Jupiter Knitting Co., Tiruppur V. ITO, Tiruppur

ITA 3073/CHNY/2014

• Counselvise Citation: 307321714 RSA 2014
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 12-10-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-12-2014
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKARC A
• Keywords: Capital asset; Business income; Speculation loss; Capital receipt
• Section: 143(3); 43(5); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.1334, 1335 & 3073 /MDS./2014 ( !' #' / ASSESSMENT YEARS :2009-10, 2010-11 & 2011-12) M/S.JUPITER KNITTING COMPANY , 1-J-24, JUPITER AVENUE, AMMAPALAYAM, TIRUPPUR VS. THE INCOME TAX OFFICER, WARD I(4), TIRUPPUR PAN AACFJ3024D ( / APPELLANT ) ( / RESPONDENT ) $% & ' / APPELLANT BY : MR.T.BANUSEKAR,C.A ()$% & ' / RESPONDENT BY : MR.MILIND MADHUKAR BHUSARI, CIT D.R * + & ,- / DATE OF HEARING : 12 .10.2015 .# & ,- /DATE OF PRONOUNCEMENT : 27.11.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE THREE APPEALS ARE FILED BY THE ASSESSEE, AGGR IEVED BY THE SEPARATE ORDERS OF THE LD. CIT(A)-II, CHENNAI IN ITA NO.261 /11- 12 FOR THE ASSESSMENT YEARS 2009-10 DATED 26.02.20 14, IN ITA ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 2 NO.67 /12-13 DATED 24.03.2014 FOR THE ASSESSMENT YE ARS 2010-11 AND IN ITA NO.270/2013-14 DATED 30.09.2014 FOR THE ASSESSMENT YEARS 2011-12 ALL THE ORDERS PASSED U/S.143(3) RE AD WITH SECTION 250 OF THE ACT. SINCE THE ISSUES AND GROUNDS RAISED IN ALL THESE APPEALS ARE IDENTICAL AND COMMON, THEY ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE HAS RAISED TWELVE ELABORATE GROUND S IN ITS APPEALS, HOWEVER THE CRUX OF THE ISSUE IN ALL THESE THREE APPEALS IS THAT:- COMMON GROUND IN ALL THE ABOVE APPEALS THE REVENUE HAS ERRED IN TREATING THE LOSS INCURR ED BY THE ASSESSEE ON ACCOUNT OF FOREX DERIVATIVE CONTRACTS A S SPECULATIVE LOSS AND THEREBY NOT ALLOWING THE ASSES SEE TO SET OFF THE LOSSES AGAINST ITS BUSINESS INCOME. 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A FIRM, ENGAGED IN THE BUSINESS OF MANUFACTURING & EX PORT GARMENTS, FILED ITS RETURN OF INCOME FOR THE ASSESS MENT YEAR ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 3 2009-10 ON 30.9.2008 ADMITTING NIL INCOME, FOR TH E ASSESSMENT YEAR 2010-11 ON 05.10.2010 ADMITTING LOS S OF ` 5,58,36,837/- AND FOR THE ASSESSMENT YEAR 2011-12 O N 29.09.2011 ADMITTING NIL INCOME. SUBSEQUENTLY ALL THREE CASES WERE TAKEN FOR SCRUTINY AND ASSESSMENTS WERE COMPLETED U/S. 143(3) OF THE ACT ON 30.12.2011, 31. 12.2012 & 13.12.2013 FOR THE ASSESSMENT YEARS 2009-10, 2011 -12 & 2011-12 RESPECTIVELY WHEREIN THE LD. ASSESSING OFFI CER MADE ADDITION OF ` 13,69,95,612/- (FOR A.Y 2009-10), ` 6,49,03,102/- (FOR A.Y 2010-11), & ` 96,65,567/- (FOR A.Y 2011-12) BEING LOSS ON DERIVATIVES DISALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME, HOLDING IT TO BE SPECU LATIVE LOSS. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE LD. ASSESSING OFFICER OBSERVED THAT APART FROM MANUFACT URING AND EXPORT OF HOSIERY GARMENTS TO VARIOUS COUNTRIES , THE ASSESSEE HAD ALSO ENTERED INTO FOREX DERIVATIVE CON TRACTS WITH STATE BANK OF INDIA, TIRUPUR. THE FOREX DERIVA TIVE ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 4 CONTRACTS WERE IN THE NATURE OF OPTIONS AND SWAP CO NTRACT. THE ASSESSEE HAD CONTENDED BEFORE THE LD. ASSESSING OFFICER THAT THESE TRANSACTIONS ARE HEDGING TRANSAC TIONS FOR MINIMIZATION OF RISK RELATING TO FOREIGN CURRENCY F LUCTUATIONS, WHICH ARISES FROM THE EXPORT BUSINESS OF THE ASSESS EE. HOWEVER, THE LD. ASSESSING OFFICER TREATED THE SAME AS SPECULATIVE TRANSACTION U/S. 43(5) OF THE ACT BEC AUSE OF THE FOLLOWING REASONS:- I) THERE IS A CONTRACT BETWEEN THE ASSESSEE COMPAN Y AND STATE BANK OF INDIA, TIRUPUR FOR THE NON DELIVERABL E FOREX DERIVATIVE CONTRACTS WITHOUT UNDERLYING EXPOS URE. II) THE COMMODITY REFERRED IN SECTION-43(5) INCLUDE S STOCK, SHARES AND NON DELIVERABLE FOREX DERIVATIVES ALSO. III) THE ASSESSEE ALSO HAS NOT ACTUALLY DELIVERED T HE FOREIGN CURRENCY TO STATE BANK OF INDIA,TIRUPUR. THE LD. ASSESSING OFFICER FURTHER HELD THAT AS PER SECTION 43(5) THE CONTRACTS FOR PURCHASE AND SALE OF ANY CO MMODITY INCLUDING STOCK AND SHARES ALSO INCLUDES DERIVATIVE S WHICH CAN BE ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 5 INFERRED FROM THE PROVISO(D) TO THE ABOVE SECTION W HERE IT IS MENTIONED THAT THE TRADING IN DERIVATIVES REFERRED IN CLAUSE (AC) OF SECTION-2 OF SECURITIES CONTRACTS REGULATION ACT, 1 956 DONE IN A RECOGNIZED STOCK EXCHANGE ARE DEEMED TO BE EXCLUDED FROM THE DEFINITION OF SPECULATION BUSINESS UNDER THE INCOME TAX ACT. FOREX DERIVATIVE ARE COVERED UNDER THE DEFINITION OF CLAU SE (AC) OF SECTION 2 OF SECURITIES CONTRACTS REGULATION ACT,1956. THE TERM SECURITIES AS DEFINED UNDER SECURITIES CONTRACTS REGULATION AC T. 1956 IN CLAUSE (H) OF SECTION 2 INCLUDE DERIVATIVES (SUB-CL AUSE-IA). THUS IT FALLS INTO EXCLUSION UNDER PROVISO (D) IF IT IS DONE THROUGH A RECOGNIZED STOCK EXCHANGE. AS A RESULT, THERE CA NNOT BE EXCLUSION WITHOUT AN INCLUSION. IF THE COMMODITY DO ES NOT INCLUDE DERIVATIVES THE SAME WOULD NOT HAVE BEEN EXCLUDED I N THE PROVISO (D) TO SECTION 43(5). SO THE CLAIM MADE BY THE ASS ESSEE THAT FOREIGN CURRENCIES ARE NOT COMMODITIES AS PER SECTI ON 43(5) IS NOT VALID. THE ASSESSEE ALSO CLAIMED THAT DERIVATIVES ARE EXCL UDED UNDER PROVISO (D) TO SECTION 43(5) IS ALSO NOT ACCEPTABLE AS THE PROVISO DOES NOT GIVE BLANKET EXCLUSION TO ALL THE DERIVATI VE CONTRACTS BUT ONLY TO SUCH CONTRACTS THAT ARE TRADED IN THE RECOG NIZED STOCK EXCHANGE. THUS, THE ASSESSEES ARGUMENT THAT FOREX DERIVATIVES ARE NOT SPECULATIVE TRANSACTIONS IS NOT ACCEPTED AN D ACCORDINGLY ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 6 THESE TRANSACTIONS ARE TREATED AS SPECULATIVE TRANS ACTIONS U/S. 43(5) . ACCORDINGLY, THE LOSS ON DERIVATIVES AMOUNT FOR THE RELEVANT ASSESSMENT YEARS WAS DISALLOWED TO BE SET OFF AGAIN ST THE BUSINESS INCOME OF THE ASSESSEE FOLLOWING THE DECISION OF HO NBLE ITAT BANGALAOR IN ACIT VS. K.MOHAN & CO.,(EXPORTS) P LTD REPORTED IN (2010) 39 DTR 97 4. ON APPEAL, THE LD. CIT (A) AGREED WITH THE ORDE R OF THE LD. ASSESSING OFFICER AND HELD AS FOLLOWS:- THE CLAIM OF THE ASSESSEES DERIVATIVE TRANSACTION S ARE HAVING AN UNDERLYING HEDGE AGAINST EXPORT BILLS OF THE ASSESS EE , IS AKIN TO SAYING THAT AN EXPORTER VISITING HONG KONG AND HAVING A LOSS FR OM HIS GAMBLING IN A CASINO IN MACAU IS TO BE TREATED AS A BUSINESS LOSS . THE EXPORTER MAY HAVE RECEIVABLES IN HONG KONG DOLLARS. HOWEVER HIS GAMBLING IN MACAU CASINO, IF RESULTED IN A LOSS IS A SEPARATE SPECULA TIVE ACTIVITY EVEN THOUGH THE LOSS IN GAMBLING IS PAID IN HONG KONG DOLLARS. SIMILAR IS THE SITUATION HERE WITH THE ASSESSEE. THE ASSESSEES EXPORT BILLS IN THE LAST 4 YEARS HAVE PERMITTED HIM TO ENTER INTO DERIVATIVE TRANSACTIONS WITH THE BANK. HOWEVER, THE ASSESSEES DECISION TO ENTER INTO SEPARATE CROS S CURRENCY DERIVATIVE TRANSACTIONS WERE A SEPARATE ACTIVITY TO OBTAIN SPE CULATIVE PROFIT BASED ON THE CURRENCY MOVEMENTS I.E. US DOLLAR VS. EURO DURI NG A PARTICULAR PERIOD. IN OTHER WORDS US DOLLAR AND EURO WERE MERE DICES O N THE GAMBLING TABLE. THE MOVEMENT OF EURO VS. US DOLLAR WENT AGAINST ASS ESSEES CALL ON THEM. ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 7 THIS RESULTED IN A HUGE SPECULATION LOSS. THEREFOR E, THE DERIVATIVE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE HAVE NO REL ATIONS WHATSOEVER WITH THE ASSESSEES EXPORT BUSINESS EITHER AS UNDERLYING OR A HEDGE. 6.13 CONSIDERING THE FACTS AND CIRCUMSTANCES CON TAINED IN THE ABOVE DISCUSSION IT IS EVIDENT THAT THE DERIVATIVE TRANSA CTION ENTERED INTO BY THE ASSESSEE ARE SHORT TIME SPECULATIVE TRANSACTIONS WI THOUT ANY HEDGE OR UNDERLYING ON THE REGULAR EXPORT BUSINESS OF THE AS SESSEE. THIS HAS RESULTED IN A LOSS OF ` 5,44,50,660/- WHICH WILL BE TREATED AS SPECULATIVE LOSS AND THE ACTION OF THE ASSESSING OFFICER IS UPHELD. 5.1 BEFORE US, THE LD. A.R SUBMITTED THAT THE ASSE SSEE HAS INCURRED LOSS IN DERIVATIVE TRANSACTIONS DURING THE NORMAL COURSE OF THE BUSINESS AND IN ITS EARNEST EFFORT TO PROTECT T HE LOSS THAT MAY RESULT DUE TO FOREIGN EXCHANGE RISK AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING HOSIERY GARMENTS TO VARIO US COUNTRIES. IT WAS THEREFORE ARGUED THAT THE LOSS INCURRED DUE TO FOREX DERIVATIVE TRANSACTION BY THE ASSESSEE HAS TO BE TREATED AS BU SINESS LOSS AND NOT SPECULATIVE TRANSACTION AS HELD BY THE REVENUE. HE FURTHER RELIED IN THE FOLLOWING DECISIONS TO DRIVE HIS POINT:- A) CIT V VISHINDAS HOLARAM [2014] 50 TAXMANN.COM 337(BOM.) B) CIT V BADRIDAS GAURIDU (P) LTD [2003] 261 IT R 256(BOM.) C) CIT V SOORAJ MULL NAGARMULL [1981] 121 ITR 169( CAL.) D) CIT V PANCHMAHAL STEEL [2013] 215 TAXMANN 140(G UJ.) ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 8 E) CIT V FRIENDS & FRIENDS SHIPPING PVT LTD IN TA X APPEAL NO.251 OF 2010 DATED 23.08.2011 (GUJ. HC) F) COTTON BLOSSOMS (INDIA) PVT LTD. V ACIT [2014] I N ITA NO.2032/CHNY./2012 DATED 21.02.2013 G) MUNJAL SHOWA LTD V DCIT [2005] 94 TTJ 227(DEL.) H) D.KISHORE KUMAR & CO V DCIT [2005] 2 SOT 769(MU M.) I) DCIT V INTERGOLD (I) LTD [2009] 124 TTJ 337(MU M.) J) RAJSHREE SUGARS & CHEMICALS V AXIX BANK LTD IN A PPEAL NO.1926, 1927, 2446 AND 2447 OF 2008 DATED 14.10.2008-MAD HC. K) IVF ADVISORS PVT LTD VS. ACIT IN ITA NO.4798/MUM /2012 DATED 13.02.2015. L) M/S.SCM GARMENTS (P) LTD., VS. DCIT IN ITA NOS.1 645/MDS./2013 & 2275/MDS./2014 FOR A.YS 2009-10 & 2010-11 DATED 27. 02.2015 M) DCIT V. A.V.SHOMAS LEATHERS & ALLIED PRODUCTS LT D., IN ITA NO.462/MDS./2014 FOR A.Y 2010-11 DATED 08.05.2015 5.2. THE LD. D.R ON THE OTHER, HAND ARGUED IN SUPPO RT OF THE ORDERS OF THE REVENUE AND PLEADED THAT THE ADDITIONS SUSTAINE D BY THE LD. CIT (A) MAY BE UPHELD. THE LD. D.R FURTHER ARGUED BY S TATING THAT IN THE CASE OF THE ASSESSEE ALL THE TRANSACTIONS WERE MERE LY SPECULATION IN THE NATURE BECAUSE THEY WERE STANDALONE TRANSACTION S AND NOT CORRELATED WITH THE FOREIGN CURRENCY EXPOSURES. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON AN EARLIER O CCASION IN ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 9 THE CASE M/S.SCM GARMENTS PVT LTD., I.T.A.NO.1645/MDS./2013 & 2275/MDS./2014 FOR THE ASSESSMENT YEARS 2009-10 & 2010- 11, WE HAVE HELD AS FOLLOWS:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIAL ON RECORD AND CASE LAWS RELIED BY BOTH THE PARTIES. IN THIS CASE BEFORE US, ONE OF THE MAJOR BUSINESS ACTIVITIES OF THE ASSESSEE IS EXPORT OF BUSINESS GA RMENTS AS IT APPEARS FROM THE FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE. THEREFORE, I T IS OBVIOUS THAT THE ASSESSEE WOULD BE HAVING HUGE SUNDRY DEBTORS RESULTING FROM EXPORT OF GARMENTS WHICH ARE RECEIVABLE IN THE FOREIGN CURRENCY. THESE SUNDRY DEBTORS ARE EXPO SED TO CURRENCY FLUCTUATION RISK. ONE OF THE METHODS TO PROTECT LOSS AGAINST FOREIGN CURR ENCY FLUCTUATION IS BY WAY OF HEDGING. HEDGING TRANSACTIONS ARE ENTERED IN ORDER TO PROTEC T AGAINST THE LOSS DUE TO COMPENSATORY PRICE MOVEMENT. IT PROTECTS AN ASSET OR LIABILITY AGAINST FLUCTUATION IN FOREIGN EXCHANGE RATE. ONE OF THE TOOLS FOR HEDGIN G THE FOREX RISK IS BY WAY OF FOREIGN CURRENCY DERIVATIVES. SECTION 45 OF THE RESERVE BAN K INDIA ACT, 1949 DEFINES DERIVATIVE AS A FINANCIAL INSTRUMENT WHOSE VALUE DEPENDS ON TH E VALUE OF THE UNDERLYING EXPOSURES. IN THE CASE BEFORE US, THE UNDERLYING EXPOSURE IS T HE FOREIGN CURRENCY. THE COMMONLY USED FOREX DERIVATIVES ARE FORWARD CONTRACTS, OPTIO NS CONTRACTS AND SWAP CONTRACTS. THESE INSTRUMENTS ARE USED TO HEDGE THE CURRENCY RI SK ON ACCOUNT OF ADVERSE CURRENCY MOVEMENTS. IN THE PRESENT CASE BEFORE US, THE ASSE SSEE HAS SELECTED TO BOOK OPTIONS CONTRACT AS PER THE ADVICE OF ITS BANKERS IN ORDER TO HEDG E ITS FOREIGN EXCHANGE RISK. OPTIONS CONTRACT IS A RIGHT TO EXERCISE THE OPTIO N OF BUYING OR SELLING OF A FOREIGN ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 10 CURRENCY AT A PARTICULAR PRICE. HOWEVER, THE ASSES SEE IS NOT COMPELLED TO BUY OR SELL, IF THE SPOT MARKET PRICES ARE FAVORABLE OR NOT FAVORAB LE. THE COST OF THIS OPTION IS CALLED OPTION PREMIUM. UPON THE PAYMENT OF THE SAME, THE EXPORTER IS HEDGED AGAINST ADVERSE CURRENCY MOVEMENT AND ALSO NOT LIABLE TO LOOSE IN C ASE OF FAVORABLE CURRENCY MOVEMENT. THEREFORE, IT IS APPARENT IN THE CASE OF THE ASSESS EE THAT THE ASSESSEE HAD ENTERED INTO OPTIONS CONTRACT (DERIVATIVE) WITH THE BANK IN OR DER TO HEDGE ITS FOREIGN EXCHANGE RISK. IN THE CASE OF THE ASSESSEE, WHAT HAS HAPPEN ED IS THAT DUE TO ADVERSE FOREIGN EXCHANGE MOVEMENT, THE BANK HAS DEBITED THE LOSS TO THE ASSESSEES ACCOUNT. THUS, THE LOSS DEBITED BY THE BANK IN THE ASSESSEES ACCOUNT HAS CRYSTALLIZED AND IS A REALISTIC LOSS SUFFERED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ISSUE UNDER CONSIDERATION BEFORE US IS THAT, WHETHER LOSS ON ACCOUNT FOREX DERIVATES AR E TO BE CONSIDERED AS A BUSINESS LOSS IN PARLANCE WITH SECTION 28 OF THE ACT. FURTHER, IN THE CASE OF THE ASSESSEE BEFORE US, THE FOLLOWING FACTS EMERGE AND THE LEGAL ISSUES INVOLVE D ARE DISCUSSED AND SUMMARIZED HEREIN BELOW:- (I) THE ASSESSEE HAS ENTERED INTO FOREX DERIVATI VE TRANSACTIONS ONLY IN ORDER TO CONTAIN THE FOREIGN CURRENCY FLUCTUATION RISK. (II) THUS, THE LOSS ON ACCOUNT FOREX DERIVATIVE TR ANSACTIONS ARE DIRECTLY ATTRIBUTABLE TO THE NORMAL BUSINESS OF THE ASSESSEE. (III) THE LOSS INCURRED BY THE ASSESSEE IS REALIST IC AND NOT NOTIONAL. (IV) ONLY MONEY CHANGERS AND BANKS ARE ALLOWED TO TRADE IN FOREIGN CURRENCY AND THE ASSESSEE IS NEITHER A MONEY CHANGER NOR A BANK. ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 11 (V) THE ASSESSEE HAS ONLY UTILIZED THE SERVICE OF NATIONALIZED BANK IN ORDER TO IRON OUT THE LOSS ARISING OUT OF FOREIGN CURRENCY FLUCTUATIO N RISK BY ENTERING INTO FOREX DERIVATIVE CONTRACT. (VI) THE SPECIAL BENCH OF THE ITAT, KOLKATA BENCH IN THE CASE OF SHRI CAPITAL SERVICES LTD VS. ACIT IN 121 ITD 498(KOL.)(SB) HAS HELD THAT FOREIGN CURRENCY IS NEITHER COMMODITY NOR SHARES AS DEFINED U/S. 43( 5) OF THE ACT . (VII) THE INSTRUCTIONS ISSUED BY CBDT INSTRUCTION N O.03/2010 DATED 23.03.2010 HAS RECOGNIZED THE LOSS OUT OF FOREX DERIVATIVES ON ACT UAL SETTLEMENT/CONCLUSION OF CONTRACTS AS ALLOWABLE BUSINESS LOSS , HOWEVER THEY HAVE DIRECTED THE REVENUE TO EXAMINE WHETHER THE TRANSACTIONS WOULD FALL U/S. 43 (5)(D) OF THE ACT, AND IF SO TO TREAT THE SAME AS NON-SPECULATIVE TRANSACTION. BY T HE ABOVE DIRECTIONS, IT APPEARS THAT THOUGH THE CBDT HAS RECOGNIZED THE LOS S ARISING OUT OF FOREX DERIVATIVES ON ACTUAL SETTLEMENT OF THE CONTRACTS, DIRECTED THE REVENUE TO TREAT THE SAME AS SPECULATIVE TRANSACTION WHEN THEY ARE T RANSACTED THROUGH NATIONALIZED BANKS AND AS NOT SPECULATIVE, WHEN THE SE TRANSACTIONS ARE TRANSACTED THROUGH RECOGNIZED STOCK EXCHANGE. (VIII) IT IS PERTINENT TO NOTE HERE THAT THE BANKE RS ACT AS AN ADVISORY AGENT TO THE ASSESSEE IN ORDER TO PROTECT THEM FROM FOREIGN EXCH ANGE EXPOSURE BY USING THEIR EXPERTISE AND THESE SERVICES CANNOT BE OBTAINED BY THE ASSESSEE IN THE STOCK EXCHANGE WHERE THEIR SCOPE OF SERVICE IS VERY LIMIT ED. (IX) IN THE PRESENT CASE THE ASSESSEE HAS TAKEN A H EDGING POSITION TO THE EXTENT OF `1.05 CRORES AND USD `3 CRORES DURING THE PERIOD 2007-200 9 BASED ON THE RBI ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 12 GUIDELINES. THE GUIDELINES PERMITTED HEDGING TO THE EXTENT OF LAST THREE YEARS ANNUAL AVERAGE TURNOVER, OR CURRENT YEARS ACTUAL E XPORT TURNOVER WHICHEVER IS HIGHER. WHERE EXACT AMOUNT OF UNDERLINE TRANSACTION WAS NOT ASCERTAINABLE ACCORDING TO RBI GUIDELINES, THE CONTRACTS COULD BE BOOKED ON THE BASIS OF REASONABLE ESTIMATE. THE ASSESSEE HAS TAKEN ITS HED GING POSITION IN ACCORDANCE WITH THE GUIDELINES OF RBI AND THE SAME IS NOT DISP UTED. (X) THE CLAIM OF THE ASSESSEE WAS THAT THE UNDERLY ING EXPOSURE BOTH IN RESPECT OF EURO AND USD IS MORE THAN ADEQUATE TO COVER THE HEDGING POSITIONS TAKEN IN RESPECT OF CROSS CURRENCY DERIVATIVE CONTRACTS ENTERED INTO BY THE ASSESSEE. THE REVENUE HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO CONTR OVERT TO THIS CLAIM OF THE ASSESSEE. (XI) SINCE THE ASSESSEE HAS ENTERED INTO FOREIGN C URRENCY DERIVATIVE CONTRACT ADEQUATE ENOUGH TO COVER THE OVERALL EXPOSURES OF FOREIGN CU RRENCY, THE CONTENTION OF THE REVENUE THAT THE PROPORTION OF THE LOSS IN DERIVA TIVES IS EIGHT TIMES MORE THAN THE LOSS FROM CURRENCY FLUCTUATION DOES NOT HAVE AN Y MERITS. (XII) THE FOREX DERIVATIVE TRANSACTIONS TRANSACTED BY THE ASSESSEE ARE THROUGH NATIONALIZED BANKS IN COMPLIANCE WITH THE RBI REGUL ATIONS. THESE REGULATIONS PERMIT THE ASSESSEE TO ENTER INTO SUCH DERIVATIVE T RANSACTIONS ONLY BY FULFILLING CERTAIN CONDITIONS IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. THESE REGULATIONS DO NOT PERMIT THE ASSESSEE TO ENTER INT O FOREX DERIVATIVE CONTRACT AS A SEPARATE BUSINESS . ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 13 (XIII) SECTION 73(1) OF THE ACT RESTRICTS THE SET OFF OF SPECULATION LOSS AGAINST THE OTHER BUSINESS INCOME IN ONLY THOSE CASES WERE SPECULATIV E TRANSACTIONS CARRIED ON BY THE ASSESSEE ARE OF SUCH NATURE SO AS TO CONSTITUTE A BUSINESS BY ITSELF. IT IS PERTINENT TO MENTION HERE THAT RBI DOES NOT PERMIT ANY BANK UNDER ITS UMBRELLA TO ENTERTAIN ITS CLIENT IN ANY SEPARATE BUSINESS OF FOREX DERIVATIVE TRANSACTIONS. PERMISSION IS GRANTED ONLY FOR THE CLIENTS OF THE B ANK TO HEDGE ON FOREIGN EXCHANGE IN ORDER TO MINIMIZE THE RISK OF THE FOREI GN CURRENCY EXPOSURE ARISING OUT OF IMPORT AND EXPORT TRADE. (XIV) THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE M/S.RAJASHREE SUGARS AND CHEMICALS LTD VS. AXIS BANK LTD., IN O.A NOS.2 51 & 252 OF 2008 IN C.S.NO.240 OF 2008 O.A. NOS.526 & 527 OF 2008 IN C. S NO.240 OF 2008A. NOS.1926, 1927, 2446 AND 2447 OF 2008 IN S.S NO.240 OF 2008 VIDE ORDER DATED 14.10.2008 REPORTED IN 8 MLJ 261 HAS HELD THAT DERIVATIVE TRANSACTIONS CEASED TO BE SPECULATIVE TRANSACTIONS OR WAGES BECAUSE PRI CING OF THE DEAL FOLLOWS A SCIENTIFIC PATTERN ON THE BASIS OF FINANCIAL MATHEM ATICS. JUST AS ACTUARIES SCIENTIFICALLY DETERMINED THE VALUE OF INSURANCE RI SK AND THE PREMIUM PAYABLE, FINANCIAL MATHEMATICIAN/PORTFOLIO MANAGERS EVALUATE THE PRICE OF THESE DERIVATIVES. (PARA 81 OF THE ORDER) 8. FURTHER, IT IS PERTINENT TO NOTE THAT THE FOREI GN CURRENCY IS NEITHER COMMODITY NOR STOCK OR SHARES. FOREIGN CURRENCY IS NOTHING BUT CURRENCY PRINTED IN A DIFFERENT ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 14 COUNTRY. IT IS MONEY OF A COUNTRY OTHER THAN ONES OWN. CURRENCY IS A GENERALLY ACCEPTED FORM OF MONEY INCLUDING COINS AND PAPER NO TES WHICH IS ISSUED BY A GOVERNMENT AND CIRCULATED WITHIN AN ECONOMY. IT IS A MEDIUM BA SED ON THE VALUE OF AN UNDERLYING COMMODITY. IT IS USED AS MEDIUM OF EXCHANGE FOR GOO DS AND SERVICES. THE CURRENCY VALUE OF ONE COUNTRY WITH ANOTHER COUNTRY FLUCTUATES ACCO RDING TO THE ECONOMIC FACTORS PREVALENT IN THOSE COUNTRIES. THEREFORE HOLDING FOR EIGN CURRENCY IS PLACING RELIANCE ON THE ECONOMIC FACTORS PREVALENT IN THAT COUNTRY AND STOCK/SHARES IS PLACING RELIANCE IN THE ECONOMIC STRENGTH AND BUSINESS POLICIES OF THE COMP ANY. SECTION 43(5) OF THE ACT DEFINES SPECULATIVE TRANSACTIONS AS UNDER:- SECTION 43 (RELEVANT PROVISIONS ARE HIGHLIGHTED HEREIN BELOW) (5): SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHI CH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS : PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING B USINESS 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 HI M; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTE RED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF ST OCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWAR D MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF ACT UAL DELIVERY, SEE TAXMANS DIRECT TAXES MANUAL, VOL. 3. JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; [OR] ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 15 (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DE RIVATIVES REFERRED TO IN CLAUSE 35[(AC)] OF SECTION 236 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE;] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION .FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS (I) ELIGIBLE TRANSACTION MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UN DER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (RE GULATION) ACT, 1956 (42 OF 1956) OR THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE- LAWS MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN THE CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (II) RECOGNISED STOCK EXCHANGE MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 238 OF THE SECURITIES CONTRAC TS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE P RESCRIBED AND NOTIFIED 39 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE;] IT IS PERTINENT TO NOTE THAT BANKS HAVE OPTION TO T RADE IN FOREIGN CURRENCY DERIVATIVES EITHER THROUGH RECOGNIZED STOCK EXCHANGE OR THROUGH RBI. WHEN THE BANKS FACILITATES ITS CLIENTS TO DEAL IN FOREIGN EXCHANGE DERIVATIVES THR OUGH RBI, MORE STRINGENT REGULATIONS ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 16 ARE COMPLIED AND THEREFORE THESE TRANSACTIONS CANNO T BE DENIED THE BENEFITS PROVIDED UNDER THE ACT WHEN TRADED THROUGH RECOGNIZED STOCK EXCHANGE. 9. NOW THE QUESTION IS WHETHER TO TREAT THE FOREIG N CURRENCY DERIVATIVES AS COMMODITIES, OR STOCKS AND SHARES. IF IT IS TREATED AS COMMODITIES, SECTION 43(5)(A) OF THE ACT COMES TO THE RESCUE OF THE ASSESSEE BECAUSE IN THE PRESENT CASE, THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF GARMENTS AND THE ASSES SEE HAS ENTERED INTO FOREIGN CURRENCY DERIVATIVE TRANSACTIONS TO GUARD AGAINST F UTURE CURRENCY FLUCTUATIONS WHICH HAS A CLOSE PROXIMITY TO THE BUSINESS OF THE ASSESSEE. ON THE OTHER HAND, IF IT IS TREATED AS STOCK /SHARES, SUCH TRANSACTIONS WILL NOT BE TREATE D AS SPECULATIVE TRANSACTIONS IF THE TRANSACTION IS CARRIED OUT THROUGH A RECOGNIZED STO CK EXCHANGE. THE ARGUMENT OF THE REVENUE IS THAT, IF THE TRANSACTIONS ARE MADE THOUG H BANKING SECTORS, THEN THE SAME WILL FALL WITHIN THE SCOPE OF SPECULATIVE TRANSACTIONS. THIS ARGUMENT APPEARS TO BE ABSURD AND ILLOGICAL BECAUSE BOTH RECOGNIZED STOCK EXCHANGE AN D NATIONALIZED BANKS ARE EITHER GOVERNMENT REGULATORY BODY OR EXTENDED ARM OF THE G OVERNMENT. FURTHER THE CHARACTERISTIC OF THE CURRENCY AND STOCK/SHARES ARE NOT THE SAME AND THEREFORE, CURRENCY CANNOT BE HELD AS STOCK OR SHARES. THIS VIEW IS ALS O FORTIFIED WITH THE VARIOUS DECISIONS. 10. NOW LET US EXAMINE THE FOLLOWING DECISIONS:- A. IN THE CASE OF CIT VS. BADRIDAS GAURIDU (P) LTD ., REPORTED IN (2003) 261 ITR (BOM) WHEREIN IT WAS HELD THAT THE ASSESSEE WAS NOT A DE ALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WA S AN EXPORT HOUSE. THEREFORE, FOREIGN EXCHANGE CONTRACTS WERE BOOKED ONLY AS INCI DENTAL TO THE ASSESSEES ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 17 REGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL FINDING TO THIS EFFECT IN ITS ORDER. THE ASSESSING OFFICER HA S NOT CONSIDERED THESE FACTS. UNDER S.43(5) OF THE IT ACT, SPECULATIVE TRANSACTI ON HAS BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF A COMMODITY IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF SUCH COMMODITY. HOWEVER, AS STATED ABOVE, THE ASSESSEE WAS NOT A DEALER IN FORE IGN EXCHANGE. THE ASSESSEE WAS AN EXPORTER OF COTTON. IN ORDER TO HEDGE AGAINS T LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR E XPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT TO RS.13.50 LAKHS AS A BUSINESS LOSS . THIS MATTER IS SQUARELY COVERED BY THE JUDGMENT OF THE CALCUTTA HIGH COURT, WITH WHICH WE AGREE, IN THE CASE OF LD. CIT VS. SOORAJMULL NAGARMULL (1981) 22 CTR (CAL.) 8: (1981) 129 ITR 169 (CAL.). B. IN THE CASE OF CIT VS. SOORAJ MULL NAGARMULL , REPORTED IN (1981) 129 ITR 169(CAL.) WHEREIN IT WAS HELD THAT THE ASSESSEE USED TO CARR Y ON EXPORT AND IMPORT OF JUTE BUSINESS. IN THE COURSE OF NORMAL BU SINESS IT USED TO ENTER INTO FOREIGN EXCHANGE CONTRACTS IN ORDER TO COVER UP LOS S AND DIFFERENCE IN FOREIGN EXCHANGE VALUATION. THE ASSESSEE UTILIZED PART OF THE AMOUNT OF THE FOREIGN EXCHANGE COVERED. THIS FINDING OF FACT HAS NOT BEE N CHALLENGED, IF IN THE COURSE OF NORMAL CARRYING ON OF BUSINESS CERTAIN LOSS OR OBL IGATION OR INTEREST ARISE THESE MUST BE DEFERRABLE TO THE CARRYING ON OF THE BUSINE SS AND THESE MUST BE INCIDENTAL ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 18 TO THE CARRYING ON OF THE BUSINESS. UNDOUBTEDLY, T HE CONTRACT FOR FOREIGN EXCHANGE AS SUCH CAN BE TREATED AS A CONTRACT FOR C OMMODITY. BUT THE QUESTION HERE ESSENTIALLY IS THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF EXPORT AND IMPORT OF JUTE GOODS. IN ORDER TO CARRY OUT THESE TRANSACTIONS, THE ASSES SEE HAD TO ENTER INTO FOREIGN EXCHANGE CONTRACT IN ORDER TO COVER UP THESE TRANSACTIONS. IN THOSE FOREIGN EXCHANGE CONTRACTS, IF ANY LOSS OCCURRED TH EN SUCH LOSS WAS A LOSS REFERABLE TO AND RELATED TO THE BUSINESS CARRIED ON AND ARISING OUT OF THE BUSINESS OF THE ASSESSEE . HERE THERE IS NO FINDING THAT ENTERING INTO FOREI GN EXCHANGE CONTRACT WAS THE NATURE OF THE BUSINESS OP ERATION FOR THE EXPORT AND IMPORT OF THE GOODS BY THE ASSESSEE. THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE CONTRACT AS SUCH. HERE IN THIS CASE, THE C ONTRACT WAS FOR A FULL AMOUNT AND WHAT THE ASSESSEE PAID IN FULFILLMENT OF THE OB LIGATION WHICH WAS AN IMPLIED TERM AT THE TIME OF ENTERING INTO THE CONTRACT DID NOT AMOUNT TO BREACH OF CONTRACT. THE BREACH OF CONTRACT DID NOT COME WITHIN THE MEAN ING OF CONTRACT SETTLED AS USED IN EXPLN.2 OF S.24(1) OF IT ACT, 1922, CONTRA CT SETTLED MEANT CONTRACT SETTLED BEFORE BREACH. WHERE THE MONEY WHICH THE ASSESSEE PAID WAS IN SETTLEMENT OF THE AMOUNT OF DAMAGES SUFFERED BY THE ASSESSEE BY REASO N OF BREACH OF THE CONTRACT TO DELIVERY, IT IS TO BE HELD THAT THE PAYMENT WAS NOT A LOSS FR OM A SPECULATIVE TRANSACTION AS DEFINED IN EXPLN.2 OF S.24(1) OF IT ACT, 1922 . C. IN THE CASE OF COTTON BLOSSOMS (INDIA) PVT. LTD. V ACIT , IN ITA NO.2032/CHNY/2012 VIDE ORDER DATED 21.02.2013, ALSO THE CHENNAI BENCH OF THE TRIBUNAL HELD THAT, IN RESPECT OF FOREX CONTRACTS ENTERED INTO BY THE ASSESSEE ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 19 IN SIMILAR CIRCUMSTANCES WILL NOT FALL UNDER THE DE FINITION OF SPECULATIVE TRANSACTION . D. IN THE CASE OF SUTLEJ COTTON MILLS LTD VS. CIT , REPORTED IN 116 ITR 1(SC) WHEREIN IT WAS HELD THAT LOSS ON ACCOUNT OF REVALUATION OF FOREIGN CURRENCY IS A TRADING LOSS TO THE EXTENT IT DOES NOT RELATE TO ANY CAPITAL ASSET AND ACCORDINGLY ALLOWABLE . E. IN THE CASE OF MUNJAL SHOWA LTD. VS. DY.CIT , REPORTED IN (2005) 94 TTJ (DEL.) WHEREIN IT WAS HELD THAT PROFIT ON CANCELLATION OF FORWARD CONTRAC T IN FOREIGN CURRENCY ENTERED INTO FOR SAFEGUARDING AGAINST LOSS BY FLUCTUATION IN FOREIGN CURRENCY FOR PURCHASE OF PLANT AND MACHINERY WITH L OAN OBTAINED IN FOREIGN EXCHANGE IS CAPITAL RECEIPT AND NOT SPECULATIVE PRO FIT . F. IN THE CASE OF CIT MUMBAI VS. VISHINDAS HOLARAM , REPORTED IN (2014) TAXMANN.COM 37(BOMBAY) IT WAS HELD THAT ONCE MAIN B USINESS OF ASSESSEE IS IDENTIFIED, IF SOME INCIDENTAL ACTIVITIES OR TRANSA CTIONS OR DEALING IN FOREIGN EXCHANGE IS UNDERTAKEN BUT THAT IS ALSO RELATED TO SOME EXTENT TO MAIN BUSINESS ACTIVITY, THEN, IT COULD NOT BE SAID THAT ASSESSEE IS IN SPECULATIVE BUSINESS . G. IN THE CASE OF CIT VS. CLIMATE SYSTEM PVT. LTD ., REPORTED IN 2014 (8) TMI 901 DELHI HIGH COURT WHEREIN IT WAS HELD THAT EXCHANGE FLUCTUATION ARISING ON THE REVENUE ACCOUNT TRANSACTION SHOULD BE ALLOWED AS DE DUCTABLE EXPENDITURE . 11. THUS TO SUM UP IN THE PRESENT CASE BEFORE US, THE ASSESSEE IS AN EXPORTER OF GARMENTS WHO HAS ENTERED INTO FOREX DERIVATIVE TRAN SACTIONS THROUGH ITS BANKERS WITH A ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 20 VIEW TO EFFECTIVELY HEDGE ITS FOREIGN CURRENCY RISK . THEREFORE, THESE FOREX DERIVATIVE TRANSACTIONS HAVE A CLOSE PROXIMITY OR RATHER INCID ENTAL TO THE EXPORT BUSINESS OF THE ASSESSEE, WHICH CANNOT BE CONSIDERED AS SPECULATIVE . MOREOVER IN THE CASE OF THE ASSESSEE FOREIGN CURRENCY CONTRACTS CANNOT BE TREAT ED AS WAGERING CONTRACTS FOR THE REASONS DISCUSSED HEREIN ABOVE. SECTION-43(5) OF TH E ACT IS APPLICABLE TO TRANSACTIONS IN COMMODITY OR STOCKS AND SHARES. IF CURRENCY IS TREA TED AS COMMODITY, THEN ACCORDING TO SECTION 43(5) (A) OF THE ACT, SUCH TRANSACTION SHAL L NOT BE DEEMED TO BE SPECULATIVE TRANSACTION. FURTHER CURRENCY CANNOT BE TREATED AS STOCK OR SHARES BECAUSE INHERENTLY THEY HAVE DIFFERENT CHARACTERISTIC. FURTHER, IN THE CASE OF THE ASSESSEES, THE FOREIGN EXCHANGE EXPOSURE FOR THE RELEVANT PERIOD SPECIFIED BY R.B.I REGULATIONS IS QUIET SUBSTANTIAL IN ORDER TO JUSTIFY THE FOREX DERIVATIV E TRANSACTIONS MADE BY THE ASSESSEE THROUGH GOVERNMENT RECOGNIZED CHANNEL, OTHERWISE TH E RBI WOULD NOT HAVE ENTERTAINED THESE TRANSACTIONS AND WOULD HAVE RESTR AINED THE BANKS FROM ENTERING INTO SUCH TRANSACTION WITH ITS CLIENTS. THUS CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCE OF THE CASE AND THE DECISIONS RELIED U PON HEREIN ABOVE, WE ALLOW THE GROUNDS RAISED BY THE ASSESSEES ON THIS ISSUE FOR ALL THE THREE APPEALS IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY WE HEREBY DIRECT THE REVEN UE TO SET OFF OF THE LOSSES INCURRED BY THE ASSESSEE ON ACCOUNT OF FOREX DERIVATIVES CONTRA CTS AGAINST THE BUSINESS INCOME OF THE ASSESSEE. WHILE ARRIVING AT THE ABOVE DECISION, THERE WAS A C LEAR CUT FINDING THAT THOSE TRANSACTIONS WERE DIRECTLY LINKED TO FOR EIGN CURRENCY ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 21 EXPOSURES OF THE ASSESSEE IN ORDER TO COVER THE LOS S ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS AND THEY WERE NOT MER ELY STAND ALONE TRANSACTIONS OF PURE SPECULATION IN NATURE. MOREOVE R IN THAT CASE, THE REVENUE COULD NOT SUBSTANTIATE THAT THE UNDERLYING EXPOSURE BOTH IN RESPECT OF EURO AND USD WAS MINIMAL COMPARING WITH THE HEDGING POSITION TAKEN IN RESPECT OF CROSS-COUNTRY DERIVATI VE CONTRACT ENTERED BY THE ASSESSEE. IN FACT THE ASSESSEE HAD ENTERED I NTO FOREIGN CURRENCY DERIVATIVE CONTRACTS ADEQUATE ENOUGH TO CO VER THE OVERALL EXPOSURES OF FOREIGN CURRENCY. HOWEVER IN THIS CASE BEFORE US THE LD. D.R HAS VEHEMENTLY ARGUED BY STATING THAT THE ASSES SEE DISREGARDING THE EXPOSURE OF FOREIGN CURRENCY HAS ON A STANDALON E BASIS INDULGED IN TRANSACTIONS WHICH ARE PURELY IN SPECULATION IN NATURE. ON PERUSING THE MATERIALS ON RECORD AND ARGUMENTS ADVANCED, WE ARE UNABLE TO REACH A CLEAR CUT CONCLUSION AS TO WHETHER THE ASSE SSEE HAS BEEN INDULGING IN MERELY SPECULATIVE TRANSACTIONS IGNORI NG THE FOREIGN EXCHANGE EXPOSURES OR WHETHER THE TRANSACTIONS ARE MADE IN ORDER TO PROVIDE ADEQUATE COVER ON THE FOREIGN CURRENCY EXPO SURES. THEREFORE, IN THE INTEREST OF JUSTICE, WE HEREBY RE MIT BACK ALL THE THREE APPEALS TO THE FILE OF LD. ASSESSING OFFICER TO ASC ERTAIN THE FACTS OF ITA NOS.1334,1335 & 3073 /MDS/2014 M/S.JUPITER KNITTING CO., 22 THE CASE AND PASS APPROPRIATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISION RENDERED BY US IN THE CASE M/ S.SCM GARMENTS PVT LTD (SUPRA). 7. IN THE RESULT, THE APPEALS OF ASSESSEE FOR THE A SSESSMENT YEARS 2009-10, 2010-11 & 2011-12 ARE ALLOWED FOR STATISTI CAL PURPOSES ORDER PRONOUNCED ON 27 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 27 TH NOVEMBER, 2015. K S SUNDARAM. & (,/0 1 0#, /COPY TO: 1. $% /APPELLANT 2. ()$% /RESPONDENT 3. * 2, ( ) /CIT(A) 4. * 2, /CIT 5. 05 (,6! /DR 6. ' 7+ /GF