Case Law Details
Brief of the Case
ITAT Kolkata held In the case of Shri Jayant Kr. Bhura vs. ITO that the loss arising to the assessee upon cancellation of the forward contracts was referable to and related to the assessee’s export business and arose out of the export business. The booking of forward contracts was not the assessee’s business. In the given case, the assessee in order to hedge against losses had booked foreign exchange in the forward market with the bank but the export contract entered into by the assessee for export of commodities in some cases failed, the assessee is entitled to claim for deduction of loss as a business loss.
facts of the Case
The assessee an individual 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 assessee entered into forward contract in foreign exchange in order to hedge his loss on account of fluctuations in foreign exchange rates. In the course of export business assessee claimed to have incurred total loss of Rs.3,87,50,017/- consisting of Rs.3,78,44,872/- 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 export house recognized by Ministry of Commerce & Industries, Govt. of India. He also explained that forward contract in foreign exchange were entered into by the assessee through authorized bank following the procedures prescribed by RBI. According to assessee, 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 business loss being eligible for set off with other business income. But the AO rejected the claim of the assessee and treated the hedging loss as speculation loss.
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