TaxTMI 
TaxTMI 
2015 (3) TMI 4
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....ccount of assessee's claim for loss of R.1,41,07,623, 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....
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....d by her, the Assessing Officer proceeded to consider 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 ....
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....modity concerned are defined to be speculative transactions. Trading 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 A....
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.... speculative transactions and the loss arising from the said transactions 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....
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....rpose of the relevant derivative transactions was to hedge exchange rate and/or interest 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 hedgin....