2013 (8) TMI 1015 - AT - Income Tax

Nature of loss - speculation loss u/s 43(5) v/s non-speculation loss - Held that - The ends of justice would meet adequately if the impugned order is set aside and the matter is restored to the file of A.O. We order accordingly and direct him to decide this issue afresh as per law in the light of the afore-noted Tribunal order. We want to make it clear that the issue is left open to be decided by the Assessing Officer. The applicability of the Tribunal order in the case of Arnav Akshay Mehta 2012 (9) TMI 447 - ITAT MUMBAI should be considered by the Assessing Officer as per law and facts of the instant case. He will also dealt with the assessee s contention on the applicability of proviso (a) to section 43(5) if the case is found to be falling in proviso (d) to section 43(5). Without prejudice ground taken by the assessee about the direction to the Assessing Officer to allow set off of the alleged speculation loss against profit arising to the assessee in similar transaction in subsequent year is clearly not acceptable because firstly we have not upheld the view of the Revenue in treating the loss of Rs. 1.99 crore as speculation and secondly subsequent assessment year is not before us. Disallowance on account of exchange rate fluctuation - Held that - The Hon ble Supreme Court in the case of CIT v. Woodward Governor 2009 (4) TMI 4 - SUPREME COURT has held that loss suffered by the assessee in respect of fluctuation in the rate of foreign exchange as on the date of the balance sheet is an item of expenditure u/s 37(1) in the year of approval. It is relevant to note that apart from claiming deduction for Rs. 62.62 lakh the assessee offered income of Rs. 34.37 lakh in respect of gain on foreign exchange fluctuation with refernce to the rate of purchase and sale transaction entered during the year which has been duly accepted as taxable by the authorities below. In such a situation and respectfully following the precedent rendered by the Hon ble Supreme Court we are of the considered opinion that the assessee deserves deduction of Rs. 62.62 lakh.

Summary

Issues involved:
1. Assessment of loss as speculation loss under section 43(5).
2. Disallowance of foreign exchange fluctuation loss deduction.

Issue 1: Assessment of loss as speculation loss under section 43(5):
The appellant challenged the Assessing Officer's decision to treat a loss of Rs. 1,99,98,637 as speculation loss under section 43(5) instead of non-speculation loss. The Assessing Officer applied proviso (d) to section 43(5) due to transactions not being carried out through a recognized stock exchange until MCX was recognized as such. The Tribunal referred to a previous case where it was held that recognition of the stock exchange after the transactions does not make them speculative. The Tribunal set aside the order and directed the Assessing Officer to reconsider the issue, considering the Tribunal's previous decision and all aspects of clause (d) of section 43(5). The Tribunal also clarified that the applicability of the Tribunal's previous order should be examined, and the direction for set off of loss in a subsequent year was rejected.

Issue 2: Disallowance of foreign exchange fluctuation loss deduction:
The appellant claimed a deduction of Rs. 62,62,090 as foreign exchange fluctuation loss, which the Assessing Officer disallowed as a contingent loss. The Tribunal found that the loss was computed based on the fluctuation in exchange rates, following the Supreme Court's decision that such losses are deductible under section 37(1). The Tribunal noted that the appellant had also offered income on foreign exchange gains, which was accepted as taxable. Therefore, the Tribunal allowed the deduction of Rs. 62,62,090. The Tribunal also clarified discrepancies made by the CIT(A) regarding the nature of the appellant's business and the characterization of the loss as arising from speculative transactions.

In conclusion, the Tribunal partially allowed the appeal, setting aside the assessment of loss as speculation loss under section 43(5 and allowing the deduction for foreign exchange fluctuation loss. The Tribunal's decision was based on legal interpretations, previous judgments, and the correct application of relevant provisions.