The ACIT, Circle-9, Surat V. M/s. Lathiya Brothers & Co., Surat

ITA 3387/AHD/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2316 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 13-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDAN SRDR
• Section: 43(5); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3387/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING:18.8.10 DRAFTED:19.8.10 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-9, ROOM NO.423, 4 TH FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S . M/S. LATHIYA BROTHERS & CO. 17, TAPOVAN ESTATE, OPP. GITANJALI CINEMA, VARACHHA ROAD, SURAT PAN NO.AAAFL9277G (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI K. MADHUSUDAN, SR-DR RESPONDENT BY:- SHRI MEHUL SHAH, AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT IN APPEAL NO. CAS- V/359/2007-08 DATED 07- 07-2008. THE ASSESSMENT WAS FRAMED BY ACIT, CIRCLE- 9, SURAT U/S143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 27-12-2007 FOR ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.29,74,132/- MADE BY ASSESSING OFFICER ON ACCOUNT OF SUPPRESSION OF YIELD. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.29, 74,132/- MADE BY THE A.O ON ACCOUNT OF SUPPRESSED YIELD, WITHOUT APPREC IATING THE FACTS OF THE CASE. ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE, IMPORTER, TRADER AN D EXPORTER OF DIAMONDS. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 24-10-2005 DECLARING TOTAL INCOME OF RS.40,32,78 6/-. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS SHOWN YIELD OF POLISHED DIAMOND @ 30.77% ON THE BAS IS OF DATA OF HANSAL DIAMOND, MITUL GEMS, PAVASIYA EXPORTS & MIRAJ GEMS. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE SUPPRESSED YIELD AND ASSESS EE REPLIED THAT IN DIAMOND INDUSTRY THE YIELD OF ROUGH DIAMOND DEPENDS NOT ONLY ON THE BASIS OF ROUGH DIAMOND BUT ON THE SIZE, PURITY, COLOUR AND S HAPE OF DIAMOND ETC. THE ASSESSEE CLAIMED THAT IF ONE WANTS MORE YIELD THEN PURITY OF DIAMOND WILL BE LOW AND CANNOT BE SOLD AT HIGHER PRICE. HE STATED T HAT PROCEDURE IN EVERY UNIT HAS ITS OWN AND THAT ALSO OWN QUALITY, OWN CUSTOMER AND OWN MARKET. THEY HAVE WORKERS WHO CAN POLISH THE DIAMOND OF SPECIFIC QUALITY, SIZE, COLOUR AND CUTTING. HE NARRATED EXAMPLE THAT FROM THE ROUGH DI AMOND OF RS.3,000/- PER CARAT ONE CAN GET YIELD AT 25% AND ANOTHER CAN 30% AND EVEN MORE THAN THAT THE ASSESSEES DATA HAS BEEN COMPARED AS UNDER:- A.Y. 2003-04 2004-05 2005-06 TURNOVER 13,06,79,115 17,37,29,196 20,18,96,156 G.P. 79,19,166 94,74,076 1,16,34,172 G.P.% 6.07% 5.45% 5.76% YIELD% 30.16% 30.77% 30.73% LABOUR PAYMENT 350 350 375 AVERAGE COST OF PURCHASE 3143 5022 4739 AVERAGE COST OF SALE 11652 13775 18297 ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAS SH OWN AN AVERAGE YIELD OF 30.77% ON MARKETABLE ROUGH AND AVERAGE COST OF ROUG H MANUFACTURED BY ASSESSEE WAS RANGING FROM RS.1600/- TO RS.44,000/- AND MAXIMUM PURCHASE PRICE OF ROUGH USED BY ASSESSEE WAS RS.77,811/- AS SHOWN IN THE ABOVE ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 3 TABLE. THIS MUCH COSTLY ROUGH HAS BEEN USED BY ASSE SSEE ONLY AND THE OTHER FIRM WHO HAS SHOWN ROUGH DIAMONDS OF COST RS.25,000 /- IS M/S BALAR EXPORTS WHOSE AVERAGE YIELD IS MORE THAN 34%. AS PER THE GE NERAL SAYING THE ROUGH WHOSE COST WAS MORE THAN RS.25,000/- TO RS.77,000/- THE YIELD SHOULD BE MORE THAN ANYBODY ELSE MENTIONED IN BELOW EXAMPLES. THE SAME ASSESSEE GETTING YIELD OF 37.8% YIELD WITH ROUGH DIAMONDS OF COST RS.547/- ONLY AND IN VIEW OF THAT WHY NOT YIELD MORE THAN OR NEAR TO THA T IS POSSIBLE IN OTHER ROUGH DIAMONDS WHOSE COST WAS MORE THAN RS.547/-, WHEREAS SIMILAR CONCERNS WHO ARE MANUFACTURING SIMILAR ROUGH WERE SHOWING YIELD OF 34% TO 50% FOR E.G. IN CASE OF HANSAL DIAMOND WHOSE YIELD RATIO PER CARAT WAS BASING ON COST OF THE ROUGH UTILIZED FOR MANUFACTURE. SIMILARLY, THE EXAM PLES OF M/S PAVASIYA EXPORTS & M/S. BALAR EXPORT ARE ALSO GIVEN FOR COMP ARISON WHOSE AVERAGE COST OF ROUGH WAS SIMILAR AND THE ROUGH DIAMONDS US ED BY THE ASSESSEE. ACCORDINGLY, HE ESTIMATED THE SUPPRESSED YIELD AT 3 % ABOVE YIELD AS SHOWN BY ASSESSEE AND CONSIDERING THE VARIATION IN SKILL POLISHING AND OTHER FACTORS, HE ESTIMATED THE SUPPRESSED YIELD AT 1% AND FURTHER ESTIMATED THE SUPPRESSED YIELD ADDITION AT RS.29,74,132/-. AGGRIE VED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITI ON BY GIVING FOLLOWING FINDING AT PAGES 2-3 OF HIS APPELLATE ORDER:- I HAVE CAREFULLY CONSIDERED THE CONTENTION OF APPE LLANT AS WELL AS THAT OF THE ASSESSING OFFICER. I FIND THAT ASSESSEE HAS PRODUCED ALL THE BOOKS OF ACCOUNT & OTHER RECORDS BEFORE ASSESSING OFFICER FOR HIS VERIFICATION & HE HAS NOT POINTED OUT ANY DEFECTS IN THE SAME. HE HAS ALSO NOT REJECTED THE BOOK RESULTS BY INVOKING PROVISIONS OF SECTION 145 OF THE ACT. HOWEVER, HE MADE ADDITION TO THE INCOME OF ASS ESSEE ON ACCOUNT OF SUPPRESSION OF YIELD ON THE GROUND THAT YIELD S HOWN BY ASSESSEE IS LOWER THAN THAT SHOWN BY OTHER ASSESSEES ENGAGED I N THIS LINE OF ACTIVITY. HOWEVER, IN MY OPINION ADDITION TO THE IN COME OF ASSESSEE CANNOT BE MADE PURELY ON THIS GROUND AS THERE SHOUL D BE SOME OTHER COGENT EVIDENCE ON RECORD WHICH INDICATES THAT THER E IS SUPPRESSION OF INCOME. EVEN IN RESPECT OF COMPARABLE INSTANCES CIT ED BY ASSESSING OFFICER, I FIND THAT EVEN IN THOSE CASES THERE IS V ARIATION IN YIELD. FOR E.G. IN THE CASE OF M/S. HANSAL DIAMOND WHERE AVERAGE CO ST OF ROUGH DIAMOND IS RS.5703 PER CARAT THE YIELD COMES TO 57. 4%, WHEREAS IN RESPECT OF ROUGH DIAMOND COSTING AS HIGH AS RS.1125 28 PER CARAT THE YIELD IS ONLY 51% I.E. YIELD IS LOWER IN THIS CASE ALTHOUGH COST OF ROUGH DIAMOND IS ALMOST TWICE THE COST OF ROUGH DIAMOND W HERE YIELD IS ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 4 57.4%. THIS CLEARLY DENOTES THAT THERE CANNOT BE AN Y EXACT CORRELATION BETWEEN YIELD & THE COST OF ROUGH DIAMOND. FURTHER, I ALSO FIND THAT AVERAGE SELLING PRICED OF ASSESSEE IS MUCH HIGHER T HAN AVERAGE SELLING PRICE OF OTHER COMPARABLE CASES CITED BY ASSESSING OFFICER VIZ. M/S/. MITUL GEMS, M/S MIRAJ GEMS. I ALSO FIND THAT SIMILA R ADDITION WAS MADE TO THE INCOME OF ASSESSEE FOR A.Y 2001-02 BUT THE S AME HAS BEEN DELETED BY HONOURABLE ITAT VIDE ITS ORDER DATED 29/ 04/2005. IN VIEW OF THESE FACTS, IN MY CONSIDERED OPINION, THE ADDITION MADE BY PRESUMING YIELD TO BE HIGHER BY 1% IS WITHOUT ANY BASIS & HEN CE, THE SAME IS DELETED. AGGRIEVED AGAINST DELETION, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ARGUMEN TS OF LD. SR.DR THAT CIT(A) HAS ERRED IN HOLDING THAT ASSESSING OFFICER HAS NOT FOUND ANY DEFECTS IN THE BOOKS OF ACCOUNT AND OTHER RECORDS PRODUCED BEFORE HIM AND NOT REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVI SIONS OF SECTION 145 OF THE ACT AND SIMPLY MADE ADDITION ON ACCOUNT OF SUPPRE SSION OF YIELD. THIS VIEW OF THE CIT(A) IS NOT ACCEPTED AND AS ESTIMATION OF YIELD WAS MADE AFTER COMPARISON OF THE COMPARABLE CASES IN RESPECT OF TU RNOVER AND ALSO QUALITY OF ROUGH DIAMOND MANUFACTURED. EVEN THE INFRASTRUCTURE OF THE ASSESSEE WAS ALSO CONSIDERED AND INSPITE OF THAT, THE YIELD OF T HE ASSESSEE WAS SIGNIFICANTLY LOW AND THE INCOME OF THE ASSESSEE HAS BEEN UNDERST ATED AND IN VIEW OF THE THESE, IT IS THE RESPONSIBILITY OF THE ASSESSING OF FICER TO ESTIMATE THE INCOME AND ACCORDINGLY AO HAS ESTIMATED THE SUPPRESSED YIE LD AT REASONABLE LEVEL OF 1%. WE FIND FROM THE ORDER OF CIT(A) AND CASE RECOR DS AND ARGUMENT OF LD. COUNSEL OF ASSESSEE THAT AO HAS NOT INVOKED THE PRO VISION OF SECTION 145 OF THE ACT AND REJECTED THE BOOK RESULTS DESPITE THE F ACT THAT ASSESSEE HAS PRODUCED COMPLETE BOOKS OF ACCOUNT ALONG WITH BILLS AND VOUCHERS AND RETURN OF INCOME WAS ACCOMPANIED BY AUDIT REPORT U/S.44AD OF THE ACT IN FORM NO.3CB AND 3CD. WHEN THE DETAILS CALLED FOR WERE FU RNISHED BY ASSESSEE AND PLACED ON RECORD BY AO. THE ASSESSEE HAS FILED COMP LETE DETAILS OF SUPPLIER AND CUSTOMERS AND COMPARATIVE GROSS PROFIT. THE AO HAS SIMPLY REJECTED THE ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 5 BOOK RESULTS ON THE BASIS THAT YIELD IS LESS BY 3%. WE ARE IN FULL AGREEMENT WITH THE FINDINGS OF CIT(A) THAT SIMPLY YIELD IS LE SS THAT CANNOT BE REASON FOR REJECTION OF BOOK RESULTS. ACCORDINGLY, WE UPHOLD T HE FINDINGS OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.6,12,797/- MADE BY A SSESSING OFFICER ON ACCOUNT OF LABOUR CHARGES. FOR THIS, REVENUE HAS R AISED THE FOLLOWING GROUND NO.2 :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6,1 2,797/- MADE BY THE A.O ON ACCOUNT OF EXCESS LABOUR CHARGES, WITHOUT A PPRECIATING THE FACTS OF THE CASE. 6. THE ASSESSING OFFICER DURING THE COURSE OF ASSES SMENT PROCEEDINGS NOTED THAT LABOUR CHARGES WERE CHARGED AT RS.375/-, WHICH IS VERY HIGH AS PER COMPARABLE IN THE SAME LINE OF BUSINESS AS AGAINST LABOUR CHARGES PAID IN COMPARABLE DIAMOND MANUFACTURING INDUSTRY AT RS.275 /- TO 350/-. ACCORDING TO AO, ASSESSEE HAS NOT PRODUCED NOR MAINTAINED PIECE- WISE DETAILS AS PER BOOKS OF ACCOUNT AND ACCORDINGLY HE RESTRICTED THE LABOUR CHARGES AT RS.350/- AND MADE DISALLOWANCE OF RS.6,12,797/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITI ON BY GIVING FOLLOWING FINDINGS AT PAGE 4 & 5 OF HIS APPELLATE ORDER:- I HAVE CAREFULLY CONSIDERED THE CONTENTION OF APPE LLANT AS WELL AS THAT OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE MAINLY ON THE GROUND THAT OTHER UNITS ARE CLAIMING LABOUR CHARGES IN THE RANGE OF RS.275 TO RS.350 PER CARAT WHEREAS ASSESSEE HAS CLAIMED THE SAME AT THE RATE OF RS.375 PER CARA T. IN MY OPINION, IF ASSESSING OFFICER WANTS TO APPLY SAID RATE IN THAT CASE, IT HAS TO BE PROVED BEYOND ANY SHADOW OF DOUBT THAT THERE ARE AB SOLUTELY NO DIFFERENCE IN THE NATURE OF MANUFACTURING ACTIVITY, QUALITY OF ROUGH DIAMONDS & POLISHED DIAMONDS ETC. I ALSO FIND THAT THERE IS INCREASE IN G.P RATIO DESPITE INCREASE IN LABOUR CHARGES BY RS. 25 PER CARAT. THE ASSESSEE HAS ALSO FILED CONFIRMATION OF LABOUR PART IES WITH THEIR PAN NUMBERS. IN VIEW OF THESE FACTS, THE ADDITION OF RS .6,62,797/- IS DEFINITELY EXCESSIVE. HOWEVER, AT THE SAME TIME, I FIND THAT ASSESSEE HAS ALSO NOT BEEN ABLE TO GIVE ANY COGENT REASON FO R INCREASING THE RATE ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 6 BY RS.25 PER CARAT WHEN ASSESSEE WAS ABLE TO GET TH E WORK DONE IN PAST YEARS AT THE RATE OF RS.350 PER CARAT. AS SUCH ELEMENT OF INFLATION IN LABOUR EXPENDITURE CANNOT BE RULED OUT & IN MY C ONSIDERED OPINION, LUMP SUM DISALLOWANCE OF RS.50,00/- IN THIS REGARD WILL BE VERY MUCH FAIR. ACCORDINGLY, BALANCE ADDITION OF RS.6,12,797/ - IS HEREBY DELETED. NOW AGAINST DELETION OF ADDITION, REVENUE CAME IN A PPEAL BEFORE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US LD.SR-DR, SHRI K. MADHUSUDAN STATED THAT ASSESSEE HAS CLAIMED MORE EXPENSES THAN EXISTI NG IN THE MARKET IN THE FORM OF LABOUR CHARGES AND THERE IS NO COGENT REASO N OR EVIDENCE SUBMITTED BY ASSESSEE FOR INCREASE IN LABOUR CHARGES IN COMPA RISON TO THE REST OF THE SIMILAR MANUFACTURERS AND IT IS DIFFICULT TO PROVE ITEM BY ITEM THAT SAME MATERIAL WAS MANUFACTURED BY ASSESSEE AND OTHER PEO PLE. BUT OVERALL PICTURE OF THE MARKET AND CASES CAME BEFORE ASSESSING OFFIC ER AND WHO INDICATED LABOUR CHARGES OF RS.250/- TO RS.350/-, WHEREAS ASS ESSEE HAS SHOWN HIGHER WAGES AND AT THE SAME TIME GETTING LESSER YIELD THA N THE COMPARABLE CASES MENTIONED IN THE ASSESSMENT ORDER. WE FIND THAT THE RE IS NO REASON WHY AO HAS DISALLOWED THE LABOUR CHARGES PAID BY ASSESSEE AT RS.375/- PER CARAT AS THERE IS NO EVIDENCE EXCEPT A GENERAL STATEMENT THA T AS PER MARKET COMPARABLE THE LABOUR CHARGES ARE AT RS.250/- TO 37 5/-PER CARAT AND THIS STATEMENT OF REVENUE IS NOT SUPPORTED BY ANY EVIDEN CE WHATSOEVER RATHER THE CLAIM OF ASSESSEE IS SUPPORTED BY BILLS AND VOUCHER S, AS THE BILLS AND VOUCHERS WERE PRODUCED BY ASSESSEE ARE SUPPORTED BY THE PAYMENT MADE BY ASSESSEE AT RS.375/- PER CARAT. ACCORDINGLY, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) TREATED THE LOSS ON ACCOUNT OF FORWARD CONTRACT AS BUSINESS LOSS. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 :- ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 7 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE LOSS OF RS.4,62,10 5/- ON CANCELLATION OF FORWARD CONTRACT AS BUSINESS LOSS AS AGAINST THE SP ECULATION LOSS HEAD BY THE A.O, WITHOUT APPRECIATING THE FACTS OF THE C ASE. 9. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STATE D THAT IN SIMILAR ISSUE, THIS TRIBUNAL IN THE CASE OF ACIT CIRCLE 9 SURAT V. M/S. MARVIN GEMS IN ITA NO.3435/AHD/2008 DATED 29-10-2010 FOR ASSESSMENT YEAR 2005-06, WHER EIN THE TRIBUNAL HELD IN PARA-13 & 14 AS UNDER:- 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE HAS SUFFERED LOSS ON CANCELLATION OF FORWARD EXCHANGE CONTRACT WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER AMOUNTING TO RS.5,29, 446/- BY INVOKING PROVISIONS OF SECTION 43(5). THE CIT(A) DELETED THE ABOVE ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE REASONS GIVEN BY ASSESSING O FFICER AND ALSO THE SUBMISSIONS OF ASSESSEE. IT IS SEEN THAT T HERE ARE BASICALLY FIVE FORWARD EXCHANGE CONTRACTS CANCELLED DURING THE YEAR UNDER CONSIDERATION. I FIND THAT ALL THE CONTA CTS ARE AGAINST SPECIFIC IMPORT/EXPORT ORDER/INVOICES. IT IS A KNOW N FACT THAT PERSONS WHO ARE ENGAGED IN THE BUSINESS OF IMPORT/E XPORT ARE EXPOSED TO THE RISK OF FLUCTUATION IN THE EXCHANGE RATE OF CURRENCY. IT IS THEREFORE, QUITE NATURAL THAT IN ORDER TO MIN IMIZE THE RISK THEY MAY ENTER INTO SUCH CONTRACTS WITH BANKS. AS SUCH T HE FORWARD EXCHANGE CONTRACTS ARE VERY MUCH IN THE NATURE OF H EDGING TRANSACTIONS AND THEREFORE, THE SAME CANNOT BE TREA TED AS DONE WITH SPECULATIVE INTENT. THE PROVISIONS OF SECTION 45(3) ARE NOT APPLICABLE TO SUCH KIND OF CONTRACTS. THE POINT AT ISSUE STANDS COVERED BY THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. HENCE, L OSS ARISING ON CANCELLATION OF FORWARD CONTRACT IS ALLOWED AS BUSINESS LOSS AND HENCE THIS GROUND OF APPEAL IS ALLOWED. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT POINT OUT ANY ERROR IN THE FINDINGS OF THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS). WE FIND THAT THE LEARNED ASSESSING OFFIC ER HIMSELF HAS ADMITTED DIN THE ORDER OF ASSESSMENT THAT THE ASSES SEE HAS ENTERED INTO FOREIGN EXCHANGE CONTRACT TO PROTECT ITSELF FR OM LOSS ARISING OUT OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE. THUS, IN T HE INSTANT CASE, IT IS NOT IN DOUBT OR DEBATE THAT THE FOREIGN EXCHANGE CONTRA CT ENTERED INTO BY THE ASSESSEE WAS IN THE NATURE OF HEDGING TRANSACTI ON. THEREFORE, MERELY BECAUSE THE ASSESSEE ULTIMATELY CANCELLED SU CH FORWARD EXCHANGE CONTRACT CANNOT BE ALLEGED AS SPECULATION TRANSACTION WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. WE THEREFO RE, DO NOT FIND ANY ITA NO.3387/AHD/2008 A .Y 2005-06 ACIT, CIR-9 SRT V. M/S. LATHIYA BROTHERS & CO. PAGE 8 ERROR IN THE ORDER OF THE CIT(A). IT IS CONFIRMED A ND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, AS THE FACTS OF TH E PRESENT CASE ARE SIMILAR, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF RE VENUES APPEAL IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13/01/2011 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 13/01/2011 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-V, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD