Jayant Kumar Bhura, Mumbai V. I.T.O Wd - 35(2),kolkata, Kolkata

ITA 901/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99928 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2013
• Court: TRIBUNAL
• Department Lawyers: SANJIT KR DAS
• Assessee Lawyers: S K TULSIYAN
• Keywords: Business income; Business expenditure; Speculation loss; Onus to prove; Revenue expenditure
• Section: 143(3); 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.901/KOL/2013 ASSESSMENT YEAR: 2009-10 SHRI JAYANT KR. BHURA VS. INCOME-TAX OFFICER, W D-35(2), KOLKATA. (PAN: AELPB2651R) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 22.09.2015 DATE OF PRONOUNCEMENT: 29 .10.2015 FOR THE APPELLANT: SHRI S. K. TULSIYAN & SHRI RAV I TULSIYAN, FCA FOR THE RESPONDENT: SHRI SANJIT KR. DAS, JCIT, S R. DR ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XX, KOLKATA IN APPEAL NO.281/CIT(A)-XX/WD-35(2)/2011-12/KOL DATED 14.02.2 013. ASSESSMENT WAS FRAMED BY ITO (TDS), WARD-35(2), KOLKATA U/S. 143(3) OF THE I NCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2009-10 VIDE ITS O RDER DATED 27.12.2011. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF BUSINESS LOSS TREATING THE SAME AS SPECULATION LOSS ARISING OUT OF FOREIGN EXCHANGE CONTRACTS. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NOS. 1 TO 6: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE BUSINESS LOSS OF RS.3,78,44,872J - A S SPECULATION LOSS, WHICH IS BAD IN LAW, WRONG AND CONTRARY TO THE FACTS AND EVIDENCE ON REC ORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED ASSESSING OFFICER AND CIT (A) ERRED IN TREATING THE LOSS INCURRED ON FOREIGN EXCHANGE CONTRACTS AS SPECULATION LOSS. THE APPELLANT PRAYS THAT, THIS BEING BUSINESS LOSS IT BE ALLOWED ACCORDINGLY. 3. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER AND CIT(A) ERRED IN OBSERVING THAT, THE APPELLANT HAD C ARRIED ON INDEPENDENT BUSINESS OF DEALING IN FORWARD CONTRACTS IN FOREIGN EXCHANGE AN D FAILED TO APPRECIATE THAT, IT IS PART OF THE APPELLANT'S EXPORT BUSINESS FOR HEDGING AGAINST THE EXCHANGE FLUCTUATIONS. (B) THE LEARNED ASSESSING OFFICER AND CIT(A) ERRED IN HOLDING THAT, LOSS ON CANCELLATION OF FORWARD CONTRACT IN FOREIGN EXCHANGE IS SPECULATIVE TRANSACTION AS PER SECTION 43(5) OF THE I. T. ACT, 1961 WHICH IS CONTRARY TO THE FACTS AND EVI DENCE ON RECORD. 4. THE LEARNED CIT (A) ERRED IN OBSERVING THAT, THE APPELLANT WAS UNABLE TO PROVE OR UNABLE TO ADDUCE SUPPORTING DOCUMENTS IN SUPPORT THAT, THE LOSS INCURRED IS BUSINESS LOSS AND NOT SPECULATIVE LOSS. 2 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT (A) ERRED IN HOLDING THAT THE LOSS OF RS.3,78,44,872/- INCURRED IN COURS E OF EXPORT BUSINESS IS SPECULATIVE BUSINESS LOSS AND NOT THE ORDINARY BUSINESS LOSS WHICH IS WR ONG AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 6. THE APPELLANT PRAYS THAT THE BOOKING OF FORWARD CONTRACTS IN FOREIGN EXCHANGE WAS IN ORDINARY COURSE OF APPELLANT'S BUSINESS FOR HEDGING AGAINST EXPORT SALE CONTRACTS AND LOSS INCURRED ON SUCH CONTRACTS BEING BUSINESS LOSS IT B E ALLOWED ACCORDINGLY. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE AN IN DIVIDUAL IS ENGAGED IN TRADING AND EXPORT OF AGRO PRODUCTS SUCH AS RAW COTTON, SUGAR, MAIZE, SESAME SEEDS, SORGHUM, BAJRA, GROUNDNUT, GINGER SEEDS, ETC. TO FOREIGN COUNTRIES LIKE USA, PORTUGAL, SPAIN, MALAYASIA, TAIWAN ETC. FOR LAST SEVERAL YEARS UNDER THE TRADE NAME OF M/S. NAVJYOT INTERNATIONAL. THE ASSESSEE IS A RECOGNIZED EXPORT HOUSE. THE ASSESSEE DOES NOT HAVE ANY OTHER BUSINESS AND HE IS NOT A DEALER IN FOREIGN EXCHANGE. THE PARTICU LARS OF THE ASSESSEES EXPORT SALES IN THE PRECEDING THREE YEARS ARE AS FOLLOWS: ASSESSMENT YEAR EXPORT SALE US$ EXPORT SALE IN RUPE ES 2006-07 2007-08 2008-09 98,76,644.18 1,90,78,433 2.08,24,334 44,89,23,474 87,49,14,679 85,80,57,226 THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSI DERATION ENTERED INTO FORWARD CONTRACT IN FOREIGN EXCHANGE IN ORDER TO HEDGE HIS LOSS ON A CCOUNT OF FLUCTUATIONS IN FOREIGN EXCHANGE RATES. IN THE COURSE OF EXPORT BUSINESS A SSESSEE CLAIMED TO HAVE INCURRED TOTAL LOSS OF RS.3,87,50,017/- CONSISTING OF RS.3,78,44,8 72/- ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE AND RS. 9,05, 145/- BEING EXPENDITURE ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPLAINED BEFORE THE AO THAT HIS IS A RECOGNIZED EX PORT HOUSE RECOGNIZED BY MINISTRY OF COMMERCE & INDUSTRIES, GOVT. OF INDIA. HE ALSO EXP LAINED THAT FORWARD CONTRACT IN FOREIGN EXCHANGE WERE ENTERED INTO BY THE ASSESSEE THROUGH AUTHORIZED BANK FOLLOWING THE PROCEDURES PRESCRIBED BY RBI. ACCORDING TO ASSESSE E, HE CLAIMED THE LOSS OF RS.3,87,50,017/- AS HEDGING LOSS IN TERM OF PROVISO (A) TO SECTION 43(5) OF THE ACT AND REQUESTED FOR TREATING OF THE SAME AS ORDINARY BUSI NESS LOSS BEING ELIGIBLE FOR SET OFF WITH OTHER BUSINESS INCOME. BUT THE AO REJECTED THE CLAI M OF THE ASSESSEE AND TREATED THE HEDGING LOSS AS SPECULATION LOSS. AGGRIEVED, ASSES SEE PREFERRED APPEAL BEFORE CIT(A). 3 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 4. THE CIT(A) CONFIRMED THE ACTION OF AO, WHO OBSER VED THAT THERE IS VERY THIN LINE OF DIFFERENCE TO TREAT THE NATURE OF ANY TRANSACTION A S TO WHETHER IT IS HEDGING OR SPECULATION. ACCORDINGLY, HELD THAT THE ASSESSEE HAD CARRIED ON INDEPENDENT BUSINESS OF DEALING IN FORWARD CONTRACT IN FOREIGN EXCHANGE AND IT IS NOT LINKED TO THE EXPORT BUSINESS OF THE ASSESSEE. FOR THIS, CIT(A) OBSERVED IN PARA 3.2 AS UNDER: 3.2. I HAVE PERUSED THE ASSESSMENT ORDER AND CONSI DERED THE SUBMISSION OF THE APPELLANT. THE FACT OF THE CASE IS THAT THE A.O. O BSERVED THAT THE APPELLANT WAS ENGAGED IN TRADING INCLUDING EXPORT OF SESAME SEEDS, RAW COTTO N, MAIZE, BAZAAR ETC. THE APPELLANT HAD NOT CLAIMED TO BE ILL THE BUSINESS OF DEALING I N FOREIGN EXCHANGE. THE A.O. NOTICED THAT THE APPELLANT WAS DEALING IN FORWARD CONTRACTS IN FOREIGN EXCHANGE. THE FORWARD CONTRACTS WERE SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY AND THE TRANSFER RESULTED IN LOSS OF RS 3,78,44,872/-. SUCH LOSS WAS CLAIMED BY THE APPELLANT IN HIS COMPUTATION OF TOTAL INCOME AS BUSINESS EXPENDITURE AND NOT AS SPE CULATION LOSS EVEN THOUGH THE DEALING IN FORWARD CONTRACTS IN FOREIGN EXCHANGE CONSTITUTE D AN INDEPENDENT BUSINESS AS UNDERSTOOD UNDER EXPLANATION 2 OF SEC. 28 READ WIT H SEC. 43(5) OF THE INCOME TAX ACT, 1961. THE APPELLANT DEBITED RS 3,87,50,017/- TO THE P & L A/C OF HIS PROPRIETORSHIP CONCERN M/S NAVJYOT INTERNATIONAL ON ACCOUNT OF FOREIGN EXC HANGE DIFFERENCE ON CANCELLATION OR FORWARD BOOKINGS. FROM THE DETAILS SUBMITTED, IT WA S OBSERVED THAT OUT OF THE TOTED DEBIT OF RS 3,87,50,017/-, A SUM OF RS. 9,05,145/- PERTAI NS TO EXPENDITURE CLAIMED ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AND THE BALANCE OF RS 3 ,78,44,872/- WAS LOSS ON CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE BOOKED WIT H HIS BANK. THE A.0. ASKED THE APPELLANT TO EXPLAIN AS TO WHY THE SAID TRANSACT IO N OF FORWARD CONTRACTS SETTLED OTHERWISE THAN ACTUAL DELIVERY SHOULD NOT BE TREATED AS SPEC ULATIVE TRANSACTION WITHIN THE MEANING OF SEC. 43(5) OF THE INCOME TAX ACT, 1961. THE APPELLANT SUBMITTED THAT THE FORWARD CONTRACTS IN FOREIGN EXCHANGE WERE CANCELLED ON ACCOUNT OF CANCELLATION OF EXPORT CONTRACTS/SALE DUE TO GLOBAL CRISIS AND BAN FOR SALE OF YELLOW MAIZE. THE BOOKING OF FORWARD CONTRACTS IN F OREIGN EXCHANGE WAS HEDGING AGAINST EXPORT SALES. BUT FACTS ON RECORDS REVEALED THAT EV EN BEFORE THIS BAN THE EXPORT OF YELLOW MAIZE CONSTITUTED ONLY 7.41% OF HIS TOTAL EXPORT (0 1.04.2008 TO 30.06.2008). THE APPELLANT SUBMITTED THAT DUE TO BAN ON EXPORT OF YE LLOW MAIZE HE WAS UNABLE TO EXECUTE EXPORT CONTRACTS. BUT THE FACTS ON RECORD DID NOT S HOW ANY SUCH EXPORT CONTRACT OF YELLOW MAIZE HAVING BEEN CANCELLED DUE TO THIS BAN. FURTHE R, THE APPELLANT WAS ALSO UNABLE TO PROVE THAT THE CANCELLED FORWARD CONTRACTS WERE IN RESPECT OF ANY EXPORT ORDER FOR YELLOW MAIZE. THE APPELLANT WAS UNABLE TO ADDUCE SUPPORTIN G DOCUMENTS IN SUPPORT OF HIS CONTENTION THOUGH AMPLE OPPORTUNITIES WAS GIVEN TO HIM BY THE A.O. THE APPELLANT NEITHER COULD PROVE THAT THE FORWARD CONTRACTS WERE IN RESP ECT OF EXPORT ORDER FOR YELLOW MAIZE NOR HE COULD PRODUCE ANY EVIDENCE FOR CANCELLATION OF SUCH EXPORT ORDER. THE APPELLANT WAS, THEREBY, UNABLE TO DISCHARGE HIS ONUS TO PROVE THAT THE TRANSACTIONS WERE HEDGING IN NATURE. THE FORWARD CONTRACT WERE MOSTLY BOOKED IN ASSESSMENT YEAR 2008-09 BUT THE CORRESPONDING EXPORT SALE WERE CLAIMED TO HAVE BEEN EFFECTED SUBSEQUENTLY IN THE NEXT ASSESSMENT YEAR 2009-10 EXCEEDING THE REASONABLE TI ME LIMIT. FURTHER, THE APPELLANT WAS UNABLE TO PROVE THAT THE FORWARD CONTRACTS BOOKED W ERE TO THE EXTENT OF CONFIRMED EXPORT SALES. THE APPELLANT WAS UNABLE TO SUBSTANTIATE THA T AT THE TIME OF BOOKING OF FORWARD CONTRACTS HE HAD REASONABLE EQUIVALENT EXPORT CONTR ACTS. FURTHER, THE GUIDELINES OF RBI MIGHT HAVE BEEN FOLLOWED IN BOOKING OF FORWARD CONT RACTS BUT THE RESULTANT LOSS/INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISION S LAID DOWN IN THE INCOME TAX ACT. MOST OF THE FORWARD BOOKINGS WERE MADE IN THE FY 20 07-08 WHEREAS BAN ON EXPORT OF YELLOW MAIZE CAME INTO EFFECT FROM THE MONTH OF JUL Y 2008 (FY 2008-09). THE APPELLANT WAS ALSO UNABLE TO PROVE THAT THERE HAD BEEN CONTRA CTS FOR EXPORT SALE AT THE TIME OF 4 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 BOOKING OF FORWARD CONTRACTS WHICH WERE SUBSEQUENTL Y CANCELLED DUE TO GLOBAL RECESSION/DEPRESSION. HE ENTERED INTO ORAL CONTRACT S WHICH WERE SUBSEQUENTLY CANCELLED BUT COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF SU CH CLAIM. THE ORAL TESTIMONY WAS NOT SUPPORTED BY ANY CORROBORATIVE EVIDENCE. THE CLAIM OF ORAL CONTRACT IS AFTERTHOUGHT ON THE PART OF THE APPELLANT. THE APPELLANT HAD FAILE D TO PUT FORWARD ANY PLAUSIBLE EXPLANATION TO DENY THAT THE SUBSTANTIAL NUMBER OF FORWARD TRANSACTIONS HAD BEEN UNDERTAKEN WHICH COULD BE HELD TO BE CONSTITUTING O N INDEPENDENT BUSINESS WITHIN THE MEANING OF EXPLANATION 2 TO SEC. 28 OF I.T. ACT. TH EREBY, HE COULD NOT EXPLAIN AS TO HOW THE PROVISIONS AS PER EXPLANATION 2 TO SEC 28, SEC 43(5) AND SEC 73 OF INCOME TAX ACT WERE NOT APPLICABLE IN HIS CASE. AFTER ANALYSIS OF THE FACTS ON RECORD IT HAD BEEN CONCLUDED THAT THE SAID LOSS OF RS .3.78,44,872/- W AS SPECULATION LOSS AND NOT ALLOWABLE AGAINST THE BUSINESS INCOME OF EXPORT SALES. THE APPELLANT WAS UNABLE TO PROVE WITH EVIDENCE IN SUPPORT OF HIS CLAIM THAT BOOKING OF FORWARD CONTRACTS WERE HEDGING ILL NATURE AGAINST H IS EXPORT SALES. FOR THIS, HE WAS REQUIRED TO PROVE THE EXISTENCE OF EXPORT SALES AND THAT HE HAD ENTERED INTO THE FORWARD CONTRACTS ONLY FM SAFEGUARDING THE LOSS WHICH MIGHT HAVE OCCURRED DUE TO FUTURE PRICE FLUCTUATION IN FOREIGN CURRENCY. HOWEVER, HE COULD NOT PROVE THE SAME WITH SUPPORTING DOCUMENTARY EVIDENCES. IT WAS FOUND THAT THERE WAS NO REASONABLE EQUIVALENCE BETWEEN THE PERIOD OF SUBSISTENCE OF TWO CONTRACTS AND THE AMOUNTS INVOLVED IN THE TWO CONTRACTS. IT WAS ALSO FOUND THAT CANCELLATION OF 9 FORWARD CO NTRACTS IN FOREIGN EXCHANGE AGGREGATING 28,00,000 USD RESULTED IN A LOSS OF RS 2,33,23,750/-. BUT THE APPELLANT FAILED TO IDENTIFY THE CORRESPONDING EXPORT/SALE CO NTRACT AGAINST WHICH THE SAID 9 FORWARD CONTRACTS WERE BOOKED AND THUS, THE APPELLANT COULD NOT PROVE HIS CLAIM THAT THE TRANSACTIONS WERE HEDGING IN NATURE. IN RESPECT OF THE CLAIM OF LOSS FOR THE REMAINING AMOUNT OF RS.1,45,21,122/- (3,78,44,872 - 2,33,23,7 50) THE APPELLANT COULD COME FORWARD WITH SOME TRANSACTIONS BUT THERE WAS NO REASONABLE EQUIVALENCE OF PERIOD AND AMOUNT BETWEEN THE TWO CONTRACTS. THUS, THE FACTS AND CIRCUMSTANCES OF THE CASE DID N OT SUPPORT THE CLAIM OF THE APPELLANT THAT BOOKING OF FORWARD CONTRACTS WERE HEDGING AGAI NST HIS EXPORT SALES. THE TRANSACTIONS IN FORWARD CONTRACTS OF FOREIGN EXCHANGE WHICH WERE SETTLED OTHERWISE THAN BY ACTUAL DELIVERY ARE NOTHING BUT 'SPECULATIVE TRANSACTION' AS PER THE PROVISIONS OF SEC 43(5). THE CLAIM OF THE APPELLANT THAT THE TRANSACTIONS IN FORWARD CONTRACT OF FOREIGN EXCHANGE WERE HEDGING AGAINST EXPORT SALES IS NOT ACCEPTABLE IN VIEW OF THE DISCUSSIONS ABOVE. BY VIRTUE OF PROVISIONS OF SEC 43(5), EXPLANATION 2 TO SEC. 28 AND SEC. 73, THE LOSS OF RS.3,78,44,872/- IN FORWARD CONTRACT, SET OFF WITH THE INCOME FROM EXPORT BUSINESS IS NOT ALLOWABLE. FACTS IN THE CASES ON WHICH CASE LAWS RE LIED UPON BY THE APPELLANT, ARE NOT IDENTICAL WITH THE FACTS OF THE PRESENT CASE. ON PE RUSING THE CONTENTS OF THE ASSESSMENT ORDER AND AFTER GOING THROUGH THE SUBMISSION OF THE APPELLANT, IT IS OBSERVED THAT THERE IS VERY THIN LINE OF DIFFERENCE TO TREAT THE NATURE OF ANY TRANSACTION AS TO WHETHER IT IS OF HEDGING OR SPECULATION. IT DEPENDS ON FACTS OF EACH CASE, EVEN IN THE SAME LINE, THE SMALL DEVIATION OF FACTS MAY CHANGE THE NOMENCLATURE OF T HE TRANSACTION. IN THE INSTANT CASE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS VIEW IS STRONGER THAT THE INTENTION OF THE APPELLANT DURING THIS PARTICULAR YEAR WAS TO SPECULATE IN THE FOREIGN EXCHANGE RATHER THAN HEDGING. FURTHER, THE FACTS ARE DISTING UISHABLE IN THE CASE LAWS RELIED UPON BY THE APPELLANT. UNDER THESE CIRCUMSTANCES, I FIND NO INFIRMITY IN THE A.O'S ORDER, HENCE APPEAL IS DISMISSED. AGGRIEVED, AGAINST THE ORDER OF CIT(A), ASSESSEE CA ME IN SECOND APPEAL BEFORE TRIBUNAL. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE AGGRIEVED AGAINST THE AFORESAID TREATMENT OF HEDGING LOSS AS SPECULATION LOSS STATED THE BRIEF P ROCEDURE OF THE BUSINESS OF THE ASSESSEE 5 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 THAT IN THE ASSESSEES BUSINESS, EXPORT ORDERS ARE SOMETIMES RECEIVED FOR SHIPMENTS STAGGERED OVER A PERIOD OF SEVERAL MONTHS AND SOMET IMES FOR IMMEDIATE SHIPMENT OR SHIPMENT IN THE NEXT MONTH AND THE EXPORT ORDERS AR E DENOMINATED IN FOREIGN CURRENCY. HE EXPLAINED THAT THE SALE VALUE IN INDIAN CURRENCY WH ICH THE ASSESSEE REALISES DEPENDS ON THE RATE OF EXCHANGE PREVAILING AT THE TIME OF PRESENTA TION OF THE EXPORT INVOICE FOR PAYMENT AND DUE TO ADVERSE FLUCTUATIONS IN THE EXCHANGE RAT E, IT CAN SO HAPPEN THAT THE ASSESSEE REALISES LESSER AMOUNT IN INDIAN CURRENCY THAN THAT CONTEMPLATED AT THE TIME OF NEGOTIATION OF THE EXPORT CONTRACT. THE RESERVE BANK OF INDIA P ERMITS INDIAN EXPORTERS TO ENTER INTO FORWARD CONTRACTS IN FOREIGN EXCHANGE WITH AN AUTHO RISED DEALER CATEGORY-I BANKS IN INDIA TO HEDGE THE EXPOSURE TO EXCHANGE RISK IN SUCH CASE S. SUCH FORWARD CONTRACTS WITH A VALIDITY PERIOD OF ONE YEAR CAN BE BOOKED BASED ON PAST PERFORMANCE OF THE AVERAGE OF PREVIOUS THREE FINANCIAL YEARS' ACTUAL EXPORT TURNO VER OR THE PREVIOUS YEAR'S ACTUAL EXPORT TURNOVER WHICHEVER IS HIGHER. IT IS PERMISSIBLE TO CANCEL SUCH FORWARD CONTRACTS. FOR THE SAME LD. COUNSEL REFERRED TO THE RELEVANT PERIODS RBI'S MASTER CIRCULAR NO. 6/2007-08 DATED JULY 2, 2007. ACCORDING TO HIM, BOOKING OF FO RWARD CONTRACTS IN FOREIGN EXCHANGE IS A NECESSARY INCIDENT OF THE ASSESSEES EXPORT BUSIN ESS. SUCH FORWARD CONTRACTS ARE BOOKED IN THE NORMAL AND USUAL COURSE OF THE ASSESSEES EX PORT BUSINESS. LD. COUNSEL EXPLAINED THE FACTS OF THIS CASE THAT MOST OF THE FORWARD CONTRAC TS IN QUESTION WERE ENTERED INTO IN THE PRECEDING FINANCIAL YEAR 2007-08 ON THE BASIS OF TH E EXPORT ORDERS IN HAND. SOME OF SUCH EXPORT ORDERS HAD SHIPMENT PERIODS FALLING PARTLY I N THE FINANCIAL YEAR 2007-08 AND PARTLY IN THE FINANCIAL YEAR 2008-09. SOME OF SUCH EXPORT ORDERS RECEIVED DURING 2007-08 PROVIDED FOR SHIPMENT DURING 2008-09. THE ASSESSEE COULD ENTER INTO FORWARD CONTRACTS IN THE YEAR OF RECEIPT OF THE EXPORT ORDERS, NAMELY, F INANCIAL YEAR 2007-08, COVERING THE ENTIRE SHIPMENT PERIOD BECAUSE THE CONTRACTS HAD A VALIDIT Y PERIOD OF ONE YEAR. HE EXPLAINED THE FACT THAT AT THE TIME OF BOOKING OF THE FORWARD CON TRACTS, THE ASSESSEE HAD EXPORT ORDERS IN HAND FOR US$ 2,16,08,278 BUT BOOKED FORWARD CONTRAC TS ONLY FOR US$ 1,00,70,000. THE ASSESSEE HAD BOOKED THE FORWARD CONTRACTS IN ROUND SUMS AGAINST THE CONFIRMED EXPORT ORDERS BUT NOT EXCEEDING THE VALUE OF THE EXPORT OR DERS. AT ANY POINT OF TIME THE ASSESSEE HAD MORE EXPORT ORDERS IN HAND THAN THE FORWARD BOO KING AMOUNT. RELEVANT DETAILS IN THIS BEHALF WERE FURNISHED IN A STATEMENT WHICH IS PART OF ASSESSEE PAPER BOOK AS ANNEXED A. EVEN LD. COUNSEL REFERRED TO COPIES OF THE EXPORT O RDERS WHICH ARE ANNEXED IN ASSESSEES PAPER BOOK. 6 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 6. LD. COUNSEL FOR THE ASSESSEE EXPLAINED THE FACTS THAT AGAINST THE EXPORT ORDERS FOR US$ 2,16,08,278, EXPORTS OF US$ 41,76,126 WERE MADE DURING THE FINANCIAL YEAR 2007-08 BUT DURING THE FINANCIAL YEAR 2008-09 EXPORTS WORTH ONLY US$ 57,59,208 COULD BE MADE. HE EXPLAINED THAT THE BALANCE EXPORT ORDERS COULD N OT BE EXECUTED BECAUSE OF WORLD-WIDE SLOWDOWN, GLOBAL RECESSION AND SLUGGISH MARKET COND ITIONS, WHICH IS A MATTER OF PUBLIC RECORD. MANY BIG BUSINESS HOUSES, FINANCIAL INSTITU TIONS AND BANKS WORLD-WIDE FACED BANKRUPTCY. HE EXPLAINED THAT DURING SEPTEMBER-NOVE MBER 2008 THE RUPEE ADVERSELY FLUCTUATED AGAINST THE DOLLAR BY MORE THAN 30%. THE ASSESSEES CUSTOMERS DID NOT OPEN LETTERS OF CREDIT RESULTING IN NON FULFILLMENT/CANC ELLATION OF THE EXPORT ORDERS. ADDITIONALLY, THE INDIAN GOVERNMENT BANNED THE EXPORT OF MAIZE IN JULY, 2008. CONSEQUENTLY, THE PENDING EXPORT ORDERS FOR THE MAIZE COMMODITY HAD T O BE CANCELLED AND NO FURTHER ORDERS COULD BE BOOKED. LD. COUNSEL ALSO REFERRED TO RELEV ANT DETAILS OF THE CANCELLED EXPORT ORDERS (INCLUDING FOR MAIZE), WHICH ARE FURNISHED I N A STATEMENT ANNEXED TO ASSESSEES PAPER BOOK. COPY OF THE CIRCULAR RELATING TO BAN ON EXPORT OF MAIZE IS ANNEXED IN THE ASSESSEES PAPER BOOK. THE ASSESSEE HAD CONFIRMED O RDERS FOR EXPORT OF MAIZE TO THE TUNE OF US$ 36,62,000. THE ASSESSEE EXPORTED MAIZE OF TH E VALUE OF US$ 7,57,159 DURING THE FINANCIAL YEAR 2008-09 BEFORE IMPOSITION OF THE BAN . DUE TO THE SUDDEN BAN BY THE GOVERNMENT OF INDIA ON THE EXPORT OF MAIZE ON JULY 3, 2008 THE ASSESSEE HAD TO CANCEL ALL THE PENDING ORDERS WORTH US$ 29,04,841 AND WAS LEFT WITH NO OTHER OPTION BUT TO CANCEL THE FORWARD BOOKING AS WELL. THE DETAILS OF EXPORT ORDE RS FOR MAIZE TO THE EXTENT EXECUTED BEFORE THE BAN AND SUBSEQUENTLY CANCELLED ON IMPOSI TION OF BAN ARE FURNISHED IN A STATEMENT ANNEXED TO IN ASSESSEES PAPER BOOK. LD. COUNSEL FOR THE ASSESSEE MADE A STATEMENT AT BAR THAT THE EXPORT ORDERS WERE DULY S UBMITTED BEFORE THE ASSESSING OFFICER BUT HE ARBITRARILY IGNORED THE SAME. ACCORDING TO L D. COUNSEL FOR THE ASSESSEE THE AO AS WELL AS CIT(A), BOTH WITHOUT GOING INTO THE FACTS O F THE CASE DISALLOWED THE CLAIM OF HEDGING LOSS TREATING THE SAME AS SPECULATION L OSS. 7. ON THE OTHER HAND LD. SR DR ARGUED THAT THE ASSE SSEE WAS UNABLE TO PROVE WITH EVIDENCE THAT BOOKING OF FORWARD CONTRACTS WERE HED GING AGAINST EXPORT SALES. ACCORDING TO HIM, ASSESSEE WAS REQUIRED TO PROVE THE EXISTENC E OF EXPORT SALES AND THAT HE HAD ENTERED INTO THE FORWARD CONTRACTS ONLY FOR SAFEGUARDING TH E LOSS WHICH MIGHT HAVE OCCURRED DUE TO FUTURE PRICE FLUCTUATION IN FOREIGN CURRENCY. BUT H E COULD NOT PROVE THE SAME WITH 7 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 DOCUMENTARY EVIDENCES. HE DREW OUR ATTENTION TO ASS ESSMENT ORDER AND STATED THAT THE COMPLETE FACTS WERE DISCUSSED BY AO AND IT WAS FOUN D THAT THERE WAS NO REASONABLE EQUIVALENCE BETWEEN THE PERIOD OF SUBSISTENCE OF TW O CONTRACTS I.E. FORWARD CONTRACTS AND EXPORT SALES CONTRACTS AND THE AMOUNT INVOLVED IN T HE TWO CONTRACTS. ACCORDING TO HIM, THE CANCELLATION OF NINE FORWARD CONTRACTS IN FOREIGN E XCHANGE AGGREGATING TO 28,00,000 US$ RESULTED IN A LOSS OF RS.2,33,23,750/- BUT THE ASSE SSEE FAILED TO IDENTIFY THE CORRESPONDING EXPORT/SALE CONTRACTS AGAINST WHICH THE ABOVE STATE D NINE FORWARD CONTRACTS WERE BOOKED AND THUS THE ASSESSEE COULD NOT PROVE HIS CLAIM THA T THE TRANSACTIONS WERE HEDGING IN NATURE. IN RESPECT TO THE CLAIM OF HEDGING LOSS FO R REMAINING AMOUNT OF RS.1,45,21,122/- THE ASSESSEE COULD COME FORWARD WITH SOME TRANSACTI ONS BUT THERE WAS NO REASONABLE EQUIVALENCE OF PERIOD AND AMOUNTS BETWEEN THE TWO C ONTRACTS. ACCORDINGLY, THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE LOSS AS SPECUL ATIVE TRANSACTION AS PER THE PROVISIONS OF SECTION 43(5) OF THE ACT AS THE TRANSACTION IN FORW ARD CONTRACT OF FOREIGN EXCHANGE WAS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY. ACCORDI NG TO LD. SR. DR, THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE LOSS CLAIMED BY THE ASSESS EE ON ACCOUNT HEDGING LOSS AS SPECULATION LOSS BY VIRTUE OF PROVISIONS OF SECTION 43(5) OF TH E ACT, EXPLANATION (2) TO SECTION 28 AND SECTION 73 OF THE ACT. ACCORDINGLY, HE URGED THE B ENCH TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE IN HAND. WE HAVE ALSO PERUSED THE CASE RECORDS . WE FIND FROM RECORDS THAT, AGAINST THE EXPORT ORDERS FOR US$ 2,16,08,278, EXPORTS OF US$ 4 1,76,126 WERE MADE DURING THE FINANCIAL YEAR 2007-08 BUT DURING THE FINANCIAL YEA R 2008-09 EXPORTS WORTH ONLY US$ 57,59,208 COULD BE MADE. BUT THE BALANCE EXPORT ORD ERS COULD NOT BE EXECUTED BECAUSE OF WORLD-WIDE SLOWDOWN, GLOBAL RECESSION AND SLUGGISH MARKET CONDITIONS, WHICH IS A MATTER OF PUBLIC RECORD. WE OBSERVED THAT THE INDIAN GOVER NMENT BANNED THE EXPORT OF MAIZE IN JULY, 2008, CONSEQUENTLY, THE PENDING EXPORT ORDERS FOR THE MAIZE COMMODITY HAD TO BE CANCELLED AND NO FURTHER ORDERS COULD BE BOOKED. TH E ASSESSEE HAS PRODUCED THE RELEVANT DETAILS OF THE CANCELLED EXPORT ORDERS (INCLUDING F OR MAIZE), WHICH ARE FURNISHED IN A STATEMENT ANNEXED TO ASSESSEES PAPER BOOK. COPY OF THE CIRCULAR RELATING TO BAN ON EXPORT OF MAIZE IS ANNEXED IN THE ASSESSEES PAPER BOOK. T HE ASSESSEE HAD CONFIRMED ORDERS FOR EXPORT OF MAIZE TO THE TUNE OF US$ 36,62,000. THE A SSESSEE EXPORTED MAIZE OF THE VALUE OF 8 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 US$ 7,57,159 DURING THE FINANCIAL YEAR 2008-09 BEFO RE IMPOSITION OF THE BAN. DUE TO THE SUDDEN BAN BY THE GOVERNMENT OF INDIA ON THE EXPORT OF MAIZE ON JULY 3, 2008 THE ASSESSEE HAD TO CANCEL ALL THE PENDING ORDERS WORTH US$ 29,0 4,841 AND WAS LEFT WITH NO OTHER OPTION BUT TO CANCEL THE FORWARD BOOKING AS WELL. THE DETA ILS OF EXPORT ORDERS FOR MAIZE TO THE EXTENT EXECUTED BEFORE THE BAN AND SUBSEQUENTLY CAN CELLED ON IMPOSITION OF BAN ARE FURNISHED IN A STATEMENT ANNEXED TO IN ASSESSEES P APER BOOK. 9. WE FIND FROM THE ABOVE FACTS THAT THE ENTIRE BAS IS FOR DISALLOWANCE OF LOSS FOR AO WAS ON THE ASSUMPTION AS IF BAN ON EXPORT OF MAIZE WAS THE SOLE REASON FOR CANCELLATION OF THE EXPORT ORDERS. HE LOST SIGHT OF THE FACT THAT T HE ASSESSEE EXPORTED DIVERSE COMMODITIES AND CANCELLATION OF EXPORT ORDERS TOOK PLACE NOT ON LY BECAUSE OF BAN ON EXPORT OF MAIZE BUT ALSO BECAUSE OF GLOBAL RECESSION AND WORLD-WIDE SLO W DOWN. ADMITTEDLY, THE ASSESSEE HAD SHIPPED PART QUANTITIES AGAINST SEVERAL OF THE EXPO RT ORDERS AND THE EXPORTS PROCEEDS WERE CONVERTED AT THE FORWARD CONTRACT RATE. SINCE THE B UYERS DID NOT OPEN THE LETTERS OF CREDIT AND THUS CANCELLED THE BALANCE QUANTITY, THE ASSESS EE HAD NO OTHER ALTERNATIVE BUT TO CANCEL THE FORWARD CONTRACTS TO THE EXTENT UNUTILISED. THE ASSESSEE HAD THE OPTION TO CONVERT THE EXPORT PROCEEDS AT THE RATE STIPULATED IN THE FORWA RD CONTRACT OR ALTERNATIVELY AT THE SPOT MARKET RATE. IN THE LATTER CASE, THE FORWARD CONTRA CT HAD TO BE CANCELLED. AS A PRUDENT BUSINESSMAN, IN RESPECT OF EXPORT PROCEEDS OF US$ 3 1,15,167.41, THE ASSESSEE OPTED FOR CONVERSION AT THE SPOT MARKET RATE INSTEAD OF THE R ATE STIPULATED IN FORWARD CONTRACTS OF THE VALUE OF US$ 28,00,000. THE OPTION EXERCISED BY THE ASSESSEE RESULTED IN HIGHER EXPORT REALISATION TO THE EXTENT OF RS.1,35,1L,357. ADDITI ONALLY, THE ASSESSEE WAS ABLE TO OBTAIN HIGHER EXPORT INCENTIVES BY WAY OF DRAWBACK, OEPB, ETC. WITH REFERENCE TO THE HIGHER EXPORT REALISATION. SUCH FORWARD CONTRACTS FOR US$ 28,00,000 WERE CONSEQUENTLY CANCELLED BUT THE HIGHER EXPORT REALISATION TO THE EXTENT OF RS.1,35,1L,357 AND THE HIGHER EXPORT INCENTIVES WENT TO OFFSET THE LOSS ARISING FROM SUC H CANCELLATION. TO MINIMIZE THE LOSS, THE ASSESSEE TOOK THE SPOT RATES WHICH WERE MORE BENEFI CIAL INSTEAD OF CONVERSION AS PER FORWARD CONTRACT RATES. RELEVANT DETAILS IN THIS BE HALF ARE FURNISHED IN A STATEMENT ANNEXED TO THE PAPER BOOK OF THE ASSESSEE. EVEN, COPIES OF THE RELEVANT EXPORT ORDERS ARE INCLUDED IN THE PAPER BOOK. DUE TO CANCELLATION OF THE FORWARD CONTRACTS PARTIALLY OR FULLY, THE ASSESSEE HAD TO PAY THE DIFFERENCE BETWEEN THE CONTRACT RATE AND THE MARKET RATE TO THE BANK. SUCH PAYMENT WAS A BUSINESS LOSS INCURRED BY THE ASSESSE E IN COURSE OF ITS EXPORT BUSINESS AND IS 9 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 AN ALLOWABLE DEDUCTION. THE ASSESSEE HAD FILED BEFO RE THE AO COPIES OF ALL THE 16 MATERIAL EXPORT ORDERS IN THE FORWARD CONTRACTS RELATING TO WHICH LOSS OF RS.3,78,44,872/- WAS INCURRED IN SUPPORT OF HIS CONTENTION THAT FORWARD CONTRACTS WERE MADE ON THE BASIS OF EXPORT ORDERS IN HAND. THE PURPORTED FINDINGS OF TH E AO THAT THE ASSESSEE HAD NOT SUBMITTED THE EXPORT ORDERS OR THAT FORWARD CONTRAC TS WERE BOOKED WITHOUT HAVING EXPORT ORDERS IN HAND ARE CONTRARY TO THE RECORD. THE ASSE SSEE HAS SINCE OBTAINED FROM THE AO CERTIFIED COPIES OF THE EXPORT ORDERS FILED BY HIM IN COURSE OF THE ASSESSMENT PROCEEDINGS WHICH BEAR OUT THE ASSESSEES CONTENTION. EVEN AO H AS NOT CORRECTLY PREPARED ANNEXURES A AND B TO THE ASSESSMENT ORDER AS HE HAS OMITTED T O INCORPORATE IN THE SAID ANNEXURES THE DETAILS OF THE EXPORT ORDERS IN RESPECT OF WHICH TH E FORWARD CONTRACTS WERE BOOKED. AS SUCH, THE BANK IN ITS RESPONSE TO THE AO, STATED TH AT THE FORWARD CONTRACTS WERE BOOKED BASED ON PAST PERFORMANCE BUT SIMPLY BECAUSE THE AS SESSEE DID NOT SUBMIT COPIES OF THE EXPORT ORDERS TO THE BAN DOES NOT MEAN THAT THE ASS ESSEE DID NOT IN FACT HAVE THE EXPORT ORDERS IN HAND. AS AGAINST EXPORT ORDERS OF US$ 2,1 6,08,278, THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS ONLY FOR US$ 1,00,70,000. DUE TO MARKET CONDITIONS, SUCH FORWARD CONTRACTS COULD BE UTILISED ONLY TO THE EXTENT OF U S$ 53,32,334.34 AND THE REMAINING CONTRACTS FOR US$ 47,37,665.66 HAD TO BE CANCELLED. WE FURTHER OBSERVED THAT THE FINDINGS OF THE AO THAT THE ASSESSEE DEALT IN FORWARD CONTRA CTS OR THAT IT WAS AN INDEPENDENT BUSINESS ARE WITHOUT ANY BASIS. INDISPUTABLY, THE A SSESSEE IS IN EXPORT BUSINESS. THE BOOKING OF FORWARD CONTRACTS IN FOREIGN EXCHANGE IS A NORMAL AND NECESSARY INCIDENT OF THE EXPORT BUSINESS. THIS POSITION IS ALSO BORNE OUT FR OM THE RBI CIRCULAR. THE FORWARD CONTRACTS WERE BOOKED TO HEDGE THE ASSESSEES EXPOS URE TO EXCHANGE RISK IN HIS EXPORT BUSINESS AS PERMITTED BY THE RBI. THE LOSS ARISING TO THE ASSESSEE UPON CANCELLATION OF THE FORWARD CONTRACTS WAS REFERABLE TO AND RELATED TO T HE ASSESSEE'S EXPORT BUSINESS AND AROSE OUT OF THE EXPORT BUSINESS. THE BOOKING OF FORWARD CONTRACTS WAS NOT THE ASSESSEES BUSINESS. IT WAS NOT PERMISSIBLE FOR THE ASSESSEE T O CARRY ON ANY BUSINESS IN FORWARD CONTRACTS IN FOREIGN EXCHANGE. THE AO ALSO ADMITTED THAT THE FORWARD CONTRACTS WERE MADE BY THE ASSESSEE IN ACCORDANCE WITH RBI GUIDELINES. THE AO AND CIT(A) WERE WHOLLY UNJUSTIFIED IN TREATING THE BUSINESS LOSS AS SPECUL ATIVE IN NATURE. 10. THIS ISSUE IS NOW COVERED BY THE JUDGMENT OF TH E HON'BLE CALCUTTA HIGH COURT IN CIT V SOORAJMULL NAGARMULL, (1981) 129 ITR 169 (CAL ), WHEREIN THE ASSESSEE WAS A FIRM 10 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF JUT E AND IN COURSE OF BUSINESS, THE ASSESSEE WOULD ENTER INTO FORWARD CONTRACT IN FOREIGN EXCHAN GE IN ORDER TO COVER THE LOSS WHICH MAY ARISE DUE TO DIFFERENCE IN FOREIGN EXCHANGE VALUATI ON. IN ONE SUCH CONTRACT, THE ASSESSEE HAD TO PAY TO THE BANK DIFFERENCE OF RS.80,491/- WH ICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOW ED THE CLAIM. THE HONBLE HIGH COURT HELD THAT THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE AND THE FOREIGN EXCHANGES WERE ONLY INCIDENTAL TO THE ASSESSEE'S REGULAR COURSE OF BUSINESS AND THE LOSS WAS THUS NOT A SPECULATIVE LOSS BUT INCIDENTAL TO THE ASSESSEE'S B USINESS AND ALLOWABLE AS SUCH. FACTS IN THE PRESENT CASE ARE VERY SIMILAR. ADMITTEDLY, THE ASSE SSEE IS NOT A DEALER IN FOREIGN EXCHANGE. FOR THE PURPOSE OF HEDGING THE LOSS DUE TO FLUCTUAT ION IN FOREIGN EXCHANGE WHILE IMPLEMENTING THE EXPORT CONTRACTS, THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACT WITH THE BANKS. IN SOME CASES, THE EXPORT COULD NOT BE EXECU TED AND THE ASSESSEE HAD TO PAY CERTAIN CHARGES TO THE BANK AND THEREBY INCURRED CERTAIN EX PENSES. THESE EXPENSES THE ASSESSEE CLAIMED BY WAY OF EXPENDITURE TOWARDS BUSINESS. ACC ORDINGLY, HONBLE HIGH COURT HELD THAT THE TRANSACTION CAN BE STATED TO BE IN SPECULA TION AS TO COVER UNDER SUB-SECTION (5) OF SECTION 43 OF THE ACT. 11. FURTHER, THIS ISSUE IS ALSO COVERED BY THE JUDG MENT OF HON'BLE BOMBAY HIGH COURT IN CIT V BADRIDAS GAURIDU (P) LTD., (2003) 261 JTR 256 (BOM), WHEREIN, THE JUDGMENT OF THE HON'BLE CALCUTTA HIGH COURT WAS FOLLOWED. TO QU OTE FROM THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT (AT PAGES 257-8 OF 261 HR) : 'THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WAS AN EXPORT HOUSE. THEREF ORE, FOREIGN EXCHANGE CONTRACTS WERE BOOKED ONLY AS INCIDENTAL TO THE ASSESSEE'S R EGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL FINDING TO THI S EFFECT IN ITS ORDER. THE ASSESSING OFFICER HAS NOT CONSIDERED THESE FACTS. UNDER SECT ION 43(5) OF THE INCOME-TAX ACT, 'SPECULATIVE TRANSACTION' 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 A BOVE, THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXP ORTER OF COTTON. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXC HANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR EXPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESS EE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF RS. 13.50 LAKHS AS A BUSINE SS LOSS. THIS MATTER IS SQUARELY COVERED BY THE JUDGMENT OF THE CALCUTTA HIGH COURT WITH WHICH WE AGREE, IN THE CASE OF CIT VS. SOORAJ MULL NAGARMULL (1981) 129 ITR 169. 12. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW WHEN THE ASSESSEE IS NOT A DEALER IN FOREIGN EXCHANGE BU T AN EXPORTER OF COMMODITIES AND 11 ITA NO.901/K/2013 JAYANT KR. BHURA AY 2000-10 ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS WITH BA NKS IN RESPECT OF FOREIGN EXCHANGE BUT SOME OF THESE CONTRACTS COULD NOT BE HONOURED BY TH E ASSESSEE FOR WHICH IT HAS TO PAY AND WHICH WAS DEBITED TO THE P&L ACCOUNT AND CLAIMED TH E SAME AS BUSINESS LOSS/HEDGING LOSS. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSESS EE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK BUT THE EXPORT CONTRAC T ENTERED INTO BY THE ASSESSEE FOR EXPORT OF COMMODITIES IN SOME CASES FAILED, THE ASS ESSEE IS ENTITLED TO CLAIM FOR DEDUCTION OF LOSS AS A BUSINESS LOSS. ACCORDINGLY, RESPECTFU LLY FOLLOWING HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SOORAJMULL NAGARMULL, SUPRA, W E ALLOW THE CLAIM OF THE ASSESSEE. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. 14. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.10. 2015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29TH OCTOBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT SHRI JAYANT KR. BHURA, PROP. NAVJYOT IN TERNATIONAL, 307, BALARAM BUILDING, BANDRA KURLA COMPLEX, MUMBAI-4000 51.. 2 RESPONDENT ITO, WARD-35(2), KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .