CONCEPT IMAGES PVT. LTD. ,KOLKATA vs. DCIT,CIR-7(1),KOLATA. , KOLKATA

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ITA 1201/KOL/2023Status: DisposedITAT Kolkata22 March 2024AY 2012-13Bench: Shri Sanjay Garg, Judicial Member and Rajesh Kumar (Accountant Member)4 pages
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What did the Tribunal hold?

The Tribunal held that hedging transactions entered into by the assessee to safeguard against price fluctuations in its core business of bullion trading are part of normal business and not speculative. Therefore, the loss incurred on such hedging should be allowed as a business loss.

What were the facts?

The assessee, engaged in the business of bullion and gold ornaments, incurred a loss of Rs. 2,06,68,598/- on hedging future contracts to safeguard against price fluctuations. The Assessing Officer disallowed this loss, treating it as speculative, and the CIT(A) confirmed this.

What were the issues?

Whether the loss incurred on hedging future contracts to protect against price fluctuations in the bullion business is a speculative loss or a normal business loss.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 43(5)

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Income Tax Appellate Tribunal, “A” BENCH KOLKATA

Before: Shri Sanjay Garg & Rajesh Kumar

order : March 22, 2024 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 19.10.2023 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).

2.

The sole issue raised in this appeal is as to marked to market loss incurred by the assessee on hedging of the transaction is to be treated as speculative loss or normal business loss.

3.

The brief facts of the case are that the assessee is in business of purchase and sale of bullions and also manufacturers of gold ornaments. Since the price of gold constantly fluctuates, to safeguard itself from loss, if any, due to fluctuation the appellant had entered into future contracts with the suppliers of gold to safeguard against loss Assessment year: 2012-13 Concept Images Pvt. Ltd through future price fluctuations in respect of contracts for actual delivery of goods of manufacture or merchandise sold. During the year, the assessee suffered a loss of Rs.2,06,68,598/- as loss on hedge of such future transaction and debited the same in the P/L A/c as business loss which has been disallowed by the Assessing Officer on the ground that it is not part of the business being carried on.

4.

The ld. CIT(A) confirmed the findings of the Assessing Officer.

5.

The ld. counsel for the assessee has submitted that entering into future contracts of gold is very much a part of appellant's business as the same is in the normal course of business of purchase and sale of bullion and to safeguard itself from loss the appellant hedges in the same gold the result of which might be positive or negative depending upon the market fluctuation and at the end the assessee is guarded against any such unforeseen eventuality. Hence, the disallowance of loss on future transaction by the Assessing Officer is totally wrong and uncalled for.

6.

The ld. DR, on the other hand, has relied upon the findings of the lower authorities.

7.

We have heard the rival contentions. The issue is squarely covered by the various decisions of the Hon’ble High Courts including the decision of the jurisdictional High Court in the case of CIT vs. Soorajmull Nagarmull reported in (1981) 5 Taxman 289 (Kol) and further by Hon’ble Bombay High Court in the case of CIT v. Badridas Gauridu (P.) Ltd. reported in [2004] 134 Taxman 376/[2003] 261 ITR 256 (Bom.) wherein it has been held as under:

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