TaxTMI 
TaxTMI 
2020 (10) TMI 100
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....ort, the Tribunal) in ITA.No.131/Chny/2016 for the assessment year 2009-10. 2. The Revenue has filed this appeal by raising the following substantial questions of law: "1. Whether the Appellate Tribunal is justified in law in holding that the loss on derivative transactions is business loss thereby overviewing the fact that when no actual delivery has taken place, the transactions in question fall within the definition of speculative transaction as per Section 43(5) of the Income Tax Act ? 2. Whether the Tribunal is justified in law in holding that the forex derivative transactions carried on by the assessee through a banker as Over the Counter Transactions and not through a recognized stock exchange are also covered by....
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....he Assessing Officer disallowed the business loss and treated it as a speculative loss. 5. The Assessing Officer came to such a conclusion on the ground that the assessee had taken the derivative on USD/CHF combination when the assessee had no transaction in Swiss Franc; that the contract was for non deliverable derivative specifically cross country call option contract; that though, under Section 43(5) of the Act, commodities included stock, shares and non deliverable forex derivatives also, only when transacted through a recognized Stock Exchange, it could be counted for non speculative income as per Section 43(5)(d) of the Act; and that the assessee had not actually delivered the currency to banks. The Assessing Officer, after referri....
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....pital in nature, even the derivative transaction would also be capital in nature. Therefore, the Tribunal further held that it needed to be examined as to whether the foreign exchange forward contract was undertaken in respect of capital items or revenue items. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. Vs. CIT [reported in (1979) 116 ITR 1] and held that in view of the legal position laid down in that decision, foreign exchange derivative loss in respect of capital items was certainly a capital expenditure and could not be allowed as loss whereas in respect of revenue items, it could be allowed as revenue loss. 9. The Tribunal further held that the Assessing Officer had....
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....mull and pointed out that under Section 43(5) of the Act, 'speculative transaction' has been defined to mean a transaction, in which, a contract for the purchase or sale of commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated, the assessee herein was not a dealer in foreign exchange, but was an exporter of cotton. Therefore, the Tribunal rightly took note of the transaction done by the assessee though, in order to hedge against the losses, the assessee booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for the export of cotton in some cases failed and therefore, the assessee was held to be entitled to claim de....