9911796707
TMI Blog2015 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ,41,07,623, arising from the derivative transactions, treating the same as speculative in nature. 2. The assessee in the present case is a company, which is engaged in the business of manufacturing and trading of household furnishings. The return of income for the year under consideration was filed by it on 20.8.2010, declaring a total income of Rs. 3,73,47,310. In the said return, a loss of Rs. 1,41,07,623 arising from the transactions in derivatives resorted to by the assessee was claimed as a business loss. According to the assessee company, it had availed interest rate swaps and derivatives and these transactions had resulted in loss during the year under consideration, which was claimed as a business loss, being incidental to the carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider whether the said transactions were in the nature of speculative transactions as per the provisions of S.43(5) of the Act, and held that the following conditions stipulated in S.43(5) in order to consider the transactions to be not in the nature of speculative transactions, were not fulfilled in the case of the assessee (a) The interest swaps or currency options are not agreements for any commodity/scrips/stock/shares. It is in respect of currency which is not a commodity/stock or share or any scrip of any kind. (b) There is no actual delivery of the currency. What is settled is only difference in purchase and sale rates. (c) The transactions are as defined by the RBI Guidelines (Master Circular of RBI), as stated earlier. (d) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in derivatives has been specifically excluded from the purview of this definition w.e.f. 1.4.2006. However, proviso (d) of sec.43(5) read with the Explanation simultaneously circumscribes what can be considered as derivative transaction exempt from the definition of a speculative transaction. An interest rate swap is, obviously, not one such transaction. As discussed by the Assessing Officer in her order, it does not satisfy any of the conditions laid down in the Explanation to sec.43(5) of an 'eligible transaction'. It cannot therefore, be said to enjoy the immunity claimed by the appellant. Under the circumstances and in view of this legal position, the decision of the Assessing Officer is upheld and the third and fourth grounds of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons was wrongly treated by the authorities below as of speculative nature, without appreciating the exact nature of the relevant derivative transactions. In support of these contentions, he relied on the following decisions of the Tribunal- (a) Leo Edibles & Fats V/s. DCIT (ITA No.396/Hyd/2012 for assessment year 2008-09 dated 31.5.2013) (b) DCIT V/s. Climate System Pvt. Ltd. New Delhi (ITA No.5243/Del/2010 dated 21.2.2014) (c) Reliance Industries V/s. Department (ITA No.7223/Mum/2011 for assessment year 2008-09 dated 20.11.2013) 7. The learned counsel for the assessee also submitted that similar transactions had resulted in profit in the immediately preceding year, i.e. assessment year 2008-09, and the said profit duly offered to tax b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest risk exposure for those having long term foreign currency borrowings or to transform long-term INR borrowings into foreign currency borrowings. It is also further supported by the terms and conditions agreed between the assessee and the concerned bank, viz. Axis Bank, while entering into the relevant derivative transactions, and the same, as given in the relevant documents, placed at pages 13 and 14 of the paperbook, are as under- "a) If the Counter Party is an entity other than a Bank or Primary dealer, then the Counter party represents and warrants as follows i) The Counter Party is entering into this transaction solely for the purpose of hedging its foreign currency Balance Sheet exposure. ii) The size and tenor of this Transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanating from the relevant documents as well as the orders of the authorities below, we are of the view that the matter should go back to the file of the Assessing Officer for deciding the same afresh, after properly appreciating and ascertaining the exact nature of the relevant derivative transactions. Accordingly, we set aside the impugned orders of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh in accordance with law, after giving proper and sufficient opportunity of being heard to the assessee. The Assessing Officer is also directed to consider the decisions of this Tribunal cited by the learned counsel for the assessee and also the argument of the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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