Commissioner Of Income-Tax vs Badridas Gauridu (P.) Ltd.
2003 Latest Caselaw 88 Bom

JUDGMENT

S.H. Kapadia, J.

1. The Department has come by way of an appeal against the order of the Tribunal under Section 260A of the Income-tax Act, 1961, in respect of the assessment year 1992-93.

Facts :

2. The assessee-company carried on as business as export house. The assessee-company is an exporter of cotton. On December 30, 1992, the assessee filed its return of income showing an income of Rs. 1,13,100. The assessee had entered into forward contracts with the banks in respect of foreign exchange. Some of these contracts could not be honoured by the assessee for which it had to pay Rs. 13.50 lakhs, which was debited to the profit and loss account. The assessee claimed the same as business loss being payment made on account of cancellation of forward booking of foreign exchange with the banks in respect of export orders. The Assessing Officer disallowed the deduction on the ground that the assessee had short sold the foreign exchange and that the payments made were not in the nature of damages, but they were made to settle the transaction without delivery and, therefore, the said amount of Rs. 13.50 lakhs was a speculation loss, which can only be allowed to be carried forward and set off against speculation profits. Being aggrieved, the assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals). The first appellate authority confirmed the assessment order. Being aggrieved, the assessee carried the matter in appeal to the Tribunal, which took the view that the assessee was an exporter of cotton; that the assessee was an export house; that it had entered into transactions for export of cotton; that the assessee was entitled to book foreign exchange against export orders received by it; that the transaction was done with the permission of the Reserve Bank of India; that such contracts were incidental to the assessee's business of export of cotton and, therefore, they did not represent speculative transactions. Accordingly, the Tribunal allowed the appeal. Being aggrieved, the Department has come by way of appeal to this court.

Findings :

3. The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee's regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under Section 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 above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange 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 assessee was entitled to claim deduction in respect of Rs. 13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court, with which we agree, in the case of CIT v. Soorajmull Nagarmull [1981] 129 ITR 169.

4. In the circumstances, there is no merit in the appeal. The appeal fails and the same is dismissed with no order as to costs.