TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 590
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.... allowing the losses on Forward Foreign Exchange Contract and Foreign Exchange Derivative Contract are business loss thereby over viewing 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? 4. Whether on the facts and in the circumstances of the case, the CIT(A) is legally correct by holding that the Forward Foreign Exchange Contract and Foreign Exchange Derivative Contract transactions carried on by the assessee through a Bank and not through a recognized stock exchange are also covered by the proviso (d) to Section 43(5) when the pre-conditions laid by the Explanation to the said proviso is not satisfied to constitute it as an eligible transaction? As is evident, the sole issue that fall for our consideration is to determine the nature of losses on forward foreign exchange contracts and foreign exchange derivative contracts. 2. The Ld. CIT-DR drew our attention to the findings rendered by Ld. AO in the remand report and submitted that requisite details were not furnished by the assessee in support of its claim. The Ld. CIT-DR also submitted that th....
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...., SBI. During the year 2006-07, foreign currency valuation was very much volatile and the sundry debtors relating to exports were exposed to currency fluctuation risk. The assessee selected to book options contracts as per advice of SBI in order to hedge its foreign exchange risk. These forward contracts were designed to help / protect companies from adverse market movements by allowing them to lock-in an exchange rate in advance for future transactions. The company obtained permission from its authorized dealer to book forward contract against adverse currency movement. The booking of forward contract for hedging against currency movement was permissible one and the same was part of business transactions for securing assets against fluctuation in foreign exchange rate. The assessee also submitted that out of total turnover Rs. 42.49 Crores, export turnover was Rs. 42.11 Crores and export receivables were Rs. 4.95 Crores. 4.2 Based on future estimates, the assessee undertook forward contract in US dollars to hedge foreign currency risk. The assessee also submitted that it was not able to procure export orders on account of flood and natural calamities and increase of currency valu....
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....n during the course of the ordinary business of the company can be considered as business by itself bring it into the ambit of section 73(1) of the Act. Section 73(1) of the Act restricts the set off of speculation loss against the other business income in only those cases were speculative transaction carried on by the company. The assessee also relied on various judicial decisions to support the submissions. 4.3 The assessee's submission were subjected to remand proceedings vide AO's remand report dated 24.04.2017. The Ld. AO considering the representation made by the assessee, noted that the assessee entered into hedging transactions to safeguard against currency fluctuations. However, rupee had depreciated against dollar and euro currencies and assessee had chosen to cancel the contracts prior to the due date. The assessee contended that these transactions were not speculative as per proviso (a) to section 43(5) of the Income-tax Act, 1961. The assessee furnished a certificate from the bank showing debits in his account, printouts of e-mails (genuineness of which is not verifiable), export invoices, shipping bills, copies of exchange contracts with the bank, copy of its ISDA m....
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....rward contract and derivative contract as hedging against any foreign exchange fluctuation to fulfill its commitments of exports. However, the said proviso provides that a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. The assessee's case would not be at all covered by the said proviso as per the decision of Mumbai Tribunal in Vinodkumar Diamonds Pvt. Ltd. (ITA No.506/Mum/2013) wherein it was held that in order that forward transactions in commodities may fall within proviso (a) to section 43(5) of the Act, it would be necessary that the raw materials or merchandise in respect of which the forward transactions have been made by the assessee must have a direct connection with the goods manufactured or the merchandise sold by him. Such direct connection was missing in the assessee's case. The Ld. AO also considered Board's Instruction No.3/2010 dated 23.03.2010 on implications of forward foreign exchange contracts. As per the acce....
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....ss of Rs. 945.43 Lacs. However, it appears that the assessee the assessee bifurcated losses into two parts i.e., a sum of Rs. 409.46 was debited in the Profit & Loss account whereas the remaining amount of Rs. 535.96 Lacs was claimed in the memo of adjustment. This fact would show that the nature of contracts is different and the loss has arisen out of two different set of transactions, the details of which are not available on record. 6. It is the finding of Ld. AO in the assessment order that the assessee did not submit proper evidences to prove that loss was not speculative in nature and it was concluded that the loss was nothing but notional loss on account of foreign contracts / derivative transaction. 7. During appellate proceedings, it is the submission of the assessee that going by the experience of earlier years, it was advised by its bankers to book options contracts in order to hedge its foreign exchange risk which would protect the assessee from adverse currency movements by allowing them to lock-in an exchange rate in advance for future transactions. Based on future estimates, the assessee undertook forward contract in US dollars to hedge foreign currency risk. Howev....