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2020 (2) TMI 144 - AT - Income TaxExpenses on account of fluctuation in exchange rates - AO disallowed expenses by observing that the said sum was spent on the premium for the forex cover and such hedging expenses are not allowable - HELD THAT:- As per proviso (a) to sub-section 5 of section 43 of the Act, the legitimate contract entered to guard against the loss that may arise through future price fluctuations cannot be treated as speculative transactions and are to be treated as regular business expense. Since the bankers act as an advisory agent to the assessee in order to protect them from foreign exchange exposure by using their expertise and these services cannot be obtained by the assessee in the stock exchange where their scope of service is very limited, the Tribunal has consistently allowing the transactions carried out through recognized bank. In the present case, it is also not clear from the orders of authorities below as to whether the assessee has transacted through recognized bank or not. However, no details such as, number of contracts, nature of the contract, details of forward contract entered into, banker details, currency details, another party willing to take a reverse position, which is a pre-requisite of a forward contract, etc. are brought on record while making the disallowance by the Assessing Officer or any relevant detail exists in the appellate order while the ld. CIT(A) held that the disallowance is liable to be deleted. Accordingly, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to pass detailed speaking order by giving all details and valid reason for treating the hedging expenses as a non-allowable expense by affording an opportunity of being heard to the assessee. Appeal filed by the Revenue is allowed for statistical purposes.
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