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| The Tax Publishers2022 TaxPub(DT) 1261 (Chen-Trib) : (2022) 194 ITD 0238 INCOME TAX ACT, 1961
Section 43(5)
Where assessee being an exporter of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same was treated as Revenue expenditure or business loss and loss incurred by assessee on account of fluctuation in foreign currency, was in nature of business loss, but not speculative loss, which was covered under section 43(5), hence, the appeal filed by the Revenue was dismissed.
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Speculative business - Business loss or Speculative loss - FOREX loss incurred by the assessee on account of derivative transactions -
For the year 2007, the assessee had entered into sale agreements with two or three of Japanese Companies to supply different quantities of monument granite blocks through their Chinese Intermediaries during the ensuing three-year period. Assessee had entered into hedging contract with Bank to hedge the foreign currency risk to minimize the loss for USD at Japanese end. Assessee claimed foreign exchange fluctuation loss. AO on the basis of details filed by the assessee and also an analysis of provisions of section 43(5) opined that loss incurred by the assessee on account of fluctuation in foreign currency, was in the nature of speculative transaction and consequent loss was to be treated as speculative loss. Claim of assessee did not come under the proviso (d) to section 43(5) because, said proviso does not give blanket exclusion to all derivative contracts, but only to such contracts that are treated in the recognized Stock Exchange. Held: Assessee achieved an export turnover which was much more than the amount of derivative contracts entered into by the assessee with Bank. Assessee being an exporter of goods had huge receivables from customers entered into a hedging contract with its bankers to minimize the possible fluctuation in foreign currency, which resulted in loss and the same has been treated as Revenue expenditure or business loss. CIT(A) had rightly held that loss incurred by the assessee on account of fluctuation in foreign currency, was in the nature of business loss, but not speculative loss, which was covered under section 43(5). Revenue failed to bring on record further evidences to prove the findings of facts recorded by CIT(A) was incorrect. Hence, the appeal filed by the Revenue was dismissed.
Followed:CIT v. M/s. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC), CIT v. V.S. Dempo & Co. (P) Ltd. (1994) 206 ITR 291 (Bombay) : 1994 TaxPub(DT) 0442 (Bom-HC)
REFERRED :
FAVOUR : In assessee's favour
A.Y. :
IN THE ITAT, CHENNAI BENCH
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