JAIMIN JEWELLERY EXPOPRTS P.LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 5770/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75531 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 31-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Speculation loss
• Section: 43(5); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.5770/M/2012 ASSESSMENT YEAR:2009-10 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 347A, PANCHRATNA, OPERA HOUSE, MUMBAI 400 004 PAN:AABCJ9820F VS. ACIT 5(2), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BHUPENDRA SHAH, A.R. REVENUE BY : SHRI MOURYA PRATAP, D.R. DATE OF HEARING : 31.12.2013 DATE OF PRONOUNCEMENT :12.02.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 10.07.12. THE ASSESSEE HAS TAKEN THE FOLLOWI NG GROUNDS OF APPEAL. 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING RS 7,49,70,430/- ON ACCOUNT OF LOSS ON FOREIGN CURRENCY FLUCTUATION BY DISREGARDING THE FACT THAT THE APPEL LANT NEEDS TO ENTER INTO FORWARD CONTRACT IN ORDER TO HEDGE RISK AS THE AMOUNT INVOL VED IS HIGH AND SIGNIFICANT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN WRONGLY CHARGING INTEREST U/S 234 AND ALSO ERRED IN INITIATING PENALTY U/S 271 (1)( C). 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (A) ALSO ERRED IN CONFIRMING BOTH THE ADDITIONS AS ABOVE SAID. ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS AND EXPORT OF POLISHED DIAMONDS. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS A O) NOTICED THAT THE ASSESSEE HAD BOOKED A LOSS OF RS.7,49,70,430/- ON ACCOUNT OF LOSS ON FOREIGN CURRENCY FLUCTUATIONS. THE AO OBSERVED THAT THE LOSS ON ACC OUNT OF FOREIGN EXCHANGE FLUCTUATIONS WAS A SPECULATION LOSS AND FURTHER THA T THE SAID SPECULATIVE TRANSACTION DID NOT FALL WITHIN THE EXCLUSION CLAUS ES OF SECTION 43(5) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT ). HE THEREFORE TREATED THE FOREX DERIVATIVE TRANSACTIONS AS SPECULATIVE TRANSA CTIONS AND FURTHER HELD THAT THE LOSS ON SUCH SPECULATIVE TRANSACTION COULD NOT BE SET OFF AGAINST PROFIT AND GAINS OF BUSINESS BUT, FROM THAT OF SPECULATIVE TRA NSACTIONS ONLY. THE LD. CIT(A) AS PER HIS DETAILED FINDINGS GIVEN IN THE IM PUGNED ORDER CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED, THE ASSESS EE HAS PREFERRED THE PRESENT APPEAL. 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSE SSEE AT THE OUTSET HAS SUBMITTED THAT THE ASSESSEE ENTERED INTO FORWARD CO NTRACTS WITH THE BANKS TO SAFEGUARD AGAINST THE EXCHANGE FLUCTUATIONS OF EXPO RT CONSIDERATIONS/SALE PROFITS. THE BUSINESS OF THE ASSESSEE HAS BEEN OF IMPORT OF ROUGH DIAMONDS AND EXPORT OF POLISHED DIAMONDS TO DIFFERENT COUNTR IES AND ALL THE TRANSACTIONS HAVE BEEN DEMONETARIZED IN THE FOREIGN CURRENCY. TO ENSURE THAT THE RISK INVOLVED DUE TO CURRENCY FLUCTUATION BE AT MINIMUM LEVEL, IT WAS NECESSARY TO HEDGE THE RISK BY ENTERING INTO FORWARD CONTRACTS I N FOREIGN EXCHANGE WITH THE BANKS. HE HAS FURTHER RELIED UPON AN AUTHORITY OF THE CO-O RDINATE BENCH OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) (P. ) LTD. V. DCIT IN ITA NO.6169 (MUM) OF 2012 DECIDED ON 11.10.13 AND SUBMI TTED THAT THE ISSUE IS ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 3 SQUARELY COVERED IN FAVOUR OF THE ASSESSEE WITH THE ABOVE SAID JUDGMENT OF THE TRIBUNAL. ON THE OTHER HAND LD. D.R. HAS RELIED UPON THE FIND INGS OF THE LOWER AUTHORITIES. 4. WHEN FACED WITH ALMOST SIMILAR FACTS AND CIRCUMS TANCES THE CO-ORDINATE BENCH OF THE TRIBUNAL, WHILE DEALING WITH THE IDENT ICAL ISSUE, IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) (P.) LTD. V. DCIT (SUPRA), AFTER MAKING DETAILED DISCUSSIONS AND DELIBERATIONS ON THE VARIO US PROVISIONS OF THE ACT AS WELL AS THE AVAILABLE CASE LAWS, HAS OBSERVED THAT THE FORWARD CONTRACTS FALL IN THE DEFINITION OF COMMODITIES. SUCH FORWARD CONT RACTS WHICH ARE INTEGRAL PART OR INCIDENTAL TO THE CORE BUSINESS OF EXPORT O F DIAMONDS OR THE OUTSTANDING RECEIVABLES OF EXPORT PROCEEDS, IN PRINCIPLE, CONST ITUTE HEDGING TRANSACTIONS AND NOT THE SPECULATIVE CONTRACTS. THE RELEVANT FI NDINGS AS GIVEN IN PARA 34 OF THE SAID JUDGMENT ARE REPRODUCED AS UNDER: 34. FROM THE ABOVE ANALYSIS AND SUMMARY OF JUDGMEN TS, IT IS SAFELY CONCLUDED THAT THE IMPUGNED FCS ARE COMMODITIES. HOWEVER, C ONSIDERING THE FACT THAT THESE FCS ARE INTEGRAL PART OR INCIDENTAL TO THE CORE BUS INESS OF EXPORT OF DIAMONDS OR THE OUTSTANDING RECEIVABLES OF EXPORT PROCEEDS, IN PRIN CIPLE, THE IMPUGNED FCS CONSTITUTE HEDGING TRANSACTION AND NOT THE SPECU LATIVE CONTRACTS. AS SUCH, THE BANKS DO NOT ENTERTAIN FCS OF SPECULATIVE NATURE WI TH THE CUSTOMERS LIKE THE ASSESSEE, THE EXPORTER. AS SUCH, THE EXTENTION OF F CS, IN CASE OF NON-RECEIPT OF EXPORT PROCEEDS ON THE DUE DATES, IS NOT ALLOWED WITHOUT C ANCELLING THE EXISTING FCS. HOWEVER, THE ONUS IS ON THE ASSESSEE TO EXPLAIN SAT ISFACTORILY WHY THE ASSESSEE RESORTED TO PREMATURE CANCELLATION OF SOME FCS. FUR THER, IT IS NOT THE REQUIREMENT THAT THERE MUST BE 1:1 PRECISE CORRELATION BETWEEN FC AND THE CORRESPONDING EXPORT INVOICE. SO LONG AS THE TOTAL FCS DOES NOT EXCEED T HE EXPORTS OF THE YEAR PLUS OUTSTANDING EXPORT RECEIVABLE, THE FCS CAN CONSTITU TE HEDGING TRANSACTION . FURTHER ALSO, THE PREMATURE CANCELLATION OF FCS MAY NOT ALTER THE ABO VE CONCLUSIONS SO LONG AS THE ASSESSEE HAS VALID AND ACCEPTABLE EXPLA NATION FOR SUCH CANCELLATIONS. IT SHOULD NOT BE THE CASE, TO START WITH, FC CAN BE A HEDGING TRANSACTION BUT THE ENDING OF SUCH FC IS SPECULATION. IN THE LIGHT OF THIS SYNOPSIS OF OUR VIEWS IN THE MATTER, WE SHALL NOT DELIBERATE ON THE IMPUGNED LOS SES. 5. IT MAY BE FURTHER OBSERVED THAT THE HON'BLE SUPR EME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA (P.) LTD. (2009) 1 79 TAXMAN 326, WHILE DEALING WITH THE QUESTION AS TO WHETHER THE ADDITIO NAL LIABILITY ARISING ON ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 4 ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE CAN BE ALLOWED TO BE ADJUSTED PENDING ACTUAL PAYMENT OF THE VARIED, HAS OBSERVED THAT 'EXPENDITURE' AS USED IN SECTION 37 IN INCOME TAX ACT MAY IN THE CIRCUMST ANCES OF A PARTICULAR CASE COVER AN AMOUNT WHICH IS A 'LOSS' EVEN THOUGH SAID AMOUNT HAS NOT BEEN GIVEN FROM THE POCKET OF THE ASSESSEE. 6. WHILE DEALING WITH THE ISSUE OF THE NATURE OF FO RWARD CONTRACTS IN COMMODITY DERIVATIVES, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. KOTAK MAHINDRA INVESTMENT LTD. RELATING TO A.Y. 2008-09,[(2013) 59 SOT 4; 35 TAXMANN.COM 225 (MUMBAI-TRIB.)] ( JUDI CIAL MEMBER OF THE BENCH BEING PARTY TO THAT ORDER ALSO) HAS OBSERVED THAT SUCH TYPE OF FORWARD CONTRACTS ARE NOT PURELY CONTINGENT IN NATURE RATHE R LOSS OR PROFIT IS SOMEWHAT ASCERTAINABLE IN SUCH TYPE OF CONTRACTS BECAUSE OF CONSTANT WATCH ON DAILY MARKET RATES. THE QUANTUM OF PROFIT OR LOSS THOUGH NOT ACTUALLY ASCERTAINABLE CAN BE ANTICIPATED IN VIEW OF THE TRENDS OF THE MAR KET. THE DIFFERENCE BETWEEN THE PREDETERMINED PRICE AND MARKET PRICE IS SETTLED DAILY ON MARK-TO-MARKET BASIS. IN SUCH TYPE OF CONTRACTS, IT IS NOT THE ST OCK VALUE WHICH IS SUBJECT MATTER OF THE CONTRACT RATHER THE CONTRACT ITSELF I S THE STOCK IN TRADE. CONTRACTS IN SUCH TYPE OF CASES CAN BE SQUARED OFF BEFORE THE ARRIVAL OF ACTUAL PERFORMANCE OF DATE OF CONTRACT, AS THE PROFIT AND LOSS ARE CALCULATED ON DAILY BASIS AND THE MARGINS ARE SETTLED ACCORDINGLY. IT MAY BE FURTHER OBSERVED THAT NOW, VIDE FINANCE A CT 2013 W.E.F. 1.4.2014, CLAUSE (E) HAS BEEN INSERTED INTO THE PROVISO TO SE CTION 43 (5) OF THE ACT SO AS TO EXCLUDE THE TRADING IN COMMODITY DERIVATIVES FROM T HE DEFINITION OF SPECULATIVE TRANSACTIONS. 7. SO FAR THE QUESTION AS TO WHAT CONSTITUTES COM MODITY DERIVATIVES IS CONCERNED, IT MAY BE OBSERVED THAT IT HAS BEEN MENT IONED UNDER CLAUSE (1) OF ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 5 EXPLANATION 2 TO NEWLY INSERTED CLAUSE (E) TO PROVI SO OF SECTION 43(5) OF THE ACT THAT THE MEANING OF TERM COMMODITY DERIVATIVES SH ALL BE AS ASSIGNED TO IT IN CHAPTER VII OF THE FINANCE ACT 2013. PERHAPS THE CH APTER VII OF THE FINANCE BILL 2013 COULD NOT MATURE INTO AN ACT, THUS NO SPE CIFIC DEFINITION OF COMMODITY DERIVATIVES HAS BEEN GIVEN UNDER THE AC T. HOWEVER IN THE FINANCE BILL 2013, THE DEFINITION OF COMMODITY DER IVATIVES HAS BEEN GIVEN AS UNDER: CHAPTER VII COMMODITIES TRANSACTION TAX 106. IN THIS CHAPTER, UNLESS THE CONTEXT OTHERWISE REQUIRES, (5) COMMODITY DERIVATIVE MEANS (I) A CONTRACT FOR DELIVERY OF GOODS WHICH IS NOT A READY DELIVERY CONTRACT; OR (II) A CONTRACT FOR DIFFERENCES WHICH DERIVES ITS V ALUE FROM PRICES OR INDICES OF PRICES (A) OF SUCH UNDERLYING GOODS; OR (B) OF RELATED SERVICES AND RIGHTS, SUCH AS WAREHOU SING AND FREIGHT; OR (C) WITH REFERENCE TO WEATHER AND SIMILAR EVENTS AN D ACTIVITIES, HAVING A BEARING ON THE COMMODITY SECTOR; 8. SO IF WE CORRELATE THE DEFINITION OF COMMODITY DER IVATIVE AS WAS PROVIDED IN THE FINANCE BILL 2013 WITH THAT AS PROV IDED UNDER SECTION 43 OF THE I.T. ACT, THE SAME IS WIDE ENOUGH NOT ONLY TO INCLU DE FORWARD CONTRACTS IN DERIVATIVES RELATING TO GOODS, SERVICES AND RIGHTS SUCH AS WAREHOUSING AND FREIGHT BUT ALSO WITH REFERENCE TO WEATHER AND SIMI LAR EVENTS AND ACTIVITIES HAVING A BEARING ON THE COMMODITY SECTOR. AS OBSERV ED ABOVE, THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF LONDON STAR D IAMOND COMPANY (I) (P.) LTD. V. DCIT (SUPRA) HAS HELD THAT EVEN SUCH THE F ORWARD CONTRACTS FALL IN THE DEFINITION OF COMMODITIES. 9. IT MAY BE FURTHER OBSERVED THAT FOREIGN EXCHANG E FORWARD CONTRACTS ENTERED INTO FOR THE PURPOSE OF HEDGING THE LOSS IN IMPORT- EXPORT TRANSACTIONS, HAVE BEEN DULY RECOGNIZED AND ALLOWED BY THE RESERV E BANK OF INDIA. VIDE ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 6 FOREIGN EXCHANGE MANAGEMENT (FOREIGN EXCHANGE DERIV ATIVE CONTRACTS) REGULATIONS, 2000, NOTIFICATION NO. FEMA25/RB-2000, DATED 3RD MAY 2000 RESERVE BANK OF INDIA HAS DEFINED THE FORWARD CONTR ACT AND FOREIGN EXCHANGE DERIVATIVE CONTRACT AS UNDER: 2. (IV) 'FORWARD CONTRACT' MEANS A TRANSACTION IN VOLVING DELIVERY, OTHER THAN CASH OR TOM OR SPOT DELIVERY, OF FOREIGN EXCHANGE; (V) 'FOREIGN EXCHANGE DERIVATIVE CONTRACT' MEANS A FINANCIAL TRANSACTION OR AN ARRANGEMENT IN WHATEVER FORM AND BY WHATEVER NAME C ALLED, WHOSE VALUE IS DERIVED FROM PRICE MOVEMENT IN ONE OR MORE UNDERLYING ASSET S, AND INCLUDES, (A) A TRANSACTION WHICH INVOLVES AT LEAST ONE FOREI GN CURRENCY OTHER THAN CURRENCY OF NEPAL OR BHUTAN, OR (B) A TRANSACTION WHICH INVOLVES AT LEAST ONE INTER EST RATE APPLICABLE TO A FOREIGN CURRENCY NOT BEING A CURRENCY OF NEPAL OR BHUTAN , OR (C) A FORWARD CONTRACT, BUT DOES NOT INCLUDE FOREIG N EXCHANGE TRANSACTION FOR CASH OR TOM OR SPOT DELIVERIES; FURTHER SUCH CONTRACTS HAVE BEEN PERMITTED UNDER TH E FOLLOWING PROVISIONS: 4. PERMISSION TO A PERSON RESIDENT IN INDIA TO ENT ER INTO A FOREIGN EXCHANGE DERIVATIVE CONTRACT:- A PERSON RESIDENT IN INDIA MAY ENTER INTO A FOREIGN EXCHANGE DERIVATIVE CONTRACT IN ACCORDANCE WITH PROVISIONS CONTAINED IN SCHEDULE I, TO HEDGE AN EXPOSURE TO RISK IN RESPECT OF A TRANSACTION PERMISSIBLE UNDER THE ACT, OR RULES OR REGULATIONS OR DIRECTIONS OR ORDERS MADE OR ISSUED THEREUNDER. SCHEDULE I (SEE REGULATION 4) FOREIGN EXCHANGE DERIVATIVE CONTRACT PERMISSIBLE FO R A PERSON RESIDENT IN INDIA A. FORWARD CONTRACT 1. A PERSON RESIDENT IN INDIA MAY ENTER INTO A FORW ARD CONTRACT WITH AN AUTHORISED DEALER IN INDIA TO HEDGE AN EXPOSURE TO EXCHANGE RI SK IN RESPECT OF A TRANSACTION FOR WHICH SALE AND/OR PURCHASE OF FOREIGN EXCHANGE IS P ERMITTED UNDER THE ACT, OR RULES OR REGULATIONS OR DIRECTIONS OR ORDERS MADE OR ISSU ED THERE UNDER, SUBJECT TO FOLLOWING TERMS AND CONDITIONS) THE AUTHORISED DEAL ER THROUGH VERIFICATION OF DOCUMENTARY EVIDENCE IS SATISFIED ABOUT THE GENUINE NESS OF THE UNDERLYING EXPOSURE, B) THE MATURITY OF THE HEDGE DOES NOT EXCEED THE MATUR ITY OF THE UNDERLYING TRANSACTION , C) THE CURRENCY OF HEDGE AND TENOR ARE LEFT TO THE CHOICE OF THE CUSTOMER, D) WHERE THE EXACT AMOUNT OF THE UNDERLYING TRANSAC TION IS NOT ASCERTAINABLE, THE CONTRACT IS BOOKED ON THE BASIS OF A REASONABLE EST IMATE, E) FOREIGN CURRENCY LOANS/BONDS WILL BE ELIGIBLE FO R HEDGE ONLY AFTER FINAL APPROVAL IS ACCORDED BY THE RESERVE BANK WHERE SUCH APPROVAL IS NECESSARY, F) IN CASE OF GLOBAL DEPOSITORY RECEIPTS (GDRS) THE ISSUE PRICE HAS BEEN FINALISED, ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 7 G) BALANCES IN THE EXCHANGE EARNER'S FOREIGN CURREN CY(EEFC) ACCOUNTS SOLD FORWARD BY THE ACCOUNT HOLDERS SHALL REMAIN EARMARK ED FOR DELIVERY AND SUCH CONTRACTS SHALL NOT BE CANCELLED. THEY MAY BE ,HOWE VER, BE ROLLED-OVER, H) CONTRACTS INVOLVING RUPEE AS ONE OF THE CURRENCIES, ONCE CANCELLED SHALL NOT BE RE-BOOKED ALTHOUGH THEY CAN BE ROLLED OVER AT ONGOI NG RATES ON OR BEFORE MATURITY. THIS RESTRICTION SHALL NOT APPLY TO CONTRACTS COVER ING EXPORT TRANSACTIONS WHICH MAY BE CANCELLED, REBOOKED OR ROLLED OVER AT ON-GOI NG RATES, I) SUBSTITUTION OF CONTRACTS FOR HEDGING TRADE TRAN SACTIONS MAY BE PERMITTED BY AN AUTHORIZED DEALER ON BEING SATISFIED WITH THE CIRCU MSTANCES UNDER WHICH SUCH SUBSTITUTION HAS BECOME NECESSARY. (EMPHASIS SUPPLIED BY US) 10. WE MAY FURTHER OBSERVE FROM THE GUIDELINES ISS UED BY THE RESERVE BANK OF INDIA RELATING TO GENERAL PRINCIPLES TO BE OBSERVED FOR FORWARD FOREIGN EXCHANGE CONTRACTS THAT THE BANKS HAVE BEEN PERMITT ED TO ENTER INTO SUCH CONTRACTS AFTER THOROUGH VERIFICATION OF DOCUMENTAR Y EVIDENCES ETC. ABOUT THE GENUINENESS OF THE UNDERLYING FOREIGN CURRENCY EXPO SURE AND THE NEED OF HEDGING OF THE LOSS. FURTHER THE MATURITY OF THE HE DGE SHOULD NOT EXCEED THE MATURITY OF THE UNDERLYING TRANSACTION. SO IN VIEW OF THE UNDERLYING RISK IN IMPORT EXPORT BUSINESS DUE TO CURRENCY RATE FLUCTUATIONS, THE RESERVE BANK OF INDIA HAS NO T ONLY DEFINED BUT HAS ALSO ALLOWED THE FORWARD CONTRACTS RELATING TO FOREIGN E XCHANGE DERIVATIVES FOR HEDGING OF SUCH ANTICIPATED LOSSES. EVEN IN CASE OF CONTRACTS COVERING EXPORT TRANSACTIONS, THERE IS NO RESTRICTION OF REBOOKING AND SUCH CONTRACTS MAY BE CANCELLED, REBOOKED OR ROLLED OVER AT ONGOING RATES . 11. IN VIEW OF THE ABOVE DISCUSSIONS, IT CAN BE SAF ELY HELD THAT IN CASE OF IMPORT/EXPORT BUSINESS, WHERE THE TRANSACTIONS ARE DEMONETARIZED IN THE FOREIGN CURRENCIES AND FOR THE PURPOSE OF HEDGING O F THE ANTICIPATED LOSS RESULTING FROM SUCH IMPORT-EXPORT BUSINESS AND NOT OTHERWISE, IF THE ASSESSEE ENTERS INTO A FORWARD CONTRACT IN FOREIGN EXCHANGE, THEN SUCH FORWARD CONTRACTS ARE TO BE TREATED AS INTEGRAL PART OR INCIDENTAL T O THE BUSINESS OF EXPORT/IMPORT AND CANNOT BE SAID TO BE THE SPECULATIVE CONTRACTS ATTRACTING THE PROVISIONS OF ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 8 SECTION 43(5) OF THE ACT. THE LOSS FROM SUCH HEDGIN G TRANSACTIONS WOULD BE TREATED AS BUSINESS LOSS ELIGIBLE TO BE SET OFF AGA INST THE PROFITS AND GAINS OF BUSINESS AND PROFESSION. 12. IT IS HELD ACCORDINGLY THAT THE FOREIGN EXCHANG E LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF ENTERING INTO FORWARD CONTRA CTS WITH THE BANKS FOR THE PURPOSE OF HEDGING THE LOSS IN CONNECTION WITH HIS IMPORT/EXPORT BUSINESS OF DIAMONDS CANNOT BE HELD TO BE A SPECULATIVE LOSS RA THER A BUSINESS LOSS WHICH CAN BE SET OFF AGAINST PROFIT AND GAINS OF BUSINESS SUBJECT TO THE CONDITION THAT THE ASSESSEE WILL HAVE TO SATISFACTORILY PROVE TH AT THE MATURITY OF THE HEDGE DID NOT EXCEED THE MATURITY OF THE UNDERLYING TRANSACTI ON AND FURTHER TO EXPLAIN THE REQUIREMENT/NECESSITY FOR PREMATURE CANCELLATION OF SUCH FORWARD CONTRACTS OR THAT SUCH CANCELLATIONS OR RE-BOOKINGS WERE DONE TO MINIMIZE THE ANTICIPATED FUTURE LOSSES FROM SUCH TRANSACTIONS. THE FINDINGS OF THE CIT(A) GIVEN VIDE IMPUGNED ORDER ARE THEREFORE SET ASIDE AND THE ISSU E IS RESTORED BACK TO THE FILE OF THE AO TO DECIDE THE SAME ACCORDINGLY AFTER GIVI NG PROPER OPPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.02.2014. SD/- SD/- (P.M. JAGTAP) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12 TH FEBRUARY, 2014. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT ITA NO. 5770/M/2012 M/S. JAIMIN JEWELLERY EXPORTS PVT. LTD. 9 THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.