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2015 (8) TMI 366 - AT - Income TaxLoss incurred on account of forex derivative contracts - treated as speculative loss and thereby not allowing the assessee to set off the losses against its business income - Held that:- The assessee is an exporter of garments who has entered into forex derivative transactions through its bankers with a view to effectively hedge its foreign currency risk. Therefore, these forex derivative transactions have a close proximity or rather incidental to the export business of the assessee, which cannot be considered as speculative. Moreover in the case of the assessee foreign currency contracts cannot be treated as wagering contracts for the reasons discussed herein above. Section-43(5) of the Act is applicable to transactions in commodity or stocks and shares. If currency is treated as commodity, then according to Section 43(5) (a) of the Act, such transaction shall not be deemed to be speculative transaction. Further currency cannot be treated as stock or shares because inherently they have different characteristic. Further, in the case of the assessees, the foreign exchange exposure for the “relevant period” specified by “R.B.I” regulations is quiet substantial in order to justify the forex derivative transactions made by the assessee through Government recognized channel, otherwise the RBI would not have entertained these transactions and would have restrained the banks from entering into such transaction with its clients. Thus we direct the Revenue to set off of the losses incurred by the assessee on account of forex derivatives contracts against the business income of the assessee.- Decided in favour of assessee. Disallowance of the notional loss due to foreign currency fluctuation on the loan obtained for acquiring capital assets - Revenue has allowed to capitalize the actual loss resulting from repayment of loan during the relevant previous year and given the benefit of depreciation - Held that:- On reading Section 43A of the Act, it is abundantly clear that where the assessee has acquired an asset in any previous year from a country outside India for the purpose of his business or profession, any loss or gain arising out of the foreign currency fluctuation during any previous year after the acquisition of such asset shall be added or deducted from the actual cost of the asset on actual payment or repayment of foreign currency loan. In the case of the assessee, the actual loss on repayment of loan is ₹ 1,36,00,000/- and the Revenue has accordingly allowed the assessee to capitalize this amount and claim depreciation. Therefore, we do not find any infirmity in the order of the Ld. CIT (A). - Decided against assessee.
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