DCIT Vs Religare Comtrade Ltd (ITAT Delhi)
ITAT Delhi held that loss incurred on account of trading in gold derivatives being hedging transaction and was excluded from the definition of speculative transaction in terms of section 43(5)(a) of the Income Tax Act. Accordingly, appeal of revenue dismissed.
Facts- The assessee company is engaged in the business of trading in gold, silver, bullion, precious and semi-precious metals. During the impugned year, the assessee had claimed deduction of Rs.27.84 crores on account of arbitrage and hedging. AO treated the same as speculative loss, rejecting the assessee’s contention that it was primarily a hedging transaction to guard against loss through future price fluctuation in respect of his contracts for actual delivery of goods as per the exclusion to the definition of speculative transaction in proviso (a) to section 43(5) of the Act.
CIT(A), however, found merit in the contention of the assessee and held that the loss incurred was on account of hedging and was excluded, therefore, from the definition of speculative transaction in terms of Section 43(5)(a) of the Act. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that we find no infirmity in the order of the Ld.CIT(A). The judicial decisions cited by the Ld.Counsel for the assessee read alongwith the CBDT Circular No.23D of 12-09-1960, clearly bring out the position of law that hedging of purchases is also included in the exception carved to speculative transactions in proviso (a) to section 43(5) of the Act. The Revenue does not dispute the fact that the derivative transactions entered into by the assessee were genuine hedging transactions. Ld.CIT(A) has recorded the fact of the hedging transactions undertaken by the assessee not exceeding its total stock of raw material or merchandise, which has remained uncontroverted before us. The interpretation by the AO of the proviso (a) to section 43(5) of the Act as not excluding hedging of purchase transactions from being treated as speculative, we agree with the ld.CIT(A), is incorrect.
