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2013 (8) TMI 35 - AT - Income TaxLoss from foreign exchange transaction in the forward market - speculative loss v/s business loss - Held that:- As in the present case assessee is not a dealer in foreign exchange & is engaged in the business of edible oils. In the course of import of vegetable oil from foreign supplier, the company entered into a contract. If the assessee in accordance with the proposed purchase booked a foreign currency forward contract with its banker in order to safeguard the company's interest from loss on account of foreign exchange fluctuation that contract cannot fall under the purview of Section 43(5) as per which speculative transaction means a transaction in which a contract for the purchase or sale of commodity settled otherwise thereby actual delivery or transfer of such commodity. If an assessee in order to hedge against the exchange fluctuation losses had booked foreign exchange transaction in the forward market with the Bank and incurred any loss, that loss cannot be considered as speculative loss and it is a business loss. As decided in CIT vs. Badridas Gauridu Pvt. Ltd. (2003 (1) TMI 61 - BOMBAY High Court) in order to hedge against the 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. Thus the assessee was entitled to claim deduction in respect of payment made on account of cancellation of forward booking of foreign exchange with banks as a business loss. Also see CIT vs. Soorajmull Nagurmull (1980 (9) TMI 69 - CALCUTTA High Court). Thus AO has to see the forward contract entered by the assessee for covering risk of underlying transaction and such underlying transaction to be segregated and loss on these transactions to be considered as business losses. Loss on other transaction which are not underlying transaction has to be considered as speculative transactions. As assessee has filed a chart showing the details of speculative transaction at ₹ 19,63,702/-. The Assessing Officer is directed to exclude these contracts and decide accordingly - appeal of assessee partly allowed for statistical purposes.
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