERE SUCH THAT ASSESSEE WOULD HAVE SUFFERED SUBSTANTIAL LOSS IF THE AGREED CURRENCY RATES WERE ACCEPTED, IT WENT FOR A CANCELL ATION OF THE FORWARD CONTRACT, RESULTING IN LOSS. AS PER THE ASSESSEE, THIS WAS NEITHER ITA NO.1630/MDS/2017 :- 10 -: SPECULATION BUSINESS NOR SPECULATION LOSS FOR APPL ICATION OF SECTION 43(5) OF THE ACT. 11. LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS APPREC IATIVE OF THE ABOVE CONTENTION. ACCORDING TO HIM, CO-ORDI NATE BENCH OF THE TRIBUNAL IN THE CASE OF SCM GARMENTS PRIVATE LIMITED VS. DCIT, (2015) 69 SOT 397 HAD HELD THAT FOREX DERIVATIVE TRANSACTIONS WHICH HAD A CLOSE PROXIMITY WITH THE BUSINESS OF THE ASS ESSEE COULD NOT BE CONSIDERED AS SPECULATIVE BUSINESS. HE DIRECTED TH E LD. ASSESSING OFFICER TO ALLOW THE LOSS AS BUSINESS LOSS. 12. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT SECTION 72(1) OF THE ACT CLEARLY PRO VIDED SEPARATE TREATMENT FOR SPECULATIVE LOSS. ACCORDING TO HIM, U NLESS FORWARD CONTRACTS WERE TRADED THROUGH A RECOGNIZED STOCK EXCHANGE, RESULTANT LOSS COULD ONLY BE DEEMED AS SPECULATIVE LOSS. 13. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT EACH OF THE FORWARD CONTRACT BOOKED BY THE ASSESSEE WERE AGAINST EXPORT S AND WAS TO BE ADJUSTED AGAINST COLLECTION OF BILLS. RELIANCE WAS PLACED ON THE COPIES OF CONTRACT BOOKING NOTES PLACED AT PAPER BOOK P AGES 41, 43, 45, ITA NO.1630/MDS/2017 :- 11 -: 47, 49,51, 53, 55, 58 & 61. ACCORDING TO HIM, LD. ASSESSING OFFICER WAS UNDER A WRONG IMPRESSION THAT ASSESSEE WAS DOIN G SPECULATION BUSINESS. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. SECTION 43(5) OF THE ACT IS REPRODUCED HEREUNDER:- (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION I N WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODIC ALLY 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 BUSINESS 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 FLUCTUATIONS ; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER ; OR ITA NO.1630/MDS/2017 :- 12 -: (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), CARRIED OUT IN A RECOGNISED STOCK EXCHANGE ; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION, WHICH IS CHARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF THE FINANCE ACT, 2013 (17 OF 2013), SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; SUB CLAUSE (A) CLEARLY SAY THAT CONTRACTS IN RESPEC T OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON TO GUARD AGAIN ST LOSS THROUGH FUTURE PRICE FLUCTUATIONS CANNOT BE DEEMED AS SPEC ULATION TRANSACTIONS. A PERUSAL OF THE PAPER BOOK AT PAGES 41, 43, 45, 47, 49,51, 53, 55, 58 & 61 CLEARLY SHOW THAT ASSESSEE H AD BOOKED FORWARD CONTRACT AGAINST EXPORTS AND THE SETTLEMENT WAS AGA INST COLLECTION OF EXPORT BILLS. IN OTHER WORDS, BANKERS HAD ALLOWED ASSESSEE TO ENTER INTO SUCH CONTRACTS, ONLY, SINCE IT WAS TO GUARD AG AINST FLUCTUATION THAT COULD ARISE ON ACCOUNT OF TIME GAP BETWEEN THE DA TE OF BILLINGS AND DATE OF COLLECTION. THUS, ACCORDING TO US, LOSS AR ISING OUT OF CANCELLATION OF SETTLEMENT OF FORWARD CONTRACT CANN OT BE DEEMED AS A LOSS ARISING OUT OF ANY SPECULATIVE TRANSACTIONS. WE ARE OF THE OPINION THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS JUSTIFIED IN ITA NO.1630/MDS/2017 :- 13 -: DIRECTING THE LD. ASSESSING OFFICER TO CONSIDER SUC H LOSS AS PART OF THE ASSESSEES BUSINESS LOSS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED ON THURSDAY, THE 7TH DAY OF DECEMB ER, 2017, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) / JUDICIAL MEMBER ( . '#'$ ) (ABRAHAM P. GEORGE) % &' / ACCOUNTANT MEMBER - ' / CHENNAI . / DATED: 7 TH DECEMBER, 2017. KV / ' $(0 1 2 1 ( / COPY TO: 1 . ! / APPELLANT 3. & 3( ( ) / CIT(A) 5. 167 $(8 / DR 2. $%! / RESPONDENT 4. & 3( / CIT 6. 79 :' / GF