THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S M G M EXPORTS

Revenue   herein   is   in   appeal   against   the judgment   of   the   Income   Tax   Appellate   Tribunal raising following question for our consideration: “Whether the Appellate Tribunal is right in law in deleting the addition made by the AO on   account   of   treating   the   loss   from speculation   business   as   against   claimed   by the assessee as hedging loss?”

Learned counsel for the Revenue pointed out that similar issue was considered by this Court in case of this very assessee for earlier years in Tax Appeal No. 309 of 2018, in which following observations were made: C/TAXAP/508/2018 ORDER “The first issue pertains to the decision of the Tribunal treating the loss suffered by the assessee   in   connection   with   the   hedging contract   as   a   business   loss   rejecting   the Assessing   Officer's   contention   that   the   same being speculative in nature was not  allowable deduction.

From   the   documents   on   record   we   notice that the respondent­assessee is engaged in the under:

Before   the   Calcutta   High   Court,   the assessee was a firm engaged in the business of import   and   export   of   jute.   In   course   of business, the assessee would enter into forward contract in foreign exchange in order to cover the loss which may arise due to difference in foreign   exchange   valuation.   In   one   such contract, the assessee had to pay to the Bank difference of Rs.80,491/­ which was claimed by the   assessee   as   revenue   expenditure.   The C/TAXAP/508/2018 ORDER Assessing   Officer   disallowed   the   claim.   The 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   business   and allowable as such. Facts in the present case are very similar. Admittedly, the assessee is not   a   dealer   in   foreign   exchange.   For   the purpose of hedging the loss due to fluctuation 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   executed   and   the assessee had to pay certain charges to the Bank and   thereby   incurred   certain   expenses.   These expenses   the   assessee   claimed   by   way   of expenditure   towards   business.   We   do   not   find that   the   transaction   can   be   stated   to   be   in speculation as to cover under sub­section (5) of section 43 of the Act. “”

In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) pradhyuman