Exporter's forward foreign-exchange contract losses of Rs. 13.50 lakhs allowed as deductible business loss linked to exports

HC held that the assessee, an exporter of cotton and not a dealer in foreign exchange, had validly entered into forward foreign-exchange contracts with banks to hedge against exchange risk; when some export contracts failed, resulting losses on those forward contracts totaling Rs. 13.50 lakhs were properly relatable to the assessee's business operations. The HC allowed deduction of Rs. 13.50 lakhs as a business loss.

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The High Court of Bombay upheld the Tribunal's decision in favor of an assessee-company, allowing deduction of Rs. 13.50 lakhs as a business loss for failed foreign exchange contracts related to export orders of cotton. The court found that the contracts were incidental to the assessee's regular business and not speculative transactions. The appeal by the Department was dismissed. (Case citation: 2003 (1) TMI 61 - BOMBAY High Court)

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