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2022 (2) TMI 527 - ITAT CHENNAITreatment to Forex loss incurred by the assessee on account of derivative transactions as speculative transactions - Whether derivative transactions entered into by the assessee with State Bank of India is not in the ordinary course of business of the assessee who is an exporter of granites and the Export bills or receivables of the assessee cannot be linked to the derivative transactions? - HELD THAT:- We ourselves do not subscribe to the reasons given by the AO for the simple reason that the assessee being an export of goods to Japan Company had entered into hedging transactions with State Bank of India by entering into Forex derivatives to minimize possible loss in fluctuation in USD, because the Japanese Companies agreed to make the payments through their Chinese Intermediaries by USD. Further, during the year under consideration, the assessee achieved an export turnover payments through their Chinese Intermediaries by USD. Further, during the year under consideration, the assessee achieved an export turnover. When the assessee enters into a hedging transaction to minimize the possible loss from fluctuation in foreign currency, then profit or loss arises on account of appreciation or depreciation in the value of foreign currency held by it on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss, if the foreign currency is held by the assessee on Revenue account or as a trading asset or as a part of circulating capital embarked in the business, if the underline asset is more than the amount of forward contracts entered into by the assessee. This legal principle is supported by the decision of the Hon’ble Supreme Court in the case of CIT v. Woodward Governor India Pvt. Ltd. [2009 (4) TMI 4 - SUPREME COURT] wherein, it was held that the loss arising in the process of conversion of foreign currency, which is part of trading asset of the assessee, is a trading loss as any other loss. In this case, the facts available on record clearly shows that the assessee being an export of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. The Ld.CIT(A) after considering the relevant facts has rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, is in the nature of business loss, but not speculative loss, which is covered u/s.43(5) - Decided against revenue.
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