Tribunal rules forex losses non-speculative, upholds CIT(A) decision.

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,92,50,300/- on account of disallowance of loss on foreign currency exchange, ruling that the losses were not speculative as per section 43(5). The Tribunal dismissed the revenue's appeal, emphasizing the genuine business nature of the transactions and the direct nexus between the forward contracts and the export business. The decision in favor of the assessee was pronounced on 13th May 2019.

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Issues:
1. Deletion of addition of Rs. 1,92,50,300/- on account of disallowance of loss on foreign currency exchange treated as speculative loss.
2. Addition of Rs. 59,839/- disallowed as deduction of other income.

Analysis:

Issue 1:
The appeal was filed by the revenue against the order dated 15.7.2015, challenging the deletion of the addition of Rs. 1,92,50,300/- on account of disallowance of loss on foreign currency exchange treated as speculative loss. The Assessing Officer (AO) noted that the assessee claimed this amount on account of forward contracts in US Dollar-Rupee to hedge export receivables in USD. The AO considered the transaction speculative under section 43(5) as it involved buying and selling US Dollars without physical delivery. The assessee contended that the losses were directly incidental to its business operations and were not speculative in nature. The Commissioner of Income Tax (Appeals) deleted the disallowance after considering the facts, confirming the genuine business nature of the transactions and the historical data supporting the forward contracts. The Tribunal upheld the CIT(A)'s decision, emphasizing the direct nexus between the forward contracts and the export business, ruling that the losses were not speculative as per section 43(5).

Issue 2:
The second issue pertained to the addition of Rs. 59,839/- disallowed as deduction of other income. The Tribunal did not provide a detailed analysis of this issue in the judgment, as it primarily focused on the first issue regarding the disallowance of loss on foreign currency exchange. Therefore, the decision on this matter was not explicitly discussed in the judgment.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision regarding the disallowance of the loss on foreign currency exchange. The judgment highlighted the genuine business nature of the transactions, the direct connection between the forward contracts and the export business, and the non-speculative nature of the losses incurred. The decision was pronounced on 13th May, 2019, in favor of the assessee.

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