Court :Bangalore bench of the Income-tax Appellate Tribunal
Citation : ACIT Vs. K. Mohan & Co.(Exports) (P.) Ltd [2010] 130 TTJ 719 (Bang)
Brief :Bangalore bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT v. K. Mohan & Co.(Exports) (P.) Ltd [2010] 130 TTJ 719 (Bang) held that that profits earned from forward contracts cannot be included in the profits of the business of the undertaking for the purpose of computing deduction under Section 10B of the Income-tax Act, 1961(the Act) .
Further the Tribunal held that the deduction permissible under the provisions of the Act is in respect of “profit of the business of the undertaking”. The profit earned from forward contract is to be assessed as ‘Speculation business’ which is not the business of the undertaking.
Facts of the case
· The taxpayer, a 100 percent export oriented undertaking, was claiming deduction of profits as per section 10B of the Act.
- · The taxpayer, in order to protect the export sales from the exchange fluctuation, entered into forward contracts at an agreed rate for the export bills to be received. Further, the taxpayer claimed deduction under section 10B of the Act in respect of income earned from forward contracts.
- · The AO concluded that the taxpayer had indulged in hedging foreign currency risk and the transaction was ‘financial transaction’.
The AO therefore held that profit attributable to the forward contract was not profit derived from export and therefore not eligible for deduction under section 10B of the Act.
Taxpayer’s contentions
