TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 494
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....nted in foreign exchange. To manage and to minimize the exchange fluctuation loss against export receivables and the loan in foreign currency, the assessee entered into forward/other derivative contracts, with options conferred in favour of the assessee and also in favour of the bank, to settle the contract, upon movement of exchange rate. This facility was arranged purely for management of exchange risk in connection with its business of production and sale of auto castings. With the above objective, the assessee arranged for credit facilities through ICICI Bank limited and obtained the following credit facilty:- (i) Forward contract limit for Rs. 5.0 Million. (ii) Other Derivative limit Rs. 10.0 Million and (iii) Total limit Rs. 15.0 Million. 3.1 During the previous year under review, the assessee incurred net currency loss of Rs. 90,08,639/- as per demand from ICICI Bank in exercise of their option. The currency risk management loss had arisen only with reference to its business of production and sale of auto castings and hence it was a loss in the nature of financial expenditure for working capital. According to the assessee the amount written off as per Profit and Loss Acc....
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....dity including stocks and shares. From this, it was clear that it was an inclusive definition and not an exclusive definition. Further, Section 43(5)(d) excludes trading in derivatives carried out through recognized stock exchange from the ambit of speculative transaction. This clearly excludes derivative trading through stock exchange and conversely there cannot be any exclusion without any earlier inclusion. Unless, it was the intention of the legislature that trading derivative are included in commodity, they would not have specifically excluded trading through stock exchange u/s 43(5)(d) of the Income tax Act. Therefore, it was evident that derivative will form part of commodity mentioned u/s 43(5). The Commissioner of Income Tax (Appeals) placed reliance on the order of Special Bench of Calcutta Tribunal in the case of Shree Capital Services Ltd vs. ACIT (2009) 121 ITD 498, it was clarified that derivatives are commodities for the purpose of Section 43(5)(d). It was also held that where the assessee suffer loss on account of futures and options i.e., a form of derivative in which underlying asset was share, said loss was rightly disallowed by revenue authorities by invoking pr....
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....on record. A similar issue came up for consideration before this Tribunal in the case of M/s. in ITA Nos.1336 & 3072/Mds/2014 for the assessment years 2009-2010 and 2010-2011 vide order dated 24.07.2015, wherein it was held as under:- "6. We have heard both the parties and perused the material on record. In this case, the assessee was engaged in the business of manufacturing and export of hosiery garments. During the course of export, the assessee entered into derivative contract. The assessee incurred loss in this transaction. The assessee claimed it as business loss. According to the Assessing Officer this loss was not business loss and it is a speculative loss and this transaction is speculative in nature as such the loss incurred on this transaction cannot be set off against business income of the assessee. According to the ld. Authorised Representative for assessee, the derivative transaction cannot fall under sec.73. Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meanin....
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....ai in the case M/s. Aishwarya & Co P. Ltd in ITA No.860/Mds/2014, dated 29.05.2015, wherein they followed the judgment of the Calcutta High Court in the case of M/s. Baljit Securities Pvt. Ltd. (88 CCH 313) wherein held as under:- "Clause (d) of Section 43(5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction. Sub-section 1 of Section 73 provides as follows: '(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.' The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words,....